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.

1Inside this Guide Youll 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 youre like most people, investing for your retirement is a means to an end. You dont 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. Thats where AARP Financialcan help. We support you with a select group of smart, low-cost investment solutions designed to help you reach your goals.

2Experienced 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, MondayFriday,8:00 a.m.6:00 p.m. Eastern Time.

3Preparing for Retirement Helping you meet the challenge of retirement investing

Because youre 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 dont have company-sponsored retirement plans or even if youre 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 youre 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 its 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 Security26.3% Part-time Employment

Earning

19.7% Pension, Retirement Plans and IRAs

12.6% Personal Savings and Investments

2.7% OtherSource: Social Security Administration (SSA); Income of theAged Chart Book, 2004

4The 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 youre 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

51To 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 59. There are exceptions of up to $10,000 for first-time home purchases

and the account holders 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 accountby you after age 59 provided that you have held

the account for at least 5 years or your heirs after your deathare 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, MondayFriday, 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 whenconverting 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.

6Traditional IRA Roth IRA

Single lers must have adjusted gross income below $114,000 in 2007 and$116,000 in 2008.

Married couples must have adjustedgross income below $166,000 in 2007and $169,000 in 2008.

Who Qualifies? Anyone under age 7012 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 70

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 ler or married ling jointly, with no

active participation in an employer-sponsored plan

An active participant in an employer-sponsoredplan 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 ling 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 age59, or before 59 for the following reasons:

Higher education costs

Up to $10,000 for rst-time home purchases

Medical expenses that exceed 7.5% of adjustedgross 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 ve years anddistributions are made after age 59 or for:

Up to $10,000 for rst-time homepurchases

Medical expenses that exceed 7.5% of adjusted gross income

Death or disability of account holder

7Call an AARP Financial Investment Counselor for details of their features and instructions on how to establish them. Call 1-800-958-6457, MondayFriday, 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 > = $62,000and $62,000

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

Married, Joint (not active 2007 < = $156,000 Between $156,000 > = $166,000participant but spouse is) and $166,000

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

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

Married, Joint (not active 2008 < = $159,000 Between $159,000 > = $169,000participant 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 nancial 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 employers 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 satised 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 employers planIf youve changed employers, you may have the option to move

your assets to your new employers plan.

just changed jobs and your new employersplan features attractive investment options.

feel condent that you can choose a balanced investment portfolio from your new employers 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 5912 are taxableand 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 5912(minimum age for withdrawal from IRA) foreducation and rst-time home purchase

Flexible beneciary designation

Eligible investors may convert to a Roth IRAand benet 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-specic 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, ifyou have a beneciary whois not your spouse, he/shemay have to fully liquidateand pay taxes on your retirement account assetsin the year the account isinherited.

All assets will be subject to the provisionsof the new plan.

Limited investment options

Limited distribution options (e.g., no penalty-free early withdrawals for education or rst home purchase)

New employer may impose probation period before new contributions may start.

Tax advantages for beneciaries who maystretch distribution out overtheir life expectancy (versuspaying taxes on lump-suminheritance amount)

Avoid immediate decision

Continue tax-deferred growth potential

May offer plan-specic 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 addresschanges, contact information and must make sure you are able to nd youremployer possibly after many years

Employer controls investment choices and providers.

Does not allow loans for former employees

Depending on your plan, ifyou have a beneciary whois not your spouse, he/shemay have to fully liquidateand pay taxes on your retirement account assetsin the year the account isinherited.

Immediate access to cash Assets lose tax-deferred growth potential

Decrease in retirement savings

A 10% early withdrawal penalty may be imposed if youre under age 5912.***

Withdrawal will be subject to state and federal taxes.

20% of your account may be withheld up front to payfederal income taxes.

There may be tax advantagesif you have highly appreciatedcompany stock.

*** The 10% federal penalty tax generally applies to withdrawals made before age 5912, 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 youre just planning for retirement, nearing retirement or currently enjoying your retirement, youll

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 ofgrowth of capitaland current income for investors willing to accept somerisk in exchangefor return potential.

AARP Aggressive Fund

60%15%25%Medium- to long-term investment focusing primarily on the growth of capital and providing somecurrent income.

AARP Money MarketFund

Short-term, low-cost fund seekingto maximize current incomeand maintain a stable $1.00 per share price.

AARP Income Fund1

75%-100%0%-25%Bond fund generating current incomeand conservingcapital over the long term.

Higher risk

AARP Family of Funds

Lower risk

Pote

ntia

l Ret

urns

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 annuallyfor 21 years


0

100,000

200,000

300,000

400,000

500,000

$600,000

$405,300

$521,100

*Standard & Poors 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 dont 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, MondayFriday. Our goal is to help you understand

your investment options and make sure youre 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 employers 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 Funds30 Dan Road Canton, MA 02021

For regular mail: AARP FundsP.O. Box 8035 Boston, MA 02266-8035

AARP Financial Investment Counselors

To learn more about our products, services or have questions answered

1-800-958-6457option 1

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

Shareholder ServicesRepresentatives

For assistance in executing account transactions, or requesting forms call our automated account service phone line or visit www.aarpfunds.com

1-800-958-6457option 2

MondayFriday, 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 funds 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-003-0208ARP000459 0209

Investments designed to t your needs

A smarter, no-nonsense way to invest

If youre like most people, investing is ameans to an end. You dont 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 rstAt AARP Financial, our goal is to make investingstraightforward. We offer ve professionallymanaged, low-cost funds to t 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 shouldnt 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 shouldnt 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 condence.

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 dont always put investors needs rst. 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 veintelligently 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. Its a smart, cost-effective approach that keeps more of your money working for you.

Diversied and regularly rebalanced to keep you on trackDiversication reduces risk, although it doesnt 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. Thats why our funds invest in broadly diversied portfolios within theirspecic 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 specically 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 ination, 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 cashows 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


$0

$100,000

$200,000

$300,000

$400,000

$500,000

Source: AARP Financial Inc.

A choice of solutionsEvery 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.Thats why AARP Financial offers a select choice of smart, low-cost solutionsto t 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 t your needsThe rst 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? Whats your time horizon? And whats your tolerance forrisk? Then, choose the fund thats 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 diversied mid- to long-term investment Aggressive Fund some current income portfolio seeking the growth potential

of stocks, while seeking to reduce overall risk through diversication 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 diversied 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 sacricingvalue 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 lefrom 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 afliated 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 condence.

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 rst, because they are compensated with salary, not via commissions on the products they sell you.

Choosing a fund that ts your needsYour Investment Counselor will spend time with you to learn about what you hope toachieve with your investments, help you determine if youre 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 condent 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. Theresinformation on each funds goal, strategies, costs,and overall risks. Theres 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 12Whos Who 16Financial Highlights 20

Your AccountThis section gives information that concerns youraccount with AARP Funds and how to do businesswith us. Youll 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; ifyoure 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 funds 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 fundsexposure 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 funds 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 funds 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 fundsoverall 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 funds 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 funds overall risk profile islikely to depend in large part onthe behavior of short-term interestrates. When rates fall, the fundsyield 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 fundsinvestment 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, 1/1/079/30/07:5.25% (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 underlyingfunds 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 fundsNet 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 thatfunds 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 funds 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.

Lets say you invest $10,000 for the time periodsshown in the Hypothetical fees and expenses table,and that your investment earns 5% a year. Lets 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 funds 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 funds targetmix without shareholder approval if the managementteam believes the change is consistent with thatfunds investment objective.

Secondary investmentsAs a funds 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 funds 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 funds 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 fundsasset mix. Factors influencing these decisions mayinclude AARP Financials outlook for the economy,financial markets, and the relative value of differentasset classes. Note that any temporary defensivemeasure represents a departure from a funds 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 funds management team may change the fundsinvestment mix without shareholder approval ifthe manager believes the change is consistent withthe funds investment objective.

Secondary investmentsThe fund may invest up to 25% of its assets in othertypes of income-producing securities. As the fundsassets 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 funds 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 funds managermay raise cash levels or otherwise take a temporarydefensive position. Note that any temporary defen-sive measure represents a departure from a fundsstated 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 funds 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 Moodys Investors Services, Inc. or BBB or higherby Standard & Poors Rating Group or are consid-ered to be of comparable quality by the UnderlyingBond Funds investment sub-adviser.

Underlying Money Market Fund

The Underlying Money Market Funds 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 its 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 Funds 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, its 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 funds 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 afunds 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 funds 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 Moodys) or BBB (by Standard & Poors) 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 funds 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 companys 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.

Whos Who

Entities with Business Responsibilities

TrusteesThe Board of Trustees for the AARP Funds overseeseach fund and its investment strategies, and approveseach funds 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 fundsinvestment 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 Financials 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 fundsday-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 AARPFi

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