[LOGO]
CONSECO FUND GROUP
OCTOBER 31, 1998
ANNUAL REPORT
Conseco International Fund*
* managed by AMR Investments, Inc.
<PAGE>
CONSECO FUND GROUP
TABLE OF CONTENTS
<TABLE>
<CAPTION>
CONSECO FUND GROUP PAGE
<S> <C>
Report to Shareholders............................................................................. 2
Statement of Assets and Liabilities as of October 31, 1998........................................ 4
Statement of Operations for the period from inception (January 2, 1998 for
Class A, June 30, 1998 For Class B and April 8, 1998 for Class C shares)
through October 31, 1998........................................................................ 5
Statement of Changes in Net Assets for the period from inception (January 2,
1998 for Class A, June 30, 1998 for Class B and April 8, 1998 for Class C shares)
through October 31, 1998........................................................................ 6
Notes to Financial Statements...................................................................... 7
Report of Independent Accountants.................................................................. 14
AMR INVESTMENT SERVICES
Schedule of Investments as of October 31, 1998.................................................... 15
Industry Diversification as of October 31, 1998.................................................... 26
Statement of Assets and Liabilities as of October 31, 1998........................................ 27
Statement of Operations - for the year ended October 31, 1998..................................... 28
Statement of Changes in Net Assets for the years ended October 31, 1998 and 1997................... 29
Notes to Financial Statements...................................................................... 30
Report of Independent Accountants.................................................................. 34
</TABLE>
1
<PAGE>
CONSECO FUND GROUP
REPORT TO SHAREHOLDERS
Dear Fellow Shareholder:
We are pleased to present the performance of the Conseco International Fund for
the period from inception (January 2, 1998) through October 31, 1998. The Fund
is managed by AMR Investments, Inc. and invests in the International Equity
Portfolio of AMR Investment Services Trust, which, in turn, invests primarily in
equity securities based outside the United States.
The following market recap comes directly from William Quinn, President of AMR
Investments, Inc.
DESPITE SOLID FOREIGN MARKET RETURNS OVER THE PAST TWELVE MONTHS, THERE WAS A
MARKED DISPARITY AMONG DIFFERENT COUNTRIES, REGIONS AND TIME PERIODS, AS MARKETS
WERE QUITE VOLATILE OVER THIS TIME PERIOD. MUCH OF THE FIRST PART OF THIS TIME
PERIOD WAS MARKED BY A STRUGGLING JAPAN TRYING TO COPE WITH SLUMPING ECONOMIC
GROWTH, DISAPPOINTING STIMULUS PACKAGES AND UNCERTAINTY REGARDING THE REGION'S
ECONOMIC CRISIS. HOWEVER, CONDITIONS IN EUROPE COULD NOT HAVE BEEN BETTER AS
EUROPEAN MARKETS WERE PROPELLED BY THE EUPHORIA OF EUROPEAN MONETARY UNION (EMU)
AND LOWER INTEREST RATES WHICH HAS DRIVEN INVESTORS INTO THE EQUITY MARKETS.
THIS DISPARITY LASTED THROUGH THE FIRST HALF OF 1998, BEFORE A NUMBER OF
NEGATIVE GLOBAL EVENTS SHOOK INVESTORS' CONFIDENCE WORLDWIDE AND SENT MARKETS
AROUND THE WORLD DRAMATICALLY LOWER. WITH THE RUSSIAN GOVERNMENT DEFAULTING ON
THEIR BONDS AND SPREADING CONTAGION CONCERNS TO LATIN AMERICA, INVESTORS
WORLDWIDE DEPARTED MORE RISKY, LESS LIQUID SECURITIES AND ASSET CLASSES. THIS
NEAR PANIC ENVIRONMENT SUBSIDED AND MOST MARKETS BOUNCED BACK IN OCTOBER, AS
MANY OF THE EVENTS THAT TRANSPIRED IN THE THIRD QUARTER WERE EITHER TEMPORARILY
RECTIFIED OR RESOLVED. AS THE DUST SETTLED ON THE PAST TWELVE MONTHS, THE
RANKING OF THE MARKETS THAT COMPRISE THE EAFE INDEX (THE MORGAN STANLEY CAPITAL
INTERNATIONAL EUROPE, AUSTRALASIA AND FAR EAST INDEX) SHOWS MARKETS LOCATED IN
EUROPE GENERALLY OUTPERFORMED MARKETS LOCATED IN ASIA.
THE UNDERWEIGHTING OF JAPAN CONTINUES TO BE THE TOP FACTOR IN ADDING VALUE FOR
THE FUND WHILE OTHER COUNTRY WEIGHTINGS WERE ALSO POSITIVE FOR THE FUND. THE
JAPANESE MARKET REPRESENTS OVER 20% OF THE EAFE INDEX AND WAS DOWN ALMOST 15%
FOR THE PAST TWELVE MONTHS. IN ADDITION TO SUCCESSFULLY UNDERWEIGHTING THE
JAPANESE MARKET, THE STOCKS THAT WERE SELECTED ADDED VALUE COMPARED TO THE
STOCKS IN THE JAPANESE INDEX. MANY OF THESE JAPANESE HOLDINGS WERE LARGE GLOBAL
COMPANIES, WHICH HAVE UNDERTAKEN THE NECESSARY RESTRUCTURING TO COMPETE IN THE
GLOBAL MARKETPLACE. THE FUND CONTINUES TO UNDERWEIGHT JAPAN ENTERING INTO THE
NEW FISCAL YEAR.
THE PRIMARY REASON FOR THE UNDERPERFORMANCE BY THE FUND FOR THE PAST TWELVE
MONTHS WAS STOCK SELECTION, ESPECIALLY IN THE LARGER MARKETS OF GERMANY AND THE
UNITED KINGDOM. WHILE PAST TIME PERIODS HAVE DISPLAYED AN OUTPERFORMANCE OF
VALUE SECURITIES COMPARED TO GROWTH SECURITIES, THE PAST TWELVE MONTHS SHOWED
JUST THE OPPOSITE. THE FUND FOCUSES ON BUYING AND HOLDING VALUE SECURITIES
(SECURITIES WITH CHARACTERISTICS SUCH AS LOW PRICE TO EARNINGS OR PRICE TO BOOK
RATIOS), WHILE THE SECURITIES THAT PERFORMED THE BEST OVER THE PAST TWELVE
MONTHS WERE LARGE WELL KNOWN COMPANIES THAT ARE CONSIDERED GROWTH SECURITIES
(HIGH PRICE TO EARNINGS RATIOS). THE GAP BETWEEN THE EAFE VALUE INDEX AND THE
EAFE GROWTH INDEX WAS CLOSE TO 4% DURING THE PERIOD.
AS THE NEW FISCAL YEAR BEGINS, THE UNITED KINGDOM REMAINS THE LARGEST WEIGHTING
IN THE FUND. ADDITIONALLY, THE FUND HAS MANY SMALL OVERWEIGHTINGS AMONG THE MORE
ATTRACTIVE SMALLER EUROPEAN MARKETS, WHILE SIGNIFICANT UNDERWEIGHTINGS IN
GERMANY AND JAPAN REMAIN.
AS ALWAYS, WE APPRECIATE YOUR CONFIDENCE AND SUPPORT AND WE WILL CONTINUE TO
STRIVE TO PROVIDE YOU WITH ABOVE AVERAGE RETURNS OVER THE LONGER TERM.
-WILLIAM F. QUINN
PRESIDENT, AMR INVESTMENTS, INC.
2
<PAGE>
CONSECO FUND GROUP
REPORT TO SHAREHOLDERS, CONTINUED
COMPARISON OF CHANGE IN VALUE OF $10,000 INVESTMENT IN THE CONSECO INTERNATIONAL
FUND - CLASS A AND THE MORGAN STANLEY CAPITAL INTERNATIONAL EUROPE,
AUSTRALASIA, FAR EAST INDEX (EAFE)
Conseco International Fund EAFE Index
Class A
1/2/98 9,425 9,811
10/31/98 10,000 11,007
AVERAGE TOTAL RETURN*
----------------------------------------
Since Inception
Class A -1.89%
Class B -13.27%
Class C -10.43%
*NOT ANNUALIZED
Note: Past performance is no guarantee of future results.
Class A share performance reflects the deduction of the maximum sales load from
the initial $10,000 investment. Class B and C share performance reflects the
deduction of each class's respective maximum contingent deferred sales load.
Average Total Return is provided in accordance with SEC guidelines for
comparative purposes and reflects certain voluntary fee waivers and/or expense
reimbursements through April 10, 1999. If the waivers were not in place, the
Fund's returns would have been lower.
Conseco Fund Group is committed to providing you with a wide range of investment
products designed to help you take the next step toward your financial goals. We
appreciate your support, and look forward to serving you in the future.
Sincerely,
/s/ Maxwell E. Bublitz
Maxwell E. Bublitz, CFA
President & CEO
Conseco Capital Management, Inc.
3
<PAGE>
CONSECO FUND GROUP
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
<TABLE>
<CAPTION>
Conseco
International
Fund
----
<S> <C>
Assets:
Investments in Portfolio at value (cost: $10,512,192).......................... $10,555,166
Receivable for Fund shares sold................................................ 13
Organization costs............................................................. 98,162
-------------------
Total assets........................................................... $10,653,341
-------------------
Liabilities and net assets:
Payable to Conseco, Inc. and subsidiaries...................................... 134,149
Accrued expenses............................................................... 77,687
-------------------
Total liabilities...................................................... 211,836
-------------------
Net assets............................................................. $10,441,505
===================
Net assets consist of:
Paid-in capital................................................................ $10,035,973
Accumulated undistributed net investment income................................ 63,724
Accumulated undistributed net realized gains on investments and foreign
currency transactions........................................................ 298,834
Unrealized appreciation on investments and foreign currency translations, net.. 42,974
-------------------
Net assets............................................................. $10,441,505
===================
Net asset value, redemption price and offering price per share:
Class A Shares:
Shares outstanding............................................................. 1,002,562
Net assets..................................................................... $10,434,073
Net asset value and redemption price per share................................. $10.41
Maximum sales charge per share (5 3/4 percent of offering price)............... .64
Maximum offering price per share............................................... $11.05
Class B Shares:
Shares outstanding............................................................. 413
Net assets..................................................................... $ 4,291
Net asset value per share...................................................... $10.39
Class C Shares:
Shares outstanding............................................................. 302
Net assets..................................................................... $ 3,141
Net asset value per share...................................................... $10.40
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
CONSECO FUND GROUP
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JANUARY 2, 1998 FOR CLASS A, JUNE 30, 1998 FOR
CLASS B AND APRIL 8, 1998 FOR CLASS C SHARES) THROUGH OCTOBER 31, 1998
<TABLE>
<CAPTION>
Conseco
International
Fund
----
<S> <C>
Investment income allocated from Portfolio:
Interest income................................................................ $ 25,078
Dividends (net of foreign taxes of $27,883 in the Portfolio)................... 229,380
Income derived from securities lending, net ................................... 4,346
Other income .................................................................. 6,345
Portfolio expenses............................................................. (47,338)
-------------------
Total investment income allocated from Portfolio....................... 217,811
-------------------
Expenses:
Administrative fee (Note 3).................................................... 66,645
Transfer agent fee............................................................. 19,593
Reports - printing............................................................. 9,798
Insurance...................................................................... 8,052
Audit fees..................................................................... 8,165
Director fees and expenses..................................................... 5,811
Legal fees..................................................................... 8,165
Amortization of organization costs............................................. 19,155
Custody fees................................................................... 9,798
Distribution and service fees (Note 3)......................................... 44,441
Other.......................................................................... 4,277
-------------------
Total expenses......................................................... 203,900
-------------------
Fees waived and incurred by subsidiaries of Conseco, Inc. (Note 3)............. (49,813)
-------------------
Net expenses........................................................... 154,087
-------------------
Net investment income.................................................. 63,724
-------------------
Realized and unrealized gain allocated from the Portfolio:
Net realized gains on investments and foreign currency transactions............ 298,834
Unrealized appreciation on investments and foreign currency translations, net.. 42,974
-------------------
Net gain on investments................................................ 341,808
-------------------
Net increase in net assets from operations............................. $405,532
===================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
CONSECO FUND GROUP
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD FROM INCEPTION (JANUARY 2, 1998 FOR CLASS A, JUNE 30, 1998 FOR
CLASS B AND APRIL 8, 1998 FOR CLASS C SHARES) THROUGH OCTOBER 31, 1998
<TABLE>
<CAPTION>
Conseco
International
FUND
<S> <C>
Changes from operations:
Net investment income.......................................................... $ 63,724
Net realized gains on investments and foreign currency transactions............ 298,834
Unrealized appreciation on investments and foreign currency translations, net.. 42,974
-------------------
Net increase in net assets from operations............................. 405,532
-------------------
Capital share transactions:
Net proceeds from sales of shares.............................................. 10,041,881
Cost of shares redeemed........................................................ (5,908)
-------------------
Net increase in net assets from capital share transactions............. 10,035,973
-------------------
Total net increase in net assets....................................... 10,441,505
Net assets, beginning of period.................................................... -
-------------------
Net assets, end of period.......................................................... $10,441,505
===================
Undistributed net investment income/(loss) by class:
Class A......................................................................... $63,719
Class B ........................................................................ (4)
Class C......................................................................... 9
Capital (expressed in US$) and share data (expressed as number of shares):
Class A:
Sales........................................................................... $10,034,129
Redemptions..................................................................... ($5,908)
Shares Sold..................................................................... 1,003,183
Shares Redeemed................................................................. (621)
Class B:
Sales........................................................................... $4,252
Redemptions..................................................................... -
Shares Sold..................................................................... 413
Shares Redeemed................................................................. -
Class C:
Sales........................................................................... $3,500
Redemptions..................................................................... -
Shares Sold..................................................................... 302
Shares Redeemed................................................................. -
</TABLE>
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
1. ORGANIZATION
Conseco Fund Group (the "Trust") is an open-end diversified management
investment company registered with the Securities and Exchange Commission under
the Investment Company Act of 1940 (the "1940 Act"). The Trust was organized as
a Massachusetts business trust on September 24, 1996. The Trust is a "series"
type of mutual fund which issues separate series of shares of beneficial
interest, each of which represents a separate diversified portfolio of
investments. The Trust consists of seven series as follows: Conseco Fixed Income
Fund, Conseco High Yield Fund, Conseco Convertible Fund, Conseco Balanced Fund,
Conseco Equity Fund, Conseco International Fund and Conseco 20 Fund. Each has
its own investment objective and investment policies. The Trust offers four
classes of shares: Class A, Class B, Class C and Class Y. Sales of Class A
shares may be subject to a front-end sales charge. Sales of Class B and Class C
shares are subject to a contingent deferred sales charge (as a percentage of net
asset value at time of purchase or net asset value at the time of redemption,
whichever is less). Class Y shares are available with no sales charge to certain
institutional investors and qualifying individual investors. The Trust is
authorized to issue an unlimited number of shares.
The Conseco International Fund (the "Fund") seeks long-term capital
appreciation. The Fund seeks to achieve its objective by investing all of its
investable assets in the International Equity Portfolio (the "Portfolio") of the
AMR Investment Services Trust (the "AMR Trust"), which invests primarily in
equity securities of issuers outside the United States. The Portfolio invests in
securities in accordance with the investment objective, policies and limitations
substantially similar to those of the Fund. The investment experience of the
Fund will correspond directly with the investment experience of the Portfolio.
The Fund's activities were limited to organizational matters with no operating
activities through January 1, 1998. The Fund became operational and available
for sale on January 2, 1998. The initial sale of Class A, Class B and Class C
shares were January 2, 1998, June 30, 1998 and April 8, 1998, respectively.
There were no Class Y share sales for the period from inception (January 2,
1998) through October 31, 1998.
The value of the Fund's investment reflects a proportionate interest in the
net assets of the Portfolio. At October 31, 1998, the Fund owned 1.03% of the
Portfolio of the AMR Trust. The financial statements of the Portfolio are
included elsewhere in this report and should be read in conjunction with the
Fund's financial statements.
The Portfolio is a separate investment company managed by AMR Investment
Services, Inc. ("AMR"). AMR is a wholly owned subsidiary of AMR Corporation, the
parent company of American Airlines, Inc., and was organized in 1986 to provide
business management, advisory, administrative and asset management consulting
services.
2. SIGNIFICANT ACCOUNTING POLICIES
SECURITY VALUATION, TRANSACTIONS, AND RELATED INVESTMENT INCOME
The Fund values its investments in the Portfolio at the net asset value of
its beneficial interest in the Portfolio, as of the close of the New York Stock
Exchange on each valuation date. Valuation of securities by the Portfolio is
discussed in Note 1 of the Portfolio's Notes to Financial Statements, which are
included elsewhere in this report.
The net asset value per share is calculated separately for the Fund on each
day on which shares are offered for sale and orders accepted or upon receipt of
a redemption request. Net asset value per share by class is computed by dividing
the value of the Fund's total assets allocated to each class (which includes the
value of the Fund's investment in the Portfolio), less liabilities allocated to
each class, by the number of Fund shares outstanding for each class.
The Fund records its share of net investment income and realized and
unrealized gain (loss) in the Portfolio each
7
<PAGE>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OCTOBER 31, 1998
SECURITY VALUATION, TRANSACTIONS, AND RELATED INVESTMENT INCOME, CONTINUED
day based upon information provided to it by the Portfolio. All net investment
income and realized and unrealized gain (loss) of the Portfolio are allocated
pro rata to the Fund and other investors in the Portfolio at the time of such
determination.
DIVIDENDS AND DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income will be declared and distributed
annually. However, the Trustees may decide to declare dividends at other
intervals.
Dividends to shareholders from net investment income are determined in
accordance with income tax regulations, which may differ from generally accepted
accounting principles. Permanent book and tax differences relating to dividends
to shareholders may result in reclassifications to paid-in capital and may
affect the per-share allocation between net investment income and realized and
unrealized gain (loss). Any taxable income or gain of the Trust remaining at
fiscal year end will be declared and distributed in the following year to the
shareholders of the fund to which such gains are attributable.
ORGANIZATION COSTS
Costs incurred by the Fund in connection with its organization and public
offering of shares totaling $117,317 have been deferred and will be amortized
over a period of approximately 5 years beginning with the initial date of sale
of shares to the public. The costs were advanced by a subsidiary of Conseco,
Inc. ("Conseco"), a publicly owned financial services company, and will be
reimbursed by the Fund over a period of approximately 5 years. The proceeds of
any redemption of the initial shares (purchased by a subsidiary of Conseco, see
Note 4) will be reduced by any unamortized organization costs in the same
proportion as the number of initial shares being redeemed to the number of
initial shares outstanding at the time of such redemption.
FEDERAL INCOME TAXES
For federal income tax purposes, the Fund intends to qualify as a regulated
investment company under Subchapter M of the Internal Revenue Code by
distributing substantially all of its taxable income and net capital gains to
its shareholders annually or otherwise complying with the requirements for
regulated investment companies. Therefore, no provision has been made for
federal income taxes.
EXPENSES
Expenses directly attributable to a Fund are charged to operations.
Expenses directly attributable to a Class of shares are charged to that Class.
The Fund pays expenses of Trustees who are not affiliated persons of the Adviser
or the Trust.
3. AGREEMENTS
INVESTMENT ADVISORY AGREEMENT
Conseco Capital Management, Inc. (the "Adviser"), a wholly owned subsidiary
of Conseco, serves as the Trust's investment adviser to the Fund pursuant an
investment advisory agreement. The Adviser supervises the Trust's management and
investment program, performs a variety of administrative services and pays all
compensation of officers and Trustees of the Trust, who are affiliated persons
of the Adviser or Trust. The Adviser is responsible for selecting the investment
company in which the Fund invests. If the Adviser is not satisfied with the
performance of
8
<PAGE>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OCTOBER 31, 1998
INVESTMENT ADVISORY AGREEMENT, CONTINUED
that investment company, the Adviser will recommend to the Board of Trustees of
the Trust other investment companies in which the Fund may invest, or recommend
that the Adviser manage the Fund itself. Under the terms of the Investment
Advisory Agreement, the Adviser has contracted to receive an investment advisory
fee equal to an annual rate of 1.00% of the average daily net assets of the
Fund. The Adviser has voluntarily agreed that the Fund will not be charged such
advisory fees unless the Adviser chooses to manage the Fund itself.
MANAGEMENT AGREEMENT
AMR has entered into a Management Agreement with AMR Trust that obligates
AMR to provide or oversee all administrative, investment advisory and portfolio
management services for the AMR Trust, including the International Portfolio.
AMR bears the expense of providing the above services and pays the fees of the
investment advisers of the Portfolio. As compensation for performing the duties
required under the Management Agreement, AMR receives an annualized advisory fee
of .10% that is calculated and accrued daily based on the average daily net
assets of the Portfolio, plus amounts paid by AMR to the investment advisers it
has hired to direct investment activities of the Portfolio. Fees paid to the
advisers is discussed in Note 2 of the Portfolio's Notes to Financial
Statements, which are included elsewhere in this report. Additionally, the Fund
is responsible for its pro rata portion of the Portfolio's expenses. The total
fees incurred for such services for the period from inception (January 2, 1998
for Class A, June 30, 1998 for Class B and April 8, 1998 for Class C shares)
through October 31, 1998 with respect to Class A, Class B and Class C shares
were $47,338.
ADMINISTRATIVE AGREEMENT
Conseco Services, LLC (the "Administrator"), a wholly owned subsidiary of
Conseco, supervises the preparation and filing of all documents required for
compliance by the Fund with applicable laws and regulations, supervises the
maintenance of books and records of the Fund and provides other general and
administrative services. For providing these services, the Administrator
receives compensation at the annual rate of .75% of the average daily net assets
of the Fund. The Administrator has voluntarily agreed to waive its fees and/or
reimburse the Fund to the extent that the ratio of expenses to net assets on an
annual basis exceeds 2.25% for Class A shares, 2.75% for Class B and Class C
shares and 1.75% for Class Y shares. These voluntary limits may be discontinued
by the Administrator at any time after April 30, 1999. The total fees incurred
for such services for the period from inception (January 2, 1998 for Class A,
June 8, 1998 for Class B and April 8, 1998 for Class C shares) through October
31, 1998 were $66,645, before waivers and reimbursements.
DISTRIBUTION ARRANGEMENTS
Conseco Equity Sales, Inc. (the "Distributor"), a wholly owned subsidiary
of Conseco, serves as the principal underwriter for the Fund pursuant to an
Underwriting Agreement, initially approved by the Board of Trustees. The
Distributor is a registered broker-dealer and member of the National Association
of Securities Dealers, Inc. ("NASD"). Shares of the Fund are continuously
offered and sold by selected brokers, dealers and other financial intermediaries
who have executed selling agreements with the Distributor. The Distributor bears
all the expenses of providing services pursuant to the Underwriting Agreement
including the payment of the expenses relating to the distribution of
Prospectuses for sales purposes as well as any advertising or sales literature.
The Trust has adopted distribution and service plans (the "Plans"), dated
December 31, 1997, for Class A, Class B and Class C shares of the Fund, in
accordance with the requirements of Rule 12b-1 under the 1940 Act, and the
requirements of the applicable rules for the NASD regarding asset based sales
charges.
9
<PAGE>
CONSECO FUND GROUP
NOTES TO FINANCIAL STATEMENTS, CONTINUED
OCTOBER 31, 1998
DISTRIBUTION ARRANGEMENTS, CONTINUED
Pursuant to the Plans, the Fund may compensate the Distributor for its
expenditures in financing any activity primarily intended to result in the sale
of Class A, Class B and Class C shares of the Fund and for maintenance provided
to existing Class A, Class B and Class C shareholders, respectively. For Class A
shares, the Fund's Plan authorizes payments to the Distributor up to an annual
rate of .50% of the Fund's average daily net assets attributable to Class A
shares. For Class B and Class C shares, the Plan authorizes payments to the
Distributor up to an annual rate of 1.00% of the Fund's average daily net assets
attributable to their respective class. The Plans provide for periodic payments
by the Distributor to brokers, dealers and financial intermediaries for
providing shareholder services to accounts that hold Class A, Class B and Class
C shares and for promotional and other sales related costs. The Distributor has
voluntarily agreed to waive its fees and/or reimburse the Fund to the extent
that the ratio of expenses to net assets on an annual basis exceeds 2.25% for
Class A shares and 2.75% for Class B and Class C shares. The total fees incurred
under the Plans for such services for Class A shares for the period from
inception (January 2, 1998) through October 31, 1998, were $44,417. The
distribution fees incurred under the Plans for such services for Class B and
Class C shares were minimal for the period from inception (June 30, 1998 for
Class B and April 8, 1998 for Class C shares) through October 31, 1998.
CONTINGENT DEFERRED SALES CHARGE
A contingent deferred sales charge is imposed upon the redemptions of Class
B and Class C shares. Class B shares have a contingent deferred sales charge for
redemptions occurring within six years of their purchase. The contingent
deferred sales charge is a percentage of the net asset value of the shares at
the date of purchase or the net asset value of the shares at the date of
redemption, whichever is less. These charges are 5% in year one, 4% in year two,
3% in year three, 3% in year four, 2% in year five and 1% in year six. Class B
will automatically convert to a number of Class A shares of equal dollar value
eight years after purchase. This conversion feature benefits shareholders
because Class A shares have lower ongoing expenses than Class B shares. Class C
shares which were held for less than one year are subject to a contingent
deferred sales charge upon redemption in an amount equal to 1% of the lower of
the net asset value of the shares at the date of purchase or the net asset value
of the shares at the date of redemption. Class C shares held one year or longer
are not subject to this contingent deferred sales charge. The contingent
deferred sales charge will not apply to shares acquired due to reinvestment of
dividends or capital gains distributions.
4. RELATED PARTY TRANSACTION
On January 2, 1998, a subsidiary of Conseco made the initial investment in
Class A shares of the Fund in an amount of $10,000,100. At October 31, 1998, the
market value of this investment was $10,410,104.
10
<PAGE>
CONSECO FUND GROUP
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
For the period from inception
(January 2, 1998) THROUGH
OCTOBER 31, 1998
Conseco
International
Fund
----
<S> <C>
Class A Shares
Net asset value per share, for sales at inception.................................. $10.00
Income from investment operations (a):
Net investment income.......................................................... .06
Net realized gains and change in unrealized appreciation
on investments............................................................ .35
-------------------
Net asset value per share, end of period............................... $10.41
===================
Total return (not annualized) (b) (c).............................................. 4.10%
Ratios/supplemental data:
Net assets, end of period...................................................... $10,434,073
Ratio of expenses to average net assets (annualized) (b)....................... 2.25%
Ratio of net investment income to average net assets (annualized) (b).......... .72%
-----------------------------
(a) Per share amounts presented are based on daily shares outstanding during
the period from inception (January 2, 1998) through October 31, 1998.
(b) The Administrator and Distributor have voluntarily agreed to waive their
fees and/or reimburse the Fund to the extent that the ratio of expenses
to average net assets would exceed on an annual basis 2.25 percent for
Class A shares. These voluntary limits may be discontinued by the
Adviser, Administrator and Distributor at any time after April 30, 1999.
If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would
have been 2.84 percent.
(c) The total return ratio does not include sales loads; results would be
lower if sales charges were included.
</TABLE>
11
<PAGE>
CONSECO FUND GROUP
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
For the period from inception
(June 30, 1998)
THROUGH OCTOBER 31, 1998
Conseco
International
Fund
----
<S> <C>
Class B Shares
Net asset value per share, for sales at inception.................................. $11.38
Income from investment operations (a):
Net investment loss............................................................ (.02)
Net realized losses and change in unrealized depreciation
on investments............................................................ (.97)
-------------------
Net asset value per share, end of period............................... $10.39
===================
Total return (not annualized) (b) (c).............................................. (8.70%)
Ratios/supplemental data:
Net assets, end of period...................................................... $4,291
Ratio of expenses to average net assets (annualized) (b)....................... 2.75%
Ratio of net investment loss to average net assets (annualized) (b)............ (.52%)
-----------------------------
(a) Per share amounts presented are based on daily shares outstanding during
the period from inception (June 30, 1998) through October 31, 1998.
(b) The Administrator and Distributor have voluntarily agreed to waive their
fees and/or reimburse the Fund to the extent that the ratio of expenses
to average net assets would exceed on an annual basis 2.75 percent for
Class B shares. These voluntary limits may be discontinued by the
Adviser, Administrator and Distributor at any time after April 30, 1999.
If the aforementioned agreements had not been in effect during the
period, this annualized ratio of expenses to average net assets would
have been 3.04 percent.
(c) The total return ratio does not include sales loads; results would be
lower if sales charges were included.
</TABLE>
12
<PAGE>
CONSECO FUND GROUP
FINANCIAL HIGHLIGHTS
OCTOBER 31, 1998
<TABLE>
<CAPTION>
For the period from inception
(April 8, 1998) THROUGH
OCTOBER 31, 1998
Conseco
International
Fund
----
<S> <C>
Class C Shares
Net asset value per share, for sales at inception.................................. $11.50
Income from investment operations (a):
Net investment income.......................................................... .03
Net realized losses and change in unrealized depreciation
on investments............................................................ (1.13)
-------------------
Net asset value per share, end of period............................... $10.40
===================
Total return (not annualized) (b) (c).............................................. (9.57%)
Ratios/supplemental data:
Net assets, end of period...................................................... $3,141
Ratio of expenses to average net assets (annualized) (b)....................... 2.75%
Ratio of net investment income to average net assets (annualized) (b).......... .53%
-----------------------------
(a) Per share amounts presented are based on daily shares outstanding during
the period from inception (April 8, 1998) through October 31, 1998.
(b) The Administrator and Distributor have voluntarily agreed to waive their
fees and/or reimburse the Fund to the extent that the ratio of expenses
to average net assets would exceed on an annual basis 2.75 percent for
Class C shares. These voluntary limits may be discontinued by the
Adviser, Administrator and Distributor at any time after April 30, 1999.
If the aforementioned agreements had not been in effect during the
period, the annualized ratio of expenses to average net assets would
have been 3.26 percent.
(c) The total return ratio does not include sales loads; results would be
lower if sales charges were included.
</TABLE>
13
<PAGE>
PRICEWATERHOUSECOOPERS
PRICEWATERHOUSECOOPERS LLP
2900 ONE AMERICAN SQUARE
BOX 82002
INDIANAPOLIS, IN 46282-0002
TELEPHONE 317/639-4161
FACSIMILE 317/638-5028
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Trustees and Shareholders
Conseco Fund Group
In our opinion, the accompanying statement of assets and liabilities, and the
related statements of operations of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Conseco Fund Group's Conseco International Fund (the "Fund") at October 31,
1998, the results of its operations, the changes in net assets, and the
financial highlights for the period from inception (January 2, 1998, for Class A
shares; June 30, 1998, for Class B shares; and April 8, 1998, for Class C
shares) through October 31, 1998, in conformity with generally accepted
accounting principles. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of the
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of portfolio shares owned at October 31, 1998 by correspondence
with the custodian, provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
December 29, 1998
14
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
---------- ----------
(dollars in thousands)
<S> <C> <C>
AUSTRALIA COMMON STOCKS - 3.48%
Australia & New Zealand
Banking Group.............. 1,267,152 $ 7,215
Brambles Industries,
Limited.................... 197,400 4,310
Foster's Brewing Group,
Limited.................... 820,400 2,006
Mayne Nickless, Limited...... 965,000 4,432
News Corporation Preferred
Rights..................... 345,000 2,065
News Corporation, Limited.... 210,000 1,428
Pioneer International,
Limited.................... 2,554,675 5,278
QBE Insurance Group,
Limited.................... 1,413,428 5,559
RGC, Limited................. 550,000 832
WMC, Limited................. 785,000 2,652
----------
TOTAL AUSTRALIA COMMON
STOCKS................. 35,777
----------
AUSTRIA - 0.84%
PREFERRED STOCKS - 0.28%
Bank Austria AG.............. 54,000 2,938
----------
TOTAL AUSTRIA PREFERRED
STOCKS................. 2,938
----------
COMMON STOCKS - 0.56%
Boehler-Uddeholm............. 60,185 2,836
Evn Energie-Versorgung
Niederoesterreich AG....... 7,960 1,134
Mayr-Melnhof Karton AG....... 16,000 742
VA Technologie AG............ 11,000 1,020
----------
TOTAL AUSTRIA COMMON
STOCKS................. 5,732
----------
TOTAL AUSTRIA............ 8,670
----------
BELGIUM COMMON STOCKS - 0.64%
Electrabel SA................ 8,800 3,246
GIB Holdings, Limited NPV.... 29,300 1,402
Solvay Et Cie, NPV........... 25,000 1,961
----------
TOTAL BELGIUM COMMON
STOCKS................. 6,609
----------
CANADA COMMON STOCKS - 3.87%
Alcan Aluminum, Limited...... 105,000 2,630
Anderson Exploration,
Limited.................... 170,000 1,725
Canadian Imperial Bank of
Commerce................... 160,570 3,181
IMASCO, Limited.............. 238,000 4,462
Methanex Corporation......... 275,000 1,600
Newbridge Network............ 100,000 2,049
Noranda, Incorporated........ 254,875 3,757
Oshawa Group, Limited........ 66,000 1,397
Potash Corporation of
Saskatchewan............... 69,623 4,793
Ranger Oil, Limited.......... 289,010 1,822
Renaissance Energy........... 399,450 5,358
</TABLE>
<TABLE>
<CAPTION>
Shares Value
---------- ----------
(dollars in thousands)
<S> <C> <C>
Transcanada Pipelines,
Limited.................... 117,000 $ 1,792
Telus Corporation............ 256,650 5,268
----------
TOTAL CANADA COMMON
STOCKS................. 39,834
----------
DENMARK COMMON STOCKS - 0.93%
BG Bank...................... 32,820 1,903
Den Danske Bank.............. 21,800 2,960
Teledanmark AS, "B".......... 16,700 1,820
Unidanmark AS, "A"........... 38,400 2,928
----------
TOTAL DENMARK COMMON
STOCKS................. 9,611
----------
FINLAND COMMON STOCKS - 2.82%
Enso-Gutzeit OY, "R"......... 212,000 1,641
Huhtamaki Group I Free....... 27,800 932
Merita Bank, Limited......... 1,021,550 5,474
Metra OY, "B"................ 194,295 3,394
Metsa-Serla OY, "B".......... 100,000 756
Nokia OY,"A"................. 87,000 7,917
Rauma OY..................... 121,467 1,434
UPM-Kymmene OY............... 310,760 7,432
----------
TOTAL FINLAND COMMON
STOCKS................. 28,980
----------
FRANCE COMMON STOCKS - 9.95%
Alcatel Alsthom CG........... 58,150 6,478
Associated General de
France..................... 30,100 1,685
Axa SA....................... 35,542 4,017
Banque Nationale de Paris.... 97,525 6,176
BIC SA....................... 31,739 1,953
Bongrain SA.................. 2,124 896
CSF (Thomson)................ 164,573 5,716
Elf Aquitaine SA............. 131,400 15,205
France Telecom SA............ 43,910 3,062
Groupe Danone................ 37,700 9,966
La Farge-Coppee SA........... 67,183 6,867
Pechiney SA.................. 51,800 1,780
Pernod-Ricard................ 64,782 4,313
Rhone-Poulenc, "A"........... 141,200 6,454
Saint Gobain................. 22,098 3,269
Schneider SA................. 26,000 1,543
Scor SA...................... 21,010 1,205
Seita........................ 97,102 5,766
Societe Generale............. 32,319 4,275
Total Petroleum Company,
"B"........................ 85,500 9,863
Usinor Sacilor............... 156,520 1,789
----------
TOTAL FRANCE COMMON
STOCKS................. 102,278
----------
GERMANY - 6.13%
PREFERRED STOCKS - 0.80%
Dyckerhoff AG................ 14,099 4,342
Herlitz AG................... 23,947 766
</TABLE>
See accompanying notes
15
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
Volkswagen AG................. 65,700 $ 3,086
----------
TOTAL GERMANY PREFERRED
STOCKS.................. 8,194
----------
COMMON STOCKS - 5.33%
BASF AG....................... 178,600 7,570
BAYER AG...................... 164,825 6,698
BBS Kraftfahrzeugtechnik...... 1,526 313
Buderus AG.................... 7,475 3,110
Commerzbank AG................ 134,500 4,044
Deutsche Bank AG.............. 36,000 2,239
Dragerwerk AG................. 145,980 2,380
Hoechst AG.................... 42,100 1,759
Karstadt AG................... 4,000 2,041
Muenchener Rueckversicherung
AG, Warrants................ 7,345 2,244
Muenchener Rueckversicherung
AG DEM 10................... 1,400 641
Muenchener Rueckversicherung
AG DEM 10A.................. 293 133
Muenchener Rueckversicherung
AG DEM 5.................... 293 13
RWE AG........................ 125,619 6,811
Varta AG...................... 1,291 193
Veba AG....................... 137,653 7,688
Viag AG....................... 7,440 5,054
Volkswagen AG................. 25,000 1,879
Volkswagen AG NPV............. 700 33
----------
TOTAL GERMANY COMMON
STOCKS.................. 54,843
----------
TOTAL GERMANY............. 63,037
----------
HONG KONG COMMON STOCKS - 3.56%
Asia Satellite
Telecommunications Holdings,
Limited..................... 275,000 486
Cheung Kong Holdings,
Limited..................... 655,000 4,482
Hang Lung Development Company,
Limited..................... 3,155,000 3,584
Hong Kong Electric Holdings... 793,400 2,909
Hutchinson Whampoa, Limited... 600,000 4,299
Hysan Development Company,
Limited..................... 49,600 1
National Mutual of Asia,
Limited..................... 1,700,000 1,163
New World Development Company,
Limited..................... 1,164,000 2,705
South China Morning Post...... 7,886,000 4,225
Swire Pacific, Class "A"...... 1,991,500 10,567
Swire Pacific, Class "B"...... 632,500 523
Television Broadcast.......... 625,000 1,662
----------
TOTAL HONG KONG COMMON
STOCKS.................. 36,606
----------
IRELAND COMMON STOCKS - 0.76%
Greencore Group PLC........... 889,960 3,477
</TABLE>
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
Jefferson Smurfit PLC......... 2,614,872 $ 4,322
----------
TOTAL IRELAND COMMON
STOCKS.................. 7,799
----------
ITALY - 3.38%
PREFERRED STOCKS - 0.22%
Concessioni E Contruzioni
Autostrade.................. 525,000 2,306
----------
TOTAL ITALY PREFERRED
STOCKS.................. 2,306
----------
COMMON STOCKS - 3.16%
Burgo (Cartiere) SPA.......... 119,420 729
Eni SPA....................... 941,380 5,603
Fiat SPA...................... 775,000 2,223
Instituto Nazionale Delle
Assicurazioni............... 1,000,000 2,756
Mediaset...................... 589,800 3,739
STET Telecom Italia........... 2,965,800 17,397
----------
TOTAL ITALY COMMON
STOCKS.................. 32,447
----------
TOTAL ITALY............... 34,753
----------
JAPAN COMMON STOCKS - 11.40%
Aisin Seiki Company,
Limited..................... 301,000 3,151
Aoyama Trading Company........ 69,100 1,705
Best Denki Company............ 200,000 1,373
Canon, Incorporated........... 55,000 1,041
Central Japan Railway......... 388 1,991
Chudenko Corporation.......... 32,000 735
Daibiru Corporation........... 240,000 1,679
Daiwa House Industries........ 112,000 1,264
Eisai Company................. 126,000 1,977
Fuji Photo Film Company....... 191,000 6,999
Fujisawa Pharmaceutical
Company..................... 95,000 1,121
Hitachi Zosen Corporation..... 212,000 322
Hitachi, Limited.............. 542,000 2,758
Japan Tobacco................. 950 7,965
Kanamoto Company.............. 310,000 1,397
KAO Corporation............... 369,000 7,473
Koito Manufacturing Company... 424,000 1,728
Kokusai Electric.............. 469,000 2,302
Kyocera Corporation........... 108,000 4,773
Makita Corporation............ 105,000 1,110
Matsushita Electric Industrial
Company..................... 164,000 2,408
Matsuzakaya Company........... 500,000 2,678
MOS Food Services............. 359,000 5,299
Namco......................... 239,600 5,274
NEC Corporation............... 80,000 592
Nichicon Corporation.......... 293,000 3,181
Nichido Fire & Marine
Insurance................... 397,000 2,048
</TABLE>
See accompanying notes
16
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
Nintendo Company, Limited..... 74,900 $ 6,338
Nippon Telephone & Telegraph
Company..................... 700 5,479
Okumura Corporation........... 700,000 3,034
Ono Pharmaceutical............ 65,000 1,941
Promise Company, Limited...... 138,100 6,246
Shionogi & Company............ 341,000 2,514
Showa Sangyo Company.......... 796,000 1,571
Sony Corporation.............. 36,200 2,299
Sumitomo Marine & Fire
Insurance................... 447,000 2,616
TDK Corporation............... 24,000 1,582
Toyo Seikan Kaisha............ 200,000 3,596
Yamanouchi Pharmaceutical..... 61,000 1,748
Yamato Kogyo Company,
Limited..................... 120,000 546
Yodogawa Steel Works.......... 319,000 1,273
Yoshitomi Pharmaceutical...... 185,000 2,056
----------
TOTAL JAPAN COMMON
STOCKS.................. 117,183
----------
MALAYSIA COMMON STOCKS - 0.13%
Golden Hope Plantations BHD... 2,603,000 1,274
Hicom Holdings BHD............ 370,863 98
----------
TOTAL MALAYSIA COMMON
STOCKS.................. 1,372
----------
MEXICO COMMON STOCKS - 0.57%
Alfa, SA...................... 436,000 1,163
Consorcio Grupo Dina Sa De C
V........................... 590,000 885
Grupo Mexico SA............... 1,047,300 2,659
Industrias Penoles............ 215,000 656
Vitro Sa...................... 335,000 483
----------
TOTAL MEXICO COMMON
STOCKS.................. 5,846
----------
NETHERLANDS COMMON STOCKS - 6.17%
ABN AMRO Holdings NV.......... 313,165 5,869
Akzo Nobel NV................. 294,205 11,436
Buhrmann NV................... 46,408 832
CSM NV........................ 16,550 815
Fortis Amev NV................ 51,654 3,355
Hollandsche Beton Groep NV.... 339,630 4,583
Ing Groep NV.................. 244,769 11,847
Kon KPN NV.................... 131,125 5,097
Koninklijke Bijenkorf Beheer
NV.......................... 17,400 1,543
Philips Electronics........... 219,221 11,667
TNT Post Groep NV............. 129,410 3,464
Unilever NV................... 40,000 2,968
----------
TOTAL NETHERLANDS COMMON
STOCKS.................. 63,476
----------
NEW ZEALAND COMMON STOCKS - 0.98%
Brierley Investments,
Limited..................... 1,753,762 399
Carter Holt Harvey, Limited... 605,889 494
</TABLE>
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
Fisher & Paykel, Limited...... 880,000 $ 2,609
Fletcher Challenge Building... 2,564,979 3,395
Fletcher Challenge Forest..... 2,778,284 941
Fletcher Challenge Paper...... 765,000 486
Lion Nathan, Limited.......... 679,600 1,781
----------
TOTAL NEW ZEALAND COMMON
STOCKS.................. 10,105
----------
NORWAY COMMON STOCKS - 1.48%
Den Norsk Bank, Series A...... 270,000 949
Kvaerner Industries AS, Class
"A"......................... 108,419 2,338
Kvaerner Industries AS, Class
"B"......................... 18,000 339
Norsk Hydro AS................ 60,000 2,604
Nycomed AS, Series B.......... 953,855 6,793
Saga Petroleum, Series B
Free........................ 110,175 1,390
Unitor AS..................... 80,000 803
----------
TOTAL NORWAY COMMON
STOCK................... 15,216
----------
PORTUGAL COMMON STOCKS - 0.01%
Cimpor Ciment................. 700 24
----------
TOTAL PORTUGAL COMMON
STOCKS.................. 24
----------
SINGAPORE COMMON STOCKS - 1.20%
Development Bank of
Singapore................... 1,052,870 6,596
Hong Kong Land................ 1,580,847 2,245
Inchcape Berhad............... 325,000 112
Inchcape Motors............... 325,000 275
Singapore Finance, Limited.... 387,000 250
Singapore Press............... 105,300 905
United Overseas Bank.......... 410,000 1,926
----------
TOTAL SINGAPORE COMMON
STOCK................... 12,309
----------
SPAIN COMMON STOCKS - 2.92%
Banco Popular Espanol......... 28,000 1,726
Banco Santander SA............ 229,969 4,205
Iberdrola SA.................. 587,457 9,471
Repsol SA (BR)................ 37,000 1,854
Telefonica de Espana.......... 283,140 12,761
----------
TOTAL SPAIN COMMON
STOCKS.................. 30,017
----------
SOUTH KOREA COMMON STOCKS - 0.14%
Korea Electric Power
Corporation................. 80,860 1,440
----------
TOTAL SOUTH KOREA COMMON
STOCKS.................. 1,440
----------
SWEDEN COMMON STOCKS - 3.52%
Assidoman AB.................. 56,000 1,060
Astra AB, "B" Free............ 55,200 865
</TABLE>
See accompanying notes
17
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
Autoliv Incorporated.......... 125,000 $ 4,158
Electrolux AB, "B"............ 475,075 7,141
Esselte AB, Class "A"......... 2,000 26
Esselte AB, Class "B"......... 17,000 248
Foreningssparbk............... 204,800 5,541
Granges AB.................... 15,000 196
Nordbanken AS................. 550,000 3,293
Pharmacia & Upjohn,
Incorporated................ 15,400 786
SKF AB, "B" Free.............. 80,000 916
Stora Kopparsbergs Bergslags,
"A"......................... 122,100 1,343
Stora Kopparsbergs Bergslags,
"B"......................... 25,800 281
Svedala Industries, "A"
Free........................ 90,000 1,416
Svenska Cellulosa, "B" Free... 225,400 5,277
Volvo AB...................... 170,000 3,665
----------
TOTAL SWEDEN COMMON
STOCK................... 36,212
----------
SWITZERLAND COMMON STOCKS - 6.94%
ABB AG........................ 2,690 3,222
Cie Fin Richemont............. 5,820 7,737
Forbo Holding AG.............. 3,280 1,356
Holderbank Financial
Glarus-B.................... 3,650 4,068
Nestle SA..................... 8,546 18,176
Novartis AG................... 5,007 9,022
Saurer AG..................... 3,360 1,985
Schindler Holding AG (BR)..... 1,160 1,570
Schweitz Ruckversiche......... 3,291 7,330
Sig Schweitz Industries AG.... 12,004 8,067
Sulzer AG..................... 6,598 3,801
SwissCom AG................... 100 34
UBS AG........................ 5,665 1,554
Zurich Allied AG.............. 5,700 3,464
----------
TOTAL SWITZERLAND COMMON
STOCK................... 71,386
----------
UNITED KINGDOM COMMON STOCKS - 22.10%
Aggreko, PLC.................. 502,977 1,272
Albert Fisher Group, PLC...... 262,500 33
Allied Domecq, PLC............ 627,274 5,778
Allied Zurich................. 407,062 4,840
Arcadia Group................. 41,875 184
Arriva........................ 205,000 1,267
Associated British Foods
Group, PLC.................. 27,172 255
Bank of Scotland.............. 361,844 3,933
BG, PLC....................... 1,301,216 8,531
Billiton...................... 1,072,976 2,632
Blue Circle Industries........ 455,000 2,484
BOC Group..................... 204,582 3,005
British American Tobacco
Industries, PLC............. 506,902 4,557
British Energy, PLC........... 300,000 2,934
</TABLE>
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
British Telecommunications.... 784,400 $ 10,141
BTR, PLC...................... 4,431,262 7,755
Bunzl, PLC.................... 814,100 3,763
Burmah Castro, PLC............ 369,950 5,576
Coats Viyella, PLC............ 1,695,330 880
Commercial Union, PLC......... 577,890 9,160
Cookson Group, PLC............ 2,091,155 4,378
Cortaulds Textiles, PLC....... 150,000 362
Danka Business Systems, PLC... 495,000 622
Debenhams Retail.............. 83,750 541
Diageo........................ 297,690 3,216
English China Claylord
Group....................... 423,110 1,169
Express Dairies............... 250,000 542
Fairview Holdings, PLC........ 260,495 357
General Electric.............. 435,000 3,479
Great Universal Stores........ 242,100 2,603
Hanson, PLC................... 1,054,385 7,425
Hillsdown Holdings, PLC....... 1,264,530 1,800
Hyder, PLC.................... 201,840 2,772
Imperial Chemical Industries,
PLC......................... 312,000 2,803
Imperial Tobacco Group........ 197,600 2,015
Inchcape, PLC................. 300,000 517
Laporte, PLC.................. 578,513 5,464
Lex Service................... 350,000 2,098
Lloyds TSB Group, PLC......... 426,770 5,271
Lonrho........................ 387,125 2,107
Lonrho Africa................. 243,625 253
Lucasvarity, PLC.............. 610,000 2,084
Medeva, PLC................... 3,122,053 6,379
National Grid Group, PLC...... 255,000 1,747
National Power, PLC........... 50,000 435
National Westminster Bank,
PLC......................... 607,037 10,258
Next, PLC..................... 190,000 1,607
Northern Foods, PLC........... 1,000,000 2,713
PowerGen, PLC................. 310,400 4,393
Premier Farnell, PLC.......... 452,500 1,269
Racal Electronics, PLC........ 394,604 1,791
Reckitt & Colman, PLC......... 398,954 6,902
RMC Group..................... 301,850 4,297
Rolls Royce, PLC.............. 189,873 701
Royal & Sun Alliance Insurance
Group....................... 319,900 2,930
Safeway, PLC.................. 509,677 2,561
Salvesen (Christian), PLC..... 502,977 750
Scapa Group................... 525,000 967
Shell Transportation & Trading
Company, PLC................ 535,000 3,234
Storehouse.................... 980,000 2,872
Tate & Lyle, PLC.............. 705,800 4,196
Terranova Foods, PLC.......... 457,425 927
Tesco, PLC.................... 1,031,457 2,911
Thames Water Group, PLC....... 173,983 3,228
</TABLE>
See accompanying notes
18
<PAGE>
AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Shares Value
--------- ----------
(dollars in thousands)
<S> <C> <C>
TI Group, PLC................. 703,850 $ 4,196
Tomkins....................... 1,549,688 7,176
Transport Development Group... 28,260 114
Unilever, PLC................. 213,900 2,149
Vickers Group................. 693,333 1,939
Williams, PLC................. 352,570 2,201
Wolseley...................... 631,700 4,332
WPP Group, PLC................ 1,438,600 7,155
----------
TOTAL UNITED KINGDOM
COMMON STOCKS........... 227,188
----------
UNITED STATES - 14.65%
FOREIGN SECURITIES DENOMINATED IN U.S. DOLLARS - 1.70%
G P Batteries International,
Limited..................... 436,000 959
Kookmin Bank GDR, Reg......... 82,796 308
Kookmin Bank GDR, 144a (Note
B).......................... 79,021 294
Jardine Matheson Holding,
Limited..................... 871,000 2,439
Jardine Strategic............. 1,824,000 2,918
Jardine Strategic............. 20,000 30
New Holland NV................ 160,000 2,020
Nova Corporation.............. 23,400 320
Sk Telecom, Limited........... 164,351 1,695
Stolt-Nielsen SA, "B"......... 38,000 461
Telmex ADR.................... 113,000 5,968
----------
TOTAL FOREIGN SECURITIES
DENOMINATED IN U.S.
DOLLARS................. 17,412
----------
</TABLE>
<TABLE>
<CAPTION>
Par
Amount
---------
<S> <C> <C>
UNITED STATES GOVERNMENT AND AGENCY OBLIGATIONS (NOTE
A) - 2.86%
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.17%
Discount Note, 5.56%,
Due 12/15/1998........ $ 1,745 1,745
----------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION.... 1,745
----------
</TABLE>
<TABLE>
<CAPTION>
Par
Amount Value
--------- ----------
(dollars in thousands)
U.S. TREASURY BILLS - 2.69%
Due 11/5/1998................. $ 7 $ 7
Due 11/27/1998................ 57 57
Due 12/10/1998................ 14,401 14,323
Due 12/17/1998................ 126 125
Due 1/14/1999................. 3,276 3,244
Due 2/4/1999.................. 4,652 4,601
Due 3/4/1999.................. 1,578 1,556
Due 3/11/1999................. 172 170
Due 4/1/1999.................. 3,644 3,583
----------
TOTAL U.S. TREASURY
BILLS................... 27,666
----------
TOTAL UNITED STATES
GOVERNMENT AND AGENCY
OBLIGATIONS............. 29,411
----------
SHORT TERM INVESTMENTS (NOTE A) - 10.09%
Shares
---------
<S> <C> <C>
AMR Investments Strategic Cash
Business Trust.............. 92,804,911 92,805
Par
Amount
---------
International Business
Machines, 5.01%, Due
11/2/1998................... $ 5,000 4,999
State Street Bank Euro........ 5,951 5,951
----------
TOTAL SHORT TERM
INVESTMENTS............. 103,755
----------
TOTAL UNITED STATES....... 150,578
----------
TOTAL INVESTMENTS - 108.57%
(COST $1,025,698)........... 1,116,306
----------
LIABILITIES, NET OF OTHER
ASSET - (8.57%)............. (88,161)
----------
TOTAL NET ASSETS - 100%....... $1,028,145
==========
</TABLE>
See accompanying notes
Based on the cost of investments of $1,025,940 for federal income tax purposes
at October 31, 1998, the aggregate gross unrealized appreciation was $184,460,
the aggregate gross unrealized depreciation was $94,094, and the net unrealized
appreciation of investments was $90,366.
(A) Rates associated with short-term investments represent yield to maturity or
yield to next reset date.
ABBREVIATIONS:
AB - Company (Sweden)
ADR - American Depository Receipt (United States)
AG - Company (Austria, Germany, Switzerland)
AS - Company (Denmark, Norway, Sweden)
BHD - Berhard (Malaysia)
BR - Bearer (Spain, Switzerland)
CG - Company General (France)
GDR - Global Depository Receipt (United States)
NPV - No Par Value (Belgium)
NV - Company (Netherlands, United States)
OY - Company (Finland)
PLC - Public Limited Corporation (United Kingdom)
Reg - Registered (United States)
SA - Company (Belgium, France, Mexico, Spain, Switzerland, United States )
INDUSTRY DIVERSIFICATION
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PERCENT OF
NET ASSETS
----------
<S> <C>
Capital Goods............................................... 7.10%
Consumer Durables........................................... 3.16%
Consumer Non-Durables....................................... 20.34%
Energy...................................................... 12.01%
Finance..................................................... 21.36%
Materials and Services...................................... 22.23%
Technology.................................................. 5.33%
Transportation.............................................. 0.97%
Utilities................................................... 3.12%
Fixed-Income................................................ 2.86%
Short-Term Investments...................................... 10.09%
Other Assets (Liabilities).................................. (8.57)%
------
NET ASSETS........................................ 100.00%
======
</TABLE>
See accompanying notes
19
<PAGE>
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International
Equity
-------------
(in thousands)
<S> <C>
ASSETS:
Investments in securities at value
(cost - $1,025,698).................... $1,116,306
Cash, including foreign currency......... 3,940
Unrealized appreciation on foreign
currency contracts..................... 267
Dividends and interest receivable........ 2,550
Reclaims receivable...................... 1,547
Receivable for investments sold.......... 916
Deferred organization costs, net......... 5
----------
TOTAL ASSETS......................... 1,125,531
----------
LIABILITIES:
Payable for investments purchased........ 2,928
Payable upon return of securities
loaned................................. 92,805
Management and investment advisory fees
payable (Note 2)....................... 930
Accrued organization costs............... 5
Other liabilities........................ 718
----------
TOTAL LIABILITIES.................... 97,386
----------
NET ASSETS APPLICABLE TO INVESTORS'
BENEFICIAL INTERESTS....................... $1,028,145
==========
</TABLE>
See accompanying notes
20
<PAGE>
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Year Ended October 31, 1998
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International
Equity
-------------
(in thousands)
<S> <C>
INVESTMENT INCOME:
Interest income.................................... $ 3,264
Dividend income (net of foreign taxes of $900)..... 23,214
Income derived from securities lending, net........ 470
--------
TOTAL INVESTMENT INCOME........................ 26,948
--------
EXPENSES:
Management and investment advisory fees (Note 2)... 4,226
Custodian fees..................................... 807
Professional fees.................................. 35
Other expenses..................................... 23
--------
TOTAL EXPENSES................................. 5,091
--------
NET INVESTMENT INCOME.................................. 21,857
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments................... 35,803
Net realized loss on foreign currency
transactions..................................... (8,187)
Change in net unrealized appreciation
of investments................................... 74,320
Change in net unrealized depreciation of foreign
currency contracts and translations.............. (94,242)
--------
NET GAIN ON INVESTMENTS........................ 7,694
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS... $ 29,551
========
</TABLE>
See accompanying notes
21
<PAGE>
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
International Equity
----------------------
Year Ended
October 31,
----------------------
1998 1997
---------- ---------
<S> <C> <C>
INCREASE IN NET ASSETS:
OPERATIONS:
Net investment income........... $ 21,857 $ 15,411
Net realized gain (loss) on
investments and foreign
currency transactions.......... 27,616 21,331
Change in net unrealized
appreciation or depreciation of
investments and foreign
currency translations.......... (19,922) 57,105
---------- ---------
NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS... 29,551 93,847
---------- ---------
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS:
Contributions................... 678,114 397,499
Withdrawals..................... (441,193) (134,169)
---------- ---------
NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS'
BENEFICIAL INTERESTS........ 236,921 263,330
---------- ---------
NET INCREASE (DECREASE) IN NET
ASSETS............................ 266,472 357,177
---------- ---------
NET ASSETS:
Beginning of period............. 761,673 404,496
---------- ---------
END OF PERIOD................... $1,028,145 $ 761,673
========== =========
- - ------------------------------------------------------------
FINANCIAL HIGHLIGHTS:
- - ------------------------------------------------------------
RATIOS*:
Expenses to average net assets
(annualized)................... 0.53% 0.57%
Net investment income to average
net assets (annualized)........ 2.29% 2.55%
Portfolio turnover rate......... 24% 15%
</TABLE>
See accompanying notes
22
<PAGE>
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS
October 31, 1998
- - ------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The AMR Investment Services Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a no-load, open-end management
investment company which was organized as a trust under the laws of the State of
New York pursuant to a Declaration of Trust dated as of June 27, 1995 and
amended on August 11, 1995. Beneficial interests in the Trust are divided into
separate series, each having distinct investment objectives and policies. The
AMR Investment Services International Equity Portfolio, (the "Portfolio") is one
of the portfolios of the Trust. The Portfolio commenced active operations on
November 1, 1995.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolio.
Security Valuation
Equity securities that are primarily traded on domestic securities
exchanges are valued at the last quoted sales price on a designated exchange
prior to the close of trading on the New York Stock Exchange (the "Exchange")
or, lacking any current sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Portfolio securities that are primarily
traded on foreign securities exchanges are generally valued at the preceding
closing values of such securities on their respective exchanges where primarily
traded. Over-the-counter equity securities are valued on the basis of the last
bid price on that date prior to the close of trading. Debt securities (other
than short-term securities) normally will be valued on the basis of prices
provided by a pricing service and may take into account appropriate factors such
as institution-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data. In some cases, the prices of debt securities may be determined using
quotes obtained from brokers. Securities for which market quotations are not
readily available are valued at fair value, as determined in good faith and
pursuant to procedures approved by the Trust's Board of Trustees (the "Board").
Investment grade short-term obligations with 60 days or less to maturity are
valued using the amortized cost method.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Dividend income is recorded on the ex-dividend date except
certain dividends from foreign securities which are recorded as soon as the
information is available to the Portfolio. Interest income is earned from
settlement date and recorded on an accrual basis. For financial and tax
reporting purposes, realized gains and losses are determined on the basis of
specific lot identification.
23
<PAGE>
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
Currency Translation
All assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the bid price of such currencies
against U.S. dollars as last quoted by a recognized dealer. Income, expenses and
purchases and sales of investments are translated into U.S. dollars at the rate
of exchange prevailing on the respective dates of such transactions. The
Portfolio includes that portion of the results of operations resulting from
changes in foreign exchange rates with net realized and unrealized gain on
investments, as appropriate.
Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts to hedge
the exchange rate risk on investment transactions or to hedge the value of
portfolio securities denominated in foreign currencies. Forward foreign currency
contracts are valued at the forward exchange rate prevailing on the day of
valuation.
Federal Income and Excise Taxes
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor in the Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
Portfolio's assets will be managed in such a way that an investor in the
Portfolio will be able to satisfy the requirements of sub-chapter M of the
Internal Revenue Code.
Deferred Organization Expenses
Expenses incurred by the Portfolio in connection with its organization are
being amortized on a straight-line basis over a five-year period.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results may differ from those estimated.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement which
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. Investment assets of the
24
<PAGE>
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
Portfolio are managed by multiple investment advisers which have entered
into separate investment advisory agreements with the Manager. As compensation
for performing the duties required under the Management Agreement, the Manager
receives from the Portfolio an annualized fee equal to .10% of the average daily
net assets plus amounts paid by the Manager to the investment advisors hired by
the Manager to direct investment activities of the Portfolio. Management fees
are paid as follows (dollars in thousands):
<TABLE>
<CAPTION>
Amounts paid to Net Amounts
Management Management Investment Paid to
Fee Rate Fee Advisors Manager
---------- ---------- --------------- -----------
<S> <C> <C> <C>
.25%-.90% 4,226 2,987 1,239
</TABLE>
Other
Certain officers or trustees of the Trust are also officers of the Manager
or American. The Trust makes no direct payments to its officers. Unaffiliated
trustees and their spouses are provided free unlimited air transportation on
American. However, the Trust compensates each Trustee with payments in an amount
equal to the Trustee's income tax on the value of this free airline travel. For
the year ended October 31, 1998, the cost of air transportation was not material
to the Portfolio.
3. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, for the year ended October 31, 1998 were
$509,821 and $207,212 respectively.
25
<PAGE>
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
4. COMMITMENTS
In order to protect itself against a decline in the value of particular
foreign currencies against the U.S. dollar, the Portfolio has entered into
forward contracts to deliver or receive foreign currency in exchange for U.S.
dollars as described below. The Portfolio bears the market risk that arises
from changes in foreign exchange rates, and accordingly, the unrealized gain
(loss) on these contracts is reflected in the accompanying financial statements.
The Portfolio also bears the credit risk if the counterparty fails to perform
under the contract. At October 31, 1998, the Portfolio had outstanding forward
foreign currency contracts as follows:
<TABLE>
<CAPTION>
Settlement Unrealized
Contracts to Deliver Date Value Gain/(Loss)
-------------------- ---------- ------- -----------
(amounts in thousands)
<S> <C> <C> <C> <C>
1,509 Deutsche Mark............................................... 11/2/98 $ 911 $ 3
1,884 French Franc................................................ 11/30/98 339 -
51,598 Hong Kong Dollar............................................ 2/26/99 6,625 (223)
62,621 Hong Kong Dollar............................................ 4/30/99 8,003 (21)
3,786 Japanese Yen................................................ 11/4/98 32 -
1,000 Japanese Yen................................................ 4/13/99 9,660 (22)
94 Pound Sterling.............................................. 11/4/98 158 -
7,700 Pound Sterling.............................................. 11/9/98 12,888 (201)
9,102 Pound Sterling.............................................. 11/30/98 15,218 (622)
------- -------
Total contracts to deliver (Receivable amount $52,748).............. $53,834 $(1,086)
======= =======
Contracts to Receive
- --------------------------------------------------------------------
(amounts in thousands)
2,856 Australian Dollar........................................... 11/9/98 $ 1,777 $ (49)
25,948 Deutsche Mark............................................... 11/30/98 15,690 1,099
5,060 French Franc................................................ 11/2/98 911 (4)
51,598 Hong Kong Dollar............................................ 2/26/99 6,625 1
460 Japanese Yen................................................ 11/4/98 4 -
1,414 Pound Sterling.............................................. 11/4/98 2,368 (7)
9 Pound Sterling.............................................. 11/5/98 14 -
6,100 Pound Sterling.............................................. 11/9/98 10,210 314
11 Singapore Dollar............................................ 11/3/98 7 -
122 Singapore Dollar............................................ 11/4/98 75 (1)
15 Singapore Dollar............................................ 11/5/98 9 -
------- -------
Total contracts to receive (Payable amount $36,337)................. $37,690 $ 1,353
======= =======
</TABLE>
5. SECURITIES LENDING
The Portfolio participates in a securities lending program under which
securities are loaned to selected institutional investors. All such loans
require collateralization with cash, securities of the U.S. Government and its
agencies or letters of credit that at all times equal at least 100% of the
market
26
<PAGE>
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 1998
- - ------------------------------------------------------------------------------
value of the loaned securities plus accrued interest. The Portfolio may bear
the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower of securities fail financially. The Portfolio
receives the interest on the collateral less any fees and rebates paid to agents
and transferees of securities. The Portfolio also continues to receive interest
on the securities loaned, and any gain or loss in the market price of securities
loaned that may occur during the term of the loan will be for the account of the
Portfolio.
At October 31, 1998, securities with a market value of approximately
$91,368,762 were loaned by the Portfolio. The Portfolio received cash collateral
which they invested in the AMR Investments Strategic Cash Business Trust (the
"Business Trust") totaling $92,804,911. In addition, the Custodian held non-cash
collateral totaling $1,026,705. The Manager serves as Trustee and as investment
adviser to the Business Trust. The Manager receives from the Business Trust an
annualized fee equal to 0.10% of the average daily net assets of the Business
Trust.
27
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees AMR Investment Services International Equity
Portfolio
We have audited the accompanying statement of assets and liabilities of the
AMR Investment Services International Equity Portfolio (the "Portfolio"),
including the schedule of investments, as of October 31, 1998, and the related
statement of operations, the statements of changes in net assets, and the
financial highlights for each of the periods indicated therein. These financial
statements and financial highlights are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statement and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of investments owned as of
October 31, 1998, by correspondence with the custodian. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
AMR Investment Services International Equity Portfolio at October 31, 1998, the
results of its operations, the changes in its net assets, and the financial
highlights for each of the periods indicated therein, in conformity with
generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
December 17, 1998
28
