AARPFunds IRA Kit.pdf

Individual Retirement

AccountOpening Kit

Prepare for Retirement

AARP FinancialFocused on investors’ needs first

For nearly half a century, AARP has worked toward improving the quality of life for people over 50. Founded in 2005, AARP Financial extends this historic commitment through a carefully chosen array of banking, insurance and investment solutions, and straightforwardguidance so you can make decisions with confidence.

1

Inside this Guide You’ll Find:

• We Can Help

• Experienced AARP Financial

Investment Counselors

• Preparing for Retirement

• Understanding IRAs

- Traditional IRA

- Roth IRA

- SEP IRA

- Rollover IRA

• AARP Funds Investment

Options

• An Easy Way to Take Action Now

We Can HelpInvestment solutions designed to help you reach your goals

If you’re like most people, investing for your retirement is a means to an end. You don’t want to sort through an endless array of choices. You want to make good investment decisions, but finding the right investment for you can be challenging. That’s where AARP Financialcan help. We support you with a select group of smart, low-cost investment solutions designed to help you reach your goals.

2

Experienced AARP FinancialInvestment Counselors

AARP Financial was established especially with the

needs of investing for retirement in mind. We provide

you with the financial support, knowledge and

confidence you need to help meet your investment

goals. No matter your current life stage, personal

goals, or financial situation, our family of five

professionally managed, low-cost mutual funds

offer a complete choice of investment solutions.

You can also count on getting the guidance you need.

And our experienced AARP Financial Investment

Counselors are there to help. AARP Financial

Investment Counselors are:

• FINRA-Registered representatives, through ALPS

Distributors, Inc., and employed by AARP Financial

Inc. FINRA is the largest non-governmental regulator

for all securities firms doing business in the U.S.

• Salaried, not commissioned, so they can help you

make investment choices

• Knowledgeable about the needs of investors

preparing for or living in retirement

• Can help you determine which AARP Fund or type

of IRA may be right for you

Call us today. Find out more about an AARP Funds Individual Retirement Account by speaking with one of our experienced, knowledgeable Investment Counselors at 1-800-958-6457, Monday–Friday,8:00 a.m.–6:00 p.m. Eastern Time.

3

Preparing for Retirement Helping you meet the challenge of retirement investing

Because you’re reading this brochure, investing for retirement most likely is a top priority. An Individual

Retirement Account (IRA) can be an outstanding tool for many people to help them accumulate the additional

assets they will need in retirement. However, if your employer offers a retirement plan with a company match,

you may want to consider investing in that first, since it allows the easy contribution of pre-tax dollars. For

people who don’t have company-sponsored retirement plans – or even if you’re contributing the maximum to

your employer-sponsored plan – the benefits of tax-deferred* growth potential and fully or partially deductible

contributions, depending upon your level of income, make an IRA a great option.

Planning for Your Retirement Income

Make the most out of your retirement by planning for and evaluating the sources of your retirement income.

According to the Social Security Administration, 39% of your retirement income will come from Social Security

benefits while the rest of your retirement income will need to come from your pension, retirement plans, IRAs

and your own personal savings and investments. Part-time employment income may also make up a portion

of your retirement income stream.

A good way to start planning your

retirement income stream is to get a

clear sense of what you’re spending

today. Take time to sit down and

calculate your current everyday living

expenses and what you are spending

annually on special activities. For

example, what do you pay for food,

heat, home mortgage, maintenance,

insurance, and taxes? Then it’s time to

think about what things you will likely

spend less on during retirement. What

things will cost you more? Will your home

be paid off? Will you have more medical

and dental expenses in retirement? Will you relocate to a warmer climate? Although, you cannot be

certain of all of your future expenses, completing this type of assessment will help you be better prepared

when you sit down and plan your retirement savings strategy.

*AARP Financial Inc. does not provide tax advice. Please consult a tax advisor for information pertaining to your particular situation.

Sources of Retirement Income

•38.6% Social Security

•26.3% Part-time Employment

Earning

•19.7% Pension, Retirement

Plans and IRAs

•12.6% Personal Savings and

Investments

•2.7% Other

Source: Social Security Administration (SSA); Income of theAged Chart Book, 2004

4

The Traditional IRAThe Traditional IRA is a good choice for many investors. It provides tax-deferred growth of earnings, while

possibly allowing a tax deduction of the contribution amount, up to IRS limits, depending on your income.

Tax-deferral is a powerful tool in helping to grow your retirement assets. The example below shows a

hypothetical illustration of the difference that tax-deferred investing can make over time.

You have a chance to “catch up”

IRA regulations allow investors age 50

and over to make catch-up contributions

to their IRAs and other retirement savings

plans. These investors can invest an

additional $1,000. While the amount may

not seem large, when it accumulates over

time and the earnings grow tax deferred,

it has the potential to increase the value

of an account significantly.

This illustration estimates what your

accumulated assets could total if you took

the opportunity to contribute the maximum

allowable IRA contribution for the next

twenty years.

Anyone who wishes to enjoy a more comfortable retirement should consider a tax-advantaged investing vehicle,

such as the Individual Retirement Account (IRA), the Roth IRA or the Rollover IRA. If you’re a small business

owner or self-employed individual with few or no employees, there are small business retirement plan options

that can help you and your employees invest for retirement.

Understanding IRAs

This chart reflects a starting age of 50 and a contribution of $4000for 2006-2007 and $5000 in 2008 and thereafter; and for the catch-up contributions $5000 for 2006-2007, $6000 in 2008 andthereafter adjusted upward by 3% a year (rounded to the nearest$500). Assumes investments are made on January 1 of the relevantyear with an annual return of 6%. Required Minimum Distributionsand the effect of taxes on contributions and withdrawals are notfactored in. Projections provided by AARP Financial.

20 years

Inve

stm

ents

0

50,000

100,000

150,000

200,000

250,000

$300,000 No Catch-up Contributions

With Catch-up Contributions

$276,147

$237,154

5

1To be eligible for a Roth conversion, your modified adjusted gross income must be less than $100,000, whether single or married.

The Roth IRAThe Roth IRA is a plan for investors who prefer to receive tax-free distributions in retirement, rather than taking

a tax deduction at the time they contribute. Earnings can be withdrawn once the Roth IRA has been established

for five years and the account holder is 59½. There are exceptions of up to $10,000 for first-time home purchases

and the account holder’s death or disability.

The Roth IRA provides tax-free growth of assets, as in a Traditional IRA,

as long as the account holder meets certain income limits that are

shown on the following page.

Converting an IRA to a Roth IRA

Once you have established a Traditional or Rollover IRA, you may be

able to convert those IRA assets to a Roth IRA.1 A Roth IRA is similar to

a Traditional IRA, except that taxes are paid upfront and withdrawals

from the account—by you after age 59½ provided that you have held

the account for at least 5 years or your heirs after your death—are free

of taxes. With a Roth IRA conversion, you pay income taxes on the full

taxable amount of the account being converted, in exchange for tax-free

earnings growth for the life of the account. That is, no taxes will be due

on the assets in the account once that initial tax is paid.

The SEP IRAIf you are a small business owner or a self-employed individual with few or no employees and want to maximize

your retirement investing potential, consider an AARP Funds Simplified Employee Pension (SEP) IRA. This plan

is easy to establish and administer. Call an AARP Financial Investment Counselor for details of their features and

instructions on how to establish one. Call 1-800-958-6457, Monday–Friday, 8:00 a.m.–6:00 p.m. Eastern Time.

Rolling Over Your IRA or 401(k)A Rollover IRA allows you to move retirement plan assets from an employer-sponsored plan or existing IRA

into an IRA account. The “direct” rollover process allows you to move your investments and continue to enjoy

tax deferred growth without having to pay any penalty or fees. This option could be beneficial to you, if you:

• Have assets at a previous employer

• Have multiple retirement accounts at several financial services providers and would like to

consolidate them to make it easier to track and manage them.

• Would like to control the potential for continued tax-deferred growth

Important issues when

converting to a Roth IRA

There are some important issues,

such as your gross income

and state laws that need to be

considered before converting to

a Roth IRA. An AARP Financial

Investment Counselor can help

you identify the issues before

converting your Traditional IRA

or Rollover IRA to a Roth IRA.

You should also consult a tax

advisor who is familiar with your

financial circumstances and

knows the law in your state.

6

Traditional IRA Roth IRA

Single filers must have adjusted gross

income below $114,000 in 2007 and

$116,000 in 2008.

Married couples must have adjusted

gross income below $166,000 in 2007

and $169,000 in 2008.

Who Qualifies? Anyone under age 701⁄2 with earned

income can contribute to a Traditional IRA.

There are no minimum required

distributions from a Roth IRA for

the Shareholder.

Minimum annual distributions based on life

expectancy must begin at age 70½

How much can

you invest?

What is the tax

treatment

of the contribution?

Are these required

distributions?

How can you take

money out?

2007: $5,000 if you are age 50 or older by year-

end; $4,000 if you are under age 50 at year-end

2008: $6,000 if you will be age 50 or older by year-

end; $5,000 if you are under age 50 at year-end

Fully deductible if you are:

• A single filer or married filing jointly, with no

active participation in an employer-sponsored plan

• An active participant in an employer-sponsored

plan and meet MAGI thresholds on page 7

Partially deductible if you are:

• An active participant in an employer-sponsored

plan and meet MAGI thresholds on page 7

• An active participant filing jointly with a

non-active participant spouse with family MAGI

between $156,000 and $166,000 in 2007; and

$159,000 – $169,000 in 2008.

Deductible IRA:

• Distributions are taxed as ordinary income

Non-deductible IRA:

• Distributions of earnings are taxed as ordinary

income; distributions of contributions are

considered nontaxable return of capital

Withdrawals may be made penalty-free after age

59½, or before 59½ for the following reasons:

• Higher education costs

• Up to $10,000 for first-time home purchases

• Medical expenses that exceed 7.5% of adjusted

gross income

• Death or disability of account holder

Understanding IRAsIs the Traditional IRA or Roth IRA right for you?

Same as Traditional IRA

Contributions are not tax deductible

Withdrawals are tax and penalty free,

if the account is held for five years and

distributions are made after age 59½

or for:

• Up to $10,000 for first-time home

purchases

• Medical expenses that exceed 7.5%

of adjusted gross income

• Death or disability of account holder

7

Call an AARP Financial Investment Counselor

for details of their features and instructions on

how to establish them. Call 1-800-958-6457,

Monday–Friday, 8:00 a.m.–6:00 p.m. Eastern Time

Traditional IRA Deductibility MAGI** Thresholds

Filing Status Tax Year Full Deduction Partial Deduction No Deduction

Single 2007 < = $52,000 Between $52,000 > = $62,000

and $62,000

Married, Joint 2007 < = $83,000 Between $83,000 > = $103,000

and $103,000

Married, Joint (not active 2007 < = $156,000 Between $156,000 > = $166,000

participant but spouse is) and $166,000

Single 2008 < = $53,000 Between $53,000 > = $63,000

and $63,000

Married, Joint 2008 < = $85,000 Between $85,000 > = $105,000

and $105,000

Married, Joint (not active 2008 < = $159,000 Between $159,000 > = $169,000

participant but spouse is) and $169,000

*Contributions are fully deductible if you are a single filer or married filing jointly, with no active participation in an employer-sponsored plan.

For those who actively participate in an employer-sponsored plan*

**Modified Adjusted Gross Income

Which option is right for you? Consider this option if you...

Transfer your assets to a Rollover IRAA Rollover IRA is the transfer of retirement plan assets

from one eligible account to another. A direct rollover allows

you to make this move without ever taking possession of the

money yourself.

• have assets at a previous employer.

• have multiple Rollover IRAs at various

financial service providers and would like

to consolidate them for planning purposes.

• would like the potential for continued

tax-deferred growth.

Take a withdrawalYou may take a full withdrawal of your investments and use

the money as you would like.

• need emergency cash and pay state and

federal taxes.

• have highly appreciated company stock

in your plan.**

Leave your investments in your previous employer’s planYou may be able to leave your money in your existing plan,

be sure to check your plan documents to determine if this

option is allowed.

• are satisfied with the investments and

options available in this plan.

• have a loan outstanding.*

• may need to take a loan from your account.*

Move money to your new employer’s planIf you’ve changed employers, you may have the option to move

your assets to your new employer’s plan.

• just changed jobs and your new employer’s

plan features attractive investment options.

• feel confident that you can choose a

balanced investment portfolio from your

new employer’s plan options.

The Rollover IRA

* Some employers consider the loan a distribution when you leave the organization.

**Talk to your tax advisor about the benefits of executing a Net Unrealized Appreciation strategy.

Although we may provide general information about the impact of taxes on various investment categories and products, AARP Financial and its employees do not offer legal or tax advice. You should always consult your own legal or tax advisor for information concerning your individual situation.

• Withdrawals before age 591⁄2 are taxable

and potentially subject to a 10% penalty.

• No loan provisions

• May have annual fee

Advantages Drawbacks Tax impact

• Continued tax-deferred growth potential

• Investment options you choose

• Easy to manage and monitor account

• Penalty-free withdrawals before age 591⁄2

(minimum age for withdrawal from IRA) for

education and first-time home purchase

• Flexible beneficiary designation

• Eligible investors may convert to a Roth IRA

and benefit from tax-free growth of earnings.

• Immediate access to funds

• IRA protected by creditors under federal law

• Continue tax-deferred growth potential

• May offer plan-specific investments

• Assets protected from creditors under

federal law

• May be eligible for withdrawals at age 55

• Plan may have convenient special

provisions, such as loan options.

• Depending on your plan, if

you have a beneficiary who

is not your spouse, he/she

may have to fully liquidate

and pay taxes on your

retirement account assets

in the year the account is

inherited.

• All assets will be subject to the provisions

of the new plan.

• Limited investment options

• Limited distribution options (e.g., no

penalty-free early withdrawals for

education or first home purchase)

• New employer may impose probation

period before new contributions may start.

• Tax advantages for

beneficiaries who may

stretch distribution out over

their life expectancy (versus

paying taxes on lump-sum

inheritance amount)

• Avoid immediate decision

• Continue tax-deferred growth potential

• May offer plan-specific investments

• Assets protected from creditors under

federal law

• May be eligible for withdrawals at age 55

• Plan may have convenient special

provisions, such as loan options.

• Employer may restrict transactions.

• May be charged service fee

• Contributions may not continue.

• Limited investment options

• Limited distribution options

• Must notify former employer of address

changes, contact information and

must make sure you are able to find your

employer possibly after many years

• Employer controls investment choices

and providers.

• Does not allow loans for former employees

• Depending on your plan, if

you have a beneficiary who

is not your spouse, he/she

may have to fully liquidate

and pay taxes on your

retirement account assets

in the year the account is

inherited.

• Immediate access to cash • Assets lose tax-deferred growth potential

• Decrease in retirement savings

• A 10% early withdrawal penalty may be

imposed if you’re under age 591⁄2.***

• Withdrawal will be subject

to state and federal taxes.

• 20% of your account may

be withheld up front to pay

federal income taxes.

• There may be tax advantages

if you have highly appreciated

company stock.

*** The 10% federal penalty tax generally applies to withdrawals made before age 591⁄2, unless you have died, are disabled, or have deductible medical expenses that exceed 7.5% of your adjusted gross income. If you leave your employer in the year you reach age 55 or later, withdrawals from your employer-sponsored plan are exempt from the 10% penalty.

1010

Five Funds Offering a Choice of Retirement Solutions

Whether you’re just planning for retirement, nearing retirement or currently enjoying your retirement, you’ll

find an AARP Fund to meet your needs. Each of our lifestyle funds (Aggressive, Moderate, Conservative) offers a

complete diversified† investment program with a clear, easy-to-understand investment strategy. These funds are

rebalanced* on a regular basis to help you maintain the right mix of assets and are backed by our no-nonsense

investment philosophy. Because regular income is an important component of an investment strategy, our Income

and Money Market Funds are designed specifically to provide current monthly income at competitive rates.

An investment in the AARP Money Market Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.

1AARP Income Fund may invest a portion of its assets in non-investment grade securities.†Diversification reduces risk but does not eliminate it

*The sale of an investment for the purpose of rebalancing may be subject to taxes.

AARP Funds Investment Options For your IRA

AARP ConservativeFund

•20%

• 5%

•75%

Medium- to

long-term

investment

providing

current

income with

some growth

of capital.

AARP Moderate Fund

•40%

•10%

•50%

Medium- to

long-term

fund offering

a balance of

growth of capital

and current

income for

investors willing

to accept some

risk in exchange

for return

potential.

AARP Aggressive Fund

•60%

•15%

•25%

Medium- to

long-term

investment

focusing

primarily on

the growth of

capital and

providing some

current income.

AARP Money MarketFund

Short-term, low-

cost fund seeking

to maximize

current income

and maintain

a stable $1.00

per share price.

AARP Income Fund1

•75%-100%

•0%-25%

Bond fund

generating

current income

and conserving

capital over

the long term.

Higher risk

AARP Family of Funds

Lower risk

Pote

nti

al R

etu

rns

U.S. stocks

International stocks

U.S. bonds

Money market investments

Other income investments,including money market

1111

Low fees now may mean

longer-lasting income in retirement

In this hypothetical example, the difference between a mid-cost fund and low-cost fund nets six extra years(an extra $115,800) in retirement withdrawals.1

$19,300 annually

for 21 years

$19,300 annually

for 27 years

0

100,000

200,000

300,000

400,000

500,000

$600,000

$405,300

$521,100

*Standard & Poor’s Indices Versus Active Funds Scorecard (SPIVA), Q3 2006.1The accumulation analysis assumes an annual IRA contribution of $5,000 per year, increased annually by 3% for inflation, for a period of 20 years and then a withdrawal of $19,300 per year until the funds are expended. The balancefor each year is decreased by an assumed fund expense of 107 basis points (Investment Company Institute, ResearchFundamentals, June 2007) in one analysis and 50 basis points in the other; then, a 7% earnings rate is applied to bothsituations. In year 21 forward, a withdrawal of $19,300 is applied to each analysis. The cash flows of $19,300 last for almost 21 years in the107-basis-point analysis and for a little over 27 years in the 50-basis-point analysis.

This hypothetical is an example and should not be considered representative of an investment in the AARP Funds.

Source: AARP Financial Inc.

Keep More of Your Retirement Money Working For You

At AARP Financial, we don’t believe investors should have to pay high fees to build a retirement nest egg.

AARP Financial aims to keep our costs down. AARP Funds are built with a portfolio of low-cost index

investments. And, over longer time periods, market indexes historically have outperformed a majority of

actively manage funds*. To help you keep more of your retirement money working for you, we offer a

complimentary fee analysis so that you can identify how much you may be currently paying in fees and

what that may mean over time to your retirement investments. Even a small difference in fees can make

a big difference in your investment returns over time.

Find out about our complimentary fees analysis. Just call an AARP Financial Investment Counselor today at 1-800-958-6457, Monday - Friday, 8:00 a.m. - 6:00 p.m. Eastern Time.

12

An Easy Way to Take Action Now

Investment guidance from dedicated professionalsIf you have questions about IRAs or your investments, it is easy to get straight answers.

Our AARP Financial Investment Counselors* are ready to answer your questions —

Am I investing enough? Which AARP Fund is appropriate given my age and risk

tolerance?—as well as specific questions about IRAs or AARP Funds.

AARP Financial Investment Counselors can be reached at 1-800-958-6457 from

8:00 am to 6:00 pm Eastern time, Monday–Friday. Our goal is to help you understand

your investment options and make sure you’re on track.

Most forms, as well as booklets that provide details of our retirement services, can

also be downloaded at www.aarpfunds.com.

Follow these simple steps to open a traditional or Roth IRA or to move your assets from your

former employer’s plan to an AARP Rollover IRA.

Opening a Traditional or Roth IRA1. Choose a Traditional or Roth IRA.

2. Choose your fund.

3. Complete the AARP Funds IRA Application & Adoption Agreement.

4. Send your completed application to AARP Funds in the postage-paid envelope.

Opening and transferring assets to a Rollover IRA1. Contact your former employer or plan administrator.

2. Choose your fund.

3. Complete the AARP Funds IRA Application & Adoption Agreement.

4. Complete the AARP Funds Transfer/Direct Rollover of Assets Form.

5. Send your completed forms to AARP Funds in the postage-paid envelope.

*AARP Financial Investment Counselors are FINRA registered representatives through ALPS Distributors, Inc., and employed by AARP Financial.

Contact Information

Automated Account

Service

This automated line allows you to access

many account functions

Go online to manage your account,

access educational content and use tools

and calculators

1-800-958-6457

option 3

Available 24 hours

Website www.aarpfunds.com

Available 24 hours

Mailing addresses For overnight delivery: AARP Funds

30 Dan Road

Canton, MA 02021

For regular mail: AARP Funds

P.O. Box 8035

Boston, MA 02266-8035

AARP Financial

Investment Counselors

To learn more about our products, services

or have questions answered

1-800-958-6457

option 1

Monday-Friday, 8:00 a.m.

–6:00 p.m. Eastern Time

Shareholder Services

Representatives

For assistance in executing account

transactions, or requesting forms call our

automated account service phone line

or visit www.aarpfunds.com

1-800-958-6457

option 2

Monday–Friday, 8:00 a.m.

–6:00 p.m. Eastern Time

This material must be accompanied or preceded by a current prospectus.

Investing in the Funds involves risk, including possible loss of principal. Investors should carefully consider a fund’s investment objectives, risks, fees, charges and expenses before investing any money. The prospectus contains this and other important information about the Funds. Please read the prospectus carefully before investing.

While AARP has licensed the use of its name to AARP Funds and endorses the services provided by AARP Financial Inc.,AARP does not offer financial products of services itself, and cannot recommend that you or any specified individualshould purchase any particular product or service. AARP Financial Inc. is a registered investment advisor and a subsidiaryfor AARP.

AARP Financial Investment Counselors are FINRA- registered representatives through ALPS Distributors, Inc., and employed by AARP Financial Inc.

AARP Funds are advised by AARP Financial Inc. and distributed by ALPS Distributors, Inc., a registered broker/dealer.

AARP Financial Inc. is not affiliated with ALPS Distributors, Inc

AARP FundsP.O. Box 8035Boston, MA 02266-80351-800-958-6457www.aarpfunds.com

©2008 AARP Funds

ARP-BR-003-0208

ARP000459 0209

Investments designed to fit your needs

A smarter, no-nonsense way to invest

If you’re like most people, investing is ameans to an end. You don’t want to sortthrough an endless array of choices. You want to make a few good decisionsthat will give you peace of mind. AARPFinancial Inc. supports you with a select group of smart, affordable invest-ment solutions designed to help youreach your goals.

AARP Financial: A strong partnerfocused on investors’ needs firstAt AARP Financial, our goal is to make investingstraightforward. We offer five professionallymanaged, low-cost funds to fit your investmentneeds, providing a mix of principal conservation,income generation and asset accumulation.Whatever your objectives are, the AARP Fundsare here to meet your needs.

The AARP Financial advantage

1. Competitive returns: We keep yourmoney working hard by providing mutualfunds that strive to track the performance of broad markets over time.

2. Low fees: You keep more of what you earnbecause we make sure our fees are low.Lower expenses historically have meant higherreturns, which then have the ability to com-pound year after year.

3. Easy startup: We make it easy for you tostart investing with our low $100 investmentminimum. But investors shouldn’t stop there. In order to fund a healthy retirement, youshould consider investing on a regular basis.An Automatic Investment Plan* is one of thebest ways to do that.

4. Education and guidance: Our experiencedInvestment Counselors will provide person-alized service and help you make informedchoices based on your needs and goals.And because they are salaried employees,you can feel free to discuss your goals in a no-pressure environment.

5. Clear and easy to understand communications: Investing shouldn’t be a mystery. We work to make everything fromyour statement to shareholder reports andeducational materials concise and easy tounderstand, so you can make informed decisions about your investments.

NOT PART OF THE PROSPECTUS

* An Automatic Investment Plan does not assure a profit and does not protect against a loss in adeclining market.While AARP has licensed the use of its name to AARP Funds and endorses the services provided by AARP Financial Inc., AARP does not offer financial products or services itself and cannot recom-mend that you or any specific individual should purchase any particular product or service. AARPFinancial Inc. is a registered investment adviser and a subsidiary of AARP.

A NAME YOU KNOW AND TRUSTFor nearly half a century, AARP has workedtoward improving the quality of life for people over 50. Founded in 2005, AARPFinancial extends this historic commitmentthrough a carefully chosen array of banking,insurance and investment solutions, andstraightforward guidance so you can makedecisions with confidence.

Questions? Call the AARP Financial Center at 1-800-958-6457.

Why AARP Funds?Investing can be unnecessarily complex, with too many products and servicesthat don’t always put investors’ needs first. When we created the AARP Funds,we thought hard about what people actually need from their investments, ratherthan adding a fund for every potential market opportunity. The result is fiveintelligently designed, carefully managed funds that may help meet your needs.

Built with low-cost index investmentsAARP Funds are built with multiple low-cost index portfolios, which seek to match thereturns of broader markets over time. It’s a smart, cost-effective approach that keeps more of your money working for you.

Diversified and regularly rebalanced to keep you on trackDiversification reduces risk, although it doesn’t necessarily eliminate it. The more securities and the more types of securities you hold, the less you may be affected by price swings in anysingle one of them. That’s why our funds invest in broadly diversified portfolios within theirspecific investment discipline. Our Conservative, Moderate and Aggressive Funds aredesigned to function as complete investment programs in themselves. All of these funds arerebalanced regularly to help you maintain the right mix of assets to meet your goals. Whilerebalancing may trigger taxes caused by selling securities in an asset class that has grown toolarge, we believe it is a wise strategy for maintaining your desired level of risk.

Current monthly income and competitive ratesRegular income is an important component of any investment strategy, allowing investors tosupplement their earnings. Our Income and Money Market Funds are designed specifically to provide current monthly income at competitive rates.

An investment in the AARP Money Market Fund is not insured or guaranteed by the FDIC, orany other government agency. Although the fund seeks to preserve the value of your investmentat a $1.00 share price, it is possible to lose money by investing in the AARP Money Market Fund.


Low fees now may mean longer-lasting income

In this hypothetical example, the difference between a mid-cost fund and low-cost fund nets six extra years (an extra $94,500) inretirement savings.

The accumulation analysis assumes an annual IRA contribution of$4,000 per year, increased annually by 3% for inflation, for a period of20 years and then a withdrawal of $15,500 per year until the funds areexpended. The balance for each year is decreased by an assumed fundexpense of 107 basis points in one analysis and 50 basis points in theother; then, a 7% earnings rate is applied to both situations. In year 21forward, a withdrawal of $15,500 is applied to each analysis. The cashflows of $15,500 last for almost 21 years in the 107-basis-point analysisand for a little over 27 years in the 50-basis-point analysis.1.07% fund expense 0.50% fund expense

$15,500 annually for 21 years

$15,500 annuallyfor 27 years

$0

$100,000

$200,000

$300,000

$400,000

$500,000

Source: AARP Financial Inc.

A choice of solutions…Every investor is different, with a unique set of experiences, preferences,goals and challenges. No single investment can work for everyone, and whiletoo many choices can be confusing, too few would be just as ineffective.That’s why AARP Financial offers a select choice of smart, low-cost solutionsto fit your tolerance for risk, investment objective and life stage.

A spectrum of funds for a full range of needs


*AARP Income Fund may invest a portion of its assets in non-investment grade securities.

Higher risk

AARPConservativeFund

20%

5%

75%

AARPModerateFund

40%

10%

50%

AARPAggressiveFund

60%

15%

25%AARPIncomeFund*

75% – 100%

0% – 25%

AARP family of funds

Lower risk

Pote

ntia

l Ret

urns

AARPMoney MarketFund

U.S. stocks

International stocks

U.S. bonds

Money market investments

Other income investments,including money market

…to fit your needsThe first step in developing an investment plan is understanding your ownpersonal goals and preferences. Before you choose a fund, spend some timedeciding what type of investor you are. In other words, what are your goalsand objectives? What’s your time horizon? And what’s your tolerance forrisk? Then, choose the fund that’s right for you. If you need help, you canalways talk to one of our Investment Counselors.

Consider the AARP Fund that matches the type of investor you are


Consider investing Fund Objective in this fund if you want…

AARP Growth of capital with A diversified mid- to long-term investment Aggressive Fund some current income portfolio seeking the growth potential

of stocks, while seeking to reduce overall risk through diversification into bonds.

AARP A balance of growth The potential for some investment growth Moderate Fund of capital and current at relatively moderate risk over the mid-

income to long-term. Ideal for investors who are willing to accept some risk in exchange for return potential.

AARP Primarily current A diversified mid- to long-term investment Conservative Fund income with some focused on providing current income through

growth of capital sound investments, but also provides limited exposure to U.S. and international stocks.

AARP Current income and A good source of supplemental current Income Fund long-term conservation income that can help preserve capital over the

of capital long term by focusing primarily on U.S. bonds.

AARP Current income A low-cost investment that offers competitiveMoney Market Fund consistent while main- rates and a smart way to make your short-term

taining a net asset investments work harder without sacrificingvalue of $1 per share easy access to your money.


THREE SIMPLE STEPS TO START INVESTING NOW

This information should be read in conjunction with the AARP Funds’ prospectus relating to the AARP Funds. An investor should consider the investment objectives, risks,charges and expenses of AARP Funds carefully before investing. This and other importantinformation is included in the attached prospectus and should be read carefully beforeinvesting. If you need an additional copy, please call 1-800-958-6457 or download the filefrom www.aarpfunds.com.AARP Funds are advised by AARP Financial Inc. and distributed by ALPS Distributors,Inc., a registered broker/dealer. AARP Financial Inc. is not affiliated with ALPSDistributors, Inc.

Read the prospectus.1Fill out the application or visit www.aarpfunds.com.2Call 1-800-958-6457, if you need help.3

How AARP Financial can help

At AARP Financial, we know that Americans are concerned about investing for retirementand other goals, and we want to help. We offer you a straightforward investment approachthat gives you the tools, information, and guidance you need to invest with confidence.

Education and guidance when you need itOur professional Investment Counselors are available by phone at any time during business hours. They can help you determine your goals, your tolerance for risk and theinvestment strategies that make sense for you. And, you can rely on them to put yourinterests first, because they are compensated with salary, not via commissions on the products they sell you.

Choosing a fund that fits your needsYour Investment Counselor will spend time with you to learn about what you hope toachieve with your investments, help you determine if you’re on track to meet those goals,and gauge how you might react to market risk. Then he or she will recommend the AARPFund(s) that may best meet your goals. If you have any questions about these funds, yourInvestment Counselor can help answer them at any time. They are there not only to makesure you make the right choices, but that you feel comfortable and confident about them.

Investment Counselors are FINRA-registered representatives through ALPS Distributors,Inc., and employed by AARP Financial Inc.

ARP000393 10/29/2008ARP-PR-W07-1007

As with all mutual funds, the Securities and Exchange Commission has not approved or disapproved of these securities or determined whether the information in this prospectus is accurate, adequate or complete. Any representation to the contrary is a criminal offense.

AARP FUNDS…

ProspectusOctober 29, 2007

…


AARP Moderate Fund

AARP Conservative Fund

AARP Income Fund

AARP Money Market Fund

The FundsThis section describes our five mutual funds —first in summary, then in more detail. There’sinformation on each fund’s goal, strategies, costs,and overall risks. There’s also a table to help youfind the funds that may be most appropriate foryou. Before investing in any AARP fund, read thisprospectus carefully.

Fund Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1Who May Want to Invest 1The Funds at a Glance 2Past Performance 4Fees and Expenses 6

Fund Details . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Investing Through Underlying Funds 8Investment Policies: AARP Funds 8Investment Policies: Underlying Funds 10Risks of Investing 12Who’s Who 16Financial Highlights 20

Your AccountThis section gives information that concerns youraccount with AARP Funds and how to do businesswith us. You’ll find step-by-step instructions forplacing orders as well as descriptions of policiesconcerning your account. There is also informationon dividends and taxes. At the end is a glossary; ifyou’re not sure about the meaning of a word yousee in this prospectus, it may be explained there.And if you still have questions, please give us a callat the number below, and we will be happy to pro-vide you with the information you need.

Buying and Selling Shares . . . . . . . . . . . . . . . . 22How to Open a New Account 22How to Add Money to an Account 24How to Exchange Between Funds 25How to Take Money Out of an Account 26

Account and Transaction Policies . . . . . . . . . 27Transaction Policies 27Share Price Policies 29General Business Policies 30

Distributions and Taxes . . . . . . . . . . . . . . . . . . . 32

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33General Investment Terms 33Prospectus-Specific Terms 34

Questions? Call the AARP Financial Center at 1-800-958-6457.

Table of Contents

AARP FUNDS PROSPECTUS 1

Which funds may be appropriate for various goals

AARP AARP AARP AARP AARPAggressive Moderate Conservative Income Money Market

Investor goals Fund Fund Fund Fund FundMainly seeking long-term gain �

Seeking a blend of regular incomeand long-term gain � � �

Mainly seeking regular income � � �

Investing for long-term goals � � � �

Investing for medium-term goals � � �

Investing for short-term goals � �

Earning a return while deciding where to invest �

Seeking a diversified, “all-in-one” investment � � �

The five AARP Funds cover a broad range of goals.Whether you are saving for retirement or college orare looking for a cash option, we have a fund thatcan meet your needs.

The table below shows eight common investorgoals. A checkmark under a fund name means thatfund could be an appropriate choice for the goal atthe left. If you would like help determining whethera given fund is right for you, consult your financialadviser or an AARP Financial Center representative.

The FundsFund Summary

Who May Want To Invest

2 AARP FUNDS PROSPECTUS The Funds

AARP Aggressive Fund AARP Moderate Fund AARP Conservative Fund

Seeks growth of capital and some current income.

Seeks a balance of growth of capital and current income.

Seeks primarily current income,with some growth of capital.

Emphasizes stock investmentsover bond investments, with anindexing approach being used tochoose individual securities.Seeks to maintain a specificasset allocation.

Emphasizes stock and bondinvestments equally, with anindexing approach being used to choose individual securities.Seeks to maintain a specificasset allocation.

Emphasizes bond investmentsover stock investments, with anindexing approach being used tochoose individual securities.Seeks to maintain a specificasset allocation.

Investment objective

Strategy Pursued by investing in underlying funds

Target allocation60% U.S. stock15% International stock25% Bond

Target allocation40% U.S. stock10% International stock50% Bond

Target allocation20% U.S. stock

5% International stock75% Bond

Comparative level of riskHigh Moderate Low to moderate

Risk profileThe fund’s overall risk profile islikely to depend in large part onhow stocks perform. Many factorscan cause stock prices to fall,including negative economic orfinancial news, investor percep-tions, market liquidity, andcatastrophic events. Internationalstocks can be more volatile thanU.S. stocks. Although the fund’sexposure to bond investments isdesigned to help lower its overallrisk, they do mean the fund isexposed to the risks of bondinvesting. See Risks of Investing,page 12 for more information.

The fund’s overall risk profile islikely to be affected by the performance of both stocks andbonds. Many factors can causestock prices to fall, including negative economic or financialnews, investor perceptions, mar-ket liquidity, and catastrophicevents. International stocks canbe more volatile than U.S. stocks.Bond prices typically fall wheninterest rates rise, and when eco-nomic pressures make bondissuers less creditworthy. SeeRisks of Investing, page 12 formore information.

The fund’s overall risk profile islikely to depend in large part onhow bonds perform. Bond pricestypically fall when interest ratesrise, and when economic pres-sures make bond issuers lesscreditworthy. Because stocks aregenerally riskier than bonds, stockinvestments may have a dispro-portionate effect on the fund’soverall risk. See Risks of Investing,page 12 for more information.

The Funds at a Glance

Asset class allocations Asset class allocations Asset class allocations

The Funds AARP FUNDS PROSPECTUS 3

AARP Income Fund AARP Money Market Fund

Seeks current income and preser-vation of capital over the long term.

Seeks to maximize current incomewhile providing for liquidity, thepreservation of capital, and a stable$1.00 per share price.

Emphasizes bonds and otherincome-producing investments,through investments in a bond index fund and otherincome funds.

Invests exclusively in money market investments by investing in the State Street Money MarketPortfolio.

Allocation range75% – 100% Bond

0% – 25% Other incomeinvestments,including moneymarket

Fixed allocation100% Money market

investments

Low Very low

The fund’s overall risk profile is likely to depend in large part on how bonds perform. Bondprices typically fall when interestrates rise, and when economicpressures make bond issuers less creditworthy. See Risks ofInvesting, page 12 for more information.

The fund’s overall risk profile islikely to depend in large part onthe behavior of short-term interestrates. When rates fall, the fund’syield typically falls also. Over thelong term, money market fundsmay not keep pace with inflation.Although the fund is designed tomaintain a stable $1.00 shareprice, there is no guarantee that it will always be able to do so. See Risks of Investing, page 12for more information.

Investment objective

Strategy Pursued by investing in underlying funds

Comparative level of risk

Risk profile

Investing throughunderlying funds

While many mutual fundsinvest directly in securities(such as stocks and bonds),each of the AARP Fundsinvests in one or more otherfunds that in turn invest insecurities. Among them,the AARP Funds use twodifferent methods of invest-ing in underlying funds (as they are called in thisprospectus): fund-of-fundsand master-feeder funds.These are explained more fully in the sectionInvestment Policies:Underlying Funds thatbegins on page 10.

Investing through underlyingfunds offers certain advan-tages to AARP Funds andtheir shareholders, includingsimplicity, diversification,and liquidity benefits.

Investing through the under-lying funds adds certainrisks as well. AlthoughAARP Financial, the funds’investment adviser, believesthese risks are unlikely tobe significant, these risksare discussed in the sec-tion Risks of Investing thatbegins on page 12. Allinvestors should be sure toread this section carefullybefore investing in anyAARP fund.

Asset class allocations Asset class allocation


Past PerformanceThis section shows the actual returns for each fund,on a year-by-year and average annual basis. Thisinformation is intended to help you understand therisks of investing in a fund. All figures assume thatdistributions were reinvested. Unless otherwisenoted, fund results reflect any fee waivers and/orexpense reimbursements.

The table below shows the annual return for theAggressive, Moderate, and Conservative Funds.The Income and Money Market Funds are too newto have performance figures to show.

Remember that fund returns vary over time, andthat future performance (both before and after taxes)may differ from past performance.

16%

10%

9%

6%

4%

2%

0%

12%

14%

Annual total returns (%) as of 12/31

10.11%

6.96%

AARP Aggressive Fund AARP Moderate Fund AARP Conservative Fund

Best quarter: 3.92%, Q3 2006Worst quarter: (0.55%), Q2 2006

Total return, 1/1/07–9/30/07:5.25% (not annualized)

0%

2%

4%

6%

8%

10%

12%

14%

16%

20062006 2006 2006





13.36%


The table on the right shows average annual total returns, both before and after taxes. The after-tax figures:• reflect an individual federal marginal income

tax rate of 35% (the highest such rate as ofDecember 31, 2006) but assume no state andlocal taxes

• assume, for returns reflecting the sale of fundshares, that shares were sold on the last day of the period

• may not reflect your actual after-tax performance• may not be relevant to shares held in an IRA,

401(k), or other tax-advantaged retirement account

For comparison, the table also includes figures forthree relevant indexes. The returns for each indexassume that all dividends paid by securities in theindex were reinvested.

Average annual total returns (%) as of 12/31/06

Since1 Year Inception1

AARP Aggressive FundReturns before taxes 13.36% 13.36%

Returns after taxes on distributions 12.53% 12.53%

Returns after taxes on distributions and 8.66% 8.66%sale of fund shares

AARP Moderate FundReturns before taxes 10.11% 10.11%



AARP Conservative FundReturns before taxes 6.96% 6.96%



Indexes2

Lehman Brothers Aggregate Bond Index3 4.33% 4.33%

MSCI U.S. Investable Market 2500 Index4 15.70% 15.70%

MSCI Europe, Australasia and Far East (EAFE) Index5 26.34% 26.34%

For the current seven-day yield of the Money Market Fund,please visit our web site at www.aarpfunds.com or callthe AARP Financial Center at 1-800-958-6457.

1 The AARP Aggressive, Moderate and Conservative Funds all commenced operations on January 1, 2006. The one-yearand since-inception numbers reflect returns for the same time periods.

2 The securities that compose each index may vary over time.3 An index containing a large variety of investment-grade

U.S. and foreign bonds, covering three major categories: government and corporate bonds, mortgage-backed securities,and asset-backed securities.

4 An index containing about 2,500 securities listed on the New York and American stock exchanges and the Nasdaqover-the-counter market. The stocks represent companies of all types and sizes.

5 An index containing about 1,000 securities listed on the stock exchanges of 21 developed countries, excluding theUnited States and Canada.


1 Note that there is a fee (currently $5) for a redemption by wire.2 Paid by the Underlying Money Market Fund to its invest-

ment adviser. By contract, AARP Financial receives nomanagement fee for any period in which the fund is investedin a master-feeder structure.

3 The funds have adopted a so-called 12b-1 plan, which permitsthem to use fund assets to pay for the sales and distribution oftheir shares and for servicing activities. The underlying fundsdo not charge distribution or servicing fees and do not dis-tribute their shares to the public.

4 Estimated. The AARP Income Fund incurred certain non-recurring start-up expenses during fiscal-year 2007 (such asBlue Sky start-up and legal expenses) that are not reflected inthe above estimated “Other expenses.”

5 Except for the Underlying Money Market Fund, these repre-sent a pro-rata portion of the fees and expenses of theunderlying funds in which a fund invests. Each underlyingfund’s fees and expenses may include advisory, transfer agent,administration, trustee, legal, audit, insurance, and other mis-cellaneous expenses.

6 AARP Financial has agreed contractually to waive fees and/orreimburse expenses through November 1, 2008 (November 1,2009 for the AARP Money Market Fund) to cap each fund’s“Net annual operating expenses” to the amounts shown in theabove table.

The AARP Funds are “no-load funds,” meaning thatyou pay no sales charge when you invest and noredemption fee when you take money out. However,as an investor in a fund, you do pay a share of thatfund’s operating expenses, because these expensesare paid out of fund assets. The operating costs for

each AARP Fund include costs for that fund itself aswell as the fund’s share of costs for each underlyingfund it invests in.

The table below shows the fees and expenses youmay pay if you buy and hold shares of the funds.

Fees and Expenses

AARP AARP AARP AARP AARPAggressive Moderate Conservative Income Money Market

Fund Fund Fund Fund Fund

Shareholder fees — Paid directly from your investment

None1 None1 None1 None1 None1

Annual operating expenses — Directly or indirectly deducted from fund and underlying fund assets

Management fees 0.01% 0.01% 0.01% 0.01% 0.10%2

Distribution and/or service (12b-1) fees3 0.20% 0.20% 0.20% 0.20% 0.20%

Other expenses 2.03% 1.14% 2.20% 6.81%4 3.91%

Acquired fund fees and expenses5

(underlying fund fees and expenses) 0.26% 0.26% 0.25% 0.25% 0.00%

Total 2.50% 1.61% 2.66% 7.27% 4.21%

Contractual waivers and/or reimbursements6

–2.00% –1.11% –2.16% –6.77% –3.91%

Net annual operating expenses — After waivers and/or reimbursements6

0.50% 0.50% 0.50% 0.50% 0.30%


Expense exampleThis example is designed to help you compare the costs of the AARP Funds to those of other mutual funds.

Let’s say you invest $10,000 for the time periodsshown in the “Hypothetical fees and expenses” table,and that your investment earns 5% a year. Let’s alsosay that the Net Annual Operating Expenses foreach fund are as described in the fee table on the pre-ceding page through November 1, 2008 for the

Aggressive, Moderate, Conservative, and IncomeFunds, and through November 1, 2009 for theMoney Market Fund, and after those dates the TotalAnnual Operating Expenses apply. Given all theseassumptions, the table shows what you would pay infees and expenses over one-, three-, five-, and ten-year time periods. Remember, this is not a realexample. It is shown for comparison only. Actualcosts and returns — both past and future — mightbe higher or lower.

Hypothetical fees and expenses

1 Year 3 Years 5 Years 10 Years

AARP Aggressive Fund $51 $518 $1,085 $2,629

AARP Moderate Fund $51 $361 $734 $1,784

AARP Conservative Fund $51 $547 $1,147 $2,775

AARP Income Fund $51 $1,371 $2,888 $6,389

AARP Money Market Fund $31 $385 $1,335 $3,776


Investment Policies: AARP Funds

AARP Aggressive FundAARP Moderate FundAARP Conservative Fund

Primary investmentsEach of these funds maintains investment exposure toa diversified portfolio (in plain English, a “broad mix”)of securities. The major asset classes for all of thefunds are the same: U.S. stocks, international stocks,and bonds. However, each fund has its own targetmix of these asset classes. Within each of the majorasset classes, the funds rely on an indexing approachin choosing securities (see sidebar, page 11).

Over time, a fund’s actual asset mix will tend tochange, due to differences in asset class performance.Each fund therefore intends to rebalance its asset mix

from time to time (typically monthly or quarterly, butsometimes more often), in order to bring the actualmix back into line with the target mix.

Although it does not expect to do so very often, thefunds’ management team may change a fund’s targetmix without shareholder approval if the managementteam believes the change is consistent with thatfund’s investment objective.

Secondary investmentsAs a fund’s assets grow, it may invest up to 10% of itsassets in U.S. Treasury inflation-protection securi-ties, small company stocks, emerging market stocks,and real estate investment trusts (REITs). Theseinvestments may be indexed or actively managed, butin either case, they are likely to have different risksfrom a fund’s primary investments, and they maychange the overall risk characteristics of the fund.

Fund Details

Investing Through Underlying FundsAs noted earlier, each of the AARP Funds invests in one or more underlying funds. The chart below showsthe specific relationships between each AARP Fund and its underlying fund(s). For ease of description,throughout this prospectus many of the funds’ investment strategies and risks are discussed in terms of thefunds investing directly in securities rather than investing in securities through each fund’s fund-of-fundsor master-feeder structure.

How the AARP Funds invest in underlying funds Master-feeder structure

This fund invests in a single underlyingfund designed for this purpose.

Fund-of-funds structureThese funds invest in two or more underlying funds, according to target allocations.

AARP Aggressive FundAARP Moderate Fund

AARP Conservative FundAARP Income Fund AARP Money Market Fund

U.S. Stock Market PortfolioInternational Stock Market

PortfolioU.S. Bond Market Portfolio

State Street Money MarketPortfolio


Temporary defensive investments A fund manager may, as a temporary defensivemeasure, raise cash levels or may choose to delaythe rebalancing, or alter the allocation of, a fund’sasset mix. Factors influencing these decisions mayinclude AARP Financial’s outlook for the economy,financial markets, and the relative value of differentasset classes. Note that any temporary defensivemeasure represents a departure from a fund’s statedstrategy, and that a fund is less likely to achieve its investment objectives during any time when it isinvesting for temporary defensive purposes.

Fund-of-funds structureThese funds invest through a fund-of-funds struc-ture. In this structure, each fund invests its assetsin a mix of three underlying funds:• the U.S. Stock Market Portfolio (called the

Underlying Stock Fund in this prospectus)• the International Stock Market Portfolio

(Underlying International Fund)• the U.S. Bond Market Portfolio (Underlying

Bond Fund)

Any secondary investments will be made throughother underlying funds. For more about the under-lying funds, see Investment Policies: Underlying Fundsstarting on page 10.

AARP Income Fund

Primary investmentsThis fund normally invests at least 75% of its assetsin a diversified portfolio of bonds, with individualsecurities being chosen using an indexing approach(see sidebar, page 11).

The fund’s management team may change the fund’sinvestment mix without shareholder approval ifthe manager believes the change is consistent withthe fund’s investment objective.

Secondary investmentsThe fund may invest up to 25% of its assets in othertypes of income-producing securities. As the fund’sassets grow, the list of potential securities in which

this 25% may be invested could grow to include anyor all of the following:• money market instruments• inflation-indexed bonds issued by the U.S.

government, its agencies and instrumentalities,and corporations

• high-yield, or “junk,” bonds (not more than 10%of total assets)

• foreign government and corporate bonds• REITs• stocks that pay high dividends

These investments may be indexed or activelymanaged, but in either case, they are likely to havedifferent risks from the fund’s primary investments,and they may change the overall risk characteristicsof the fund.

Temporary defensive investments Depending on its outlook for the economy, financialmarkets, and other conditions, the fund’s managermay raise cash levels or otherwise take a temporarydefensive position. Note that any temporary defen-sive measure represents a departure from a fund’sstated strategy, and that a fund is less likely to achieveits investment objectives during any time when it isinvesting for temporary defensive purposes.

Fund-of-funds structureThis fund invests through a fund-of-funds structure.In this structure, the fund normally invests at least75% of its assets in the Underlying Bond Fund. Forany money market investments, the vehicle ofchoice is the State Street Money Market Portfolio(Underlying Money Market Fund). Secondaryinvestments will be made through underlying fundsthat are income funds.

For more about the underlying funds, see Investment Policies: Underlying Funds starting on page 10.



InvestmentsThe fund invests exclusively in money market invest-ments. Only investments that meet certain creditquality standards qualify as money market instruments.

Master-feeder structureThe fund invests through a master-feeder structure, inwhich various feeder funds can pool their assets in anunderlying master fund to seek economies of scale.

Under this structure, the fund invests in theUnderlying Money Market Fund, a master fund that has a substantially similar investment objective as the fund itself.

The fund may change to investing in another masterfund or in money market instruments directly ratherthan through an underlying fund, if the fund’s Boardof Trustees determines such a move would be in thebest interests of the fund and its shareholders.

For more about the underlying funds, see InvestmentPolicies: Underlying Funds below.

Investment Policies:Underlying FundsExcept for the Underlying Money Market Fund, eachunderlying fund is a series of AARP Portfolios, whichis a separate registered investment company. TheUnderlying Money Market Fund is a series of a separately registered investment company called theState Street Master Funds. Shares of the underlyingfunds are not offered by this prospectus and arenot available for sale to the general public.

Except for the Underlying Money Market Fund,each underlying fund seeks to match the return ofan index as closely as possible, before deduction of expenses of the underlying fund.

In pursuing its indexing strategy, an underlying fund,and in particular the Underlying Bond Fund, may useoptimization and sampling techniques (see sidebar,next page). In carrying out these techniques, anunderlying fund may invest to a limited extent in

a variety of securities and derivatives that are notincluded in its index, including futures, options,exchange traded funds, cash, and other types offinancial contracts and instruments in order to seekto track the performance of its index. The underlyingfunds will not use these derivatives for speculationor for the purpose of leveraging investment returns.

Underlying Stock Fund

IndexThe index is the MSCI® U.S. Investable Market2500 Index. This index includes about 2,500 securi-ties listed on the New York and American StockExchanges and the Nasdaq over-the-counter market.The stocks represent companies of all types andsizes covering approximately 98% of U.S. marketcapitalization. The index is the aggregation of theMSCI U.S. Large Cap 300, Mid Cap 450, andSmall Cap 1750 indexes.

Underlying International Fund

IndexThe index is the MSCI Europe, Australasia and theFar East (EAFE) Index. This index includes about1,000 securities listed on the stock exchanges of 21developed countries, excluding the United Statesand Canada.

Underlying Bond Fund

IndexThe index is the Lehman Brothers® Aggregate BondIndex. This index includes a large variety of U.S.and foreign bonds that are investment grade andtaxable — nearly all the taxable investment-gradebonds in the U.S. bond market that are registeredwith the Securities and Exchange Commission andwith maturities of more than one year. The indexincludes three major types of bonds: • corporate and U.S. government bonds


• mortgage-backed securities, including mortgagepools securitized by the Government NationalMortgage Association, the Federal NationalMortgage Association, and the Federal HomeLoan Mortgage Corporation

• asset-backed securities, including securities that are backed by credit card, auto, and homeequity loans

The index may also include certain foreign corporateand government bonds that are denominated inU.S. dollars.

Credit quality of investments The Underlying Bond Fund will only invest in fixedincome securities that are considered “investmentgrade” — fixed income securities rated Baa or higherby Moody’s Investors Services, Inc. or BBB or higherby Standard & Poor’s Rating Group or are consid-ered to be of comparable quality by the UnderlyingBond Fund’s investment sub-adviser.

Underlying Money Market Fund

The Underlying Money Market Fund’s investmentadviser selects investments based on its view of whattypes of money market investments are the mostattractive at the time of investment. Interest rates,imbalances in the supply and demand for a particulartype of investment, and market conditions maymake one type of investment more attractive thananother for a period of time.

Types of investments Normally, the Underlying Money Market Fundintends to invest more than 25% of its total assets inbank obligations. The Underlying Money MarketFund may invest in the following types of investments:• instruments of U.S. and foreign banks, including

certificates of deposit (CDs), bankers’ acceptances,and time deposits (TDs)

• U.S. Treasury bills, notes, and bonds• other obligations issued or guaranteed

by the U.S. government and its agencies or instrumentalities

• commercial paper of U.S. and foreign companies,including Rule 144A and Section 4(2) securities

• asset-backed securities• corporate obligations of U.S. and

foreign companies• variable and floating rate notes• repurchase agreements

Because so-called Rule 144A and Section 4(2) securities are not sold to the public, they may bedifficult to value or sell if they are not activelytraded. The Underlying Money Market Fund willnot invest more than 10% of net assets (measured at the time of purchase) in any Rule 144A securities

IndexesAn index is a list of securities representing a marketor part of a market. The returns of the index itselfdo not reflect the costs that would be involved inactually investing in the securities represented inthe index, such as fees and brokerage commis-sions. While no one can invest directly in the index— it’s only a list — you can invest in a fund whosegoal is to track the performance of the index.

As noted in the main text, each of the underlyingfunds, except the Underlying Money Market Fund,seeks to track a particular index.

Index tracking techniquesThere are different ways to track an index: • Replication means buying every security in the

index. Managers using this strategy try to makean exact or close replica of the index, buying thesame securities in the same proportions as theyare in the index.

• Optimization and sampling are investing techniques used by managers when it is expen-sive, impractical, or impossible to buy everybond or security in an index. These techniquesare used when a fund is fairly new and growingin size. They are also used when an index is verylarge or contains securities that can no longerbe bought.

The Underlying Stock Fund and UnderlyingInternational Fund are likely to rely on optimizationand sampling until they have sufficient assets to usea replication strategy. The Underlying Bond Fundmay have to rely on optimization and sampling indefi-nitely, because its index is very large (9,093 differentbonds, as of August 31, 2007) and not all bonds inthe index are readily available for investment.


or other types of securities that are considered to be illiquid (hard to sell) by the Underlying MoneyMarket Fund’s investment adviser.

Credit quality of investments The Underlying Money Market Fund invests in high-quality, U.S. dollar-denominated, money marketinstruments. These may include obligations that are: • issued or guaranteed as to principal or interest by

the U.S. government or its agencies or instru-mentalities (i.e., securities supported by the fullfaith and credit of the U.S. Treasury, by the rightto borrow from the U.S. Treasury, by the discre-tionary authority of the U.S. Treasury to lend tothe issuer, or solely by the creditworthiness of the agency or instrumentality issuing or guaran-teeing the security)

• rated in one of the two highest short-term cate-gories by at least two nationally recognizedstatistical rating organizations (NRSROs), or byone NRSRO if only one NRSRO has rated the security

• unrated, but the investment adviser of the theUnderlying Money Market Fund has determinedthat they are of comparable quality to the ratedsecurities described above

Portfolio maturity In keeping with SEC regulations, the UnderlyingMoney Market Fund maintains a dollar-weightedaverage maturity of 90 days or less.

Risks of Investing

Risks Common to All AARP Funds

All investments involve risk. Before you make anydecisions about investing in the funds, it’s importantthat you read and understand all the risk informa-tion in this prospectus (including the informationhere and in The Funds at a Glance).

With the AARP Funds, as with all mutual funds,there is no guarantee of performance. You shouldexpect that the value of your investment will go up

or down. You might lose money when you invest ina fund, or make less money than you expect. Aninvestment in a fund is not insured or guaranteed bythe Federal Deposit Insurance Corporation or anyother government agency.

For each of the funds, the main risks are those asso-ciated with the securities held in the underlyingfunds. To the extent that a fund is exposed to a par-ticular asset class, industry, geographic area, type ofsecurity, or securities issuer, it is exposed to theassociated risks.

For example, because all of the funds except theMoney Market Fund hold bond investments, thesefour funds are all exposed to the risks of bonds.However, because the funds invest in bonds to vary-ing degrees, the role that bond risks play in shapinga fund’s overall risk profile varies from fund to fund.Similarly all of the funds except the Money MarketFund, may hold varying amounts of stock investments(which generally are riskier than bond investments).Because the funds invest in stock investments to vary-ing degrees, the role that stocks play in shaping afund’s risk profile varies from fund to fund.

With all mutual funds, there are also risks at thefund level, in addition to those that derive fromthe stocks, bonds, and other securities held by thefund (whether held directly or indirectly). For eachof the funds, fund-level risks exist at both the fundlevel and the underlying fund level.

Risks of Individual Funds

The risk language in The Funds at a Glance isdesigned to give a brief summary of each fund’s over-all risk profile. The table on the next page, and therisk descriptions that follow, are designed to offer amore detailed look at the individual risks that con-tribute to the funds’ risk profiles. The risks are listedalphabetically.


Main risks Additional risks


AARP Moderate Fund

AARP Conservative Fund

AARP Income Fund


Credit riskForeign risk — emerging marketsForeign risk — stock marketsIncome riskIndexing riskInterest rate risk — bond investmentsMarket riskPrepayment and extension riskSmall company riskStock market risk

Derivatives riskHigh-yield bond riskManager riskNew fund riskRebalancing risk

Credit riskForeign risk — stock marketsIncome riskIndexing riskInterest rate risk — bond investmentsMarket riskPrepayment and extension riskSmall company riskStock market risk

Derivatives riskForeign risk — emerging marketsHigh-yield bond riskManager riskNew fund riskRebalancing risk

Credit riskIncome riskIndexing riskInterest rate risk — bond investmentsMarket riskPrepayment and extension riskStock market risk

Derivatives riskForeign risk — bond investmentsForeign risk — emerging marketsForeign risk — stock marketsHigh-yield bond riskInvestment grade securities riskManager riskNew fund riskRebalancing riskSmall company riskU.S. government securities risk

Credit riskIncome riskIndexing riskInterest rate risk — bond investmentsMarket riskPrepayment and extension risk

Derivatives riskForeign risk — bond investmentsHigh-yield bond riskInvestment grade securities riskManager riskNew fund riskReal estate investment trust riskRebalancing riskU.S. government securities risk

Credit riskForeign risk — money market investmentsInflation riskInterest rate risk —

money market investmentsMoney market fund risk

Asset-backed securities riskBanking industry riskLiquidity riskNew fund riskManager riskMaster-feeder riskPrepayment and extension risksRepurchase agreement riskU.S. government securities riskVariable and floating rate securities risk


Risk Descriptions

Asset-backed securities risk Asset-backed securitiesare debt securities backed by pools of assets likemortgages, auto loans, and leases. Payments of prin-cipal and interest from the loans backing thesesecurities are passed through to the investors inthese securities. The values of these securities varywith changes in interest rates. Asset-backed securitiesthat are not backed by mortgages have additionalrisks. For example, some of these loans may beunsecured, meaning that there is no collateral for theloan. If the issuer defaults, there is no collateral tocollect to cover losses. Borrowers also may be pro-tected by state and federal consumer credit laws thatmay be very favorable to borrowers at the expenseof investors. Asset-backed securities can be moredifficult to value or trade if a regular trading marketdoes not exist for these securities.

Banking industry risk Banks may be particularly sensitive to certain economic factors such as interestrate changes, adverse developments in the real estatemarket, fiscal and monetary policy, and general economic cycles.

Credit risk If the financial health of a security issuerdeclines, the price of its debt securities could declineor become more volatile, or the issuer could defaulton its securities (fail to pay interest or principal whendue). High-yield securities have more credit risk thaninvestment-grade securities.

Derivatives risk The use of derivatives exposes a fundto additional risks and costs, including: • the risk that interest rates, securities prices, and

currency markets will not move in the directionthat a portfolio manager anticipates

• the risk that the price of a derivative does notcorrelate as expected with the prices of the secu-rities, interest rates, or currencies the derivativewas intended to reflect

• the fact that using derivative strategies requires dif-ferent skills from general portfolio management

• the risk that it might be impossible to close out aderivatives position when desired

• the fact that derivatives could produce lossesgreater than the cost of the derivative; in some cases, the potential for loss is theoreticallyunlimited

• the risk that a counterparty will not perform itscontractual obligations; this risk is greater withprivately negotiated instruments

• the risk that closing out certain hedged positionscould produce adverse tax consequences

Foreign risk — bond investments Any investment ina foreign issuer will have the risks of political andeconomic instability, poor regulation, insufficientissuer information, controls on currency, high taxesor tariffs, and the confiscation of assets. These risksmay be greater in emerging or developing markets.

Foreign risk — emerging markets Securities marketsof developing countries involve greater risks thanthose of more developed markets. Securities marketsin developing countries are generally smaller, less liquid, more volatile, and more subject to manipula-tion than U.S. markets. Developing countries mayhave significant economic liabilities, such as inadequateinfrastructures, obsolete financial systems, excessiveregulation, significant international debt, volatileinflation rates, and environmental problems. Theireconomies may be heavily dependent on a limitednumber of export commodities, and their agricul-ture may be highly vulnerable to climate patterns.Developing countries also have higher risk of politi-cal instability, popular unrest, and armed conflict.

Foreign risk — money market investments U.S. dollar-denominated securities from foreign issuerscan pose greater risks than those from U.S. issuers,for reasons that include less stringent regulation,accounting, and reporting practices, as well as thehigher risk of political, financial, and economicevents among other factors.

Foreign risk — stock investments Investments in foreign stocks may be more volatile than invest-ments in U.S. stocks and may perform differentlyfrom the U.S. market. Foreign governments mightchange stock exchange rules, increase taxes or con-fiscate investors’ assets. The governments of foreigncountries might be less stable than the U.S. govern-ment, and issuers in foreign jurisdictions might have

less thorough regulation and accounting, auditingand recordkeeping requirements. It might cost moreto invest directly in a foreign stock than it would toinvest in a U.S. stock. Changes in foreign currencyexchange rates could also affect the value in U.S.dollars of foreign securities.

High-yield bond risk High-yield bonds, alsoknown as junk bonds, are rated below investmentgrade because there are doubts about whether the companies or entities that issue them will beable to pay interest and principal back on time.Junk bonds pay out higher interest rates thaninvestment grade bonds because they are highlyrisky and considered speculative.

Income risk The rate of income that a fund orunderlying fund generates may go up and down asinterest rates go up and down. The amount of anydividends you receive will fluctuate over time.

Indexing risk By using an indexing strategy, a mutualfund forgoes the option of taking any steps to lessenthe impact of market downturns. In addition, amutual fund that uses an index strategy might notperform as well as the index it aims to match(“tracking risk”). The existence of mutual fund feesand expenses, which an index itself does not include,make this risk very likely. To the extent that a mutualfund seeks to overcome tracking risk through usingderivatives, it increases its exposure to derivatives risk.

Inflation risk Over time, low-risk income investmentsmay fail to keep pace with inflation, making thempotentially a poor choice for long-term investing.

Interest rate risk — bond investments The marketvalue of bonds typically goes down when interest ratesgo up. Longer-term bonds are generally more sensi-tive to interest rate changes, meaning they may sufferdeeper declines in value than shorter-term bonds.

Interest rate risk — money market investmentsDuring periods of rising interest rates, money marketfund yields may tend to be lower than prevailingmarket rates.

Investment grade securities risk While all securitiesrated at least Baa (by Moody’s) or BBB (by Standard & Poor’s) are considered investment-grade,those rated at the lower end of this spectrum may be

somewhat riskier because they are regarded as having only an adequate capacity to pay principal andinterest, and are considered to lack outstandinginvestment characteristics.

Liquidity risk A fund or underlying fund may beunable to pay redemption proceeds within the timeperiod stated in this prospectus because of unusualmarket conditions, an unusually high volume ofredemption requests, or other reasons.

Manager risk The investment adviser of a fund orunderlying fund may make investment decisionsthat fail to produce the intended result. These mayinclude decisions about how to allocate assets amongdifferent underlying funds, when to rebalance afund, when to change underlying fund allocations,or which securities to buy and sell and when.

Market risk The market values of stocks, bonds, andother securities may go up and down as securitiesmarkets react to economic, political, geographic, orregulatory factors. These factors may affect theentire market or just certain securities, industry seg-ments, or economic sectors. In general, stock priceshave fluctuated more than bond prices over longertime periods. Price changes may be temporary ormay last for extended periods.

Master-feeder risk A master fund’s performancecould be hurt by large cash inflows or outflowscreated by one of its feeder funds.

Money market fund risk Although a money marketfund seeks to preserve the value of your investmentat $1.00 per share, it may not succeed in doing soand you might lose money by investing in a moneymarket fund.

New fund risk A fund might not reach or sustain an economically viable size, in which case fund management may determine to liquidate the fund at a time that may not be opportune for shareholders.

Prepayment and extension risks Because marketprices for certain debt securities (such as mortgage-backed securities, asset-backed securities, andcallable bonds) are based on expectations of howinterest rates will behave, any unexpected behaviorof interest rates can hurt performance for owners ofthese securities. For example, a drop in interest rates



may mean a security is paid off earlier than expected,and the proceeds can only be reinvested at a lowerrate. A rise in interest rates can mean that securitiesare paid off later than expected, leaving investorslocked into below-market rates.

Real estate investment trust risk The value of a REITcan be hurt by economic downturns or by changesin real estate values, rents, property taxes, interestrates, tax treatment, regulations, or the legal structureof the REIT. Any stock issued by a REIT is alsosubject to stock market risk (see below).

Rebalancing risk A fund may temporarily stray fromits target mix among the underlying funds and notperform as well as if it had invested according to itstarget mix at all times.

Repurchase agreement risk A repurchase agreementallows a fund or underlying fund to buy securitieswith the understanding that the seller will buy themback with interest at a later date. If the seller isunable to honor a commitment to repurchase securi-ties, the fund or underlying fund could lose money.

Small company risk The stocks of smaller, less well-known companies are generally more volatile thanlarge company stocks and may perform differentlyfrom the market as a whole. Compared to largercompanies, small companies may be poorly under-stood by investors, have less access to cash andcredit, and may be heavily dependent on a limitednumber of products, services, or technologies.

Stock market risk The value of stocks may declinein response to developments affecting a particularissuer, the issuing company’s industry, or generaleconomic conditions. Price changes in stocks may betemporary or may last for an extended period of time.

U.S. government securities risk Although securitiesissued directly by the U.S. government are guaranteedby the U.S. Treasury, securities issued by an agency orinstrumentality of the U.S. government may not be.No assurance can be given that the U.S. governmentwould provide financial support to its agencies andinstrumentalities if not required to do so by law.

Variable and floating rate securities risk Variable ratesecurities readjust their interest rates on set dates.Floating rate securities readjust their interest rateswhenever a particular interest rate changes. Interestrates on these securities are normally tied to, and area percentage of, a widely recognized interest rate,such as the yield on 90-day U.S. Treasury bills or theprime rate of a bank. These securities have interestrate and credit risk. They also may have liquidityrisk because it is not always easy to sell these instru-ments if the issuer defaults or a fund or underlyingfund cannot exercise “demand” rights. Demandrights, which are normally a feature of these invest-ments, allow an investor to demand that the issuerrepay immediately all unpaid interest and return theprincipal, the original investment amount.

Who’s Who

Entities with Business Responsibilities

TrusteesThe Board of Trustees for the AARP Funds overseeseach fund and its investment strategies, and approveseach fund’s agreements with its investment adviserand other service providers.

Investment Advisers and Sub-advisers

AARP Financial Incorporated (AARP Financial)Two Highwood Drive, 2nd FloorTewksbury, MA 01876

SSgA Funds Management, Inc.One Lincoln StreetBoston, MA 02111

AARP Financial provides the overall investment program for each fund and manages each fund’sinvestment activities. This includes allocating assetsto the underlying funds, deciding when to rebalancethese allocations, and overseeing any sub-advisers.AARP Financial is also the investment adviser of all underlying funds except the Underlying MoneyMarket Fund.


AARP Financial is a wholly owned subsidiary of AARPServices, Inc., which in turn is a wholly owned sub-sidiary of AARP. AARP is a nonprofit membershiporganization dedicated to addressing the needs andinterests of people age 50 and over in the UnitedStates. Founded in 1958, AARP delivers information,advocacy, and services to over 38 million membersto advance a society in which everyone ages withdignity and purpose.

SSgA Funds Management, Inc. (SSgA FM) servesas the investment sub-adviser for all of the fundsexcept the Money Market Fund. In this capacity,SSgA FM provides AARP Financial with asset allocation advice and rebalances the funds’ assetsunder AARP Financial’s direction.

For the Underlying Money Market Fund, SSgA FMserves as the investment adviser and is responsiblefor the day-to-day investment of assets. For all otherunderlying funds, SSgA FM is the investment sub-adviser. SSgA FM manages each underlying fund’sday-to-day investments.

SSgA FM manages over $140 billion in assets and is awholly owned subsidiary of State Street Corporation.State Street Global Advisors (SSgA) is the investmentmanagement group of State Street Corporation andincludes SSgA FM. SSgA manages approximately $1.9trillion in assets (all figures as of September 30, 2007).

Except for the Money Market Fund, each of the fundspays AARP Financial 0.01% of its average daily netassets annually to compensate AARP Financial for itsadvisory services to the fund. Each underlying fund(except the Underlying Money Market Fund) paysAARP Financial 0.05% of its average daily net assetsannually to compensate AARP Financial for its advi-sory services to the underlying fund. AARP Financialpays SSgA FM for its sub-advisory services out ofthese fees.

The Money Market Fund has entered into an invest-ment advisory agreement with AARP Financial thatdoes not provide an investment advisory fee to AARPFinancial while the Money Market Fund is invested ina master-feeder structure. If the Money Market Fundwere not invested in a master-feeder structure, AARPFinancial would receive an investment advisory fee, atan annual rate of 0.10% of average daily net assets.

For the Aggressive, Moderate, and ConservativeFunds, the basis for approving the investmentadvisory and sub-advisory agreements with AARPFinancial and SSgA FM is discussed in the funds’annual report to shareholders for the period endedJune 30, 2006. For the Income and Money MarketFunds such information is in the funds’ semi-annualreport for the period ended December 31, 2006.

The funds and AARP Financial have received anSEC order that allows AARP Financial to have theultimate responsibility, subject to Board oversight, tooversee sub-advisers and recommend their hiring,termination, and replacement, as well as changeinvestment sub-advisory agreements, without share-holder approval. The effect of the order is to relievethe funds of legal requirements to obtain shareholderapproval of these types of changes.

AdministratorAARP Financial provides administrative services tothe funds, such as overseeing each fund’s operationsand other service providers.

Sub-Administrator, Custodian, and Transfer AgentAs sub-administrator, State Street Bank and TrustCompany (State Street) assists the administrator inproviding administrative services. As custodian, StateStreet holds the funds’ assets, prices the funds’shares, and oversees payment of dividend and capitalgain distributions to shareholders. As transfer agent,State Street handles the opening of new accounts,processes orders to buy or sell shares, providesrecordkeeping, and sends account statements andtransaction confirmations to investors.

DistributorALPS Distributors, Inc. handles distribution, salesand marketing activities for the funds.


Portfolio Management Team

The following information applies to all fundsexcept the Underlying Money Market Fund (theindividual managers of money market funds are not listed in a prospectus).

Richard M. Hisey Chartered Financial Analyst• Chief Investment Officer, AARP Financial• Treasurer, AARP Funds• Began investment career in 1983• Joined AARP Financial in 2006

As the funds’ portfolio manager, Mr. Hisey isresponsible for implementing the funds’ overallinvestment program, determining if and when to add other securities and at what levels, determiningwhen to rebalance the funds (based on the advice of SSgA FM), and overseeing and monitoring theactivities of SSgA FM.

Previously, Mr. Hisey was Executive Vice Presidentand Chief Investment Officer of Cole ManagementIncorporated, a venture capital firm focused onRussia. Before that, he was Treasurer and ChiefFinancial Officer of the MFS Group of MutualFunds. He has also held senior positions at TheBank of New York and Lexington Global AssetManagers, Inc. (now ING/Reliastar).

Mr. Hisey holds a BA and an MBA from theUniversity of Connecticut.

Daniel Farley Chartered Financial Analyst• Vice President, SSgA and SSgA FM• Head, SSgA U.S. Global Asset Allocation team• Began investment career in 1992• Joined SSgA in 1992

At SSgA, Mr. Farley is responsible for strategic/tactical asset allocation and overlay clients in the U.S. He leads the team that handles SSgA’sresponsibilities for the AARP Funds.

Mr. Farley’s previous responsibilities at SSgA includeserving as a senior portfolio manager in Global AssetAllocation, assisting clients in the development ofstrategic investment policy, managing tactical andstatic asset allocation portfolios, and leading theinvestment team for the firm’s Charitable AssetManagement group.

Michael Lear• Principal, SSgA and SSgA FM• Portfolio Manager, SSgA U.S. Global Asset

Allocation team• Began investment career in 1997• Joined SSgA in 2000

Mr. Lear is responsible for managing active andpassive asset allocation portfolios, as well as derivative overlays. Previously, Mr. Lear worked as a Junior Portfolio Manager in the IndirectImplementation team. Prior to joining SSgA, he worked as an Assistant Portfolio Manager at Batterymarch Financial Management.


Eduardo A. Borges• Principal, SSgA and SSgA FM• Portfolio Manager, SSgA U.S. Global Asset


Mr. Borges manages active and passive portfolios fordomestic and international strategies. He was previ-ously an Operations Associate supporting the InvestorSolutions Group and the Global FundamentalStrategies Group. Prior to joining SSgA, Mr. Borgesworked for Putnam Investments, holding positionsas Senior Cash Specialist and Portfolio Accountant.

For the portfolio management team of the underlying funds, see the funds’ Statement ofAdditional Information.

Michael O. Martel• Vice President, SSgA and SSgA FM• Portfolio Manager, SSgA U.S. Global Asset


Mr. Martel is responsible for developing and imple-menting multi-asset class solutions for clientsincluding strategic and tactical global balancedfunds, equitization and overlay strategies, and coun-try selection portfolios. He also overseesdevelopment of proprietary trading systems andassists in ongoing research. Previously, Mr. Martelwas with SSgA’s Global Structured ProductsGroup, specializing in developed and emergingmarket index strategies and the valuation of globalderivatives. Prior to joining SSgA, Mr. Martelworked for the Mutual Funds Division of StateStreet Corporation.

Payments for distribution and services

Each fund pays a distribution and shareholder servicesfee to ALPS Distributors, Inc., which is not affiliatedwith AARP Funds, AARP Financial, or SSgA FM. Thisfee covers the sale and distribution of a fund’s sharesand servicing activities for shareholders.

This so-called 12b-1 fee (named after Rule 12b-1under the Investment Company Act of 1940) may beas much as 0.20% annually of a fund’s average dailynet assets. Of this amount, ALPS Distributors, Inc. inturn pays out approximately:

• 0.14% of a fund’s net assets to AARP Financial(under a Services Agreement) for helping ALPSDistributors, Inc. with distribution and shareholderservicing activities, including creating advertisingand marketing materials, educating call center personnel, and providing services to investors.

• 0.05% of a fund’s net assets to AARP (under aTrademark Licensing Agreement) for the right touse the AARP name in the funds’ names and foraccess to AARP’s membership list.

These fees will increase the cost of your investmentbecause they are paid out of fund assets on anongoing basis. Over time, they may cost you morethan if you paid an up-front sales charge.

While AARP has licensed the use of its name toAARP Funds and endorses the services provided byAARP Financial, AARP cannot recommend that youor any specific individual should purchase shares of aparticular fund. AARP is not a registered investmentadviser or broker-dealer.


These tables are intended to help you understandthe financial performance of the funds. Certaininformation reflects financial results for a singlefund share. “Total return” represents the rate thatan investor would have earned or lost on an invest-ment in each fund, assuming reinvestment of alldividends and capital gains.

The information in these tables has been audited by KPMG LLP, the independent registered publicaccounting firm for AARP Funds. KPMG LLP’sreport, along with the financial statements for thesefunds, is included in the funds’ annual report, and isincorporated by reference into (is legally consideredpart of) the Statement of Additional Information.

1 For the period from January 1, 2006 (commencement ofoperations) to June 30, 2006.

2 For the period from September 29, 2006 (commencement ofoperations) to June 30, 2007.

3 The per share amounts and percentages include the fund’sproportionate share of income, expenses and net realized andunrealized gains or losses of the State Street Money MarketPortfolio.

4 Represents less than $0.01.

5 Total returns for periods of less than one year are not annualized.

6 In addition to the fees and expenses which the funds beardirectly, the funds indirectly bear a pro-rata share of the feesand expenses of the underlying portfolios in which the fundsinvest. The net expense ratio shown does not include theseindirect expenses. If included, the net expense ratio for eachfund would be 0.50%.

7 Computed on an annualized basis.

Footnotes continue on the following page.

Financial Highlights

Financial highlights For a share outstanding throughout each period indicated

AARP AARP AARPAggressive Fund Moderate Fund Conservative Fund

Year ended Period ended Year ended Period ended Year ended Period ended6/30/07 6/30/061 6/30/07 6/30/061 6/30/07 6/30/061

Net asset value, beginning of period $10.17 $10.00 $10.04 $10.00 $9.86 $10.00

Income from investment operations:

Net investment income 0.24 0.09 0.31 0.10 0.39 0.16

Net realized and unrealized gain (loss) on affiliated investments 1.52 0.17 1.02 0.04 0.53 (0.14)

Total from investment operations 1.76 0.26 1.33 0.14 0.92 0.02

Less distributions:

From net investment income (0.25) (0.09) (0.31) (0.10) (0.40) (0.16)

From net realized gainson investments (0.00)4 — (0.00)4 — (0.00)4 —

Total distributions (0.25) (0.09) (0.31) (0.10) (0.40) (0.16)

Net asset value, end of period $11.68 $10.17 $11.06 $10.04 $10.38 $9.86

Total return5 17.41% 2.60% 13.32% 1.44% 9.40% 0.24%

Ratios to average net assets:

Net expenses 0.24%6 0.24%6, 7 0.24%6 0.24%6, 7 0.25%6 0.24%6, 7

Net investment income 2.55% 3.36%7 3.27% 4.58%7 4.01% 5.31%7

Expense waiver/reimbursement9 (2.00)% (11.22)%7 (1.11)% (6.82)%7 (2.16)% (11.00)%7

Supplemental data:

Net assets, at end of period (000 omitted) $20,222 $6,454 $31,925 $13,133 $11,622 $6,581

Portfolio turnover 12% 7% 13% 5% 17% 7%


“Financial Highlights” footnotes continued.8 Effective March 1, 2007, AARP Financial has agreed contrac-

tually to waive fees and reimburse expenses to keep the nettotal operating expenses of the AARP Money Market Fund,including its pro-rata allocation of expenses from the StateStreet Money Market Portfolio, at 0.30% of average daily netassets through November 1, 2009.

9 This expense decrease is reflected in both the net expense andnet investment income (loss) ratios shown above.

Financial highlights For a share outstanding throughout each period indicated

AARP AARPIncome Fund Money Market Fund

Period ended Period ended6/30/072 6/30/073

Net asset value, beginning of period $10.00 $1.00

Income from investment operations:

Net investment income 0.36 0.05

Net realized and unrealized gain (loss) on affiliated investments (0.18) –

Total from investment operations (0.18) 0.05

Less distributions:

From net investment income (0.36) (0.05)

From net realized gainson investments — –

Total distributions (0.36) (0.05)

Net asset value, end of period $9.82 $1.00

Total return5 1.78% 5.11%

Ratios to average net assets:

Net expenses 0.25%6,7 0.33%8

Net investment income 5.36%7 5.06%

Expense waiver/reimbursement8 (21.21)%7 (3.91)%

Supplemental data:

Net assets, at end of period (000 omitted) $2,338 $35,742

Portfolio turnover 30% –

22 AARP FUNDS PROSPECTUS

Online

• Confirm that your bank or credit union is a member ofthe Automated Clearing House (ACH) system.

• Go to www.aarpfunds.com and select the “Open NewAccount” button.

• Follow the instructions for creating a new account.

By mail

• Get a New Account Application (see KeyConsiderations above). Be sure to choose the rightapplication for the type of account you want to open.

• Complete a separate application for each type ofaccount. All account owners must sign the application.

• Enclose a check made out to “AARP Funds” for yourinitial investment.

• Send by regular mail or overnight delivery to the appro-priate address listed on page 23.

By Automatic Investment Program — Direct from Your Bank Account

• Confirm that your bank or credit union is a member ofthe Automated Clearing House (ACH) system.


• Complete the application, including the AutomaticInvestment Program sections, and send it by regularmail or overnight delivery to the appropriate addresslisted on page 23.

Key Considerations

• To open an account, you need tofill out a New Account Application(available on www.aarpfunds.comby choosing the “Forms andDocuments” tab or by calling 1-800-958-6457, option 1, AARPFinancial Center representative).

• If opening an account with a singleinvestment, the minimum invest-ment is $100.

• If opening an account with anAutomatic Investment Program,the minimum is just $25.

• When you invest in the MoneyMarket Fund, you will beginaccruing dividends on the busi-

ness day following the businessday your purchase request isreceived in good order.

• You cannot open a new accountby wire.

• See Policies about buying shares onpage 27.

Your AccountBuying and Selling Shares

How to Open a New Account

Types of Accounts Available

Contact Information for Placing Orders

By regular mailAARP FundsP.O. Box 8035Boston, MA 02266-8035

By overnight mailAARP Fundsc/o BFDS30 Dan RoadCanton, MA 02021

By phone1-800-958-6457, option 2, service representative

Onlinewww.aarpfunds.com

By Payroll Deduction — Direct from Your Paycheck

• Confirm that your employer offers this service.


• Download a Payroll Deduction Form by going towww.aarpfunds.com, selecting the “Forms andDocuments” tab, and choosing the “AccountMaintenance and Service Forms” link.

• Alternatively, request a Payroll Deduction Form by calling 1-800-958-6457 and selecting option 2,service representative.

• Complete the application and the Payroll DeductionForm, and send them by regular mail or overnight deliv-ery to the appropriate address listed below.

• Provide your employer with a copy of the PayrollDeduction Form.

Your Account AARP FUNDS PROSPECTUS 23

Individual or Joint Ownership Individual accountsmust be registered to one person. Joint accounts canhave two or more owners and provide for rights ofsurvivorship. On individual or joint accounts, filling outa Transfer on Death (TOD) form, in addition to youraccount application, will allow your account’s assets topass directly to a beneficiary and avoid probate. Formsare available from Shareholder Services and online.

Retirement A qualified retirement account allows youto defer taxes on investment income and capital gains.Your contributions may also be tax-deductible. Pleaseconsult your tax advisor for details about tax advan-tages or consequences. Types of retirement accountsavailable at AARP include:• Traditional IRA• Roth IRA• Rollover IRA• Simplified Employee Pension IRA (SEP-IRA)

Gift or Transfer to a Minor (UGMA, UTMA) Gift ortransfer accounts let you give money to a minor for anypurpose. The gift is irrevocable and the minor gainscontrol of the account once he or she reaches the ageof majority.

Coverdell Education Savings Account Formerlycalled an Education IRA, this account allows you toearn tax-deferred investment income and capitalgains that may be withdrawn tax-free for qualifiededucation expenses.

Trust For assets held in a trust.

Business Entity Allows an authorized person of acorporation, partnership, or other entity to establish a business account.

24 AARP FUNDS PROSPECTUS Your Account

How to Add Money to an Account

Key Considerations

• Subsequent investments must befor at least $25. This includeselectronic transfer payments fororders placed online or by phone.

• Before investing online, byphone, or through the AutomaticInvestment Program, you needto have already established thisservice. To establish this service,fill out the appropriate sections

of the Shareholder Services Form(available on www.aarpfunds.comby choosing the “Forms andDocuments” tab or by calling 1-800-958-6457, option 2, service representative).

Online

• Set up your account for investing online (see KeyConsiderations above).

• Go to www.aarpfunds.com and select the “Log in toYour Account” button.

• Access your account and follow the instructions forbuying additional shares.

• Investments will be debited from your bank accountand sent via electronic transfer.

By phone

• Set up your account for investing by phone (see KeyConsiderations above).

• To place your order using our 24-hour AutomatedResponse System, call 1-800-958-6457 and selectoption 3, then follow the instructions for accessing youraccount and entering your order.

• To place your order through a service representativeduring business hours, call 1-800-958-6457 andselect option 2, then provide the service representativewith your order information.

By mail

• Use the Additional Investments slip that comes with your quarterly statement, or write a letter ofinstruction with the account owner name(s), accountnumber, and fund name, signed exactly as shown in the account registration.

• Enclose a check made out to “AARP Funds” for theamount you want to add to your account.


By wire

• Instruct your bank to wire your investment to: State Street Bank & Trust Co.225 Franklin StreetBoston, MA 02120ABA # 011000028DDA# 9905-684-8FBO: AARP Funds

• Also include the following information:- Your account number- The name(s) of account owner(s)- The tax ID number- The fund name- The name and address of the financial institution

wiring the money

By Automatic Investment Program — Direct from Your Bank Account

• Confirm that your bank or credit union is a member of the Automated Clearing House (ACH) system.

• Set up your account for investing through the Automatic Investment Program (see KeyConsiderations above).

By Payroll Deduction — Direct from Your Paycheck

• Confirm that your employer offers this service.

• Download a Payroll Deduction Form by going to www.aarpfunds.com, selecting the “Forms andDocuments” tab, and choosing the “AccountMaintenance and Service Forms” link.

• Alternatively, request a Payroll Deduction Form by calling 1-800-958-6457 and selecting option 2,service representative.

• Complete the form and send it by regular mail orovernight delivery to the appropriate address listed on page 23.

• Provide your employer with a copy of the form.

Online• Go to www.aarpfunds.com and select the

“Log in to Your Account” button.

• Access your account and follow the instructions forexchanging shares.

By phone• To place your order using our 24-hour Automated

Response System, call 1-800-958-6457 and selectoption 3, then follow the instructions for accessing youraccount and entering your order.

• To place your order through a service representativeduring business hours, call 1-800-958-6457 andselect option 2, then provide the representative withyour order information.

How to Exchange Between Funds

Key Considerations• You may exchange shares of any

fund for shares of any other fundat no charge.

• For any order to sell shares, youwill need to give us the followinginformation:- account owner(s)- tax ID number- account number- the dollar amount or the

number of shares

• Because an exchange is treated asa sale for tax purposes, be awarebefore you place your order thatthere may be a capital gain orloss that affects your taxes (doesnot apply to IRAs).

• Note that the name of theaccount owner(s) and tax identification number must bethe same on the two accountsinvolved in the exchange.

• For IRA accounts, an exchangewill result in the annual IRA custodial fee being charged toboth the old and new accounts.

• See Policies about exchanging andselling shares on page 27.


By mail• Write a letter of instruction that includes all required

information (see Key Considerations above).

• Make sure all registered owners sign the letter exactlyas shown in the account registration.



How to Take Money Out of an Account

Key Considerations

• For any order to sell shares, youwill need to give us the followinginformation:- account owner(s)- tax ID number- account number- the dollar amount or the

number of shares • Phone orders to sell shares are

limited to $50,000 worth of sharesper fund per account per day.

• In certain cases, such as orders to sell more than $50,000 worthof shares, you will need to placeyour order by mail and it will needto have a Medallion signatureguarantee (see page 28).

• Before placing orders to sellonline or through the SystematicWithdrawal Plan, or any phoneorders that you want redeemedvia wire or electronic transfer,

you must already have estab-lished this service. To establishthis service, fill out the appro-priate sections of the ShareholderServices Form (available onwww.aarpfunds.com by choosingthe “Forms and Documents” tabor by calling 1-800-958-6457,option 2, service representative).

• See Policies about exchanging andselling shares on page 27.

Online

• Set up your account for placing orders to sell online(see Key Considerations above).

• Go to www.aarpfunds.com and select the “Log in to Your Account” button.

• Access your account and follow the instructions forselling shares.

• Investments will be sent to your bank account via electronic transfer.

By phone

• If you want to receive proceeds by wire or electronictransfer, set up your account for this feature (see KeyConsiderations above). If you do not have this featurein place, we will send a check to the address of recordon the account. Wire transfers can only be requestedthrough a service representative.

• To place your order using our 24-hour AutomatedResponse System, call 1-800-958-6457 and selectoption 3, then follow the instructions for accessing youraccount and entering your order.

• To place your order through a service representativeduring business hours, call 1-800-958-6457 andselect option 2, then provide the representative withyour order information.

By mail

• Write a letter of instruction that includes all requiredinformation (see Key Considerations above).

• Make sure all registered owners sign the letter exactlyas shown in the account registration.


• We will send a check to the address of record on the account.

By Systematic Withdrawal Program

• Confirm that your bank or credit union is a member of the Automated Clearing House (ACH) system.

• Set up your account for Systematic Withdrawal Plan(see Key Considerations above).

• At the time of each requested withdrawal, we will eithersend a check to the address of record or an electronictransfer to your bank account, depending on how youhave set up the service.

By checkwriting (Money Market Fund only)

• Download a Checkwriting Authorization Form bygoing to www.aarpfunds.com, selecting the “Formsand Documents” tab, and choosing the “AccountMaintenance and Service Forms” link.

• Alternatively, request a Checkwriting Authorization Form bycalling 1-800-958-6457, option 2, service representative.

• Complete the form and send it by regular mail orovernight delivery to the appropriate address listed onpage 23. Note that if you are adding this service to anexisting account, you must obtain a Medallion signa-ture guarantee. See page 28.

• You may begin writing checks as soon as your checksarrive in the mail. There is currently no fee for checkingand no limit on the number of checks you may write,but each check must be for at least $250. Note thatyou may not close your Money Market Fund account bywriting a check.

Transaction PoliciesCharges and feesThe only costs associated with the funds are thosedescribed earlier in the Fund Expenses section, andcertain incidental fees associated with specific serv-ices or accounts. These fees include:• A $10 annual maintenance fee (per fund) for each

IRA and Coverdell Education Savings Account.• A $5 fee for each wire we send for you. We do

not charge you to receive a wire, although yourbank may charge you to receive a wire from us.

General policies about transactions• Any order to buy, exchange, or sell shares must

be complete and received in good order by theservicing agent for a fund to act on it.

• If your account has more than one account owneror person authorized to make transactions for theaccount, we will accept telephone or onlineinstructions from any of them.

• Any order request received after a fund’s close ofbusiness is considered to have been received onthe next business day.

• We do not accept requests to hold a transactionfor a future date.

• If you invest in a fund through an intermediary(such as a personal financial adviser), the interme-diary may have different policies and fees. Wesuggest you read all materials from the intermedi-ary carefully to understand the policies and feesthat may apply.

• We do not pay interest on uncashed checks. Youshould cash distribution checks promptly.

• Wires cannot be sent on days when the FederalReserve is closed (even if the funds are open forbusiness). This includes Columbus Day andVeteran’s Day. Wire orders to buy or sell sharesthat are placed on such days will be processed onthe next day that both the funds and theFederal Reserve are open.

• If you have difficulty contacting us by phone oronline, we suggest that you send your signedtransaction request by regular mail or overnightdelivery. Use the appropriate address found onpage 23.

Policies about buying shares• When opening new accounts, we accept ONLY

electronic transfers and checks (including bankdrafts and cashiers checks) in U.S. dollars, drawnon U.S. banks.

• Sorry, but we DO NOT accept:- starter checks- cash- travelers checks- money orders- credit or debit cards- third-party checks except IRA rollover checks

• You cannot use a business check to buy shares fora non-business account.

• If you buy shares by check or electronic transfer, wemay delay the payment of redemption proceeds forup to 15 days, while these transactions clear throughthe banking system.

• We reserve the right to reject any offer to buyshares if we believe that doing so is in the bestinterests of a fund’s shareholders.

Policies about exchanging and selling shares• By signing up for “electronic transactions,” you

have a choice as to how your money is sent toyour bank account, either as an electronic transferor wire transfer. With a wire transfer, the moneyis received by your bank as “good funds,” but youmay incur additional charges. With an electronictransfer, there may be a delay in the accessibilityof your funds, but there are no additionalcharges.

• To receive proceeds by wire transfer or electronictransfer, you must have established this feature onyour account before initiating the redemption.

Account and Transaction Policies



Wire proceeds are normally sent the next businessday after we receive your order in good form, andare available for immediate use.

• Although by law we may take up to seven days tosend out your sale proceeds, with a check or anelectronic transfer, proceeds are normally sent onthe next business day after we accept your order.Note that there may be a delay of up to sevendays between when the receiving bank posts themoney to your account and when you are able todraw on the money.

• Checks for proceeds are normally sent by regularmail. If you like, you can request overnight deliv-ery; the delivery charges will be deducted fromthe redemption proceeds. Standard charges willapply.

• With regard to checkwriting, the Money MarketFund reserves the right to charge for, or to termi-nate, this service at any time. When a check iswritten on a Money Market Fund account, divi-dends and distributions will continue to be paid upto the day the check is presented for payment.

Transactions that require a Medallion signature guaranteeA Medallion signature guarantee provides you andthe funds with an additional level of protectionagainst the possibility of fraud on your account. Werequire a Medallion signature guarantee in the fol-lowing circumstances:• Orders to sell more than $50,000 worth of shares.• When you want the sale proceeds sent to an

address or bank that is not the address or bank ofrecord for the account, or that has been theaddress or bank of record for less than 30 days.

• When you want the sale proceeds made payable to someone other than the registeredaccount owners.

• When you want to receive the sale proceeds bywire transfer or electronic transfer, but thisaccount privilege has not been activated inadvance of your sell order.

• When you want to receive the sale proceeds by wire transfer or electronic transfer to anaccount that is not listed as the account of record for transfers.

You can get a Medallion signature guarantee from afinancial institution, broker, dealer or clearing agencythat is a participant in any of these programs:• Securities Transfer Agents Medallion Program• Stock Exchanges Medallion Program• New York Stock Exchange Medallion

Signature Program

You cannot get a Medallion signature guaranteefrom a notary public nor can a notarization substi-tute for one.

Restrictions on excessive tradingAll funds except the Money Market Fund The fundsdo not accommodate excessive trading. Whethermotivated by so-called market timing techniques orby other purposes, excessive trading is inconsistentwith the funds’ investment goals and has the poten-tial to interfere with efficient fund management andto raise costs for shareholders.

Consistent with policies approved by the Board ofTrustees, we monitor large trades in fund shares aswell as “round trip” trades (purchases followed byredemptions or exchanges). If we find any behaviorthat, in our view, constitutes inappropriate or exces-sive trading, we may take any of the following stepswith the shareholders we believe are responsible:• issue a warning• restrict the use of convenient methods to

submit redemption or exchange orders (such as by internet or phone)

• accept only orders to sell shares

We may take these steps at any time, without anyobligation to provide prior notice (although we will,when it is reasonable to do so, attempt to give priornotice), and without any liability for any consequencesthat may arise, such as an uncompleted exchange.

With omnibus accounts (accounts held by an inter-mediary on behalf of many individual clients), wemay take any of the following steps:• treat the omnibus account as a single investor and

limit its trades accordingly

• require the intermediary to provide informationabout trading orders on accounts within theomnibus account

• instruct the intermediary to take appropriateaction against individual clients

While the funds intend to be vigorous in theirefforts, excessive trading can sometimes be difficultto detect. The funds therefore cannot guaranteethat their efforts will be successful in eliminatingsuch activities and their detrimental effects.

Money Market Fund Because the fund is intended toserve as a liquid, short-term investment, it has nospecific limits on trading frequency. However, trad-ing activity in Money Market Fund shares will bemonitored as part of detection and enforcementefforts associated with the other funds’ excessivetrading policies.

Share Price PoliciesHow a fund’s share price is calculatedThe price at which you buy or sell shares is the netasset value per share (NAV). Each fund’s NAV iscalculated every business day as of the close of regu-lar trading on the New York Stock Exchange(NYSE) — normally 4:00 PM Eastern time, butsometimes earlier. Each fund’s NAV is calculatedthis way:

Net assets Number of(total assets ÷ shares = NAV

minus liabilities) outstanding

To the extent that a fund’s assets consist of investmentsin underlying funds, the fund will calculate its shareprice using the NAV of each applicable underlyingfund in calculating its own NAV.

The underlying funds (other than the UnderlyingMoney Market Fund) calculate their share priceusing the same formula as the funds. Bonds in anunderlying fund generally are valued using quotesfrom bond dealers or bond pricing services. Stocksin an underlying fund generally are valued at theirmarket price on the primary exchange where theyare traded.

In order to help it meet its goal of maintaining asteady $1.00 NAV, the Underlying Money Marketuses the amortized cost valuation method to valueits portfolio instruments. In this method, an instru-ment is initially valued at its actual cost, and overtime its value is assumed to move in a straight linetoward its value at maturity, regardless of actualmarket value.

Fair-value pricingIf the market price for a given security is not readilyavailable, or if there is reason to believe that themost recent market price does not accurately reflectcurrent value, the underlying fund will determine afair value for it, using a method approved by theBoard of Trustees of the underlying fund. For exam-ple, an underlying fund might need to determinethe fair value of a security if an event that wouldaffect market pricing occurs after trading in thatsecurity is closed for the day, but before 4:00 PMEastern time, when NAV is calculated. This occursmost frequently with international stocks that aretraded on exchanges that close many hours earlier.

Because fair-value pricing involves judgment, a fair-value price will generally differ from the last marketprice or quote, and potentially also from the nextmarket price or quote to become available. Becauseof this, a NAV calculated using fair-value prices maybe higher or lower than what it would have been ifthe last reported or next-available market price orquote been used.

The share price for your transactionAll funds except the Money Market Fund On anybusiness day, if a fund receives your request to buy,exchange, or sell shares before closing time on theNYSE, it will use that day’s NAV as the price foryour transaction. If a fund receives your requestafter closing time, it will use the next business day’sNAV for your transaction.

Any time that we need more information before wecan complete a transaction you requested, we willuse the NAV as of the business day we receive allthe required information for your transaction.



Money Market Fund Investments must be made inFederal Funds (i.e., monies credited to the accountof the fund’s custodian bank by a Federal ReserveBank). The Federal Reserve is closed on certainholidays on which the NYSE is open. These holi-days are Columbus Day and Veteran’s Day. On theseholidays, you will not be able to purchase shares of the fund because the Federal Funds wiring doesnot occur on these holidays. You will begin accruingdividends on the business day following the busi-ness day your purchase request is received in goodorder. (As with the other funds, investments receivedafter the close of business are treated as having arrivedon the next business day.) Dividends will accruethrough the day of the redemption. Policies for sell-ing shares are the same as for the other funds.

General Business PoliciesEligible investorsIn general, shares of the funds are available for saleonly in the U.S. and its territories, and only to U.S. residents who have a Social Security Number.However, there are some exceptions — for example,shares can be sold to members of the U.S. militarybased outside the United States.

Verifying your identity In accordance with the USA PATRIOT Act andrelated regulations, when you apply to open a newaccount in any fund, we will ask for your name,address, date of birth, tax identification number, andother information that will allow us to identify you.If you do not provide the required information,and we cannot contact you to obtain it, we have theoption of declining your application and returningyour initial investment.

After your account is established, a fund is requiredto take steps to verify your identity, such as checkingyour information against various databases. If a fundis unable to verify your identity from the informationyou provide, you may be restricted from making pur-

chases or transferring shares, or your account maybe closed and the proceeds (which are calculatedusing the next available NAV) will be sent to you. Insuch a case, your proceeds may be more or less thanthe amount you paid for your shares, and the salemay be a taxable transaction.

Automatic Investment ProgramThis program lets you set up regular, automaticinvestments in the fund(s) of your choice. It can beused on any type of fund account. The money forthe investments can come from your bank accountor your paycheck.

Note that if two scheduled investments in a row aredenied because of insufficient funds, we may cancelyour Automatic Investment Program.

The funds’ business daysEach fund is open for business every day the NewYork Stock Exchange (NYSE) is open for business.This is normally Monday through Friday, exceptwhen the following holidays are observed: NewYear’s Day, Martin Luther King, Jr. Day, Presidents’Day, Good Friday, Memorial Day, IndependenceDay, Labor Day, Thanksgiving, and Christmas. Afund may suspend redemptions or postpone pay-ment dates on any other day when the NYSE isclosed or when its trading is restricted, or as other-wise permitted by the SEC.

Reporting of fund turnover ratesAll mutual funds (except money market funds) arerequired to report their turnover rate, which is simply the portion of a fund’s investments that weretraded for new ones in one year.

To the extent that a fund invests primarily in underlying funds rather than directly in securities,its turnover rate is not really meaningful (since most of the active trading of securities occurs withinthe underlying fund). Therefore, AARP Financialanticipates that each fund will have a turnover rate of less than 100% (generally significantly less).A higher turnover rate (over 100%) usually meanshigher costs due to brokerage expenses and taxes on capital gains.

At the underlying fund level, turnover also isexpected to be low because of the indexing strategy:the underlying funds (other than the UnderlyingMoney Market Fund) are designed to invest for thelong term, and generally buy and sell investmentsonly to adjust to changes in the target indexes.

Reporting of fund holdings All mutual funds (including the underlying funds)must report their holdings within 60 days of the endof each calendar quarter. The holdings of each fundare available at www.aarpfunds.com after the fundshave filed the required information with the SEC.

For more information on how we handle the disclosure of portfolio holdings, consult the funds’Statement of Additional Information.

Precautions against fraud For your security, the funds take precautions to helpensure that all orders received are authentic, whetherthose orders are placed in writing, by telephone,online, or through the Automated Response System.For instance, callers must verify personal identifica-tion information, and calls may be recorded.

It’s important to understand that so long as a fundhas taken reasonable precautions, it is not responsibleif any fraud does occur. If you want to be certain youare protecting your account from fraudulent tele-phone orders, the only way is to decline telephoneprivileges on your account application. If you maketransactions online, be sure to safeguard your username and password, and use security programs toprotect your computer.

Our right to change policiesExcept as noted in this prospectus and the Statementof Additional Information, each fund has the right tochange any of its investment objectives, investmentstrategies, or restrictions (as well as any other policies)without shareholder approval or prior notice.

AARP Funds may also change account requirementsas follows, without prior notice to shareholders, whenit believes it is in the best interest of a fund:• add, change, or discontinue conditions for account

service, account privileges, or buying shares• accept initial investment by telephone• freeze an account when there is a dispute between

account owners, or when a fund believes a trans-action is fraudulent

• redeem an account (sell all its shares) without theowners’ permission when a fund believes therehas been fraudulent or illegal activity

• change and introduce any fees

These changes may affect all investors of a fund, or only certain groups.



About mutual fund distributionsMutual funds earn income, in the form of dividendsand interest from securities they hold. They may alsorealize capital gains if they sell securities for morethan they paid for them. Each fund will distributeits income and net capital gains to investors — who,in turn, are responsible for paying any required taxeson the distributions they receive.

Timing of distributionsEach fund generally pays capital gains distributions(if any) in December. Even with normal investmentactivity, the amount may vary considerably fromyear to year.

Each fund generally pays income distributions (ifany) as follows:• AARP Aggressive Fund and AARP Moderate

Fund: June and December• AARP Conservative Fund: March, June,

September, and December• AARP Income Fund: monthly• AARP Money Market Fund: declared daily, paid

as of the last business day of each month

Options for receiving distributionsYou may tell us to pay your distributions in cash orto invest them automatically in more shares of thesame fund (known as dividend reinvestment). Eitherway, you are liable for tax on them. If you do nottell us how you want your distributions paid, yourdistributions will be reinvested.

If we mail a distribution check to your address of record and it is returned to us because of aninvalid address, we will automatically reinvest allfuture distributions until you provide us with thecorrect address.

Tax consequences of distributionsPlease consult your tax advisor for detailed informa-tion on the tax consequences of investing in a mutualfund, including the following issues:

• Your tax consequences will depend on whetheryou have invested through a regular account or atax-deferred account such as an IRA.

• Depending on how long a fund holds securitiesbefore selling them, its distributions will be clas-sified as either short-term or long-term capitalgains or losses. Distributions from net short-termcapital gains will generally be taxed as ordinaryincome. Because different tax rates apply, thefunds will supply information on whether distri-butions are treated as ordinary income orlong-term capital gains for tax purposes.

• No matter how long you have held shares in afund, you will receive distributions when they arepaid and you will be liable for taxes on them. Forshares that are not in an IRA or other tax-deferred account, it is generally wise not to buyshares shortly before a distribution is paid. Bywaiting until just after the distribution is paid,you will reduce your tax burden for that year.

Tax consequences of exchanging or selling sharesJust as a fund realizes capital gains when securitiesare sold at a higher price than originally paid, youmay realize a capital gain on your own transactions.That is, if you sell or exchange shares of a fund at ahigher price than you paid, you will likely owe taxeson the resulting capital gain. Of course, the reverseis true as well: if you sell or exchange shares at aloss, you might be able to deduct the loss on yourtax return, subject to certain limitations under thetax laws. You should be aware that state and localtaxes may apply, as well as federal income tax.

Backup withholdingYou must certify that you have provided the fundswith your correct Social Security or tax identifica-tion number, and that you are not subject to backupwithholding. If you do not provide this informationand certify that it is correct, we are required by lawto withhold 28% of all taxable distributions, sales,and exchanges from your account.

Distributions and Taxes

General Investment Termsasset-backed security A security that pools loans,such as credit card, auto, or home equity loans.Principal and interest payments are collected andpassed through to investors.

blue sky A state law that regulates the offering andsale of securities.

bonds Investments that pay interest (often a fixedamount) to investors. Typical issuers include corpo-rations, federal or state governments, and entitiessponsored by or associated with governments. Abond is essentially an IOU. It represents a debtowed by the issuer (as opposed to stocks, which represent shares of ownership in the issuer). In theevent that an issuer goes bankrupt or otherwiseencounters financial difficulties, its bondholdersgenerally have priority over stockholders.

commercial paper A debt instrument issued by a cor-poration (typically to meet short-term financial needs)that normally must be paid back within 270 days.

current income Money paid out to investors, such as bond interest.

derivative In general, a financial contract whosevalue is based on a traditional security (such as astock or bond), on an index, or on the differencebetween two or more securities or indexes.

dividends Money paid by a mutual fund or by astock-issuing company to the investors who ownshares of the fund or of the company’s stock. Stockdividends are generated by the issuing company’sbusiness operations. Mutual fund dividends are gen-erated by interest or dividends the fund receivesfrom investments it owns.

dividend reinvestment Using dividends to buy addi-tional shares of the investment paying the dividend,instead of taking the money as a cash payment.

emerging market A country whose stock and bondmarkets are still developing, such as many countriesin Asia, Latin America, Eastern Europe, and Africa.

fair value A reasonable price for a security that buyers and sellers would accept in the market wherethe security usually trades.

good order A purchase, exchange or redemptionorder is in “good order” when a fund, or its agent,receives all required information, including properlycompleted and signed documents.

growth of capital With mutual funds, the growth in value of an investment through an increase in afund’s share price, which is based in turn on a netincrease in the value of the fund’s holdings.

interest Money paid by a bond issuer to investorswho, in effect, have loaned the issuer money bybuying its bonds.

market price The last reported price of a securityon a market where that security is bought and sold.

Medallion signature guarantee A stamp or seal froman approved financial institution that participates in one of the three recognized Medallion programs.The stamp or seal guarantees that your signature is authentic. See also page 28.

money market instruments Short-term, liquidinvestments that usually mature within 13 months.Examples of money market instruments are U.S. Treasury bills, bank certificates of deposit,repurchase agreements, commercial paper, andbankers’ acceptances.

mortgage-backed security A security of an issuerthat pools mortgages. Principal and interest pay-ments on the mortgages are collected and passedthrough to investors.

net asset value per share (NAV) The price of a single share of a mutual fund.

omnibus account A single account held by aninvestment professional on behalf of many investors.

Glossary



preservation of capital The preservation of the valueof an investor’s investment.

real estate investment trust (REIT) A security that is issued by a company that invests in real estate(either by owning property directly or throughmortgages) and that trades on a stock exchange.

rebalance To maintain a target mix of stocks,bonds, and other assets.

SEC The Securities and Exchange Commission has primary responsibility for enforcing the federalsecurities laws and regulating the U.S. securitiesindustry and markets.

share price See “net asset value per share.”

small company stock Generally, stock of a companywhose total market value is between $250 millionand $1 billion.

stocks Investments that represent a share of owner-ship in a company. Stocks are traded on markets orexchanges where their prices can go up or down inresponse to supply and demand. Some stocks alsopay dividends.

total return The total gain or loss of a mutual fund,including all dividends, interest, and capital gains. Itis expressed as a percentage of the original investment,and reflects the reinvestment of dividends and interest.

yield The amount of income (meaning interest ordividends) earned by an investment, expressed as apercentage of the investment’s price.

Prospectus-Specific Termsfund, funds One, some, or all five of the mutualfunds offered in this prospectus.

SSgA FM SSgA Funds Management, Inc.

Underlying Bond Fund The U.S. Bond MarketPortfolio.

underlying funds Currently the U.S. Bond MarketPortfolio, the U.S. Stock Market Portfolio, and theInternational Stock Market Portfolio, each a seriesof AARP Portfolios, and the State Street MoneyMarket Portfolio, a series of the State Street MasterFunds. Other funds may be used as underlyingfunds in the future.

Underlying International Fund The InternationalStock Market Portfolio.

Underlying Money Market Fund The State StreetMoney Market Portfolio.

Underlying Stock Market Fund The U.S. StockMarket Portfolio.

Notes

Notes

Notes

Annual and semi-annual reports Each report includes financial statements and theannual report discusses the market conditions andinvestment strategies that significantly affected each fund’s performance (other than the MoneyMarket Fund).

Statement of Additional Information (SAI) The SAI provides more detailed information aboutthe funds, such as the portfolio managers’ compen-sation, other accounts managed by the portfoliomanagers, and the portfolio managers’ ownership ofsecurities of the funds, as well as more informationon how we handle the disclosure of portfolio holdings.The funds’ annual and semi-annual reports and theSAI are incorporated by reference into (are legally a part of) this prospectus.

To request a free copy of the latest annual or semi-annual report to shareholders, the SAI, or otherinformation about the funds or your account, pleasecontact us:

By phone 1-800-958-6457Monday–Friday, 8:00 AM to 6:00 PM Eastern time

By email [email protected]

Online www.aarpfunds.com

By regular mailAARP FundsP.O. Box 8035Boston, MA 02266-8035


You can also review and copy information aboutthe funds (including the SAI) at the SEC’s PublicReference Room in Washington, DC. (call the SECat 202-551-8090 for more information). Reports andother information about the funds are also availablein the SEC’s EDGAR Database at www.sec.gov, oryou can receive copies of this information, for a fee,by electronic request at the following:

By email [email protected]

By regular or overnight mailPublic Reference SectionSecurities and Exchange CommissionWashington, DC 20549-0102

Investment Company File No. 811-21825ARP-PR-007-1007

For More Information

Privacy Policy Notice This privacy policy notice summarizes how AARPFinancial Incorporated (AFI) and AARP Funds (fundsand collectively with AFI, we, our, or us) plan to protect our customers’ (your) nonpublic personal infor-mation (Information).

Our commitment to safeguarding your privacyWe value your trust and continue to recognize theimportance of holding your Information as confidential.We will do our best to use your Information responsi-bly in order to protect you from fraud, and comply withlegal obligations.We will require companies with which we do businessto use any Information we provide appropriately and tosafeguard the confidentiality of such Information.

We collect the following categories of Information about youWe collect Information about you from the followingsources: • Information we receive from you on applications or

other forms, on our web site or through other means;• Information we receive from your transactions, corre-

spondence and other communications with us; and • Information we receive from you in connection with

providing you a financial product or service.

We disclose the following categories of Information about youWe do not disclose any Information about you or any for-mer shareholder to anyone, except as permitted orrequired by law. All Information may be shared among thefunds or between a fund and AFI, including its affiliates,AARP and AARP Services, Inc. to provide products orservices to you or to make a solicitation for marketingpurposes related to financial products or nonfinancialproducts such as membership in AARP.We may disclose all Information about you or any formercustomer to the following types of affiliated and non-affiliated third parties:• Financial service providers who assist us in maintain-

ing or servicing your accounts, such as securitiesbroker/dealers, the distributor of any funds for whichAFI provides investment advisory services, transferagent, printers and those who assist with mailing andother services that are typically provided to funds as

well as financial service providers who do not assist usin maintaining or servicing your accounts, such ascompanies engaged in banking, credit cards, consumerfinance, securities, and insurance with whom we or our affiliates have agreements to provide endorsedproducts or services;

• Nonfinancial companies, such as service providers whofulfill information requests, as well as nonfinancialcompanies engaged in direct marketing and the sellingof consumer products and services with whom we orour affiliates have agreements to provide member ben-efits or discounts; and

• Others with whom you have consented to our sharingyour Information, or joint account holders.

We may also disclose all of the Information we collect tocompanies who perform marketing services on our behalfor to other institutions with whom we or our affiliateshave joint marketing agreements, except as otherwiseprohibited by federal or state law.

Protecting the security and confidentiality of your InformationWe restrict access to Information about you to thoseemployees who need to know that information to pro-vide products or services to you. We maintain physical,electronic, and procedural safeguards that comply withfederal standards to guard your Information. We willprotect against anticipated threats or hazards to thesecurity of the Information we receive from a consumerreporting agency, as well as against unauthorized use ofthis Information. When disposing of any Information,we will take reasonable measures to protect againstunauthorized access or use of the Information.

Your privacy choicesIf you do not want us to share your Information with non-affiliated third parties who do not provide services to us(we may still provide your Information as permitted bylaw and as necessary to process and service your accounts)or if you want us to limit the personal Information thatwe share about you with our affiliates (unless otherwisepermitted by law), you can opt-out of the disclosure ofyour Information by contacting us at 1-800-958-6457.Please allow 30 days from our receipt of your privacychoices for them to become effective.Investors purchasing or owning interests of the fundsthrough their bank, broker, or other financial institutionshould consult that institution’s privacy policies.


ARP-PR-0071007

Shareholder ServicesHow we communicate with you

We send out several types of regular communica-tions to keep you informed about your investment:• Transaction confirmations to verify your

purchases or sales. • Quarterly and annual account statements that

recap all activity for the period, so you can monitor your investments.

• Annual and semi-annual reports.

Note that if you have more than one account withthe same address, or share an address with otherinvestors that have an account, we will send onecopy of a prospectus, annual report, and other simi-lar documents to that address. If at any time in thefuture you decide you would prefer to receive dupli-cate documents for each account you own, simply

call us and speak with a service representative. Youwill begin receiving individual copies within 30days of the date that we receive your instructions.

How you can communicate with us

We’re available in whatever way you find most convenient: online, by phone, and mail.

Service is available 24 hours, 7 days a week, at ourinternet site and through our telephone AutomatedResponse System. Both can provide a wealth ofinformation and can process most routine requests.

If you want to talk with someone who can help youdecide if a fund is right for you, you can speak witha courteous, knowledgeable representative from8:00 AM to 6:00 PM Eastern time. For help withtransactions or account-related inquiries, speakwith a Shareholder Services representative.

How to reach usBy regular mailAARP FundsP.O. Box 8035Boston, MA 02266-8035


• Buy, sell or exchange shares• Change the name on your account• Add a seasonal mailing address• Add bank information to your

account• Add or change an Automatic

Investment Program• Add or change payroll deduction

Online www.aarpfunds.com• Open an account• Get a prospectus or fund report • Buy, sell or exchange shares• View your account balance and

share price• Change your mailing address• Order duplicate statements or

receive tax form information• Download account service forms• Change Automatic and Systematic

Investment Programs

By [email protected]

By phone1-800-958-6457

AARP Financial Center representatives• Speak with representatives who

can help you identify your goals,determine if you’re on track, anddecide if a fund is right for you.

Shareholder Services representa-tives or our 24-hour AutomatedResponse System• Receive account information and

service (representatives only)• Change your address

of record (representatives only)• Exchange shares • Buy or sell shares by electronic

transfer• Order duplicate statements • Check your account balance

NOT PART OF THE PROSPECTUS©2007 AARP Financial

IRA Application and Adoption AgreementMake checks payable to: AARP FundsMail to: AARP Funds, P.O. Box 8035, Boston, MA 02266-8035Overnight address: AARP Funds c/o BFDS, 30 Dan Road, Canton, MA 02021Phone: 1-800-958-6457The funds will not accept third-party or starter checks.

1. Account Registration (Please print; preferably in capital letters and black ink.)

Daytime telephone number Alternate telephone number Email address

Mailing address (if different than street address)–P.O. box is acceptable

Street address (street address required to open an account; to add an alternate mailing address, such as a P.O. box, see below)

City State Zip

Social Security number/Tax Identification number Birthdate (mm/dd /yyyy)

Owner’s name (first, middle, last)

City State Zip

Please complete only one section–section A for Traditional IRA, section B for Roth IRA or section C for Simplified Employee Pension (SEP) IRA. If you would like more than one type of IRA, you are required to fill out an additional application. Please note the following:

• “Transfer of Assets” refers to moving assets from your existing IRA Custodian directly to an AARP IRA.

• “Direct Rollover” refers to moving assets directly from a qualified retirement plan (such as a 401(k), 403(b), or 457 plan) to an AARP Traditional IRA only.

• “Rollover” refers to receiving qualifying distribution assets from another IRA or qualified retirement plan and investingthose assets in an AARP IRA within 60 days.

• If you are age 701⁄2 or older, you are required to take your required minimum distribution before transferring orconverting your Traditional IRA assets (for more information, please consult IRS Publication 590).

� Annual Contribution(s) for tax year 20_____. (If left blank, current year is assumed.) Go to section 4 if utilizing automatic investment plan.

� Transfer of Assets. Complete the AARP IRA Transfer/Direct Rollover of Assets Form. Go to section 4 if utilizing automatic investment plan.

� A. Traditional IRA (Choose one)

2. IRA Election

IRA Election continues next page

–

– –

– – –

Fees$10 annual fee (per fund account) � enclosed OR � deductIf no box is checked, fees will automatically be deducted.

� Direct Rollover. Complete the AARP IRA Transfer/Direct Rollover of Assets Form. Go to section 4 if utilizing automatic investment plan.

� Rollover. Check enclosed for $_______________. Go to section 4 if utilizing automatic investment plan.� Recharacterization of Roth IRA.

Existing AARP Roth IRA account number_____________________________Amount recharacterized $_______________If IRA is held with another custodian or trustee, complete the AARP IRA Transfer/Direct Rollover of Assets Form.

� Annual Contribution(s) for tax year 20_____. (If left blank, current year is assumed.)� Transfer of Assets. Complete the AARP IRA Transfer/Direct Rollover of Assets Form. Go to section 4 if

utilizing automatic investment plan.� Rollover. Check enclosed for $_______________. Go to section 4 if utilizing automatic investment plan.� Conversion of Traditional IRA.

Existing AARP Traditional IRA account number_____________________________Amount converted $_______________If IRA is held with another custodian or trustee, complete the AARP IRA Transfer/Direct Rollover of Assets Form.

� Recharacterization of Traditional IRA. Existing AARP Traditional IRA account number_____________________________Amount recharacterized $_______________If IRA is held with another custodian or trustee, complete the AARP IRA Transfer/Direct Rollover of Assets Form.

� B. Roth IRA (Choose one)

• Initial minimum: $100 per fund; $25 if Automatic Investment or Payroll Deduction elected • Minimum subsequent purchases: $25 per fund• We accept ONLY checks (including bank drafts and cashier’s checks) in U.S. dollars, drawn

on U.S. banks.We cannot accept third party checks, starter checks, or certain cash equivalents.

Mid-to-Long Term Investment

These Funds are designed to be a complete investment program in itself; therefore, diversifying among the Funds is generally not necessary.

Fund name Fund number Initial investment Must total 100%

AARP Aggressive Fund or

AARP Moderate Fund or

AARP Conservative Fund or, .$

, .$

, .$1 7 0 0

1 7 0 1

1 7 0 2

. %

. %

. %

. %

Short Term Investment

AARP Money Market Fund or

This Fund seeks to maintain a constant $1.00 share price.

AARP Income Fund or

This Fund is designed to generate current monthly income.

Total investment amount

3. Investment - Options and Minimums

, .$ ,

, .$1 7 0 3

, .$1 7 0 4

. %1 0 0 0 0

. %

� Annual Contribution(s) for tax year 20_____. (If left blank, current year is assumed.)� Transfer of Assets. Complete the AARP IRA Transfer/Direct Rollover of Assets Form. Go to section 4 if

utilizing automatic investment plan.� Rollover. Check enclosed for $_______________. Go to section 4 if utilizing automatic investment plan.

� C. Simplified Employee Pension (SEP) IRA (Choose one)

� Check the box to add this option and complete this section and section 6. You may purchase shares monthly or quarterly into your existing account(s) automatically by electronic transfer from your checking or savings account. Transactions will occur on the 15th of the month or the next business day, unless otherwise specified below. The minimum investment is $25 per fund. Please allow 15 business days before the first draft. Shares purchased may not be available for 15 days. Please consult a tax advisor regarding contribution limits.

I authorize AARP Funds to draw on my bank account according to the following instructions:(Please indicate which type of account: � checking or � savings.)

4. Automatic Investment Plan

Beginning month Transactions should occur on the day of the month.

� AARP Aggressive Fund � Monthly � Quarterly

� AARP Moderate Fund � Monthly � Quarterly

� AARP Conservative Fund � Monthly � Quarterly

� AARP Money Market Fund � Monthly � Quarterly

� AARP Income Fund � Monthly � Quarterly

Amount ($25 minimum per fund)









$ , .

$ , .

$ , .

$ , .

$ , .

� Check the box to add this option and complete section 6. You may purchase or redeem shares anytime by calling 1-800-958-6457. Funds for share purchases are taken directly from your bank account and redemption proceeds are sent to your bank account.

5. Electronic Transactions

Complete this section if you have selected the Automatic Investment Plan from section 4. You must use the same checkingor savings account for these sections.

FOR CHECKING ACCOUNTS, A VOIDED CHECK MUST BE ATTACHED. FOR SAVINGS ACCOUNTS, PLEASE HAVE YOUR BANK ISSUE A LETTER CONFIRMING ALL OF THE INFORMATION REQUESTED BELOW.

I hereby make the following designation of beneficiary in accordance with State Street Bank & Trust Company’s Traditionalor Roth Individual Retirement Account Custodial Agreement:

Make payment in the proportions specified below. If you list more than one primary beneficiary, the percentages must total 100%. If any primary beneficiary predeceases me, his/her share is to be divided among the primary beneficiarieswho survive me in the relative proportions assigned to each such surviving primary beneficiary.

PRIMARY BENEFICIARY(IES):

If none of the primary beneficiaries survives me, pay any interest I may have under my Account(s) to the following contingent beneficiary(ies) who survive me. If you list more than one contingent beneficiary, the percentages must total 100%.

Make payment in the proportions specified on the next page.

7. Designation of Beneficiary

Name

Relationship Birthdate (mm/dd /yyyy)

Social Security number/Tax Identification number

Name



– – . %

6. Bank Information

Name of bank

Address of bank

Name(s) on bank account

Bank account number Bank ABA number (Routing Number)

City State Zip

– – . %

I hereby authorize AARP Funds to establish an IRA for mybenefit with State Street Bank & Trust Company, pursuant to the terms of AARP Funds Individual Retirement AccountCustodial Documents. By signing this form I certify that:

All information and certifications on this application aretrue. I have received and read a current prospectus for AARPFunds and the IRA Disclosure Statement and CustodialAgreement. I agree to be bound by the terms as governed by Massachusetts law. I have full authority and legal capacityto purchase fund shares and establish and use any relatedprivileges. If I am establishing a Simplified Employee Pension IRA (SEP- IRA), I certify that my employer has established a valid SEP Plan to which I am contributing.

I understand that a $10.00 annual maintenance fee may be collected by redeeming sufficient shares from each fundaccount balance, if not prepaid by December 1. The custodian may change the fee schedule from time to time.

I consent to the delivery of a single “shared” copy of eachprospectus and report to shareholders to me and all othershareholders who share my address. I understand that I mayrevoke my consent by calling AARP Funds at 1-800-958-6457or by writing to the address on this application.

I understand that the telephone transaction privileges andInternet transaction privileges will apply to my account. If I have telephone/Internet transaction privileges, I agree that neither the funds nor their transfer agent, their agents, officers, trustees, directors or employees will be liable for any loss, liability or expense for acting, or refusing to act on instructions given under the telephone and Internet transaction privileges that are reasonably believed to be genuine, placing the risk of loss on me. See the discussion of these privileges in the prospectus.

Under penalty of perjury, I hereby certify that the Social Security or other Tax Identification number(TIN) in section 1 is correct, that I am a U.S. person(U.S. person includes a resident alien) and that I amNOT currently subject to IRS backup withholding(cross out “NOT” if you are currently subject to withholding). The Internal Revenue Service does notrequire your consent to any provision of this documentother than the certifications required to avoid backupwithholding.

Receipt by the investor of AARP Funds confirmation statement shall indicate State Street Bank & Trust Company’s acceptance to act as custodian.

8. Signature

CONTINGENT BENEFICIARY(IES):

If there is no designated beneficiary living at the time any such payment becomes due, the payment shall be made to my estate.

Important: This Designation of Beneficiary(ies) may have important tax or estate planning effects. Also, if you are married and reside in a community property or marital property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico,Texas, Washington or Wisconsin), you may need to obtain your spouse’s consent if you have not designated your spouse as primary beneficiary for at least half of your Account(s). Consult your lawyer or other tax professional for additional information and advice.

7. Designation of Beneficiary (continued)

Signature continued back page

Name



Name



– – . %

– – . %

RETAIN A PHOTOCOPY OF THE COMPLETED FORM FOR YOUR RECORDS.

IMPORTANT NOTICE—THE USA PATRIOT ACT

To help the government fight the funding of terrorism and money laundering activities, Federal Law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth and other information that will allow us to identify you. This information will be verified to ensure identity of all individuals openinga mutual fund account.

©2007 AARP Funds

ARP-AP-003-0707

Your signature Date

Signature of parent or guardian Date

If the applicant is a minor under the laws of the applicant’s state of residence, a parent or guardian must also sign the Agreement here. Until the applicant reaches the age of majority, the parent or guardian will exercise the powers and duties of the applicant.

X

X

Signature of spouse (Only required in community property states, when designated beneficiary is not your spouse.) Date

X

Witness to signature* Date*Testamentary dispositions required to be witnessed in some jurisdictions.

X

Street Address– if different from applicant.

City State Zip

Social Security number/Tax Identification number Birthdate (mm/dd /yyyy)

Name of parent or guardian (first, middle, last)

– –

8. Signature (continued)

1. Investor Information(Please print, preferably in capital letters and black ink.)

IRA Transfer/Direct Rollover of Assets Form Use this form if 1) you are transferring IRA assets from another IRA custodian into an AARPFunds IRA or 2) you are directly rolling over retirement plan assets into an AARP Funds IRA.

An AARP IRA Application and Adoption Agreement are required to establish a new AARPFunds IRA.

Mail to: AARP Funds, P.O. Box 8035, Boston, MA 02266-8035Overnight address: AARP Funds c/o BFDS, 30 Dan Road, Canton, MA 02021Phone: 1-800-958-6457

Full Name (first, middle, last)

Social Security number /Tax Identification number

– –

Address

City State Zip

Daytime telephone number Alternate telephone number Email address

– –– –

TOA

2. Transfer Assets From Current IRA Custodian or Retirement Plan Account(s)

Name of Current Custodian/Trustee or Company/Plan Attn: Mr/Ms.Administrator for direct rollovers

Street address

City State Zip

Daytime telephone number

––

Fund Name/Fund Number (if applicable)* Account Number at Current Custodian

*To list additional accounts to be transferred, please attach a letter of instruction.

You must complete sections A, B, & C below Current IRA Custodian/Plan Administrator, please transfer/rollover assets from the above account(s) in cash according to the following instructions:

A. Liquidate (Check one box below and fill in any necessary information):

� The Total Amount in My Current Account

� _______________% and Retain the Balance

� $______________ and Retain the Balance

Important information for the Investor from The AARP Funds1. Contact your current custodian or plan administrator to:

• confirm that this form along with AARP’s Letter of Acceptance is sufficient.• determine if a signature guarantee is required on this form.• verify that you have completed all necessary paperwork to ensure the timely transfer of assets.• satisfy this year’s Required Minimum Distribution (RMD) before the transfer is made if you are 701⁄2 or older.

2. Attach a copy of your most recent account statement from your current custodian or plan administrator to this form.

3. Instructions to Current IRA Custodian or Retirement Plan Administrator – AARP Funds will forward this information on your behalf

C. Make Check Payable to: AARP Funds Mail to: AARP Funds, P.O. Box 8035, Boston, MA 02266-8035

FBO______________________________________________________________________________(client name)

B. Transfer/Direct Rollover ( Check one box below):

� Transfer from a Traditional IRA or SEP IRA

� Transfer from a Roth IRA

� Direct rollover from a qualified retirement plan

4. Transfer Assets To this Account (Check one box)� Traditional IRA* � Roth IRA** � Simplified Employee Pension (SEP) IRA

* You may transfer to a Traditional IRA from a SIMPLE IRA but not until at least 2 years after the first contribution to the SIMPLE IRA account. A qualified retirement plan can only be moved to a Traditional IRA, and through a direct rollover. You may NOT transfer to a Traditional IRA from a Roth IRA.

**Transfers to a Roth IRA are possible from another Roth IRA, or, if the Roth IRA owner meets eligibility requirements, they may convert from a Traditional IRA, from a SEP IRA, or from a SIMPLE IRA (but not until at least 2 years after the first contributionto a SIMPLE IRA account). A transfer from a non-Roth IRA will trigger federal income tax on the taxable amount transferred.

5. Investment Instructions to the AARP Funds � New IRA Account: Invest the transferred amount in accordance with the investment instructions on the attached

IRA Application & Adoption Agreement (skip ahead to section 6).

� Existing IRA Account: Invest the transferred amount as indicated below: (Fill in necessary information. If you are addingany new AARP Funds to your existing IRA, please specify the allocation amount below.

Fund name Dollar Amount Must total 100% Account Number

AARP Aggressive Fund or

AARP Moderate Fund or

AARP Conservative Fund or

AARP Money Market Fund or

AARP Income Fund or

Total investment amount

, .$

, .$

, .$

, .$

. %

. %

.

, .$ , . %1 0 0 0 0

%

. %

, .$ . %

6. Signature of Investor (Required)

I acknowledge that I have sole responsibility for my investment choices and that I have received a current prospectus and IRA Disclosure Statement and Custodial Agreement which I have been advised to read carefully before investing.

I understand that the requirements for a valid transfer to a Traditional IRA, or Roth IRA are complex and that I have theresponsibility for complying with all requirements and for the tax results of any such transfer.

I certify to the current IRA custodian or trustee that I have established (or will establish) a successor Individual RetirementCustodial Account meeting the requirements of Internal Revenue Code Section 408(a), 408(p) or 408A (as the case may be)to which assets will be transferred, and certify to The AARP Funds’ IRA Custodian that the IRA from which assets arebeing transferred meets the requirements of Internal Revenue Code Section 408(a), 408(p) or 408A as the case may be.

By Date

X

RETAIN A PHOTOCOPY OF THE COMPLETED FORM FOR YOUR RECORDS

7. Acceptance by New Custodian (Completed by State Street Bank and Trust Company)

State Street Bank and Trust Company agrees to accept transfer of the above amount for deposit to the Investor’s IndividualRetirement Custodial Account, and requests the liquidation and transfer of assets as indicated above.

Signature of Investor Date

X

*Usually the signature(s) must be guaranteed by an eligiblebank, broker, dealer, credit union, national securitiesexchange registered securities association, clearing agency,or savings association. Notarization by a Notary Public is notacceptable in lieu of a signature guarantee provided by oneof the eligible guarantor institutions listed above. Check withyour institution to confirm their specific requirements.

Affix Guarantee Here*

Signature Guarantee Check with your institution to see if they require a signature guarantee.

© 2007 AARP Funds

ARP-AP-014-0707

State Street Bank and Trust CompanyUniversal IRA Information Kit

Introduction

What’s New In The World Of IRAs?

An Individual Retirement Account (“IRA”) has alwaysprovided an attractive means to save money for thefuture on a tax-advantaged basis. In 1998, the Federallaws were revised to permit individuals to open andmaintain Roth Individual Retirement Accounts (“RothIRAs”). Under a Roth IRA, the earnings and interest on an individual’s nondeductible contributions growwithout being taxed, and distributions may be tax-freeunder certain circumstances. Most taxpayers (except for those with income levels above certain limits) areeligible to contribute to a Roth IRA. A Roth IRA canbe used instead of a Traditional IRA, to replace anexisting Traditional IRA, or complement a TraditionalIRA you wish to continue maintaining.

Taxpayers, single or married filing jointly, with adjusted gross income of up to $100,000 are eligible to convert existing Traditional IRAs into Roth IRAs. If you convert early in a year and later turn out to beineligible because your gross income exceeds $100,000(or for other reasons you wish to reverse the conversion),you can “recharacterize” the conversion by transferringthe amount in the converted Roth IRA back to aTraditional IRA. The details on conversion (and recharacterization) are found later in this booklet.

Changes made by the 2001 tax law have improvedTraditional and Roth IRAs as investment and savingsvehicles. The most significant change is an increase tothe amount of money an individual may contribute in ayear. Effective January 1, 2005, individuals may con-tribute up to $4,000 annually. This amount increases to$5,000 in 2008. After 2008, cost of living adjustments willbe made to the contribution limit, in $500 increments.

In addition, individuals who are age 50 and over by the end of any year may make special “catch-up” contributions to Traditional IRAs or Roth IRAs. For2005 the catch-up contribution limit will be $500.Beginning in 2006, the catch-up contribution limit will increase to $1,000 annually.

The 2001 tax law also made some important changes to the Traditional IRA rollover rules. Individuals mayroll their Traditional IRA account balances over to an employer sponsored qualified plan, regardless ofwhether the amount in the Traditional IRA is attributableto distributions that had previously come from anotherqualified plan. After-tax contributions to a TraditionalIRA, however, may not be rolled over to an employersponsored qualified plan.

Under the old rules, only distributions from a qualifiedplan could be rolled over to another qualified plan.Individuals wishing to “park” their distribution fromone employer’s qualified plan in a Traditional IRAbefore rolling it over to another qualified plan had toestablish a “conduit IRA,” in which only qualified plandistributions would be held. Under the revised rules,conduit IRAs are, in most cases, unnecessary, as it isnow possible to roll over amounts attributable toTraditional IRA contributions as well as amounts in the Traditional IRA that came from the rollover of adistribution from an employer plan.Because of the different tax rules for distributions from a Roth IRA,rollovers from an employer plan to a Roth IRA, or viceversa, should not be made.

Also, the IRS has issued revised regulations relating to the required minimum distribution (“RMD”) rules,which are used to determine RMDs from TraditionalIRAs after reaching age 701⁄2 and from Roth IRAs afterthe account owner’s death. In general, under the revisedrules the amount of a minimum distribution will usuallybe determined, using a uniform IRS life expectancytable, which is based on the life expectancy of an individual and a beneficiary who is ten years youngerthan that individual. The RMD rules also abolish the

1

Sponsored by State Street Bank and Trust Company

Traditional/Roth IRACustodial Agreement &Disclosure Statement

requirement for IRA owners to elect “recalculation” or non-recalculation. Recalculation on a yearly basis isactually built into the uniform IRS life expectancy table.

The “RMD” rules do not apply to Roth IRAs while the Roth IRA owner is alive. Roth IRA owners maywithdraw however much they wish whenever they wish,with no minimums at age 701⁄2. However, the new RMDrules do apply to Roth IRAs after a Roth IRA owner’sdeath. The new RMD rules generally require paymentsto the designated beneficiary to start by the end of the year after the year of the Roth IRA owner’s death.Minimum payments over the beneficiary’s life expectancyare required.

These revised rules are reflected in this Kit.

Note: The rules governing required minimum distributions have been evolving for years and arealways subject to change. In addition, the uniform table and other tables have been revised to reflectlonger life expectancies. Different RMD rules apply to inherited IRA assets. Always check with youraccountant, lawyer or other tax adviser, or with a qualified financial planner, for the latest RMD rule developments.

What’s in This Kit?

In this Kit you will find detailed information aboutTraditional IRAs and Roth IRAs, as updated by therevised tax law and revised RMD rules. You will alsofind everything you need to establish and maintaineither a Traditional or Roth IRA, or to convert all orpart of an existing Traditional IRA to a Roth IRA.

This Kit contains our Universal IRA DisclosureStatement. The Disclosure Statement is divided intothree parts:

• Part One describes the basic rules and benefits whichare specifically applicable to your Traditional IRA.

• Part Two describes the basic rules and benefits whichare specifically applicable to your Roth IRA.

• Part Three describes important rules and informationapplicable to all IRAs.

The third section of this Kit contains the Universal IRACustodial Agreement. The Custodial Agreement is alsodivided into three parts:

• Part One contains provisions specifically applicable toTraditional IRAs.

• Part Two contains provisions specifically applicable toRoth IRAs.

• Part Three contains provisions applicable to all IRAs(Traditional and Roth).

This Universal Individual Retirement CustodialAccount Kit contains information and forms for bothTraditional IRAs and Roth IRAs. However, you mayuse the Adoption Agreement in this Kit to establishonly one Traditional IRA or one Roth IRA; separateAdoption Agreements must be completed if you want toestablish multiple (Roth or Traditional) IRA accounts.

What’s the Difference Between a Traditional IRA and aRoth IRA?

With a Traditional IRA, an individual may be able todeduct the contribution from taxable income (up to the annual contribution limit for the year), reducingcurrent income taxes. Taxes on investment growth anddividends are deferred until the money is withdrawn.Withdrawals are taxed as additional ordinary incomewhen received. Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before age 591⁄2are assessed a 10% penalty in addition to income tax,unless an exception applies.

With a Roth IRA, the contribution limits are essentiallythe same as Traditional IRAs, but there is no tax deduc-tion for contributions. All dividends and investmentgrowth in the account are tax-free. Most importantwith a Roth IRA: there is no income tax on qualifiedwithdrawals from your Roth IRA. Additionally, unlike a Traditional IRA, there is no rule against making contributions to Roth IRAs after turning age 701⁄2, and there’s no requirement that you begin making minimum withdrawals at that age.

The following chart highlights some of the major differences between a Traditional IRA and a Roth IRA:

2

3

Characteristics Traditional IRA Roth IRA

Eligibility • Individuals (and their spouses) whoreceive compensation

• Individuals age 70 1⁄2 and over maynot contribute

• Individuals (and their spouses) whoreceive compensation

• Individuals age 701⁄2 and over maycontribute

Tax Treatment of Contributions • Subject to limitations, contributionsare deductible

• No deduction permitted foramounts contributed

Contribution Limits • Individuals may contribute up to thetax law limit.*

• Deductibility depends on incomelevel for individuals who are activeparticipants in an employer-spon-sored retirement plan

• Individuals may generally contributeup to the tax law limit.*

• Ability to contribute phases out at income levels of $95,000 to$110,000 (individual taxpayer) and$150,000 to $160,000 (married taxpayers)

• The tax law limit* applies to com-bined contributions to Traditionaland Roth IRAs (but not includingSEP or SIMPLE IRAs).

Earnings • Earnings and interest are not taxedwhen received by your IRA

• Earnings and interest are not taxedwhen received by your IRA

Rollover/Conversions • Individual may rollover amountsheld in employer-sponsored retire-ment arrangements (401(k), SEPIRA, etc.) tax free to TraditionalIRA

• Individuals may rollover amountsheld in Traditional IRA to employ-er-sponsored qualified plan.

• Rollovers from other IRAs only

• Amounts rolled over (or converted)from another Traditional IRA aresubject to income tax in the yearrolled over or converted

• Amounts held in Roth IRAs maynot be rolled over into employer-sponsored qualified plans.

Withdrawals • Total (principal + earnings) taxableas income in year withdrawn (exceptfor any prior non-deductible contri-butions)

• Minimum withdrawals must beginafter age 701⁄2

• Not taxable as long as the with-drawal is a qualified distribution—generally, account has been open for 5 years, and the individual is age 591⁄2 or above

• Minimum withdrawals notrequired after age 701⁄2

* The tax law limit is $4,000 for 2005-2007; and $5,000 for 2008 (with cost-of-living adjustments thereafter). For individuals age 50 or above, at the end of a year, additional contributions of $500 for 2005, and $1000 for 2006and future years, are allowed. The limit is 100% of compensation, if less.

Is a Roth or a Traditional IRA Right For Me?

We cannot act as your legal or tax adviser and so wecannot tell you which kind of IRA is right for you. Theinformation contained in this Kit is intended to provideyou with the basic information and material you willneed if you decide whether a Traditional or Roth IRA is better for you, or if you want to convert an existingTraditional IRA to a Roth IRA. We suggest that youconsult with your accountant, lawyer or other tax adviser,or with a qualified financial planner, to determinewhether you should open a Traditional or Roth IRA or convert any or all of an existing Traditional IRA to a Roth IRA. Your tax adviser can also advise you as tothe state tax consequences that may affect whether aTraditional or Roth IRA is right for you.

Other Points to Note.

The Disclosure Statement in this Kit provides you with the basic information that you should know aboutState Street Bank and Trust Company Traditional IRAsand Roth IRAs. The Disclosure Statement providesgeneral information about the governing rules for these IRAs and their benefits and features. However,the State Street Bank and Trust Company AdoptionAgreement and the Custodial Agreement, are the pri-mary documents controlling the terms and conditionsof your personal State Street Bank and Trust CompanyTraditional or Roth IRA, and these shall govern in thecase of any difference with the Disclosure Statement.

You or your when used throughout this Kit refer to the person for whom the State Street Bank and Trust Company Traditional or Roth IRA is established. A Roth IRA is either a State Street Bank and TrustCompany Roth IRA or any Roth IRA established withany other financial institution. A Traditional IRA is anynon-Roth IRA offered by State Street Bank and TrustCompany or any other financial institution.

State Street Bank and Trust Company

Universal Individual RetirementAccount Disclosure Statement

Part One: Description of Traditional IRAs

SPECIAL NOTE

Part One of the Disclosure Statement describes therules applicable to Traditional IRAs as revised by the2001 tax law, effective January 1, 2002.

IRAs described in these pages are called “TraditionalIRAs” to distinguish them from the “Roth IRAs” thatfirst became available in 1998. Roth IRAs are describedin Part Two of this Disclosure Statement. Contributionsto a Roth IRA are not deductible (regardless of yourAGI), but withdrawals that meet certain requirementsare not subject to federal income tax, so that dividendsand investment growth on amounts held in the RothIRA can escape federal income tax. Please see Part Twoof this Disclosure Statement if you are interested inlearning more about Roth IRAs.

Traditional IRAs described in this Disclosure Statementmay be used as part of a simplified employee pension(SEP) plan maintained by your employer. Under a SEP your employer may make contributions to yourTraditional IRA, and these contributions may exceedthe normal limits on Traditional IRA contributions.This Disclosure Statement does not describe IRAsestablished in connection with a SIMPLE IRA programmaintained by your employer. Employers provide specialexplanatory materials for accounts established as part ofa SIMPLE IRA program. Traditional IRAs may be usedin connection with a SIMPLE IRA program, but forthe first two years of participation a special SIMPLEIRA (not a Traditional IRA) is required.

Your Traditional IRA

This Part One contains information about yourTraditional Individual Retirement Custodial Accountwith State Street Bank and Trust Company as Custodian.A Traditional IRA gives you several tax benefits.Earnings on the assets held in your Traditional IRA are not subject to federal income tax until withdrawn by you. You may be able to deduct all or part of your Traditional IRA contribution on your federalincome tax return. State income tax treatment of yourTraditional IRA may differ from federal treatment; ask your state tax department or your personal taxadviser for details.

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Be sure to read Part Three of this Disclosure Statementfor important additional information, including information on how to revoke your Traditional IRA,investments and prohibited transactions, fees andexpenses, and certain tax requirements.

Eligibility

What are the eligibility requirements for a TraditionalIRA?

• You are eligible to establish and contribute to aTraditional IRA for a year if:

• You received compensation (or earned income if you are self employed) during the year for personalservices you rendered. If you received taxable alimony,this is treated like compensation for IRA purposes.

• You did not reach age 701⁄2 during the year.

Can I Contribute to a Traditional IRA for my Spouse?

For each year before the year when your spouse attainsage 701⁄2, you can contribute to a separate TraditionalIRA for your spouse, regardless of whether your spousehad any compensation or earned income in that year.This is called a “spousal IRA.” To make a contributionto a Traditional IRA for your spouse, you must file a joint tax return for the year with your spouse. For a spousal IRA, your spouse must set up a differentTraditional IRA, separate from yours, to which youcontribute.

Contributions

When Can I Make Contributions to a Traditional IRA?

You may make a contribution to your existingTraditional IRA or establish a new Traditional IRA for a taxable year by the due date (not including anyextensions) for your federal income tax return for theyear. Usually this is April 15 of the following year.

How Much Can I Contribute to my Traditional IRA?

For each year when you are eligible (see above), you can contribute up to the lesser of your IRAContribution Limit (see the following table) or 100%of your compensation (or earned income, if you areself-employed). However, under the tax laws, all or aportion of your contribution may not be deductible.

IRA Contribution Limit

YEAR LIMIT

2005-2007 $4,000

2008 $5,000

2009 and future years $5,000 increased by cost-of-living adjustments (in $500 increments)

Individuals age 50 or over may make special “catch up”contributions to their Traditional IRAs. (See What arethe Special Catch-Up Contribution Rules? below fordetails.)

If you and your spouse have spousal Traditional IRAs,each spouse may contribute up to the IRA ContributionLimit to his or her IRA for a year as long as the combined compensation of both spouses for the year (as shown on your joint income tax return) is at leasttwo times the IRA Contribution Limit. If the combinedcompensation of both spouses is less than two times the IRA Contribution Limit, the spouse with the higheramount of compensation may contribute up to thatspouse’s compensation amount, or the IRA ContributionLimit, if less. The spouse with the lower compensationamount may contribute any amount up to that spouse’scompensation plus any excess of the other spouse’scompensation over the other spouse’s IRA contribution.However, the maximum contribution to either spouse’sTraditional IRA is the individual IRA ContributionLimit for the year.

If you (or your spouse) establish a new Roth IRA andmake contributions to both your Traditional IRA and a Roth IRA, the combined limit on contributions toboth your (or your spouse’s) Traditional IRA and RothIRA for a single calendar year is the IRA ContributionLimit. (Note: the Traditional IRA Contribution Limitis not reduced by employer contributions made on your behalf to either a SEP IRA or a SIMPLE IRA;salary reduction contributions by you are consideredemployer contributions for this purpose.)

What are the Special Catch-Up Contribution Rules?

Individuals who are age 50 and over by the end of anyyear may make special “catch-up” contributions to aTraditional IRA for that year. For 2005, the special“catch-up” contribution is $500 per year. From 2006on, the special “catch-up” contribution will be $1,000per year. If you are over 50 by the end of a year, your

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catch-up limit is added to your normal IRAContribution Limit for that year.

Congress intended these “catch-up” contributionsspecifically for older individuals who may have beenabsent from the workforce for a number of years and so may have lost out on the ability to contribute to anIRA. However, the “catch-up” contribution is availableto anyone age 50 or over, whether or not they haveconsistently contributed to a Traditional IRA over the years.

Note that the rules for determining whether a contribution is tax-deductible (see below) also apply to special “catch-up” contributions.

How Do I Know if my Contribution is Tax Deductible?

The deductibility of your contribution depends uponwhether you are an active participant in any employer-sponsored retirement plan. If you are not an active participant, the entire contribution to your TraditionalIRA is deductible.

If you are an active participant in an employer-sponsored plan, your Traditional IRA contribution may still be completely or partly deductible on your tax return. This depends on the amount of your income(see below).

Similarly, the deductibility of a contribution to aTraditional IRA for your spouse depends upon whetheryour spouse is an active participant in any employer-sponsored retirement plan. If your spouse is not anactive participant, the contribution to your spouse’sTraditional IRA will be deductible. If your spouse is anactive participant, the Traditional IRA contribution willbe completely, partly or not deductible depending uponyour combined income.

An exception to the preceding rules applies to high-income married taxpayers, where one spouse is anactive participant in an employer-sponsored retirementplan and the other spouse is not. A contribution to the non-active participant spouse’s Traditional IRA will be only partly deductible starting at an adjustedgross income level on the joint tax return of $150,000,and the deductibility will be phased out as describedbelow over the next $10,000 so that there will be nodeduction at all with an adjusted gross income level of $160,000 or higher.

How do I Determine My or My Spouse’s “ActiveParticipant” status?

Your (or your spouse’s) Form W-2 should indicate ifyou (or your spouse) were an active participant in anemployer-sponsored retirement plan for a year. If youhave a question, you should ask your employer or theplan administrator.

In addition, regardless of income level, your spouse’s“active participant” status will not affect the deductibilityof your contributions to your Traditional IRA if youand your spouse file separate tax returns for the taxableyear and you lived apart at all times during the taxableyear.

What are the Deduction Restrictions for ActiveParticipants?

If you (or your spouse) are an active participant in anemployer plan during a year, the contribution to yourTraditional IRA (or your spouse’s Traditional IRA) maybe completely, partly or not deductible depending uponyour filing status and your amount of adjusted grossincome (“AGI”). If AGI is any amount up to the lowerlimit, the contribution is deductible. If your AGI is atleast the lower limit but less than the upper limit, thecontribution is partly deductible. If your AGI is equalto or exceeds the upper limit, the contribution is notdeductible.

The Lower Limit and the Upper Limit are adjustedeach year. The Lower Limits and Upper Limits foreach year are set out on the table below. Use the correct Lower Limit and Upper Limit from the table to determine deductibility in any particular year. (Note: if you are married but filing separate returns,your Lower Limit is always zero and your Upper Limit is always $10,000.)

Table of Lower And Upper Limits

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Year Single Married Filing Jointly

Lower Limit Upper Limit Lower Limit Upper Limit

2005 $50,000 $60,000 $70,000 $80,000

2006 $50,000 $60,000 $75,000 $85,000

2007and later $50,000 $60,000 $80,000 $100,000

How do I Calculate my Deduction if I Fall in the“Partly Deductible” Range?

If your AGI falls in the partly deductible range, youmust calculate the portion of your contribution that isdeductible. To do this, multiply the IRA ContributionLimit for the year by a fraction. The numerator is theamount by which your AGI exceeds the lower limit (for 2005: $50,000 if single, or $70,000 if married filingjointly). The denominator is $10,000 (note that thedenominator for married joint filers is $20,000 startingin 2007). Round this down to the nearest $10 then sub-tract from the IRA Contribution Limit. When you fallin the “partly deductible” range, your contribution isdeductible up to the greater of the amount calculated or $200.

For example, assume that in 2005 you make a $4,000contribution (which is the IRA Contribution Limit ifyou are not age 50) to your Traditional IRA, a year inwhich you are an active participant in your employer’sretirement plan. Also assume that your AGI is $76,555and you are married, filing jointly. You would calculatethe deductible portion of your contribution this way:

1. The amount by which your AGI exceeds the lowerlimit of the partly deductible range:

($76,555-$70,000)= $6,555

2. Divide this by $10,000: $6,555 = 0.6555$10,000

3. Multiply this by the IRA Contribution Limit:0.6555x $4,000 = $2,622

4. Round this down to the nearest $10 = $2,620.

5. Subtract this from the IRA Contribution Limit:$4,000- $2,620 = $1,380.

6. Your deductible contribution is the greater of thisamount or $200. In this case, you may deduct $1,380on your tax return.

Even though part or all of your contribution is notdeductible, you may still contribute to your TraditionalIRA (and your spouse may contribute to your spouse’sTraditional IRA) up to the IRA Contribution Limit for the year. When you file your tax return for the year,you must designate the amount of non-deductible contributions to your Traditional IRA for the year. See IRS Form 8606.

How Do I Determine My AGI?

AGI is your gross income minus those deductionswhich are available to all taxpayers even if they don’titemize (not including the deduction for your IRA contribution and certain other items). Instructions tocalculate your AGI are provided with your income taxForm 1040 or 1040A.

What Happens if I Contribute more than Allowed tomy Traditional IRA?

The maximum contribution you can make to aTraditional IRA generally is the IRA ContributionLimit (or the IRA Contribution Limit plus a “catch-up”contribution if you are 50 or over) or 100% of compen-sation or earned income, whichever is less. Any amountcontributed to the IRA above the maximum is consid-ered an “excess contribution.” The excess is calculatedusing your contribution limit, not the deductible limit.An excess contribution is subject to excise tax of 6% for each year it remains in the IRA.

How can I Correct an Excess Contribution?

Excess contributions may be corrected without paying a 6% penalty. To do so, you must withdraw the excessand any earnings on the excess before the due date(including extensions) for filing your federal income tax return for the year for which you made the excesscontribution. The IRS automatically grants to taxpayerswho file their taxes by the April 15th deadline a six-month extension of time (until October 15) to removean excess contribution for the tax year covered by thatfiling. A deduction should not be taken for any excesscontribution. Earnings on the amount withdrawn mustalso be withdrawn. (Refer to IRS Publication 590 to see how the amount you must withdraw to correct anexcess contribution may be adjusted to reflect gain orloss.) Earnings that are a gain must be included in yourincome for the tax year for which the contribution wasmade and may be subject to a 10% premature with-drawal tax if you have not reached age 591⁄2.

What Happens if I Don’t Correct the ExcessContribution by the Tax Return Due Date?

Any excess contribution withdrawn after the tax returndue date (including any extensions) for the year forwhich the contribution was made will be subject to the6% excise tax. The IRS automatically grants to taxpayerswho file their taxes by the April 15th deadline a six-month extension of time (until October 15) to recharac-terize a contribution or remove an excess contributionfor the tax year covered by that filing. There will be anadditional 6% excise tax for each year the excess

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remains in your account. Any such excess contributionsmust be reported to the IRS (see What Tax InformationMust I Report to the IRS? in Part Three of thisDisclosure Statement.

Under limited circumstances, you may correct an excess contribution after the deadline for the tax yearby withdrawing the excess contribution (leaving theearnings in the account). This withdrawal will not beincludible in income nor will it be subject to any pre-mature withdrawal penalty if (1) your contributions toall Traditional IRAs do not exceed the IRA ContributionLimit (plus the “catch-up” contribution, if eligible) and(2) you did not take a deduction for the excess amount(or you file an amended return (Form 1040X) whichremoves the excess deduction).

How are Excess Contributions Treated if None of thePreceding Rules Apply?

Unless an excess contribution qualifies for the specialtreatment outlined above, the excess contribution andany earnings on it withdrawn after tax filing time willbe includible in taxable income and may be subject to a 10% premature withdrawal penalty. No deductionwill be allowed for the excess contribution for the yearin which it is made.

Excess contributions may be corrected in a subsequentyear to the extent that you contribute less than yourmaximum contribution amount. As the prior excesscontribution is reduced or eliminated, the 6% excise taxwill become correspondingly reduced or eliminated forsubsequent tax years. Also, you may be able to take anincome tax deduction for the amount of excess that wasreduced or eliminated, depending on whether youwould be able to take a deduction if you had insteadcontributed the same amount.

Conversion of Traditional IRA

Can I convert an Existing Traditional IRA into a Roth IRA?

Yes, you can convert an existing Traditional IRA into a Roth IRA if you meet the eligibility requirementsdescribed below. Conversion may be accomplished inany of three ways: First, you can withdraw the amountyou want to convert from your Traditional IRA and rollit over to a Roth IRA within 60 days. Second, you canestablish a Roth IRA and then direct the custodian ofyour Traditional IRA to transfer the amount in yourTraditional IRA you wish to convert to the new RothIRA. Third, if you want to convert an existingTraditional IRA with State Street Bank and Trust

Company as custodian to a Roth IRA, you may give usdirections to convert; we will convert your existingaccount when the paperwork to establish your newRoth IRA is complete.

You are eligible to convert a Traditional IRA to a RothIRA if, for the year of the conversion, your AGI is$100,000 or less. There is a special rule for applyingthis limit: amounts included in your AGI as a result ofconverting to a Roth IRA, or as a result of receivingamounts under the age 701⁄2 required minimum distribu-tion (RMD) rules (see page 25) during the year of theconversion are not counted toward the $100,000 limit.The same $100,000 limit applies to married and singletaxpayers, and the limit is not indexed to cost-of-livingincreases. Married taxpayers are eligible to convert aTraditional IRA to a Roth IRA only if they file a jointincome tax return; married taxpayers filing separatelyare not eligible to convert. However, if you file sepa-rately and have lived apart from your spouse for theentire taxable year, you are considered not married, andthe fact that you are filing separately will not preventyou from converting.

If you accomplish a conversion by withdrawing fromyour Traditional IRA and rolling over to a Roth IRAwithin 60 days, the conversion eligibility requirementsin the preceding paragraph apply to the year of thewithdrawal (even though the rollover contributionoccurs in the following calendar year).

Caution: If you have reached age 701⁄2 by the year whenyou convert another non-Roth IRA you own to a RothIRA, be careful not to convert any amount that wouldbe a required minimum distribution under the applica-ble age 701⁄2 rules. Under current IRS regulations,required minimum distributions may not be converted.

What Happens if I change my Mind about Converting?

You can undo a conversion by notifying the custodianor trustee of each IRA (the custodian of the first IRA—the Traditional IRA you converted—and the custodianof the second IRA—the Roth IRA that received theconversion). The amount you want to unconvert bytransferring back to the first custodian is treated forincome tax purposes as if it had never been converted(however, the transfers involved in the original conver-sion and in the transfer back are reportable to the IRSby the Custodian). This is called “recharacterization.”

If you want to recharacterize a converted amount, you must do so before the due date (including anyextensions you receive) for your federal income taxreturn for the year of the conversion. Any net income

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(whether gain or loss) on the amount recharacterizedmust accompany it back to the Traditional IRA.

You can recharacterize for any reason. For example, you would recharacterize if you converted early in ayear and then turned out to be ineligible because your income was over the $100,000 limit. Also, if youconvert and then recharacterize during a year, you canthen convert to a Roth IRA a second time if you wish,but you must wait until the later of the next tax yearafter your original conversion or until 30 days afteryour recharacterization. You are limited to one conver-sion of an account per year. If you convert an amountmore than once in a year, any additional conversiontransactions will be considered invalid and subject torules for excess contributions.

NOTE: Conversions from a Traditional IRA to a RothIRA that failed because you did not meet the eligibilityrequirements (more than $100,000 of AGI or marriedbut not filing jointly) must be recharacterized beforeyour tax filing deadline (with extensions) in order toavoid possible taxes and penalties. The IRS automati-cally grants to taxpayers who file their taxes by the April 15th deadline a six-month extension of time (until October 15) to recharacterize for the tax yearcovered by that filing.

(Caution: As you can see, these rules are very complex;be sure to consult a competent tax professional forassistance. Always check with your tax adviser for thelatest developments.)

Under current IRS rules, recharacterization is notrestricted to amounts you converted from a TraditionalIRA to a Roth IRA. You can, for example, make an annual contribution to a Traditional IRA and recharacterize it as a contribution to a Roth IRA, orvice versa. You must make the election to recharacterizeby the due date for your tax return for the year (withextensions, including the automatic 6-month extensionto October 15 the IRS grants to on-time tax filers) andfollow the procedures summarized above.

Transfers/Rollovers

Can I Transfer or Roll Over a Distribution I Receive from my Employer’s Retirement Plan into a Traditional IRA?

Most distributions from employer plans or 403(b)arrangements (for employees of tax-exempt employers)or eligible 457 plans (for employees of certain govern-mental plans employers) are eligible for rollover to aTraditional IRA. The main exceptions are

• payments over the lifetime or life expectancy of the participant (or participant and a designated beneficiary),

• installment payments for a period of 10 years or more,

• required distributions (generally the rules require distributions starting at age 701⁄2 or for certain employees starting at retirement, if later), and

• hardship withdrawals from a 401(k) plan or a 403(b)arrangement.

If you are eligible to receive a distribution from a taxqualified retirement plan as a result of, for example, termination of employment, plan discontinuance, or retirement, all or part of the distribution may betransferred directly into your Traditional IRA. This is a called a “direct rollover.” Or, you may receive the distribution and make rollover to your Traditional IRAwithin 60 days. By making a direct rollover or a regularrollover, you can defer income taxes on the amountrolled over until you subsequently make withdrawalsfrom your Traditional IRA.

If you are over age 701⁄2 and are required to take minimum distributions under the tax laws, you may not roll over any amount required to be distributed toyou under the minimum distribution rules. You alsomay not roll over a hardship distribution from a 401(k)or 403 (b) plan. Also, if you are receiving periodic payments over your or your and your designated beneficiary’s life expectancy or for a period of at least 10 years, you may not roll over these payments. Arollover to a Traditional IRA must be completed within60 days after the distribution from the employer retire-ment plan to be valid.

NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF YOUR DISTRIBUTION for federal income taxes UNLESSyou elect a direct rollover. Your plan or 403(b) sponsoris required to provide you with information aboutdirect and regular rollovers and withholding taxesbefore you receive your distribution and must complywith your directions to make a direct rollover.

The rules governing rollovers are complicated. Be sure to consult your tax adviser or the IRS if you have a question about rollovers.

Once I Have Rolled Over a Plan Distribution into aTraditional IRA, Can I Subsequently Roll Over intoanother Employer’s Plan?

Yes. Part or all of an eligible distribution received froma qualified plan may be withdrawn from the Traditional

9

IRA and rolled over to another qualified plan, within 60days of the date of withdrawal.

Can any Amount Held in My Traditional IRA beRolled Over into an Employer Plan?

Yes, generally speaking, withdrawals from your traditional IRA may be rolled over to an employer’squalified plan or 403(b) arrangement.

NOTE: Before 2002, the rules governing such rolloverswere more restrictive. A Traditional IRA must haveheld no assets other than those which were previouslydistributed to you from a qualified plan. Specifically,under the old rules a Traditional IRA could not containany annual contributions by you (or your spouse).

Starting in 2002, assets held in a Traditional IRA,whether originally rolled over from an employer planor attributable to annual contributions, may be rolledover into an employer’s plan. Such a rollover must becompleted within 60 days after the withdrawal fromyour IRA. Thus, except in some very limited cases,there is no reason to establish a “conduit IRA” to keeptrack of amounts distributed from an employer plan.

Note that the employer plan may or may not acceptrollovers, according to its provisions.

Only amounts that would, absent the rollover, other-wise be taxable may be rolled over to a qualified plan.In general, this means that after-tax contributions to aTraditional IRA may not be rolled over to an employerplan. However, to determine the amount an individualmay roll over to plan, all Traditional IRAs are takeninto account. If the amount being rolled over from oneTraditional IRA is less than or equal to the otherwisetaxable amount held in all of the individual’s TraditionalIRAs, then the total amount can be rolled over into an employer plan, even if some of the funds in theTraditional IRA being rolled over are after-tax contributions.

The following example illustrates this rule: Assume Gail has two IRAs: IRA(1) with a $100,000 balance, all of which is attributable to deductible contributionsand earnings and thus would be taxable if distributeddirectly to Gail; and IRA(2), with a balance of$150,000, $50,000 of which consists of after-tax contributions (and thus would be non-taxable if distributed directly to Gail) and $100,000 of which consists of deductible contributions and earnings.Between the two IRAs, $200,000 would be taxable ifdistributed to Gail and $50,000 would not be taxablebecause it was contributed on an after-tax basis. Gailmay rollover the full $150,000 from IRA(2), even

though $50,000 is non-taxable, because the totalamount of taxable funds in all of her IRAs exceeds$150,000.

Can I Make a Rollover from my Traditional IRA toanother Traditional IRA?

You may make a rollover from one Traditional IRA toanother Traditional IRA you already have or to one youestablish to receive the rollover. Such a rollover must be completed within 60 days after the withdrawal fromyour first Traditional IRA. In limited circumstances,when an IRA rollover could not be completed within 60 days due to circumstances beyond your control ornot your fault, you can apply to the IRS for approval of a rollover after 60 days. However, IRS approval maynot be needed if the financial institution receiving therollover did not deposit the rollover amount in an IRA.Consult your tax adviser for more information.

Similar exceptions to the 60-day requirement for a validrollover apply to plan-to-IRA and IRA-to-plan rollovers(see above).

After making a rollover from one Traditional IRA, youmust wait a full year (365 days) before you can makeanother such rollover from the same Traditional IRA.In addition, after Traditional IRA assets are rolled overfrom one IRA to another, a second rollover of the sameassets cannot be made for a full year. (However, you can instruct a Traditional IRA custodian to transferamounts directly to another Traditional IRA custodian;such a direct transfer does not count as a rollover.)

May a Rollover or Transfer include After-Tax orNondeductible Contributions?

Yes. Before January 1, 2002, after-tax contributionscould not be rolled over from a qualified employer plan or a 403(b) arrangement to a Traditional IRA.Now such rollovers or transfers, as well as rollovers ortransfers of nondeductible contributions from anotherTraditional IRA, may include after-tax or nondeductiblecontributions. [If a rollover or transfer includes after-taxor nondeductible amounts, such amounts may be heldunder a separate account number by the recordkeepingsystem. In this event, if you want to make an invest-ment change, remember that you may have to deal with multiple accounts.]

How Do Rollovers Affect my Contribution orDeduction Limits?

Rollover contributions, if properly made, do not counttoward the maximum contribution. Also, rollovers are

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not deductible and they do not affect your deductionlimits as described above.

Withdrawals

When can I make withdrawals from my TraditionalIRA?

You may withdraw from your Traditional IRA at anytime. However, withdrawals before age 591⁄2 may besubject to a 10% penalty tax in addition to regularincome taxes (see below).

When must I start making withdrawals?

If you have not withdrawn the total amount held inyour Traditional IRA by the April 1 following the yearin which you reach 701⁄2 , you must make minimumwithdrawals in order to avoid penalty taxes. The ruleallowing certain employees to postpone distributionsfrom an employer qualified plan until actual retirement(even if this is after age 701⁄2 ) does not apply toTraditional IRAs.

Recent IRS rules make it easier for you to calculateyour required minimum distribution. Under these rules a uniform table is used to determine requiredminimum distributions. The distribution period underthe uniform table is the equivalent of the joint lifeexpectancy of you and a beneficiary 10 years youngerthan you. (An IRS joint life expectancy table may beused if your spouse is the sole beneficiary and is morethan 10 years younger than you.) The minimum with-drawal amount is determined by dividing the balance inyour Traditional IRA (or IRAs) by your life expectancyas shown on the uniform table. You are not required to recalculate because recalculation is built right in tothe uniform table. Although the required minimum distribution rules have been simplified in some ways,they are still, in general, complex. Consult your taxadviser for assistance.

The penalty tax is 50% of the difference between the minimum withdrawal amount and your actual withdrawals during a year. The IRS may waive orreduce the penalty tax if you can show that your failureto make the required minimum withdrawals was due to reasonable cause and you are taking reasonable stepsto remedy the problem.

How Are Withdrawals From My Traditional IRATaxed?

Amounts withdrawn by you are includible in your grossincome in the taxable year that you receive them, and

are taxable as ordinary income. Amounts withdrawnmay be subject to income tax withholding by the custo-dian unless you elect not to have withholding. See PartThree below for additional information on withholding.Lump sum withdrawals from a Traditional IRA are noteligible for averaging treatment currently available tocertain lump sum distributions from qualified employerretirement plans.

Since the purpose of a Traditional IRA is to accumulatefunds for retirement, your receipt or use of any portionof your Traditional IRA before you attain age 591⁄2 gen-erally will be considered as an early withdrawal andsubject to a 10% penalty tax.

The 10% penalty tax for early withdrawal will not apply if:

• The distribution was a result of your death or disability.

• The purpose of the withdrawal is to pay certain highereducation expenses for yourself or your spouse, child,or grandchild. Qualifying expenses include tuition,fees, books, supplies and equipment required forattendance at a post-secondary educational institution.Room and board expenses may qualify if the student isattending at least half-time.

• The withdrawal is used to pay eligible first-timehomebuyer expenses. These are the costs of purchasing,building or rebuilding a principal residence (includingcustomary settlement, financing or closing costs). Thepurchaser may be you, your spouse, or a child, grand-child, parent or grandparent of you or your spouse. An individual is considered a “first-time homebuyer”if the individual did not have (or, if married, neitherspouse had) an ownership interest in a principal residence during the two-year period immediately preceding the acquisition in question. The withdrawalmust be used for eligible expenses within 120 daysafter the withdrawal. (If there is an unexpected delay,or cancellation of the home acquisition, a withdrawalmay be redeposited as a rollover).

• There is a lifetime limit on eligible first-time homebuyer expenses of $10,000 per individual.

• The distribution is one of a scheduled series of substantially equal periodic payments for your life orlife expectancy (or the joint lives or life expectancies of you and your beneficiary).

• If there is an adjustment to the scheduled series ofpayments, the 10% penalty tax may apply. The 10%penalty will not apply if you make no change in theseries of payments until the end of five years or until

11

you reach age 591⁄2, whichever is later. If you make a change before then, the penalty will apply. Forexample, if you begin receiving payments at age 50under a withdrawal program providing for substantiallyequal payments over your life expectancy, and at age58 you elect to receive the remaining amount in yourTraditional IRA in a lump-sum, the 10% penalty taxwill apply to the lump sum and to the amounts previ-ously paid to you before age 591⁄2.

• The distribution does not exceed the amount of yourdeductible medical expenses for the year (generallyspeaking, medical expenses paid during a year aredeductible if they are greater than 71⁄2% of your adjusted gross income for that year).

• The distribution does not exceed the amount you paidfor health insurance coverage for yourself, your spouseand dependents. This exception applies only if youhave been unemployed and received federal or stateunemployment compensation payments for at least 12 weeks; this exception applies to distributions duringthe year in which you received the unemploymentcompensation and during the following year, but notto any distributions received after you have beenreemployed for at least 60 days.

• A distribution is made pursuant to an IRS levy to payoverdue taxes.

How are Nondeductible Contributions Taxed WhenThey are Withdrawn?

A withdrawal of nondeductible contributions (notincluding earnings) will be tax-free. However, if youmade both deductible and nondeductible contributionsto your Traditional IRA, then each distribution will be treated as partly a return of your nondeductible contributions (not taxable) and partly a distribution ofdeductible contributions and earnings (taxable). Thenontaxable amount is the portion of the amount withdrawn which bears the same ratio as your totalnondeductible Traditional IRA contributions bear tothe total balance of all your Traditional IRAs (includingrollover IRAs and SEPs, but not including Roth IRAs).

For example, assume that you made the followingTraditional IRA contributions:

Year Deductible Nondeductible

One $2,000

Two $2,000

Three $1,000 $1,000

Four $1,000

$5,000 $2,000

In addition assume that your Traditional IRA has totalinvestment earnings through Year Four of $1,000.During Year Four you withdraw $500. Your totalaccount balance as of the end of Year Four is $7,500 asshown below.

Deductible Contributions $5,000

Nondeductible Contributions $2,000

Earnings On IRA $1,000

Less Year Four Withdrawal $ 500

Total Account Balance at the end of Year Four $7,500

To determine the nontaxable portion of your Year Four withdrawal, the total Year Four withdrawal ($500) must be multiplied by a fraction. The numeratorof the fraction is the total of all nondeductible contri-butions remaining in the account before the Year Fourwithdrawal ($2,000). The denominator is the totalaccount balance as of the end of Year Four ($7,500) plus the Year Four withdrawal ($500) or $8,000. The calculation is:

Total Remaining

Nondeductible Contributions $2,000 x $500 = $125

Total Account Balance $8,000

Thus, $125 of the $500 withdrawal in Year Four willnot be included in your taxable income. The remaining$375 will be taxable for Year Four. In addition, for futurecalculations the remaining nondeductible contributiontotal will be $2,000 minus $125, or $1,875.

A loss in your Traditional IRA investment may bedeductible. You should consult your tax adviser for further details on the appropriate calculation for thisdeduction if applicable.

See TAX MATTERS (below) for more information.

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Important: Please see Part Three below which containsimportant information applicable to all State StreetBank and Trust Company IRAs.

Part Two: Description of Roth IRAs

SPECIAL NOTE

Part Two of the Disclosure Statement describes therules generally applicable to Roth IRAs.

Roth IRAs were first made available in 1998.Contributions to a Roth IRA are not tax-deductible, but withdrawals that meet certain requirements are not subject to federal income taxes. This makes the dividends on and growth of the investments held inyour Roth IRA tax-free for federal income tax purposes if the requirements are met.

Traditional IRAs, which have existed since 1975, arestill available. Contributions to a Traditional IRA maybe tax-deductible. Earnings and gains on amounts whileheld in a Traditional IRA are tax-deferred. Withdrawalsare subject to federal income tax (except for prior after-tax contributions which may be recovered without additional federal income tax).

This Part Two does not describe Traditional IRAs. Ifyou wish to review information about Traditional IRAs,please see Part One of this Disclosure Statement. If youwant information about the pre-2002 rules for RothIRAs, call the 800 number or write the address listed atthe end of this Disclosure Statement.

This Disclosure Statement also does not describe IRAsestablished in connection with a SIMPLE IRA programor a Simplified Employee Pension (SEP) plan main-tained by your employer. Roth IRAs may not be used inconnection with a SIMPLE IRA program or a SEPplan.

Your Roth IRA

Your Roth IRA gives you several tax benefits. While contributions to a Roth IRA are not deductible,dividends on and growth of the assets held in your Roth IRA are not subject to federal income tax.Withdrawals by you from your Roth IRA are excludedfrom your income for federal income tax purposes ifcertain requirements (described below) are met. Stateincome tax treatment of your Roth IRA may differ fromfederal treatment; ask your state tax department or yourpersonal tax adviser for details.

Be sure to read Part Three of this Disclosure Statementfor important additional information, including

information on how to revoke your Roth IRA, invest-ments and prohibited transactions, fees and expensesand certain tax requirements.

Eligibility

What are the eligibility requirements for a Roth IRA?

You are eligible to establish and contribute to a RothIRA for a year if you received compensation (or earnedincome if you are self employed) during the year forpersonal services you rendered. If you received taxablealimony, this is treated like compensation for Roth IRApurposes.

In contrast to a Traditional IRA, with a Roth IRA you may continue making contributions after you reach age 701⁄2.

Can I Contribute to Roth IRA for my Spouse?

If you meet the eligibility requirements you can notonly contribute to your own Roth IRA, but also to aseparate Roth IRA for your spouse out of your compen-sation or earned income, regardless of whether yourspouse had any compensation or earned income in thatyear. This is called a “spousal Roth IRA.” To make acontribution to a Roth IRA for your spouse, you mustfile a joint tax return for the year with your spouse. For a spousal Roth IRA, your spouse must set up a different Roth IRA, separate from yours, to which you contribute.

Of course, if your spouse has compensation or earnedincome, your spouse can establish his or her own RothIRA and make contributions to it in accordance withthe rules and limits described in this Part Two of theDisclosure Statement.

Contributions

When Can I Make Contributions to a Roth IRA?

You may make a contribution to your Roth IRA orestablish a new Roth IRA for a taxable year by the due date (not including any extensions) for your federalincome tax return for the year. Usually this is April 15of the following year. For example, you will have untilApril 15, 2006 to establish and make a contribution to a Roth IRA for 2005.

How Much Can I Contribute to my Roth IRA?

For each year when you are eligible (see above), youcan contribute up to the lesser of the IRA Contribution

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Limit (see the following table) or 100% of your com-pensation (or earned income, if you are self-employed).

IRA Contribution Limit

YEAR LIMIT

2005-2007 $4,000

2008 $5,000

2009 and $5,000 increasedfuture years by cost-of-living

adjustments (in $500 increments)

Individuals age 50 and over may make special “catch-up” contributions to their Roth IRAs. (See What arethe Special Catch-Up Contribution Rules? below fordetails.)

Your Roth IRA limit is reduced by any contributions for the same year to a Traditional IRA. For example,assuming you have at least $4,000 in compensation orearned income, if you contribute $500 to yourTraditional IRA for 2005, your maximum Roth IRAcontribution for that year will be $3,500. (Note: theRoth IRA contribution limit is not reduced by contri-butions made to either a SEP IRA or a SIMPLE IRA;salary reduction contributions by you are consideredemployer contributions for this purpose.)

If you and your spouse have spousal Roth IRAs, eachspouse may contribute up to the IRA ContributionLimit to his or her Roth IRA for a year as long as thecombined compensation of both spouses for the year (as shown on your joint income tax return) is at leasttwo times the IRA Contribution Limit. If the combinedcompensation of both spouses is less than two times the IRA Contribution Limit, the spouse with the higher amount of compensation may contribute up to that spouse’s compensation amount, or the IRAContribution Limit if less. The spouse with the lowercompensation amount may contribute any amount upto that spouse’s compensation plus any excess of theother spouse’s compensation over the other spouse’sRoth IRA contribution. However, the maximum contribution to either spouse’s Roth IRA is the IRAContribution Limit for the year.

As noted above, the Roth IRA limits are reduced by any contributions for the same calendar year to aTraditional IRA maintained by you or your spouse.

For taxpayers with high income levels, the contributionlimits may be reduced (see below).

What are the Special Catch-Up Contribution Rules?

Individuals who are age 50 and over by the end of anyyear may make special “catch-up” contributions to aRoth IRA for that year. Through the end of 2005, thespecial “catch-up” contribution is $500 per year. From2006 on the special “catch-up contribution will be$1,000 per year. If you are over 50 by the end of a year,your catch-up limit is added to your normal IRAContribution Limit for that year.

Congress intended these “catch-up” contributionsspecifically for older individuals who may have beenabsent from the workforce for a number of years and so may have lost out on the ability to contribute to anIRA. However, the “catch-up” contribution is availableto anyone age 50 or over, whether or not they have previously contributed to a Roth IRA.

Note that the rules on contribution limits for Roth IRAs (see below) apply to special “catch-up” contributions.

Are Contributions to a Roth IRA Tax Deductible?

Contributions to a Roth IRA are not deductible. This isa major difference between Roth IRAs and TraditionalIRAs. Contributions to a Traditional IRA may bedeductible on your federal income tax return dependingon whether or not you are an active participant in anemployer-sponsored plan and on your income level.

Are the Earnings on my Roth IRA Funds Taxed?

Any dividends on or growth of investments held in your Roth IRA are generally exempt from federalincome taxes and will not be taxed until withdrawn byyou, unless the tax exempt status of your Roth IRA is revoked. If the withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting earnings orgrowth of assets in your Roth IRA will not be subject tofederal income tax.

Which is Better, a Roth IRA or a Traditional IRA?

This will depend upon your individual situation. ARoth IRA may be better if you are an active participantin an employer-sponsored plan and your adjusted gross income is too high to make a deductible IRA contribution (but not too high to make a Roth IRAcontribution). Also, the benefits of a Roth IRA vs. aTraditional IRA may depend upon a number of otherfactors including: your current income tax bracket vs.your expected income tax bracket when you make withdrawals from your IRA, whether you expect to beable to make nontaxable withdrawals from your Roth

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IRA (see below), how long you expect to leave yourcontributions in the IRA, how much you expect theIRA to earn in the meantime, and possible future taxlaw changes.

Consult a qualified tax or financial adviser for assistanceon this question.

Are there Any Restrictions on Contributions to myRoth IRA?

Taxpayers with very high income levels may not be able to contribute to a Roth IRA at all, or their contribution may be limited to an amount less than the IRA Contribution Limit. This depends upon yourfiling status and the amount of your adjusted grossincome (AGI). The following table shows how the contribution limits are restricted:

Roth IRA Contribution Limits

Note: If you are a married taxpayer filing separately,your maximum Roth IRA Contribution Limit phasesout over the first $10,000 of adjusted gross income. If your AGI is $10,000 or more you may not contributeto a Roth IRA for the year.

How do I Calculate my Limit if I Fall in the “ReducedContribution” Range?

If your AGI falls in the reduced contribution range, you must calculate your contribution limit. To do this,multiply your normal IRA Contribution Limit (or yourcompensation if less) by a fraction. The numerator isthe amount by which your AGI exceeds the lower limitof the reduced contribution range ($95,000 if single, or $150,000 if married filing jointly). The denominatoris $15,000 (single taxpayers) or $10,000 (married filingjointly). Round this down to the nearest $10 then subtract from your normal limit. If you have AGI in the reduced contribution range, your Roth IRA

Contribution Limit is the greater of the amount calculated or $200.

For example, assume that your AGI for the year is$157,555 and you are married, filing jointly. You wouldcalculate your Roth IRA Contribution Limit this way:

1. The amount by which your AGI exceeds the lowerlimit of the reduced contribution range:

($157,555-$150,000) = $7,555

2. Divide this by $10,000: $7,000$10,000 = 0.7555

3. Multiply this by the Roth IRA Contribution for theyear- for example, $4,000 (for2005-2007) (or yourcompensation for the year, if less):

0.7555 x $4,000 = $3,022

4. Round this down to the nearest $10 and subtract thisfrom your $4,000 limit:

($4,000 - $3,020) = $980

5. Your contribution limit is the greater of this amountor $200.

Remember, your Roth IRA Contribution Limit isreduced by any contributions for the same year to aTraditional IRA. If you fall in the reduced contributionrange, the reduction formula applies to the Roth IRA contribution limit left after subtracting your contribution for the year to a Traditional IRA. (If you are 50 or older at the end of a year, the reductionformula described above applies to your increasedannual IRA Contribution Limit.)

How Do I Determine My AGI?

AGI is your gross income minus those deductionswhich are available to all taxpayers even if they don’titemize. Instructions to calculate your AGI are providedwith your income tax Form 1040 or 1040A.

There are two three additional rules when calculatingAGI for purposes of Roth IRA contribution limits.First, if you are making a deductible contribution forthe year to a Traditional IRA, your AGI is not reducedby the amount of the deduction. Second, if you are converting a Traditional IRA to a Roth IRA in a year(see below), the amount includible in your income as a result of the conversion is not considered AGI whencomputing your Roth IRA contribution limit for theyear. Third, amounts you receive during the year underthe age 701⁄2 required minimum distribution (RMD)rules are not considered part of your AGI for the year.

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If You Are Single Taxpayer

If You Are MarriedFiling Jointly

Then You May Make

Up to $95,000 Up to $150,000Full IRA

Contribution Limit

More than $95,000but less than

$110,000

More than$150,000 but less

than $160,000

Reduced IRAContribution Limit(see explanation

below)

$110,000 and up $160,000 and upZero (No

Contribution)

Adjusted Gross Income (AGI) Level

What Happens if I Contribute more than Allowed tomy Roth IRA?

The maximum contribution you can make to a RothIRA generally is the IRA Contribution Limit (plus the amount of any “catch-up” contribution, if you areeligible) or 100% of compensation or earned income,whichever is less. As noted above, your maximum isreduced by the amount of any contribution to aTraditional IRA for the same year and may be furtherreduced as described above if you have high AGI. Any amount contributed to the Roth IRA above themaximum is considered an “excess contribution.”

An excess contribution is subject to excise tax of 6% for each year it remains in the Roth IRA.

How can I Correct an Excess Contribution?

Excess contributions may be corrected without paying a 6% penalty. To do so, you must withdraw the excessand any earnings on the excess before the due date(including extensions) for filing your federal income tax return for the year for which you made the excesscontribution. The IRS automatically grants to taxpayerswho file their taxes by the April 15th deadline a six-month extension of time (until October 15) to removean excess contribution for the tax year covered by thatfiling. A deduction should not be taken for any excesscontribution. Earnings on the amount withdrawn mustalso be withdrawn. (Refer to IRS Publication 590 to seehow the amount you must withdraw to correct anexcess contribution may be adjusted to reflect earningsas a gain or loss.) Earnings that are a gain must beincluded in your income for the tax year for which thecontribution was made and may be subject to a 10%premature withdrawal tax if you have not reached age591⁄2 (unless an exception to the 10% penalty taxapplies).

What Happens if I Don’t Correct the ExcessContribution by the Tax Return Due Date?

Any excess contribution not withdrawn by the taxreturn due date (including extensions) for the year forwhich the contribution was made will be subject to the 6% excise tax. There will be an additional 6%excise tax for each subsequent year the excess remainsin your account.

You may reduce the excess contributions by making a withdrawal equal to the excess. Earnings need not be withdrawn. To the extent that no earnings are withdrawn, the withdrawal will not be subject toincome taxes or possible penalties for premature withdrawals before age 591⁄2. Excess contributions

may also be corrected in a subsequent year to the extent that you contribute less than your Roth IRAContribution Limit for the subsequent year. As theprior excess contribution is reduced or eliminated, the6% excise tax will become correspondingly reduced oreliminated for subsequent tax years.

Conversion of Existing Traditional IRA

Can I convert an Existing Traditional IRA into a Roth IRA?

Yes, you can convert an existing Traditional IRA into a Roth IRA if you meet the eligibility requirementsdescribed below. Conversion may be accomplished inany of three ways: First, you can withdraw the amountyou want to convert from your Traditional IRA and rollit over to a Roth IRA within 60 days. Second, you canestablish a Roth IRA and then direct the custodian ofyour Traditional IRA to transfer the amount in yourTraditional IRA you wish to convert to the new Roth IRA. Third, if you want to convert an existingTraditional IRA with State Street Bank and TrustCompany as custodian to a Roth IRA, you may give us directions to convert; we will convert your existingaccount when the paperwork to establish your newRoth IRA is complete.

You are eligible to convert a Traditional IRA to a Roth IRA if, for the year of the conversion, your AGI is $100,000 or less. There is a special rule for applyingthis limit: amounts included in your AGI as a result of converting to a Roth IRA, or as a result of receivingamounts under the age 701⁄2 required minimum distribution (RMD) rules (see page 25) during the yearof the conversion are not counted toward the $100,000limit. The same $100,000 limit applies to married andsingle taxpayers, and the limit is not indexed to cost-of-living increases. Married taxpayers are eligible to convert a Traditional IRA to a Roth IRA only if theyfile a joint income tax return; married taxpayers filingseparately are not eligible to convert. However, if youfile separately and have lived apart from your spouse for the entire taxable year, you are considered not married, and the fact that you are filing separately willnot prevent you from converting.

If you accomplish a conversion by withdrawing fromyour Traditional IRA and rolling over to a Roth IRAwithin 60 days, the conversion eligibility requirementsin the preceding sentence apply to the year of the with-drawal (even though the rollover contribution occurs inthe following calendar year).

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Caution; If you have reached age 701⁄2 by the year whenyou convert another non-Roth IRA you own to a RothIRA, be careful not to convert any amount that wouldbe a required minimum distribution under the applica-ble age 701⁄2 rules. Under current IRS regulations,required minimum distributions may not be converted.

What Happens if I change my Mind about Converting?

You can undo a conversion by notifying the custodianor trustee of each IRA (the custodian of the first IRA—the Traditional IRA you converted—and the custodianof the second IRA—the Roth IRA that received theconversion). The amount you want to unconvert bytransferring back to the first custodian is treated forincome tax purposes as if it had not been converted(however the transfers involved in the original conver-sion and in the transfer back are reportable to the IRSby the Custodian). This is called “recharacterization.”

If you want to recharacterize a converted amount, you must do so before the due date (including anyextensions you receive) for your federal income taxreturn for the year of the conversion. Any net income(whether gain or loss) on the amount recharacterizedmust accompany it back to the Traditional IRA.

Under current IRS rules, you can recharacterize for any reason. For example, you would recharacterize ifyou converted early in a year and then turned out to beineligible because your income was over the $100,000limit. Also, if you convert and then recharacterize during a year, you can then convert to a Roth IRA asecond time if you wish, but you must wait until thelater of the next tax year after your original conversionor until 30 days after your recharacterization. Underthe current IRS rules, you are limited to one conversionof an account per year. If you convert an amount morethan once in a year, any additional conversion transac-tions will be considered invalid and subject to the rulesfor excess contributions.

Note: Conversions from a Traditional IRA to a RothIRA that failed because you did not meet the eligibilityrequirements (more than $100,000 of AGI or marriedbut not filing jointly) must be recharacterized beforeyour tax filing deadline (with extensions) in order toavoid possible taxes and penalties. The IRS automati-cally grants to taxpayers who file their taxes by the April 15th deadline a six-month extension of time (until October 15) to recharacterize for the tax yearcovered by that filing.

(Caution: As you can see, these rules are very complex;be sure to consult a competent tax professional for

assistance. The IRS may change the rules for conversions described above. Always check with yourtax adviser for the latest developments.)

Under current IRS rules, recharacterization is notrestricted to amounts you converted from a TraditionalIRA to a Roth IRA. You can, for example, make anannual contribution to a Traditional IRA and recharac-terize it as a contribution to a Roth IRA, or vice versa.You must make the election to recharacterize by thedue date for your tax return for the year (plus the automatic 6-month extension to October 15 the IRSgrants to on-time tax filers) and follow the proceduressummarized above.

What are the Tax Results from Converting?

The taxable amount in your Traditional IRA you convert to a Roth IRA will be considered taxableincome on your federal income tax return for the year of the conversion. All amounts in a TraditionalIRA are taxable except for your prior non-deductiblecontributions to the Traditional IRA.

If you convert a Traditional IRA (or a SEP IRA orSIMPLE IRA - - see below) to a Roth IRA, under IRSrules income tax withholding will apply unless you electnot to have withholding. The Adoption Agreement orthe Universal IRA Transfer of Assets Form has moreinformation about withholding. However, withholdingincome taxes from the amount converted (instead ofpaying applicable income taxes from another source)may adversely affect the anticipated financial benefits of converting. Consult your financial adviser for moreinformation.

Can I Convert a SEP IRA or SIMPLE IRA Account toa Roth IRA?

If you have a SEP IRA as part of an employer simplifiedemployee pension (SEP) program, or a SIMPLE IRA as part of an employer SIMPLE IRA program, you can convert the IRA to a Roth IRA. However, with aSIMPLE IRA account, this can be done only after theSIMPLE IRA account has been in existence for at least two years. You must meet the eligibility rules summarized above to convert.

Should I convert my Traditional IRA to a Roth IRA?

Only you can answer this question, in consultation withyour tax or financial advisers. A number of factors,including the following, may be relevant. Conversionmay be advantageous if you expect to leave the convertedfunds on deposit in your Roth IRA for at least five years

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and to be able to withdraw the funds under circum-stances that will not be taxable (see below). The benefits of converting will also depend on whether you expect to be in the same tax bracket when youwithdraw from your Roth IRA as you are now. Also,conversion is based upon an assumption that Congresswill not change the tax rules for withdrawals from Roth IRAs in the future, but this cannot be guaranteed.

Transfers/Rollovers

Can I Transfer or Roll Over a Distribution I Receivefrom my Employer’s Retirement Plan into a Roth IRA?

Distributions from qualified employer-sponsored retirement plans or 403(b) arrangements (for employeesof tax-exempt employers) or eligible 457 plans (foremployees of certain governmental employers) are noteligible for rollover or direct transfer to a Roth IRA.However, in certain circumstances it may be possible to make a direct rollover of an eligible distribution to a Traditional IRA and then to convert the TraditionalIRA to Roth IRA (see above). Consult your tax orfinancial adviser for further information on this possibility.

Can I Make a Rollover from my Roth IRA to anotherRoth IRA?

You may make a rollover from one Roth IRA to anotherRoth IRA you already have or to one you establish toreceive the rollover. Such a rollover must be completedwithin 60 days after the withdrawal from your firstRoth IRA. In limited circumstances, when an IRArollover could not be completed within 60 days due tocircumstances beyond your control or not your fault,you can apply to the IRS for approval of a rollover after60 days. However, IRS approval may not be needed ifthe financial institution receiving the rollover did notdeposit the rollover amount in an IRA. Consult yourtax adviser for more information.

After making a rollover from one Roth IRA to another,you must wait a full year (365 days) before you canmake another such rollover from the same Roth IRA.In addition, after Roth IRA assets are rolled over fromone IRA to another, a second rollover of the same assets cannot be made for a full year. (However, you can instruct a Roth IRA custodian to transfer amountsdirectly to another Roth IRA custodian; such a directtransfer does not count as a rollover.)

How Do Rollovers Affect my Roth IRA ContributionLimits?

Rollover contributions, if properly made, do not counttoward the IRA Contribution Limit. Also, you maymake a rollover from one Roth IRA to another evenduring a year when you are not eligible to contribute to a Roth IRA (for example, because your AGI for thatyear is too high).

Withdrawals

When can I make withdrawals from my Roth IRA?

You may withdraw from your Roth IRA at any time. If the withdrawal meets the requirements discussedbelow, it is tax-free. This means that you pay no federalincome tax even though the withdrawal includes earnings or gains on your contributions while they were held in your Roth IRA.

When must I start making withdrawals?

There are no rules on when you must start makingwithdrawals from your Roth IRA or on minimumrequired withdrawal amounts for any particular yearduring your lifetime. Unlike Traditional IRAs, you arenot required to start making withdrawals from a RothIRA by the April 1 following the year in which youreach age 701⁄2.

After your death, there are IRS rules on the timing andamount of distributions. In general, the amount in your Roth IRA must be distributed by the end of thefifth year after your death. However, distributions to adesignated beneficiary that begin by the end of the yearfollowing the year of your death and that are paid overthe life expectancy of the beneficiary satisfy the rules.Also, if your surviving spouse is your designated benefi-ciary, the spouse may defer the start of distributionsuntil you would have reached age 701⁄2 had you lived.

What are the requirements for a tax-free withdrawal?

To be tax-free, a withdrawal from your Roth IRA mustmeet two requirements. First, the Roth IRA must havebeen open for 5 or more years before the withdrawal.Second, at least one of the following conditions must be satisfied:

• You are age 591⁄2 or older when you make the withdrawal.

• The withdrawal is made by your beneficiary after you die.

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• You are disabled (as defined in IRS rules) when youmake the withdrawal.

• You are using the withdrawal to cover eligible firsttime homebuyer expenses. These are the costs of purchasing, building or rebuilding a principal residence (including customary settlement, financingor closing costs). The purchaser may be you, yourspouse or a child, grandchild, parent or grandparent of you or your spouse. An individual is considered a“first-time homebuyer” if the individual did not have(or, if married, neither spouse had) an ownershipinterest in a principal residence during the two-yearperiod immediately preceding the acquisition in question. The withdrawal must be used for eligibleexpenses within 120 days after the withdrawal (if there is an unexpected delay, or cancellation of thehome acquisition, a withdrawal may be redeposited as a rollover).

There is a lifetime limit on eligible first-time homebuyer expenses of $10,000 per individual.

For purposes of the 5-year rule, all your Roth IRAs are considered. As soon as the 5-year rule is satisfied for any Roth IRA, it is considered satisfied for all your Roth IRAs. For a Roth IRA that you started withannual contribution, the 5 year period starts with theyear for which you make the initial annual contribution.For a Roth IRA that you set up with amounts rolledover or converted from a non-Roth IRA, the 5 yearperiod begins with the year in which the conversion or rollover was made.

How Are Withdrawals From My Roth IRA Taxed if theTax-Free Requirements are not Met?

If the qualified withdrawal requirements are not met,the tax treatment of a withdrawal depends on the character of the amounts withdrawn. To determine this, all your Roth IRAs (if you have more than one) are treated as one, including any Roth IRA you mayhave established with another Roth IRA custodian.Amounts withdrawn are considered to come out in the following order:

• First, all annual contributions.

• Second, all conversion amounts (on a first-in, first-out basis).

• Third, earnings (including dividends and gains).

A withdrawal treated as your own prior annual contribution amounts to your Roth IRA will not beconsidered taxable income in the year you receive it,nor will the 10% penalty apply. A withdrawal consisting

of previously taxed conversion amounts also is not considered taxable income in the year of the withdrawal,but may be subject to the 10% premature withdrawalpenalty. To the extent that the nonqualified withdrawalconsists of dividends or gains while your contributionswere held in your Roth IRA, the withdrawal is includiblein your gross income in the taxable year you receive it,and may be subject to the 10% withdrawal penalty.

As mentioned, for purposes of determining what portion of any withdrawal is includible in income, all of your Roth IRA accounts are considered as one single account. Therefore, withdrawals from Roth IRAaccounts are not considered to be from earnings orinterest until an amount equal to all prior annual contributions and, if applicable, all conversion amounts,made to all of an individual’s Roth IRA accounts hasbeen withdrawn. The following example illustrates this:

A single individual contributes $1,000 a year to hisState Street Bank and Trust Company Roth IRAaccount and $1,000 a year to the Brand X Roth IRAaccount over a period of ten years. At the end of 10years his account balances are as follows:

Principal EarningsContributions

State Street Bank $10,000 $10,000Roth IRA

Brand X Roth IRA $10,000 $7,000

Total $20,000 $17,000

At the end of 10 years, this person has $37,000 in bothRoth IRA accounts, of which $20,000 represents hiscontributions (aggregated) and $17,000 represents hisearnings (aggregated). This individual, who is 40, withdraws the entire $17,000 from his Brand X RothIRA (not a qualified withdrawal). We look to the aggregate amount of all principal contributions – in this case $20,000 – to determine if the withdrawal isfrom contributions, and thus non-taxable. In this example, there is no ($0) taxable income as a result of this withdrawal because the $17,000 withdrawal isless than the total amount of aggregated contributions($20,000). If this individual then withdrew $15,000from his State Street Bank and Trust Company RothIRA, $3,000 would not be taxable (the remaining aggregate contributions) and $12,000 would be treatedas taxable income for the year of the withdrawal, subject to normal income taxes and the 10% prematurewithdrawal penalty (unless an exception applies).

Taxable withdrawals of dividends and gains from a RothIRA are treated as ordinary income. Withdrawals oftaxable amounts from a Roth IRA are not eligible for

19

averaging treatment currently available to certain lumpsum distributions from qualified employer-sponsoredretirement plans, nor are such withdrawals eligible forcapital gains tax treatment.

Your receipt of any taxable withdrawal from your Roth IRA before you attain age 591⁄2 generally will beconsidered as an early withdrawal and subject to a 10%penalty tax.

The 10% penalty tax for early withdrawal will not apply if any of the following exceptions applies:

• The withdrawal was a result of your death or disability.

• The withdrawal is one of a scheduled series of substantially equal periodic payments for your life orlife expectancy (or the joint lives or life expectancies ofyou and your beneficiary).

• If there is an adjustment to the scheduled series of payments, the 10% penalty tax will apply. Forexample, if you begin receiving payments at age 50under a withdrawal program providing for substantiallyequal payments over your life expectancy, and at age58 you elect to withdraw the remaining amount inyour Roth IRA in a lump-sum, the 10% penalty tax will apply to the lump sum and to the amountspreviously paid to you before age 591⁄2 to the extentthey were includible in your taxable income.

• The withdrawal is used to pay eligible higher educa-tion expenses. These are expenses for tuition, fees,books, and supplies required to attend an institutionfor post-secondary education. Room and boardexpenses are also eligible for a student attending atleast half-time. The student may be you, your spouse,or your child or grandchild. However, expenses thatare paid for with a scholarship or other educationalassistance payment are not eligible expenses.

• The withdrawal is used to cover eligible first timehomebuyer expenses (as described above in the discussion of tax-free withdrawals).

• The withdrawal does not exceed the amount of yourdeductible medical expenses for the year (generallyspeaking, medical expenses paid during a year aredeductible if they are greater than 71⁄2 of your adjustedgross income for that year).

• The withdrawal does not exceed the amount you paidfor health insurance coverage for yourself, your spouseand dependents. This exception applies only if youhave been unemployed and received federal or stateunemployment compensation payments for at least 12

weeks; this exception applies to distributions duringthe year in which you received the unemploymentcompensation and during the following year, but notto any distributions received after you have beenreemployed for at least 60 days.

• A distribution is made pursuant to an IRS levy to payoverdue taxes.

There is one additional time when the 10% penalty tax may apply. If you convert an amount from a non-Roth IRA to a Roth IRA, and then make a withdrawalthat is treated as coming from that converted amountwithin five years after the conversion, the 10% penaltyapplies (unless there is an exception). This rule is theone exception to the usual Roth IRA rule that, once thefive year requirement is satisfied for one of your RothIRAs, it is satisfied for all your Roth IRAs.

See the Table at the end of this Part for a summaryof the rules on when withdrawals from your RothIRA will be subject to income taxes or the 10%penalty tax.

Two Important Points: First, the Custodian will reportwithdrawals from your Roth IRA to the IRS on Form1099-R as required and will complete Form 1099-Rbased on your Roth IRA account with the Custodian.However, since all Roth IRAs are considered togetherwhen determining the tax treatment of withdrawals, and since you may have other Roth IRAs with othercustodians (about which we have no information) you have sole responsibility for correctly reportingwithdrawals on your tax return. It is essential that you keep proper records and report the income taxesproperly if you have multiple Roth IRAs. Second, thediscussion of the tax rules for Roth IRAs in thisDisclosure Statement is based upon the best availableinformation. However, there may be changes in IRSregulations or further legislation on the requirementsfor and tax treatment of Roth IRA accounts. Therefore,you should consult your tax adviser for the latest devel-opments or for advice about how maintaining a RothIRA will affect your personal tax or financial situation.

Note: In order to facilitate proper recordkeeping andtax reporting for your Roth IRA, the service companymaintaining certain account records may require you toset up separate Roth IRAs to hold annual contributionsand conversion amounts. In addition, the service company may require separate Roth IRAs for conver-sion amounts from different calendar years. Any suchrequirement will be noted in the Adoption Agreementfor your Roth IRA or in the instructions for openingyour Roth IRA.

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Also, please see Part Three below which contains important information applicable to all State Street Bank and TrustCompany IRAs.

Summary of Tax Rules for Withdrawals

The following table summarizes when income taxes or the 10% premature withdrawal penalty tax will apply to a with-drawal from your Roth IRA. Remember, income taxes or penalties apply or not depending on the type of contributionwithdrawn. This is determined under the IRS rules described above, considering all of your Roth IRAs together(including any you may maintain with another trustee or custodian). Therefore, if you have multiple Roth IRAs, thetax treatment of a withdrawal will not necessarily follow from the type of contributions held in the particular Roth

IRA account you withdrew from. Also, the income and penalty tax rules for Roth IRA withdrawals are extremely complex; the following table is only a summary and may not cover every possible situation. Consult the IRS or yourpersonal tax adviser if you have a question about your individual situation.

The table summarizes the tax rules that may apply if you withdraw from your Roth IRA. What happens if you die and your beneficiary wants to make withdrawals from the account? The following is a summary of the rules.

• First, if your beneficiary is not your surviving spouse, withdrawals by the beneficiary will be subject toincome taxes depending on the type of contribution withdrawn as summarized in the table. However, indetermining what type of contribution the beneficiary is withdrawing, any Roth IRAs the beneficiaries ownsin his or her own right are not considered (this is an exception to the normal rule that all Roth IRAs areconsidered together). A beneficiary will not be subject to the 10% premature withdrawal penalty becausewithdrawals following the original owner’s death are an exception to the 10% penalty tax.

• Second, if your surviving spouse is the beneficiary, the spouse can elect either to receive withdrawals as beneficiary, or to treat your Roth IRA as the spouse’s Roth IRA. If the spouse receives withdrawals as a beneficiary, the rules in the preceding paragraph generally apply to the spouse just as to any other beneficiary. If the spouse treats the Roth IRA as the spouse’s own, there are a couple of special rules. First, the spouse will be treated as having had a Roth IRA for five years (one of the requirements for tax-free withdrawals) if either your Roth IRA or any of the spouse’s Roth IRAs has been in effect for at least five years. Second, withdrawals will be subject to the 10% penalty tax unless an exception applies. Since the spouse has elected to treat your Roth IRA as the spouse’s own Roth IRA, the exception for payments following your death will not apply.

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Qualified Withdrawal Not a Qualified Withdrawal

Type of ContributionWithdrawn

(the requirements for aqualified withdrawal are

outlined above)

Exception to 10% taxapplies (exceptions are

listed above

Exception to 10% taxdoes not apply

Annual Contribution Amounts

No income or penalty tax on withdrawal

Amounts Converted from Another Form of IRA

No income or penalty taxon withdrawal.


No income tax on with-drawal. Penalty tax appliesto taxable amounts includ-ed in the conversion if thewithdrawal occurs within 5 years of conversion.

Earnings, Gains or Growth of Account


Income tax applies.No penalty tax.

Income and penalty tax apply.

Part Three: Rules for All IRAs(Traditional and Roth)

General Information

IRA Requirements

All IRAs must meet certain requirements. Contributionsgenerally must be made in cash. The IRA trustee orcustodian must be a bank or other person who has been approved by the Secretary of the Treasury. Yourcontributions may not be invested in life insurance or collectibles or be commingled with other propertyexcept in a common trust or investment fund. Yourinterest in the account must be nonforfeitable at alltimes. You may obtain further information on IRAsfrom any district office of the Internal Revenue Service.

May I Revoke My IRA?

You may revoke a newly established Traditional or Roth IRA at any time within seven days after the dateon which you receive this Disclosure Statement. ATraditional or Roth IRA established more than sevendays after the date of your receipt of this DisclosureStatement may not be revoked.

To revoke your Traditional or Roth IRA, mail or deliver a written notice of revocation to the Custodianat the address which appears at the end of thisDisclosure Statement. Mailed notice will be deemedgiven on the date that it is postmarked (or, if sent bycertified or registered mail, on the date of certificationor registration). If you revoke your Traditional or RothIRA within the seven-day period, you are entitled to areturn of the entire amount you originally contributedinto your Traditional or Roth IRA, without adjustmentfor such items as sales charges, administrative expensesor fluctuations in market value.

Voter Rights

We shall forward the Depositor any notices, prospectuses, reports to shareholders, financial statements, proxies and proxy soliciting materials, relating to the fund shares in the Depositor's account.The Custodian shall vote any such shares held in the account in accordance with the timely writteninstructions of the Depositor if received. If no timelywritten instructions are received from the Depositor,the Trustee may vote such shares in such a manner as it deems appropriate (including "present" or inaccordance with the recommendations of the Fund's Board of Trustees.

Investments

How Are My IRA Contributions Invested?

You control the investment and reinvestment of contributions to your Traditional or Roth IRA.Investments must be in one or more of the Fund(s)available from time to time as listed in the AdoptionAgreement for your Traditional or Roth IRA or in aninvestment selection form provided with your AdoptionAgreement or from the Fund Distributor or ServiceCompany. You direct the investment of your IRA bygiving your investment instructions to the Distributoror Service Company for the Fund(s). Since you controlthe investment of your Traditional or Roth IRA, youare responsible for any losses; neither the Custodian,the Distributor nor the Service Company has anyresponsibility for any loss or diminution in value occasioned by your exercise of investment control.Transactions for your Traditional or Roth IRA will generally be at the applicable public offering price or net asset value for shares of the Fund(s) involvednext established after the Distributor or the ServiceCompany (whichever may apply) receives proper and timely investment instructions from you; consultthe current prospectus for the Fund(s) involved foradditional information.

Before making any investment, read carefully the current prospectus for any Fund you are considering asan investment for your Traditional IRA or Roth IRA.The prospectus will contain information about theFund’s investment objectives and policies, as well as any minimum initial investment or minimum balancerequirements, any restrictions or limitations on transferring into or out of the Fund, and any sales,redemption or other charges.

Because you control the selection of investments foryour Traditional or Roth IRA and because mutual fund shares fluctuate in value, the growth in value ofyour Traditional or Roth IRA cannot be guaranteed or projected.

Are There Any Restrictions on the Use of my IRA Assets?

The tax-exempt status of your Traditional or Roth IRAwill be revoked if you engage in any of the prohibitedtransactions listed in Section 4975 of the tax code.Upon such revocation, your Traditional or Roth IRA is treated as distributing its assets to you. The taxableportion of the amount in your IRA will be subject toincome tax (unless, in the case of a Roth IRA, therequirements for a tax-free withdrawal are satisfied).

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Also, you may be subject to a 10% penalty tax on thetaxable amount as a premature withdrawal if you havenot yet reached the age of 591⁄2. There may also be prohibited transaction penalty taxes.

Any investment in a collectible (for example, rarestamps) by your Traditional or Roth IRA is treated as a withdrawal; the only exception involves certain typesof government-sponsored coins or certain types of precious metal bullion.

What Is A Prohibited Transaction?

Generally, a prohibited transaction is any improper use of the assets in your Traditional or Roth IRA. Some examples of prohibited transactions are:

- Direct or indirect sale or exchange of property between you and your Traditional or Roth IRA.

- Transfer of any property from yourTraditional or Roth IRA to yourself or fromyourself to your Traditional or Roth IRA.

Your Traditional or Roth IRA could lose its tax exemptstatus if you use all or part of your interest in yourTraditional or Roth IRA as security for a loan or bor-row any money from your Traditional or Roth IRA.Any portion of your Traditional or Roth IRA used assecurity for a loan will be treated as a distribution in theyear in which the money is borrowed. This amountmay be taxable and you may also be subject to the 10%premature withdrawal penalty on the taxable amount.

Fees and Expenses

Custodian’s Fees

The following is the fee charged by the Custodian for maintaining either a Traditional IRA or a Roth IRA.

Annual Maintenance Fee per mutual fund account:$10.00

General Fee Policies

• Fees may be paid by you directly, or the Custodianmay deduct them from your Traditional or Roth IRA.

• Fees may be changed upon 30 days written notice to you.

• The full annual maintenance fee will be charged forany calendar year during which you have a Traditionalor Roth IRA with us. This fee is not prorated for periods of less than one full year.

• If provided for in this Disclosure Statement or theAdoption Agreement, termination fees are chargedwhen your account is closed whether the funds aredistributed to you or transferred to a successor custodian or trustee.

• The Custodian may charge you for its reasonableexpenses for services not covered by its fee schedule.

Other Charges

• There may be sales or other charges associated withthe purchase or redemption of shares of a Fund inwhich your Traditional IRA or Roth IRA is invested.Before investing, be sure to read carefully the currentprospectus of any Fund you are considering as aninvestment for your Traditional IRA or Roth IRA for a description of applicable charges.

Tax Matters

What IRA Reports does the Custodian Issue?

The Custodian will report all withdrawals to the IRSand the recipientusing Form 1099-R. For reportingpurposes, a direct transfer of assets to a successor custodian or trustee is not considered a withdrawal(except for such a transfer that effects a conversion of aTraditional IRA to a Roth IRA, or a recharacterizationof a Roth IRA back to a Traditional IRA).

The Custodian will report to the IRS the year-endvalue of your account and the amount of any rollover(including conversions of a Traditional IRA to a RothIRA) or a regular annual contribution made during a calendar year, as well as the tax year for which a contribution is made. Unless the Custodian receives an indication from you to the contrary, it will treat anyamount as a contribution for the tax year in which it is received. It is most important that a contributionbetween January and April 15th for the prior year beclearly designated as such.

What Tax Information Must I Report to the IRS?

You must file Form 5329 with the IRS for each taxableyear for which you made an excess contribution or you take a premature withdrawal that is subject to the 10% penalty tax, or you withdraw less than theminimum amount required from your Traditional IRA.If your beneficiary fails to make required minimumwithdrawals from your Traditional or Roth IRA afteryour death, your beneficiary may be subject to an excisetax and be required to file Form 5329.

NOTE: If you are under age 591⁄2 at the time of a withdrawal from your IRA, the IRS requires the23

Custodian to indicate on Form 1099-R that the withdrawal is subject to the 10% premature withdrawalpenalty (see above). The only exceptions the IRS allowsfor purposes of Form 1099-R are for death or disability,a series of substantially equal periodic payments, or adistribution under an IRS levy. If another exceptionactually applies to you, you may have to file Form 5329to claim the exception.

For Traditional IRAs, you must also report each nondeductible contribution to the IRS by designating it a nondeductible contribution on your tax return. Use Form 8606. In addition, for any year in which youmake a nondeductible contribution or take a withdrawal,you must include additional information on your taxreturn. The information required includes: (1) theamount of your nondeductible contributions for thatyear; (2) the amount of withdrawals from TraditionalIRAs in that year; (3) the amount by which your totalnondeductible contributions for all the years exceed thetotal amount of your distributions previously excludedfrom gross income; and (4) the total value of all yourTraditional IRAs as of the end of the year. If you fail to report any of this information, the IRS will assumethat all your contributions were deductible. This willresult in the taxation of the portion of your withdrawalsthat should be treated as a nontaxable return of yournondeductible contributions.

Which Withdrawals Are Subject to Withholding?

Roth IRA

Withdrawals from a Roth IRA are not subject the 10%flat rate of withholding that applies to Traditional IRAsor to the mandatory 20% income tax withholding thatapplies to most distributions from qualified plans or403(b) accounts that are not directly rolled over toanother plan or IRA.

Traditional IRA

Federal income tax will be withheld at a flat rate of10% from any withdrawal from your Traditional IRA,unless you elect not to have tax withheld. Withdrawalsfrom a Traditional IRA are not subject to the mandatory20% income tax withholding that applies to most distributions from employer plans that are not directlyrolled over to another plan or IRA.

Account Termination

You may terminate your Traditional IRA or Roth IRA at any time after its establishment by sending a completed withdrawal form (or other withdrawal

instructions in a form acceptable to the Custodian), or a transfer authorization form, to:

AARP FundsP.O. Box 8035Boston, MA 02266-8035

Your Traditional IRA or Roth IRA with State StreetBank and Trust Company will terminate upon the firstto occur of the following:

• The date your properly executed withdrawal form orinstructions (as described above) withdrawing yourtotal Traditional IRA or Roth IRA balance is receivedand accepted by the Custodian or, if later, the termi-nation date specified in the withdrawal form.

• The date the Traditional IRA or Roth IRA ceases to qualify under the tax code. This will be deemed a termination.

• The transfer of the Traditional IRA or Roth IRA toanother custodian/trustee.

Any outstanding fees must be received prior to such a termination of your account.

The amount you receive from your IRA upon termination of the account will be treated as a withdrawal, and thus the rules relating to TraditionalIRA or Roth IRA withdrawals will apply. For example,if the IRA is terminated before you reach age 591⁄2, the10% early withdrawal penalty may apply to the taxableamount you receive.

IRA Documents

Traditional IRA

The terms contained in Articles I to VII of Part One of the State Street Bank and Trust Company UniversalIndividual Retirement Custodial Account documenthave been promulgated by the IRS in Form 5305-A foruse in establishing a Traditional IRA Custodial Accountthat meets the requirements of Code Section 408(a) fora valid Traditional IRA. This IRS approval relates onlyto the form of Articles I to VII and is not an approval ofthe merits of the Traditional IRA or of any investmentpermitted by the Traditional IRA.

Roth IRA

The terms contained in Articles I to VII of Part Two of the State Street Bank and Trust Company UniversalIndividual Retirement Account Custodial Agreementhave been promulgated by the IRS in Form 5305-RAfor use in establishing a Roth IRA Custodial Accountthat meets the requirements of Code Section 408A for

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a valid Roth IRA. This IRS approval relates only to theform of Articles I to VII and is not an approval of themerits of the Roth IRA or of any investment permittedby the Roth IRA.

Traditional IRA and Roth IRA

The terms contained in Article VIII of Part Three ofthe State Street Bank and Trust Company UniversalIndividual Retirement Account document are additionalprovisions (not promulgated by the IRS) for bothTraditional IRAs and Roth IRAs.

Additional Information

For additional information you may write to the follow-ing address or call the following telephone number.

AARP FundsP.O. Box 8035Boston, MA 02266-8035

1-800-958-6457

P R I V A C Y N O T I C E

An Important Notice Concerning Customer PrivacyFrom State Street Bank and Trust Company:

State Street Bank and Trust Company is pleased to bethe custodian for your retirement account.

The trust and confidence of our customers is importantto us. For this reason, we are careful in the way we handle nonpublic personal information about our customers (“Customer Information”). This PrivacyNotice describes our policies and practices concerningCustomer Information and how they are designed topreserve the trust of our customers.

Information We Collect

We may collect Customer Information from the following sources:

• Information we receive on applications or other forms,such as name, address, date of birth, and social securitynumber

• Information relating to transactions with us, our affiliates and others, such as the purchase and sale of securities and account balances

• Information we receive from third parties such ascredit reporting agencies.

Information We Disclose

We do not disclose Customer Information about ourpresent or former customers to third parties except as

permitted by law. For example, we may disclose CustomerInformation in order to process a transaction or servicean account, or to comply with legal requirements.

Information Security

We restrict access to Customer Information to employ-ees and service providers who are involved in providingproducts and services to our customers. In addition, wemaintain physical, electronic, and procedural safeguardsthat comply with federal standards in order to protectCustomer Information.

State Street Bank and Trust CompanyUniversal Individual RetirementAccount Custodial Agreement

Part One: Provisions applicable toTraditional IRAs

The following provisions of Articles I to VII are in theform promulgated by the Internal Revenue Service inForm 5305-A (Rev. March 2002) for use in establishinga Traditional Individual Retirement custodial account.References are to sections of the Internal RevenueCode of 1986, as amended (“Code”).

Article I.

Except in the case of a rollover contribution describedin section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or457(e)(16), an employer contribution to a simplifiedemployee pension plan as described in section 408(k),or a recharacterized contribution described in section408A(d)(6), the custodian will accept only cash contri-butions up to $3,000 per year for tax years 2002through 2004. That contribution limit is increasedto$4,000 for tax years 2005 through 2007 and $5,000for 2008 and thereafter. For individuals who havereached the age of 50 before the close of the tax year,the contribution limit is increased to $3,500 per yearfor tax years 2002 through 2004, $4,500 for 2005,$5,000 for 2006 and 2007,and $6,000 for 2008 andthereafter. For tax years after 2008, the above limits willbe increased to reflect a cost-of-living adjustment, ifany.

Article II.

The Depositor’s interest in the balance in the CustodialAccount is nonforfeitable.

Article III.

1. No part of the Custodial Account funds may beinvested in life insurance contracts, nor may the assetsof the custodial account be commingled with otherproperty except in a common trust fund or common

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investment fund (within the meaning of section408(a)(5)).

2. No part of the Custodial Account funds may beinvested in collectibles (within the meaning of section408(m) except as otherwise permitted by section408(m)(3) which provides an exception for certain gold,silver and platinum coins, coins issued under the laws ofany state, and certain bullion.

Article IV.

1. Notwithstanding any provisions of this agreement tothe contrary, the distribution of the Depositor’s interestin the custodial account shall be made in accordancewith the following requirements and shall otherwisecomply with section 408(a)(6) and the regulationsthereunder, the provisions of which are herein incorporated by reference.

2. The Depositor’s entire interest in the custodialaccount must be, or begin to be, distributed by theDepositor’s required beginning date, April 1 followingthe calendar year end in which the Depositor reachesage 701⁄2. By that date, the Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in:

(a) A single-sum payment or

(b) Payments over a period not longer than the life ofthe Depositor or the joint lives of the Depositor and his or her designated Beneficiary.

3. If the Depositor dies before his or her entire interestis distributed to him or her, the remaining interest willbe distributed as follows:

(a) If the Depositor dies on or after the required beginning date and:

(i) the designated Beneficiary is the Depositor’s surviving spouse, the remaining interest will be distributed over the surviving spouse’s life expectancy as determined each year until such spouse’s death, orover the period in paragraph (a)(iii) below if longer.Any interest remaining after the spouse’s death will bedistributed over such spouse’s remaining life expectancyas determined in the year of the spouse’s death andreduced by 1 for each subsequent year, or, if distributionsare being made over the period in paragraph (a)(iii)below, over such period.

(ii) the designated Beneficiary is not the Depositor’ssurviving spouse, the remaining interest will be distrib-uted over the beneficiary’s remaining life expectancy asdetermined in the year following the death of the

Depositor and reduced by 1 for each subsequent year,or over the period in paragraph (a)(iii) below if longer.

(iii) there is no designated Beneficiary, the remaininginterest will be distributed over the remaining lifeexpectancy of the Depositor as determined in the yearof the Depositor’s death and reduced by 1 for each subsequent year.

(b) If the Depositor dies before the required beginningdate, the remaining interest will be distributed in accordance with (i) below or, if elected or there is nodesignated Beneficiary, in accordance with (ii) below:

(i)The remaining interest will be distributed in accordance with paragraphs (a)(i) and (a)(ii) above (butnot over the period in paragraph (a)(iii),even if longer),starting by the end of the calendar year following theyear of the Depositor’s death. If, however, the designatedBeneficiary is the Depositor’s surviving spouse, thenthis distribution is not required to begin before the endof the calendar year in which the Depositor would havereached age 701⁄2. But, in such case, if the Depositor’ssurviving spouse dies before distributions are requiredto begin, then the remaining interest will be distributedin accordance with (a)(ii) above (but not over the periodin paragraph (a)(iii), even if longer), over such spouse’sdesignated Beneficiary’s life expectancy, or in accordancewith (ii) below if there is no such designated Beneficiary.

(ii)The remaining interest will be distributed by the endof the calendar year containing the fifth anniversary ofthe Depositor’s death.

4. If the Depositor dies before his or her entire interesthas been distributed and if the designated Beneficiary is not the Depositor’s surviving spouse, no additionalcontributions may be accepted in the account.

The minimum amount that must be distributed eachyear, beginning with the year containing the Depositor’srequired beginning date, is known as the “requiredminimum distribution” and is determined as follows:

(a) The required minimum distribution under para-graph 2(b) for any year, beginning with the year theDepositor reaches age 701⁄2 , is the Depositor’s accountvalue at the close of business on December 31 of thepreceding year divided by the distribution period in the uniform lifetime table in Regulations section1.401(a)(9)-9. However, if the Depositor’s designatedBeneficiary is his or her surviving spouse, the requiredminimum distribution for a year shall not be more than the Depositor’s account value at the close of business on December 31 of the preceding year dividedby the number in the joint and last survivor table

26

in Regulations section 1.401(a)(9)-9. The required minimum distribution for a year under this paragraph(a) is determined using the Depositor’s (or, if applicable,the Depositor and spouse’s) attained age (or ages) in the year.

(b) The required minimum distribution under paragraphs 3(a) and 3(b)(i) for a year, beginning withthe year following the year of the Depositor’s death (orthe year the Depositor would have reached age 701⁄2 , ifapplicable under paragraph 3(b)(i)) is the account valueat the close of business on December 31 of the preced-ing year divided by the life expectancy (in the single lifetable in Regulations section 1.401(a)(9)-9) of the indi-vidual specified in such paragraphs 3(a) and 3(b)(i).

(c) The required minimum distribution for the year the Depositor reaches age 701⁄2 can be made as late as April 1 of the following year. The required minimum distribution forany other year must be made by the end ofsuch year.

3. The owner of two or more individual retirementaccounts may satisfy the minimum distribution requirements described above by taking from one traditional IRA the amount required to satisfy therequirement for another in accordance with the regulations under section 408(a)(6).

Article V.

1. The Depositor agrees to provide the Custodian with all information necessary to prepare any reportsrequired by section 408(i) and Regulations sections1.408-5 and 1.408-6.

2. The Custodian agrees to submit to the InternalRevenue Service (IRS) and the Depositor the reportsprescribed by the IRS.

Article VI.

Notwithstanding any other articles which may be addedor incorporated, the provisions of Articles I through IIIand this sentence will be controlling. Any additionalarticles inconsistent with section 408(a) and the relatedregulations will be invalid.

Article VII.

This agreement will be amended as necessary to comply with the provisions of the Code and the relatedregulations. Other amendments may be made with theconsent of the persons whose signatures appear on theAdoption Agreement.

Part Two: Provisions applicable to Roth IRAs

The following provisions of Articles I to VII are in the form promulgated by the Internal Revenue Servicein Form 5305-RA (revised March 2002) for use inestablishing a Roth Individual Retirement CustodialAccount. References are to sections of the InternalRevenue Code of 1986, as amended (“Code”).

Article I

Except in the case of a rollover contribution describedin section 408A(e), a recharacterized contributiondescribed in section 408A(d)(6), or an IRA ConversionContribution, the custodian will accept only cash contributions up to $3,000 per year for tax years 2002through 2004. That contribution limit is increased to$4,000 for tax years 2005 through 2007 and $5,000 for2008 and thereafter. For individuals who have reachedthe age of 50 before the close of the tax year, the contribution limit is increased to $3,500 per year for tax years 2002 through 2004, $4,500 for 2005, $5,000for 2006 and 2007, and $6,000 for 2008 and thereafter.For tax years after 2008, the above limits will beincreased to reflect a cost-of-living adjustment, if any.

Article IA

The annual contribution limit described in Article I is gradually reduced to $0for higher income levels. Fora single Depositor, the annual contribution is phasedout between adjusted gross income (AGI) of $95,000and $110,000; for a married Depositor filing jointly,between AGI of $150,000 and $160,000; and for a married Depositor filing separately, between AGI of $0and $10,000. In the case of a conversion, the Custodianwill not accept IRA Conversion Contributions in a taxyear if the Depositor’s AGI for the tax year the fundswere distributed from the other IRA exceeds $100,000or if the Depositor is married and files a separate return.Adjusted gross income is defined in section 408A(c)(3)and does not include IRA Conversion Contributions.

In the case of a joint return, the AGI limits in the preceding paragraph apply to the combined AGI of theDepositor and his or her spouse.

Article II

The Depositor’s interest in the balance in the custodialaccount is nonforfeitable.

Article III

1. No part of the Custodial Account funds may beinvested in life insurance contracts, nor may the assetsof the custodial account be commingled with other

27

property except in a common trust fund or commoninvestment fund (within the meaning of section408(a)(5)).

2. No part of the Custodial Account funds may beinvested in collectibles (within the meaning of section408(m)) except as otherwise permitted by section408(m)(3), which provides an exception for certain gold,silver, and platinum coins, coins issued under the lawsof any state, and certain bullion.

Article IV

1. If the Depositor dies before his or her entire interestis distributed to him or her and the Depositor’s survivingspouse is not the designated Beneficiary, the entireremaining interest will be distributed in accordancewith (a) below or, if elected or there is no designatedBeneficiary, in accordance with (b) below:

(a) The remaining interest will be distributed, startingby the end of the calendar year following the year ofthe Depositor’s death, over the designated Beneficiary’sremaining life expectancy as determined in the year following the death of the Depositor.

(b) The remaining interest will be distributed by theend of the calendar year containing the fifth anniversaryof the Depositor’s death.

2. The minimum amount that must be distributed each year under paragraph 1(a) above is the accountvalue at the close of business on December 31 of thepreceding year divided by the life expectancy (in thesingle life table in Regulations section 1.401(a)(9)-9) of the designated Beneficiary using the attained age ofthe beneficiary in the year following the year of theDepositor’s death and subtracting 1 from the divisor for each subsequent year.

3. If the Depositor’s spouse is the designatedBeneficiary, such spouse will then be treated as theDepositor.

Article V

1. The Depositor agrees to provide the Custodian with all information necessary to prepare any reportsrequired by sections 408(i) and 408A(d)(3)(E), andRegulations section 1.408-5 and 1.408-6, or other guid-ance published by the Internal Revenue Service (IRS).

2. The Custodian agrees to submit to the IRS andDepositor the reports prescribed by the IRS.

Article VI

Notwithstanding any other articles which may be addedor incorporated, the provisions of Articles I through IV

and this sentence will be controlling. Any additionalarticles that are not consistent with section 408A, therelated regulations, and other published guidance willbe invalid.

Article VII

This agreement will be amended as necessary to complywith the provisions of the Code, the related regulations,and other published guidance. Other amendments may be made with the consent of the persons whosesignatures appear in the Adoption Agreement.

Part Three: Provisions applicable to bothTraditional IRAs and Roth IRAs

Article VIII

1. As used in this Article VIII the following terms havethe following meanings:

“Depositor” means the person signing the AdoptionAgreement accompanying this Custodial Agreement.

“Account” or “Custodial Account” means the individualretirement account established using the terms of eitherPart One or Part Two and, in either event, Part Threeof this State Street Bank and Trust Company UniversalIndividual Retirement Account Custodial Agreementand the Adoption Agreement signed by the Depositor.The Account may be a Traditional IndividualRetirement Account or a Roth Individual RetirementAccount, as specified by the Depositor. See Section 24 below.

“Custodian” means State Street Bank and TrustCompany.

“Fund” means any registered investment companywhich is advised, sponsored or distributed by Sponsor;provided, however, that such a mutual fund or regis-tered investment company must be legally offered forsale in the state of the Depositor’s residence.

“Distributor” means the entity which has a contractwith the Fund(s) to serve as distributor of the shares of such Fund(s).

In any case where there is no Distributor, the duties assigned hereunder to the Distributor may be performed by the Fund(s) or by an entity that has a contract to perform management or investmentadvisory services for the Fund(s).

“Service Company” means any entity employed by theCustodian or the Distributor, including the transferagent for the Fund(s), to perform various administrativeduties of either the Custodian or the Distributor.

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In any case where there is no Service Company, theduties assigned hereunder to the Service Company willbe performed by the Distributor (if any) or by an entityspecified in the second preceding paragraph.

“Sponsor” means [insert fund management company orother fund entity that is making Fund(s) available underthis Agreement and has the power to appoint a successorCustodian.]

2. The Depositor may revoke the Custodial Accountestablished hereunder by mailing or delivering a writtennotice of revocation to the Custodian within seven daysafter the Depositor receives the Disclosure Statementrelated to the Custodial Account. Mailed notice is treatedas given to the Custodian on date of the postmark (oron the date of Post Office certification or registrationin the case of notice sent by certified or registeredmail). Upon timely revocation, the Depositor’s initialcontribution will be returned, without adjustment foradministrative expenses, commissions or sales charges,fluctuations in market value or other changes.

The Depositor may certify in the Adoption Agreementthat the Depositor received the Disclosure Statementrelated to the Custodial Account at least seven daysbefore the Depositor signed the Adoption Agreementto establish the Custodial Account, and the Custodianmay rely upon such certification.

3. All contributions to the Custodial Account shall beinvested and reinvested in full and fractional shares of one or more Funds. All such shares shall be issuedand accounted for as book entry shares, and no physicalshares or share certificate will be issued. Such invest-ments shall be made in such proportions and/or in such amounts as Depositor from time to time in theAdoption Agreement or by other written notice to theService Company (in such form as may be acceptable to the Service Company) may direct.

The Service Company shall be responsible for promptlytransmitting all investment directions by the Depositorfor the purchase or sale of shares of one or more Fundshereunder to the Funds’ transfer agent for execution.However, if investment directions with respect to theinvestment of any contribution hereunder are notreceived from the Depositor as required or, if received,are unclear or incomplete in the opinion of the ServiceCompany, the contribution will be returned to theDepositor, or will be held uninvested (or invested in amoney market fund if available) pending clarification or completion by the Depositor, in either case withoutliability for interest or for loss of income or appreciation.If any other directions or other orders by the Depositorwith respect to the sale or purchase of shares of one or

more Funds for the Custodial Account are unclear orincomplete in the opinion of the Service Company, theService Company will refrain from carrying out suchinvestment directions or from executing any such saleor purchase, without liability for loss of income or for appreciation or depreciation of any asset, pendingreceipt of clarification or completion from theDepositor.

All investment directions by Depositor will be subjectto any minimum initial or additional investment orminimum balance rules or other rules (by way of example and not by way of limitation, rules relating to the timing of investment directions or limiting thenumber of purchases or sales or imposing sales chargeson shares sold within a specified period after purchase)applicable to a Fund as described in its prospectus.

All dividends and capital gains or other distributionsreceived on the shares of any Fund held in theDepositor’s Account shall be (unless received in additional shares) reinvested in full and fractional shares of such Fund (or of any other Fund offered by the Sponsor, if so directed).

In the event that any Fund held in the CustodialAccount is liquidated or is otherwise made unavailableby the Sponsor as a permissible investment for aCustodial Account hereunder, the liquidation or otherproceeds of such Fund shall be invested in accordancewith the instructions of the Depositor; if the Depositordoes not give such instructions, or if such instructionsare unclear or incomplete in the opinion of the ServiceCompany, the Service Company may invest such liquidation or other proceeds in such other Fund(including a money market fund if available) as theSponsor designates, and neither the Service Companynor the Custodian will have any responsibility for such investment.

4. Subject to the minimum initial or additional investment, minimum balance and other exchange rules applicable to a Fund, the Depositor may at anytime direct the Service Company to exchange all or a specified portion of the shares of a Fund in theDepositor’s Account for shares and fractional shares of one or more other Funds. The Depositor shall give such directions by written or telephonic noticeacceptable to the Service Company, and the ServiceCompany will process such directions as soon as practicable after receipt thereof (subject to the second paragraph of Section 3 of this Article VIII).

5. Any purchase or redemption of shares of a Fund for or from the Depositor’s Account will be effected atthe public offering price or net asset value of such Fund

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(as described in the then effective prospectus for suchFund) next established after the Service Company hastransmitted the Depositor’s investment directions to thetransfer agent for the Fund(s).

Any purchase, exchange, transfer or redemption ofshares of a Fund for or from the Depositor’s Accountwill be subject to any applicable sales, redemption or other charge as described in the then effectiveprospectus for such Fund.

6. The Service Company shall maintain adequaterecords of all purchases or sales of shares of one ormore Funds for the Depositor’s Custodial Account. Any account maintained in connection herewith shallbe in the name of the Custodian for the benefit of theDepositor. All assets of the Custodial Account shall beregistered in the name of the Custodian or of a suitablenominee. The books and records of the Custodian shall show that all such investments are part of theCustodial Account.

The Custodian shall maintain or cause to be maintainedadequate records reflecting transactions of the CustodialAccount. In the discretion of the Custodian, recordsmaintained by the Service Company with respect to the Account hereunder will be deemed to satisfy theCustodian’s recordkeeping responsibilities therefor. The Service Company agrees to furnish the Custodianwith any information the Custodian requires to carryout the Custodian’s recordkeeping responsibilities.

7. Neither the Custodian nor any other party providing services to the Custodial Account will haveany responsibility for rendering advice with respect tothe investment and reinvestment of Depositor’sCustodial Account, nor shall such parties be liable for any loss or diminution in value which results fromDepositor’s exercise of investment control over hisCustodial Account. Depositor shall have and exerciseexclusive responsibility for and control over the invest-ment of the assets of his Custodial Account, and neitherCustodian nor any other such party shall have any dutyto question his directions in that regard or to advisehim regarding the purchase, retention or sale of sharesof one or more Funds for the Custodial Account.

8. The Depositor may in writing appoint an investmentadviser with respect to the Custodial Account on a formacceptable to the Custodian and the Service Company.The investment adviser’s appointment will be in effectuntil written notice to the contrary is received by theCustodian and the Service Company. While an invest-ment adviser’s appointment is in effect, the investmentadviser may issue investment directions or may issueorders for the sale or purchase of shares of one or

more Funds to the Service Company, and the ServiceCompany will be fully protected in carrying out suchinvestment directions or orders to the same extent as ifthey had been given by the Depositor.

The Depositor’s appointment of any investment adviserwill also be deemed to be instructions to the Custodian

and the Service Company to pay such investment adviser’s fees to the investment adviser from theCustodial Account hereunder without additionalauthorization by the Depositor or the Custodian.

9. (a) Distribution of the assets of the CustodialAccount shall be made at such time and in such form asDepositor (or the Beneficiary if Depositor is deceased)shall elect by written order to the Custodian. Depositoracknowledges that any distribution of a taxable amountfrom the Custodial Account (except for distribution onaccount of Depositor’s disability or death, return of an“excess contribution” referred to in Code Section4973, or a “rollover” from this Custodial Account)made earlier than age 591⁄2 may subject Depositor to an“additional tax on early distributions” under CodeSection 72(t) unless an exception to such additional tax is applicable. For that purpose, Depositor will beconsidered disabled if Depositor can prove, as providedin Code Section 72(m)(7), that Depositor is unable toengage in any substantial gainful activity by reason ofany medically determinable physical or mental impair-ment which can be expected to result in death or be oflong-continued and indefinite duration. It is theresponsibility of the Depositor (or the Beneficiary) byappropriate distribution instructions to the Custodianto insure that any applicable distribution requirementsof Code Section 401(a)(9) and Article IV above are met.If the Depositor (or Beneficiary) does not direct theCustodian to make distributions from the CustodialAccount by the time that such distributions are requiredto commence in accordance with such distributionrequirements, the Custodian (and Service Company)shall assume that the Depositor (or Beneficiary) ismeeting any applicable minimum distribution require-ments from another individual retirement arrangementmaintained by the Depositor (or Beneficiary) and theCustodian and Service Company shall be fully protectedin so doing.

(b) The Depositor acknowledges (i) that any withdrawalfrom the Custodial Account will be reported by theCustodian in accordance with applicable IRS require-ments (currently, on Form 1099-R), (ii) that the information reported by the Custodian will be based on the amounts in the Custodial Account and will notreflect any other individual retirement accounts the

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Depositor may own and that, consequently, the taxtreatment of the withdrawal may be different than if theDepositor had no other individual retirement accounts,and (iii) that, accordingly, it is the responsibility of theDepositor to maintain appropriate records so that theDepositor (or other person ordering the distribution)can correctly compute all taxes due. Neither theCustodian nor any other party providing services to theCustodial Account assumes any responsibility for thetax treatment of any distribution from the CustodialAccount; such responsibility rests solely with the personordering the distribution.

10. The Custodian assumes (and shall have) no respon-sibility to make any distribution except upon the writtenorder of Depositor (or Beneficiary if Depositor isdeceased) containing such information as the Custodianmay reasonably request. Also, before making any distribution from or honoring any assignment of theCustodial Account, Custodian shall be furnished with anyand all applications, certificates, tax waivers, signatureguarantees, releases, indemnification agreements, andother documents (including proof of any legal represen-tative’s authority) deemed necessary or advisable byCustodian, but Custodian shall not be responsible forcomplying with any order or instruction which appearson its face to be genuine, or for refusing to comply ifnot satisfied it is genuine, and Custodian has no duty of further inquiry. Any distributions from the Accountmay be mailed, first-class postage prepaid, to the lastknown address of the person who is to receive such distribution, as shown on the Custodian’s records, andsuch distribution shall to the extent thereof completelydischarge the Custodian’s liability for such payment.

11. (a) The term “Beneficiary” means the person orpersons designated as such by the “designating person”(as defined below) on a form acceptable to theCustodian for use in connection with the CustodialAccount, signed by the designating person, and filedwith the Custodian. If, in the opinion of the Custodianor Service Company, any designation of beneficiary isunclear or incomplete, in addition to any documents orassurances the Custodian may request under Section 10,the Custodian or Service Company shall be entitled to request and receive such clarification or additionalinstructions as the Custodian in its discretion deemsnecessary to determine the correct Beneficiary(ies) following the Depositor’s death. The form designatingthe Beneficiary(ies) may name individuals, trusts,estates, or other entities as either primary or contingentbeneficiaries. However, if the designation does noteffectively dispose of the entire Custodial Account as of the time distribution is to commence, the term

“Beneficiary” shall then mean the designating person’sestate with respect to the assets of the CustodialAccount not disposed of by the designation form. The form last accepted by the Custodian before suchdistribution is to commence, provided it was receivedby the Custodian (or deposited in the U.S. Mail or with a reputable delivery service) during the designatingperson’s lifetime, shall be controlling and, whether ornot fully dispositive of the Custodial Account, there-upon shall revoke all such forms previously filed by that person. The term “designating person” meansDepositor during his/her lifetime; only after Depositor’sdeath, it also means Depositor’s spouse if the spouse is a Beneficiary and elects to transfer assets from theCustodial Account to the spouse’s own CustodialAccount in accordance with applicable provisions of the Code. (Note: Married Depositors who reside in acommunity property or marital property state (Arizona,California, Idaho, Louisiana, Nevada, new Mexico,Texas, Washington or Wisconsin), may need to obtainspousal consent if they have not designated their spouseas the primary Beneficiary for at least half of theirAccount. Consult a lawyer or other tax professional foradditional information and advice.)

(b) Notwithstanding any provisions in this Agreementto the contrary, when and after the distribution fromthe Custodial Account to Depositor’s Beneficiary commence, all rights and obligations assigned toDepositor hereunder shall inure to, and be enjoyed and exercised by, Beneficiary instead of Depositor.

(c) Notwithstanding Section 3 of Article IV of Part Twoabove, if the Depositor’s spouse is the sole Beneficiaryon the Depositor’s date of death, the spouse will not be treated as the Depositor if the spouse elects not tobe so treated. In such event, the Custodial Account willbe distributed in accordance with the other provisionsof such Article IV, except that distributions to theDepositor’s spouse are not required to commence until December 31 of the year in which the Depositorwould have turned age 701⁄2.

12. (a) The Depositor agrees to provide information to the Custodian at such time and in such manner as may be necessary for the Custodian to prepare any reports required under Section 408(i) or Section408A(d)(3)(E) of the Code and the regulations thereunder or otherwise.

(b) The Custodian or the Service Company will submit reports to the Internal Revenue Service and the Depositor at such time and manner and containingsuch information as is prescribed by the InternalRevenue Service.

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(c) The Depositor, Custodian and Service Companyshall furnish to each other such information relevant to the Custodial Account as may be required under the Code and any regulations issued or forms adoptedby the Treasury Department thereunder or as may otherwise be necessary for the administration of theCustodial Account.

(d) The Depositor shall file any reports to the InternalRevenue Service which are required of him by law(including Form 5329), and neither the Custodian nor Service Company shall have any duty to adviseDepositor concerning or monitor Depositor’s compliance with such requirement.

13. (a) Depositor retains the right to amend thisCustodial Account document in any respect at any time, effective on a stated date which shall be at least 60 days after giving written notice of the amendment(including its exact terms) to Custodian by registered or certified mail, unless Custodian waives notice as tosuch amendment. If the Custodian does not wish tocontinue serving as such under this Custodial Accountdocument as so amended, it may resign in accordancewith Section 17 below.

(b) Depositor delegates to the Custodian theDepositor’s right so to amend, provided (i) theCustodian does not change the investments availableunder this Custodial Agreement and (ii) the Custodianamends in the same manner all agreements comparableto this one, having the same Custodian, permittingcomparable investments, and under which such powerhas been delegated to it; this includes the power toamend retroactively if necessary or appropriate in theopinion of the Custodian in order to conform thisCustodial Account to pertinent provisions of the Codeand other laws or successor provisions of law, or toobtain a governmental ruling that such requirementsare met, to adopt a prototype or master form of agree-ment in substitution for this Agreement, or as otherwisemay be advisable in the opinion of the Custodian. Suchan amendment by the Custodian shall be communicat-ed in writing to Depositor, and Depositor shall bedeemed to have consented thereto unless, within 30days after such communication to Depositor is mailed,Depositor either (i) gives Custodian a written order fora complete distribution or transfer of the CustodialAccount, or (ii) removes the Custodian and appoints asuccessor under Section 17 below.

Pending the adoption of any amendment necessary or desirable to conform this Custodial Account document to the requirements of any amendment toany applicable provision of the Internal Revenue Code

or regulations or rulings thereunder (including anyamendment to Form 5305-A or Form 5305-RA), theCustodian and the Service Company may operate theDepositor’s Custodial Account in accordance with suchrequirements to the extent that the Custodian and/orthe Service Company deem necessary to preserve thetax benefits of the Account.

(c) Notwithstanding the provisions of subsections (a)and (b) above, no amendment shall increase the respon-sibilities or duties of Custodian without its prior writtenconsent.

(d) This Section 13 shall not be construed to restrictthe Custodian’s right to substitute fee schedules in themanner provided by Section 16 below, and no such substitution shall be deemed to be an amendment ofthis Agreement.

14. (a) Custodian shall terminate the Custodial Accountif this Agreement is terminated or if, within 30 days (or such longer time as Custodian may agree) after resignation or removal of Custodian under Section 17,Depositor or Sponsor, as the case may be, has notappointed a successor which has accepted such appoint-ment. Termination of the Custodial Account shall be effected by distributing all assets thereof in a singlepayment in cash or in kind to Depositor, subject toCustodian’s right to reserve funds as provided inSection 17.

(b) Upon termination of the Custodial Account, thiscustodial account document shall have no further forceand effect (except for Sections 15(f), 17(b) and (c) hereof which shall survive the termination of theCustodial Account and this document), and Custodianshall be relieved from all further liability hereunder or with respect to the Custodial Account and all assetsthereof so distributed.

15. (a) In its discretion, the Custodian may appoint oneor more contractors or service providers to carry outany of its functions and may compensate them from the Custodial Account for expenses attendant to thosefunctions. In the event of such appointment, all rightsand privileges of the Custodian under this Agreementshall pass through to such contractors or serviceproviders who shall be entitled to enforce them as if a named party.

(b) The Service Company shall be responsible forreceiving all instructions, notices, forms and remittancesfrom Depositor and for dealing with or forwarding thesame to the transfer agent for the Fund(s).

(c) The parties do not intend to confer any fiduciary

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duties on Custodian or Service Company (or any otherparty providing services to the Custodial Account), and none shall be implied. Neither shall be liable (or assumes any responsibility) for the collection ofcontributions, the proper amount, time or tax treatmentof any contribution to the Custodial Account or thepropriety of any contributions under this Agreement, or the purpose, time, amount (including any minimumdistribution amounts), tax treatment or propriety of any distribution hereunder, which matters are the soleresponsibility of Depositor and Depositor’s Beneficiary.

(d) Not later than 60 days after the close of each calendar year (or after the Custodian’s resignation orremoval), the Custodian or Service Company shall filewith Depositor a written report or reports reflectingthe transactions effected by it during such period andthe assets of the Custodial Account at its close. Uponthe expiration of 60 days after such a report is sent toDepositor (or Beneficiary), the Custodian or ServiceCompany shall be forever released and discharged fromall liability and accountability to anyone with respect to transactions shown in or reflected by such reportexcept with respect to any such acts or transactions asto which Depositor shall have filed written objectionswith the Custodian or Service Company within such 60 day period.

(e) The Service Company shall deliver, or cause to be delivered, to Depositor all notices, prospectuses,financial statements and other reports to shareholders,proxies and proxy soliciting materials relating to theshares of the Funds(s) credited to the CustodialAccount. No shares shall be voted, and no other actionshall be taken pursuant to such documents, except uponreceipt of adequate written instructions from Depositor.

(f) Depositor shall always fully indemnify ServiceCompany, Distributor, the Fund(s), Sponsor andCustodian and save them harmless from any and all liability whatsoever which may arise either (i) in connection with this Agreement and the matters whichit contemplates, except that which arises directly out of the Service Company’s, Distributor’s, Fund’s,Sponsor’s or Custodian’s bad faith, gross negligence orwillful misconduct, (ii) with respect to making or failingto make any distribution, other than for failure to makedistribution in accordance with an order therefor whichis in full compliance with Section 10, or (iii) actionstaken or omitted in good faith by such parties. NeitherService Company nor Custodian shall be obligated orexpected to commence or defend any legal action orproceeding in connection with this Agreement or suchmatters unless agreed upon by that party and Depositor,and unless fully indemnified for so doing to that party’ssatisfaction.

(g) The Custodian and Service Company shall each be responsible solely for performance of those dutiesexpressly assigned to it in this Agreement, and neitherassumes any responsibility as to duties assigned to anyone else hereunder or by operation of law.

(h) The Custodian and Service Company may eachconclusively rely upon and shall be protected in actingupon any written order from Depositor or Beneficiary,or any investment adviser appointed under Section 8, or any other notice, request, consent, certificate orother instrument or paper believed by it to be genuineand to have been properly executed, and so long as itacts in good faith, in taking or omitting to take anyother action in reliance thereon. In addition, Custodianwill carry out the requirements of any apparently validcourt order relating to the Custodial Account and willincur no liability or responsibility for so doing.

16. (a) The Custodian, in consideration of its servicesunder this Agreement, shall receive the fees specified onthe applicable fee schedule. The fee schedule originallyapplicable shall be the one specified in the AdoptionAgreement or Disclosure Statement, as applicable. TheCustodian may substitute a different fee schedule at anytime upon 30 days’ written notice to Depositor. TheCustodian shall also receive reasonable fees for anyservices not contemplated by any applicable fee sched-ule and either deemed by it to be necessary or desirableor requested by Depositor.

(b) Any income, gift, estate and inheritance taxes andother taxes of any kind whatsoever, including transfertaxes incurred in connection with the investment orreinvestment of the assets of the Custodial Account,that may be levied or assessed in respect to such assets,and all other administrative expenses incurred by theCustodian in the performance of its duties (includingfees for legal services rendered to it in connection with the Custodial Account) shall be charged to theCustodial Account. If the Custodian is required to payany such amount, the Depositor (or Beneficiary) shallpromptly upon notice thereof reimburse the Custodian.

(c) All such fees and taxes and other administrativeexpenses charged to the Custodial Account shall be collected either from the amount of any contribution or distribution to or from the Account, or (at the option of the person entitled to collect such amounts)to the extent possible under the circumstances by theconversion into cash of sufficient shares of one or moreFunds held in the Custodial Account (without liabilityfor any loss incurred thereby). Notwithstanding theforegoing, the Custodian or Service Company maymake demand upon the Depositor for payment of theamount of such fees, taxes and other administrative

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expenses. Fees which remain outstanding after 60 daysmay be subject to a collection charge.

17. (a) Upon 30 days’ prior written notice to theCustodian, Depositor or Sponsor, as the case may be,may remove it from its office hereunder. Such notice, to be effective, shall designate a successor custodian and shall be accompanied by the successor’s writtenacceptance. The Custodian also may at any time resign upon 30 days’ prior written notice to Sponsor,whereupon the Sponsor shall notify the Depositor (or Beneficiary) and shall appoint a successor to theCustodian. In connection with its resignation hereunder,the Custodian may, but is not required to, designate a successor custodian by written notice to the Sponsoror Depositor (or Beneficiary), and the Sponsor orDepositor (or Beneficiary) will be deemed to have consented to such successor unless the Sponsor orDepositor (or Beneficiary) designates a different successor custodian and provides written notice thereof together with such a different successor’s written acceptance by such date as the Custodian specifies in its original notice to the Sponsor orDepositor (or Beneficiary) (provided that the Sponsoror Depositor (or Beneficiary) will have a minimum of 30 days to designate a different successor).

(b) The successor custodian shall be a bank, insuredcredit union, or other person satisfactory to theSecretary of the Treasury under Code Section 408(a)(2).Upon receipt by Custodian of written acceptance by itssuccessor of such successor’s appointment, Custodianshall transfer and pay over to such successor the assetsof the Custodial Account and all records (or copiesthereof) of Custodian pertaining thereto, provided that the successor custodian agrees not to dispose of any such records without the Custodian’s consent.Custodian is authorized, however, to reserve such sumof money or property as it may deem advisable for pay-ment of all its fees, compensation, costs, and expenses,or for payment of any other liabilities constituting acharge on or against the assets of the Custodial Accountor on or against the Custodian, with any balance ofsuch reserve remaining after the payment of all suchitems to be paid over to the successor custodian.

(c) Any Custodian shall not be liable for the acts oromissions of its predecessor or its successor.

18. References herein to the “Internal Revenue Code”or “Code” and sections thereof shall mean the same asamended from time to time, including successors tosuch sections.

19. Except where otherwise specifically required in thisAgreement, any notice from Custodian to any person

provided for in this Agreement shall be effective if sentby first-class mail to such person at that person’s lastaddress on the Custodian’s records.

20. Depositor or Depositor’s Beneficiary shall not have the right or power to anticipate any part of theCustodial Account or to sell, assign, transfer, pledge or hypothecate any part thereof. The CustodialAccount shall not be liable for the debts of Depositor or Depositor’s Beneficiary or subject to any seizure,attachment, execution or other legal process in respectthereof except to the extent required by law. At no time shall it be possible for any part of the assets of the Custodial Account to be used for or diverted topurposes other than for the exclusive benefit of theDepositor or his/her Beneficiary except to the extentrequired by law.

21. When accepted by the Custodian, this Agreement is accepted in and shall be construed and administeredin accordance with the laws of the state where the prin-cipal offices of the Custodian are located. Any actioninvolving the Custodian brought by any other partymust be brought in a state or federal court in such state.

If in the Adoption Agreement, Depositor designatesthat the Custodial Account is a Traditional IRA, thisAgreement is intended to qualify under Code Section408(a) as an individual retirement custodial account andto entitle Depositor to the retirement savings deductionunder Code Section 219 if available. If in the AdoptionAgreement Depositor designates that the CustodialAccount is a Roth IRA, this Agreement is intended toqualify under Code Section 408A as a Roth individualretirement Custodial Account and to entitle Depositorto the tax-free withdrawal of amounts from theCustodial Account to the extent permitted in such Code section.

If any provision hereof is subject to more than oneinterpretation or any term used herein is subject tomore than one construction, such ambiguity shall beresolved in favor of that interpretation or constructionwhich is consistent with the intent expressed inwhichever of the two preceding sentences is applicable.

However, the Custodian shall not be responsible forwhether or not such intentions are achieved throughuse of this Agreement, and Depositor is referred toDepositor’s attorney for any such assurances.

22. Depositor should seek advice from Depositor’sattorney regarding the legal consequences (includingbut not limited to federal and state tax matters) ofentering into this Agreement, contributing to theCustodial Account, and ordering Custodian to make

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distributions from the Account. Depositor acknowl-edges that Custodian and Service Company (and anycompany associated therewith) are prohibited by lawfrom rendering such advice.

23. If any provision of any document governing theCustodial Account provides for notice, instructions orother communications from one party to another inwriting, to the extent provided for in the procedures ofthe Custodian, Service Company or another party, anysuch notice, instructions or other communications maybe given by telephonic, computer, other electronic orother means, and the requirement for written noticewill be deemed satisfied.

24. The legal documents governing the CustodialAccount are as follows:

(a) If in the Adoption Agreement the Depositor designated the Custodial Account as a Traditional IRAunder Code Section 408(a), the provisions of Part Oneand Part Three of this Agreement and the provisions of the Adoption Agreement are the legal documentsgoverning the Depositor’s Custodial Account.

(b) If in the Adoption Agreement the Depositor designated the Custodial Account as a Roth IRA underCode Section 408A, the provisions of Part Two andPart Three of this Agreement and the provisions of the Adoption Agreement are the legal documents governing the Depositor’s Custodial Account.

In the Adoption Agreement the Depositor must designate the Custodian Account as either a Roth IRAor a Traditional IRA, and a separate account will beestablished for such IRA. One Custodial Account maynot serve as a Roth IRA and a Traditional IRA (throughthe use of subaccounts or otherwise).

The Depositor acknowledges that the Service Companymay require the establishment of different Roth IRAaccounts to hold annual contributions under CodeSection 408A(c)(2) and to hold conversion amountsunder Code Section 408A(c)(3)(B). The ServiceCompany may also require the establishment of different Roth IRA accounts to hold amounts convertedin different calendar years. If the Service Company does not require such separate account treatment, the Depositor may make annual contributions and conversion contributions to the same account.

The Depositor acknowledges that the Service Companymay require the establishment of different TraditionalIRA accounts to hold pre-tax amounts and any after-taxamounts.

25. This Agreement and the Adoption Agreementsigned by the Depositor (as either may be amended) are the documents governing the Depositor’s CustodialAccount. Articles I through VII of Part One of thisAgreement are in the form promulgated by the InternalRevenue Service as Form 5305-A. It is anticipated that,if and when the Internal Revenue Service promulgateschanges to Form 5305-A, the Custodian will amend thisAgreement correspondingly.

Articles I through VII of Part Two of this Agreementare in the form promulgated by the Internal RevenueService as Form 5305-RA. It is anticipated that, if and when the Internal Revenue Service promulgateschanges to Form 5305-RA, the Custodian will amendthis Agreement correspondingly.

The Internal Revenue Service has endorsed the use of documentation permitting a Depositor to establisheither a Traditional IRA or Roth IRA (but not bothusing a single Adoption Agreement), and this Kit complies with the requirements of the IRS guidance forsuch use. If the Internal Revenue Service subsequentlydetermines that such an approach is not permissible, or that the use of a “combined” Adoption Agreementdoes not establish a valid Traditional IRA or a RothIRA (as the case may be), the Custodian will furnish the Depositor with replacement documents and theDepositor will if necessary sign such replacement documents. Depositor acknowledge and agrees to such procedures and to cooperate with Custodian topreserve the intended tax treatment of the Account.

26. If the Depositor maintains an Individual RetirementAccount under Code Section 408(a), Depositor mayconvert or transfer such other IRA to a Roth IRA underCode Section 408A using the terms of this Agreementand the Adoption Agreement by completing and exe-cuting the Adoption Agreement and giving suitabledirections to the Custodian and the custodian or trusteeof such other IRA. Alternatively, the Depositor mayconvert or transfer such other IRA to a Roth IRA byuse of a reply card or by telephonic, computer or elec-tronic means in accordance with procedures adopted bythe Custodian or Service Company intended to meetthe requirements of Code Section 408A, and theDepositor will be deemed to have executed theAdoption Agreement and adopted the provisions of thisAgreement and the Adoption Agreement in accordancewith such procedures.

In accordance with the requirements of Code Section408A(d)(6) and regulations thereunder, the Depositormay recharacterize a contribution to a Traditional IRAas a contribution to a Roth IRA, or may recharacterize

35

a contribution to a Roth IRA as a contribution to aTraditional IRA. The Depositor agrees to observe anylimitations imposed by the Service Company on thenumber of such transactions in any year (or any suchlimitations or other restrictions that may be imposed by the Service Company or the IRS).

27. The Depositor acknowledges that he or she hasreceived and read the current prospectus for each Fundin which his or her Account is invested and the IndividualRetirement Account Disclosure Statement related tothe Account. The Depositor represents under penaltiesof perjury that his or her Social Security number (orother Taxpayer Identification Number) as stated in theAdoption Agreement is correct.

28. If all required forms and information are properlysubmitted, State Street Bank and Trust Company willaccept appointment as Custodian of the Depositor’sAccount. However, this Agreement (and the AdoptionAgreement) is not binding upon the Custodian until the Depositor has received a statement confirming the initial transaction for the Account. Receipt by theDepositor of a confirmation of the purchase of theFund shares indicated in the Depositor’s AdoptionAgreement will serve as notification of State StreetBank and Trust Company’s acceptance of appointmentas Custodian of the Depositor’s Account.

29. If the Depositor is a minor under the laws of his or her state of residence, then a parent or guardian shallexercise all powers and duties of the Depositor, as indi-cated herein, and shall sign the Adoption Agreement onbehalf of the minor. The Custodian’s acceptance of theAccount on behalf of any Depositor who is a minor isexpressly conditioned upon the agreement of the parentor guardian to accept the responsibility to exercise allsuch powers and duties, and all parties hereto soacknowledge. Upon attainment of the age of majorityunder the laws of the Depositor’s state of residence at

such time, the Depositor may advise the Custodian inwriting (accompanied by such documentation as theCustodian may require) that he or she is assuming soleresponsibility to exercise all rights, powers, obligations,responsibilities, authorities or requirements associatedwith the Account. Upon such notice to the Custodian,the Depositor shall have and shall be responsible for allof the foregoing, the Custodian will deal solely with theDepositor as the person controlling the administrationof the Account, and the Depositor’s parent or guardianthereafter shall not have or exercise any of the foregoing.(Absent such written notice from the Depositor,Custodian shall be under no obligation to acknowledgethe Depositor’s right to exercise such powers andauthority and may continue to rely on the parent or guardian to exercise such powers and authority until notified to the contrary by the Depositor.)

30. Depositor acknowledges that it is his/her soleresponsibility to report all contributions to or withdrawals from the Custodial Account correctly on his or her tax returns, and to keep necessary records of all the Depositor’s IRAs (including any that may be held by another custodian or trustee) for tax purposes. All forms must be acceptable to theCustodian and dated and signed by the Depositor.

ARP-CU-002-1107

AARP FundsP.O. Box 8035Boston, MA 02266-80351-800-958-6457www.aarpfunds.com

©2007 AARP Funds

AARPFunds IRA Kit.pdf

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