<PAGE> 1
THIS PROSPECTUS contains important information about the Platinum Class of the
AMERICAN AADVANTAGE FUNDS ("Trust"), an open-end management investment company
which consists of multiple investment portfolios. This prospectus pertains only
to the three funds listed on this cover page (individually referred to as a
"Fund" and, collectively, the "Funds"). EACH FUND WILL SEEK ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING
PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND, COLLECTIVELY,
"PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST") WHICH HAS AN
INVESTMENT OBJECTIVE IDENTICAL TO THAT FUND. The investment experience of each
Fund will correspond directly with the investment experience of each Portfolio.
Each Fund consists of multiple classes of shares designed to meet the needs of
different groups of investors. Platinum Class shares are offered exclusively to
customers of certain broker-dealers. Individuals should read this Prospectus
carefully before making an investment decision and retain it for future
reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
for the Platinum Class of the Trust dated March 1, 1996 has been filed with the
Securities and Exchange Commission and is incorporated herein by reference. The
SAI contains more detailed information about the Funds. For a free copy of the
SAI, call 800-973-7977. For further information on the Funds, refer to the
address and phone number on the back cover.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE TO MAINTAIN A
STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
MARCH 1, 1996
[LOGO]
AMERICAN
AAdvantage
Funds(R)
- - Platinum Class -(SM)
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
[LOGO]
SOUTHWEST SECURITIES
<PAGE> 2
The AMERICAN AADVANTAGE MONEY MARKET FUND(SM) ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND(SM) ("U.S. Treasury Money
Market Fund") each seeks current income, liquidity, and the maintenance of a
stable price per share of $1.00 by investing all of its investable assets in the
Money Market Portfolio of the AMR Trust ("Money Market Portfolio"), the
Municipal Money Market Portfolio of the AMR Trust ("Municipal Money Market
Portfolio") and the U.S. Treasury Money Market Portfolio of the AMR Trust ("U.S.
Treasury Money Market Portfolio"), respectively (collectively, the
"Portfolios"), which in turn invest in high quality, short-term obligations. The
Municipal Money Market Portfolio invests primarily in municipal obligations and
the U.S. Treasury Money Market Portfolio invests exclusively in obligations
backed by the full faith and credit of the U.S. Government and in repurchase
agreements that are collateralized by U.S. Government full faith and credit
obligations.
Under a Hub and Spoke(R)1 operating structure, each Fund seeks its
investment objective by investing all of its investable assets in a
corresponding Portfolio as described above. Each Portfolio's investment
objective is identical to that of its corresponding Fund. Whenever the phrase
"all of the Fund's investable assets" is used, it means that the only investment
securities that will be held by a Fund will be that Fund's interest in its
corresponding Portfolio. AMR Investment Services, Inc. ("Manager") provides
investment management and administrative services to the Portfolios and
administrative services to the Funds. This Hub and Spoke operating structure is
different from that of many other investment companies which directly acquire
and manage their own portfolios of securities. Accordingly, investors should
carefully consider this investment approach. See "Investment Objectives,
Policies and Risks -- Additional Information About the Portfolios." A Fund may
withdraw its investment in a corresponding Portfolio at any time if the Trust's
Board of Trustees ("Board") determines that it would be in the best interest of
that Fund and its shareholders to do so. Upon any such withdrawal, that Fund's
assets would be invested in accordance with the investment policies and
restrictions described in this Prospectus and the SAI.
TABLE OF FEES AND EXPENSES... 3
FINANCIAL HIGHLIGHTS......... 4
INTRODUCTION................. 6
INVESTMENT OBJECTIVES,
POLICIES AND RISKS......... 6
INVESTMENT RESTRICTIONS...... 14
YIELDS AND TOTAL RETURNS..... 15
MANAGEMENT AND ADMINISTRATION
OF THE TRUST............... 16
HOW TO PURCHASE SHARES....... 18
HOW TO REDEEM SHARES......... 19
VALUATION OF SHARES.......... 21
DIVIDENDS AND TAX MATTERS.... 21
GENERAL INFORMATION.......... 23
SHAREHOLDER COMMUNICATIONS... 24
- ---------------
1 Hub and Spoke is a registered service mark of Signature Financial Group, Inc.
PROSPECTUS
2
<PAGE> 3
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
MUNICIPAL U.S. TREASURY
MONEY MONEY MONEY
MARKET MARKET MARKET
FUND FUND FUND
<S> <C> <C> <C>
Management Fees 0.15% 0.15% 0.15%
12b-1 Fees 0.25% 0.25% 0.25%
Other Expenses 0.53% 0.65% 0.56%
---- ---- ----
Total Operating Expenses 0.93% 1.05% 0.96%
==== ==== ====
</TABLE>
The Board believes that the aggregate per share expenses of each Fund and
its corresponding Portfolio will be approximately equal to the expenses that the
Fund would incur if its assets were invested directly in the type of securities
held by the Portfolio.
EXAMPLES
A Platinum Class investor in each Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Money Market Fund 9 30 51 114
Municipal Money Market Fund 11 33 58 128
U.S Treasury Money Market Fund 10 31 53 118
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses expected to be incurred directly or
indirectly as a Platinum Class shareholder in a Fund. Additional information may
be found under "Management and Administration of the Trust."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
PROSPECTUS
3
<PAGE> 4
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditor. Because the Platinum Class did not commence
active operations until November 1995, the financial highlights shown below are
those of the Institutional Class of the American AAdvantage Funds. Platinum
Class expenses are higher than Institutional Class expenses, and thus these
expenses may affect performance. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge.
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET FUND--INSTITUTIONAL CLASS
-----------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED OCTOBER 31, ENDED
--------------------------------------------------------------------------------------------------- OCTOBER 31,
1995 1994(2) 1993 1992 1991 1990 1989 1988 1987(1)
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------ ------ ------ ------
Net investment
income 0.06 0.04 0.03 0.04 0.07 0.08 0.09 0.08 0.01
Less dividends
from net
investment
income (0.06) (0.04) (0.03) (0.04) (0.07) (0.08) (0.09) (0.08) (0.01)
------ ------ ------ ------ ------ ------ ------ ------ ------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ====== ====== ====== ======
Total return
(annualized) 5.96% 3.85% 3.31% 4.41% 7.18% 8.50% 9.45% 7.54% 6.70%
====== ====== ====== ====== ====== ====== ====== ====== ======
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $1,206,041 $1,893,144 $2,882,947 $2,223,829 $715,280 $745,405 $385,916 $330,230 $71,660
Ratios to
average net
assets(3)(4)(5):
Expenses 0.23% 0.21% 0.23% 0.26% 0.24% 0.20% 0.22% 0.28% 0.48%
Net investment
income 5.79% 3.63% 3.23% 4.06% 6.93% 8.19% 9.11% 7.54% 6.78%
</TABLE>
(1) The Money Market Fund commenced active operations on September 1, 1987.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1992.
(4) Effective October 1, 1990, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(5) Annualized.
PROSPECTUS
4
<PAGE> 5
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET U.S. TREASURY MONEY MARKET FUND-
FUND-INSTITUTIONAL CLASS INSTITUTIONAL CLASS
---------------------------- -------------------------------------------------------
PERIOD YEAR ENDED OCTOBER 31, PERIOD ENDED
YEAR ENDED OCTOBER 31, --------------------------------------- OCTOBER 31,
1995 1994(1) 1995 1994(2) 1993 1992(1)
---------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- -------- -------- --------- --------
Net investment income 0.04 0.02 0.06 0.04 0.03 0.02
Less dividends from
net investment income (0.04) (0.02) (0.06) (0.04) (0.03) (0.02)
------ ------- -------- -------- --------- --------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======== ======= ========= ========
Total return
(annualized)(3) 3.75% 2.44% 5.67% 3.70% 3.07% 3.61%
====== ======= ======== ======= ========= ========
Ratios/supplemental
data:
Net assets, end of
period
(in thousands) $ 7 $ 9,736 $ 47,184 $ 67,607 $ 136,813 $ 91,453
Ratios to average net
assets(4)(5)(6):
Expenses 0.35% 0.30% 0.32% 0.25% 0.23% 0.27%(7)
Net investment income 3.70% 2.38% 5.49% 3.44% 2.96% 3.46%(7)
</TABLE>
(1) The U.S. Treasury Money Market Fund commenced active operations on March 2,
1992 and the Municipal Money Market Fund commenced active operations on
November 10, 1993.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) Total return for the Municipal Money Market Fund excludes management and
administrative services fees waived by the Manager. Had the Fund paid such
fees total returns would have been 2.24% for the period ended October 31,
1994 and 3.54% for the year ended October 31, 1995.
(4) The method of determining average net assets was changed from a monthly
average to a daily average starting with the period ended October 31, 1994.
(5) Operating results for the Municipal Money Market Fund exclude management and
administrative services fees waived by the Manager. Had the Fund paid such
fees, the ratio of expenses and net investment income to average net assets
would have been 0.50% and 2.18%, respectively for the period ended October
31, 1994 and 0.55% and 3.50%, respectively, for the year ended October 31,
1995.
(6) Annualized.
(7) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
5
<PAGE> 6
INTRODUCTION
The Trust is an open-end, management investment company organized as a
Massachusetts business trust on January 16, 1987. The Funds are three of the
several investment portfolios of the Trust. Each Fund has a distinctive
investment objective and investment policies. Each Fund will invest all of its
investable assets in a corresponding Portfolio of the AMR Trust which has an
identical investment objective. Each Fund has multiple classes, including: the
"Platinum Class" for customers of certain broker-dealers; the "Institutional
Class" primarily for large institutional investors investing at least $2 million
in the Funds; and the "PlanAhead Class" for all investors including smaller
institutional investors, investors using intermediary organizations such as
discount brokers or plan sponsors, individual retirement accounts and
self-employed individual retirement plans. This Prospectus relates only to the
Platinum Class. For further information about the other classes, call (800)
967-9009 or write to P.O. Box 619003, Dallas/Ft. Worth Airport, Texas 75261.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(or losses) earned (or incurred) by the Fund. It also will bear its
proportionate share of expenses that are allocated to the Fund as a whole.
However, certain expenses presently are allocated separately to each class of
shares.
The Manager provides the Funds and their corresponding Portfolios with
investment advisory services. Investment decisions for the Portfolios are made
by the Manager in accordance with the investment objectives, policies and
restrictions described in this Prospectus and in the SAI.
Platinum Class shares are sold without any sales charges at the next share
price calculated after an investment is received and accepted. Shares will be
redeemed at the next share price calculated after receipt of a redemption order.
See "How to Purchase Shares" and "How to Redeem Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objectives and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent with the investment objective of the applicable
Fund. However, each Fund's
PROSPECTUS
6
<PAGE> 7
investment objective may not be changed without a majority vote of that Fund's
outstanding shares, which is defined as the lesser of (a) 67% of the shares of
the applicable Fund present or represented if the holders of more than 50% of
the shares are present or represented at the shareholders' meeting, or (b) more
than 50% of the shares of the applicable Fund (hereinafter, "majority vote"). A
Portfolio's investment objective may not be changed without a majority vote of
that Portfolio's interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the Board.
INVESTMENT OBJECTIVES OF THE FUNDS -- The investment objectives of the Funds are
to seek current income, liquidity and the maintenance of a stable $1.00 price
per share. The Funds seek to achieve these objectives by investing all of their
investable assets in their corresponding Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of the amortized cost valuation method.
Obligations in which the Portfolios invest generally have remaining maturities
of 397 days or less, although instruments subject to repurchase agreements and
certain variable and floating rate obligations may bear longer final maturities.
The average dollar-weighted portfolio maturity of each Portfolio will not exceed
90 days.
AMERICAN AADVANTAGE MONEY MARKET FUND -- The Fund's corresponding Portfolio may
invest in obligations permitted to be purchased under Rule 2a-7 of the 1940 Act
including, but not limited to, (1) obligations of the U.S. Government or its
agencies or instrumentalities; (2) loan participation interests, medium-term
notes, funding agreements and asset-backed securities; (3) domestic,
Yankeedollar and Eurodollar certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bearer deposit notes and other promissory notes
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies; and (4)
repurchase agreements involving the obligations listed above. The Money Market
Portfolio will invest only in issuers or instruments that at the time of
purchase (1) have received the highest short-term rating by at least two
nationally recognized statistical rating organizations ("Rating Organizations")
such as "A-1" by Standard & Poor's and "P-1" by Moody's Investor Services, Inc.;
(2) are single rated and have received the highest short-term rating by a Rating
Organization; or (3) are unrated, but are determined to be of comparable quality
by the Manager pursuant to
PROSPECTUS
7
<PAGE> 8
guidelines approved by the AMR Trust Board and subject to the ratification of
the AMR Trust Board. See the SAI for definitions of the foregoing instruments
and rating systems.
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the Portfolio will not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
adversely affect the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest can
be recovered under a variable amount master demand note generally shall not
exceed seven days. To the extent this period is exceeded, the note in question
would be considered illiquid. Issuers of variable amount master demand notes
must satisfy the same criteria as set forth for other promissory notes (e.g.
commercial paper). The Portfolio will invest in variable amount master demand
notes only when such notes are determined by the Manager, pursuant to guidelines
established by the AMR Trust Board, to be of comparable quality to rated issuers
or instruments eligible for investment by the Portfolio. In determining average
dollar-weighted portfolio maturity, a variable amount master demand note will be
deemed to have a maturity equal to the longer of the period of time remaining
until the next readjustment of the interest rate or the period of time remaining
until the principal amount can be recovered from the issuer on demand.
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" and on a "forward commitment" basis. The purchase or sale of
when-issued securities enables an investor to hedge against anticipated changes
in interest rates and prices by locking in an attractive price or yield. The
price of when-issued securities is fixed at the time the commitment to purchase
or sell is made, but delivery
PROSPECTUS
8
<PAGE> 9
and payment for the when-issued securities take place at a later date, normally
one to two months after the date of purchase. During the period between purchase
and settlement, no payment is made by the purchaser to the issuer and no
interest accrues to the purchaser. Such transactions therefore involve a risk of
loss if the value of the security to be purchased declines prior to the
settlement date or if the value of the security to be sold increases prior to
the settlement date. A sale of a when-issued security also involves the risk
that the other party will be unable to settle the transaction. Dollar rolls are
a type of forward commitment transaction. Purchases and sales of securities on a
"forward commitment" basis involve a commitment to purchase or sell securities
with payment and delivery to take place at some future date, normally one to two
months after the date of the transaction. As with when-issued securities, these
transactions involve certain risks, but they also enable an investor to hedge
against anticipated changes in interest rates and prices. Forward commitment
transactions are executed for existing obligations, whereas in a when-issued
transaction, the obligations have not yet been issued. When purchasing
securities on a when-issued or forward commitment basis, a segregated account of
liquid assets at least equal to the value of purchase commitments for such
securities will be maintained until the settlement date.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND -- The Fund's corresponding
Portfolio may invest in municipal obligations issued by or on behalf of the
governments of states, territories, or possessions of the United States; the
District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Fund"); (3) are guaranteed by one or more municipal bond insurance policies that
cannot be canceled and issued by third-party guarantors possessing the highest
claims-paying rating from a Rating Organization; (4) have received one of the
two highest short-term ratings from at least two Rating Organizations; (5) are
single rated and have received one of the two highest short-term ratings from
that Rating Organization; (6) have no short-term rating but the instrument is
comparable to the issuer's rated short-term debt; (7) have no short-term rating
(or comparable rating) but have received one of the top two long-term ratings
from all Rating Organizations rating the issuer or instrument; or (8) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by, and subject to the oversight of, the AMR Trust Board.
The Portfolio may also invest in other investment companies. Ordinarily at least
80% of the Portfolio's net assets will be invested in municipal obligations the
interest from which is exempt from federal income tax. However, should market
conditions warrant, the Portfolio may invest up to 20% (or for temporary
defensive purposes, up to 100%) of its assets in obligations subject to federal
income tax which are eligible investments for the Money Market Portfolio.
PROSPECTUS
9
<PAGE> 10
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; and tax-exempt commercial paper; and
purchase obligations that are subject to restrictions on resale. See the SAI for
a further discussion of the foregoing obligations. In addition, the Portfolio
may purchase or sell securities on a "when-issued" and on a "forward commitment"
basis as described in "American AAdvantage Money Market Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, this risk is
mitigated because it is anticipated that most of the Portfolio's assets will be
insured or backed by bank letters of credit. Additionally, the Portfolio may
invest more than 25% of the value of its total assets in industrial development
bonds which, although issued by industrial development authorities, may be
backed only by the assets and revenues of the non-governmental users.
The Portfolio may also invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in
PROSPECTUS
10
<PAGE> 11
private activity obligations without limitation and it is anticipated that a
substantial portion of the Portfolio's assets will be invested in these
obligations. As a result, a substantial portion of the Fund's distributions may
be a tax preference item, which will reduce the net return from the Fund for
taxpayers subject to the AMT. Interest on "qualified" private activity
obligations is exempt from federal income tax.
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND -- The Fund's corresponding
Portfolio will invest exclusively in obligations backed by the full faith and
credit of the U.S. Government and repurchase agreements which are collateralized
by U.S. Government full faith and credit obligations. Counterparties for
repurchase agreements must be approved by the AMR Trust Board. For this purpose,
U.S. Government Agency mortgage-backed securities collateralized exclusively by
full faith and credit Government National Mortgage Association ("GNMA")
mortgages are considered eligible. Ordinarily at least 65% of the Portfolio's
assets will be invested in direct U.S. Treasury obligations. Such obligations
may include separately traded registered interest and principal securities
("STRIPS") issued by the U.S. Treasury which represent either future interest or
principal payments. STRIPS are issued at a discount to their "face value," and
may exhibit greater price volatility than ordinary debt securities because of
the manner in which their principal and interest are returned to investors. The
Fund may also invest in other full faith and credit obligations of the U.S.
Government including securities issued by the Agency for International
Development, General Services Administration, GNMA, Rural Electrification
Administration, Small Business Administration, Federal Financing Bank and
others. See the SAI for a further discussion of the foregoing obligations. In
addition, the Portfolio may purchase or sell securities on a "when-issued" and
on a "forward commitment" basis as described in "American AAdvantage Money
Market Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
Each Portfolio may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. Government and its
agencies and instrumentalities and approved bank letters of credit that at all
times equal at least 100% of the market value of the loaned securities. Such
loans will not be made if, as a result, the aggregate amount of all outstanding
securities loans by any Portfolio would exceed 33 1/3% of its total assets. A
Portfolio continues to receive interest on the securities loaned and
simultaneously earns either interest on the investment of the cash collateral or
fee income if the loan is otherwise collateralized. However, a Portfolio
normally pays (including, in some cases, payments to the Manager) lending fees
and related expenses from this interest or fee income. Should the borrower of
the securities fail financially, there is a risk of delay in recovery of the
securities loaned or loss of rights in the collateral. However, the Portfolios
seek to minimize this risk by making
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loans only to borrowers which are deemed by the Manager to be of good financial
standing and which have been approved by the AMR Trust Board. For purposes of
complying with each Portfolio's investment policies and restrictions, collateral
received in connection with securities loans will be deemed an asset of a
Portfolio to the extent required by law. See the SAI for further information
regarding loan transactions.
A repurchase agreement is an agreement under which securities are acquired
by a Portfolio from a securities dealer or bank subject to resale at an agreed
upon price on a later date. The acquiring Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Portfolio is delayed or prevented from exercising its rights to dispose
of the collateral securities. However, the Manager attempt to minimize this risk
by entering into repurchase agreements only with financial institutions which
are deemed to be of good financial standing and which have been approved by the
AMR Trust Board. See the SAI for more information regarding repurchase
agreements.
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (the "Securities Act"), and resold to qualified
institutional buyers under Rule 144A of the Securities Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios, that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be pursuant to an exempt transaction and may be accomplished in
accordance with Rule 144A. Section 4(2) securities normally are resold to other
institutional investors such as the Portfolios through or with the assistance of
the issuer or dealers that make a market in the Section 4(2) securities, thus
providing liquidity. The Portfolios will not invest more than 10% of their
respective net assets in Section 4(2) securities and illiquid securities unless
the Manager determines, by continuous reference to the appropriate trading
markets and pursuant to guidelines approved by the AMR Trust Board, that any
Section 4(2) securities held by such Portfolio in excess of this level are at
all times liquid.
Because it is not possible to predict with assurance exactly how this market
for Section 4(2) securities offered and sold under Rule 144A will develop, the
AMR Trust Board and the Manager, pursuant to the guidelines approved by the AMR
Trust Board, will carefully monitor the Portfolios' investments in these
securities, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing a Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
BROKERAGE PRACTICES -- The Portfolios normally will not incur any brokerage
commissions on their transactions because money market instruments are generally
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traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the obligation, however, usually
includes a profit to the dealer. Obligations purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. No commissions or discounts are
paid when securities are purchased directly from an issuer.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio. Historically, the Manager has sponsored traditionally structured
funds and, therefore, has limited experience with funds that invest all their
assets in a separate portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust. In addition to selling
their interests to the Funds, the Portfolios may sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio will pay a proportionate share of the
Portfolio's expenses and will invest in that Portfolio on the same terms and
conditions. However, if another investment company invests all of its assets in
a Portfolio, it would not be required to sell its shares at the same public
offering price as a Fund and would be allowed to charge different sales
commissions. Therefore, investors in a Fund may experience different returns
from investors in another investment company that invests exclusively in that
Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a
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less diversified portfolio of investments for that Fund and could affect
adversely its liquidity.
The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager would actively manage the Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with a Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust and the AMR Trust, (3) brokerage practices,
(4) the Funds' shares, including the rights and liabilities of its shareholders,
(5) additional performance information, including the method used to calculate
yield and total return, and (6) the determination of the value of each Fund's
shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restrictions are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and the Board. The following fundamental investment restrictions may
be changed with respect to a particular Fund by the majority vote of that Fund's
outstanding shares or with respect to a Portfolio by the majority vote of that
Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore
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subject to change without shareholder vote, the Money Market Portfolio and
the U.S. Treasury Money Market Portfolio apply this restriction with
respect to 100% of their assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities or, with respect to the Money Market
Portfolio, the banking industry. Municipal governments and their agencies
and authorities are not deemed to be industries. Finance companies as a
group are not considered a single industry for purposes of this policy.
The following non-fundamental investment restrictions may be changed with
respect to a particular Fund by a vote of a majority of the Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board. No
Portfolio may:
- Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if more than 5% of the
Portfolio's total assets would be invested in such securities. This
limitation does not apply with regard to collateralized trust securities.
- Invest more than 10% of its net assets in illiquid securities, including
time deposits and repurchase agreements that mature in more than seven
days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
From time to time each class of the Funds may advertise their "current yield"
and "effective yield." Both yield figures are based on historical earnings and
are not intended to indicate future performance. The current yield refers to the
income generated by an investment over a seven calendar-day period (which period
will be stated in the advertisement). This income is then annualized by assuming
the amount of income generated by the investment during that week is earned each
week over a one-year period, and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by the investment is assumed to be reinvested. The effective yield will be
slightly higher than the current yield because of the compounding effect of this
assumed reinvestment. The Municipal Money Market Fund may also quote "tax
equivalent yields," which show the taxable yields a shareholder would have to
earn before federal income taxes to equal this
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Fund's tax-exempt yields. The tax equivalent yield is calculated by dividing the
Fund's tax-exempt yield by the result of one minus a stated federal income tax
rate. If only a portion of the Fund's income was tax-exempt, only that portion
is adjusted in the calculation. As stated earlier, the Fund considers interest
on private activity obligations to be exempt from federal income tax. Total
return quotations advertised by the Funds may reflect the average annual
compounded (or aggregate compounded) rate of return during the designated time
period based on a hypothetical initial investment and the redeemable value of
that investment at the end of the period. The Funds will at times compare their
performance to applicable published indices, and may also disclose their
performance as ranked by certain ranking entities. Each class of a Fund has
different expenses which will impact its performance. See the SAI for more
information about the calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs. The Manager provides or oversees all administrative,
investment advisory and portfolio management services for the Trust pursuant to
a Management Agreement, dated April 3, 1987, as amended on October 1, 1995,
together with the Administrative Services Plan described below. The AMR Trust
and the Manager also entered into a Management Agreement dated, October 1, 1995,
which obligates the Manager to provide or oversee all administrative, investment
advisory and portfolio management services for the AMR Trust. The Manager,
located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a
wholly-owned subsidiary of AMR Corporation ("AMR"), the parent company of
American Airlines, Inc., and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services.
The Manager serves as the sole investment adviser to the Portfolios. As of
December 31, 1995, the Manager had assets under management totaling
approximately $13.7 billion, including approximately $4.5 billion under active
management and $9.2 billion as named fiduciary or fiduciary adviser. Of the
total, approximately $10.1 billion of assets are related to AMR. American
Airlines, Inc. is not responsible for investments made in the American
AAdvantage Funds.
The Manager provides the Trusts with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also develops the investment programs for each Portfolio.
The Manager bears the expense of providing the above services. As
compensation for providing the Portfolios with advisory services, the Manager
receives from the
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AMR Trust an annualized advisory fee that is calculated and accrued daily, equal
to 0.15% of the net assets of the Portfolios. To the extent that a Fund invests
all of its investable assets in its corresponding Portfolio, the Manager
receives no advisory fee from the Trust. The fees received by the Manager from
the AMR Trust ("Management Fees") are payable quarterly in arrears.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the independent
Trustees of each Board who are not parties to the Management Agreement or
"interested persons" as defined in the 1940 Act of any such party ("Independent
Trustees"), cast in person at a meeting called for the purpose of considering
such approval, or by the vote of a Fund's shareholders or a Portfolio's interest
holders. A Management Agreement may be terminated with respect to a Fund or a
Portfolio at any time, without penalty, by a majority vote of outstanding Fund
shares or Portfolio interests on sixty (60) days' written notice to the Manager,
or by the Manager, on sixty (60) days' written notice to the Trust or the AMR
Trust. A Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities for the registration of
shares; fees and expenses of Independent Trustees; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
ADMINISTRATIVE SERVICES PLAN -- The Manager and the Trust entered into an
Administrative Services Plan which obligates the Manager to provide the Platinum
Class with administrative services either directly or through the various
broker-dealers that offer Platinum Class shares. These services include, but are
not limited to, the payment of fees for record maintenance, forwarding
shareholder communications to the shareholders and aggregating and processing
orders for the purchase and redemption of Platinum Class shares. As compensation
for these services, the Manager receives an annualized fee of up to 0.50% of the
net assets of the Platinum Class of the Funds. The fee is payable quarterly in
arrears.
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DISTRIBUTION PLAN -- The Platinum Class distribution plan (the "Plan") was
adopted pursuant to Rule 12b-1 under the 1940 Act and provides that it will
continue in effect so long as its continuance is approved at least annually by a
majority of the Trustees, including the affirmative votes of a majority of the
Independent Trustees of the Board, cast in person at a meeting called for the
purpose of considering such approval, or by the vote of shareholders of the
Platinum Class. The Plan may be terminated with respect to a particular Platinum
Class at any time, without the payment of any penalty, by a vote of a majority
of the Independent Trustees of the Board or by a vote of a majority of the
outstanding voting securities of that class.
The Plan provides that each Platinum Class will pay 0.25% per annum of its
average daily net assets to the Manager (or another entity approved by the
Board) for distribution-related services. The fee will be payable quarterly in
arrears without regard to whether the amount of the fee is more or less than the
actual expenses incurred in a particular quarter by the entity for the services
provided pursuant to the Plan. The Plan authorizes AMR, or any other entity
approved by the Board, to spend 12b-1 fees on any activities or expenses
intended to result in the sale or servicing of Platinum Class shares including
but not limited to, advertising, expenses of various broker-dealers relating to
selling efforts, transfer agency fees and the preparation and distribution of
advertising material and sales literature.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas, 75205 serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Portfolios and the Funds and as transfer agent for
the Platinum Class.
INDEPENDENT AUDITOR -- The independent auditor for the Trust and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
HOW TO PURCHASE SHARES
Platinum Class shares are sold at net asset value through selected financial
services firms ("firms"). The Platinum Class has established a minimum initial
investment of $1,000 and $100 for subsequent investments, but these minimums may
be changed at any time at the Trust's discretion.
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Orders for purchase of Platinum Class shares received by wire transfer in
the form of federal funds will be effected at the next determined net asset
value. Shares are offered and orders are accepted for the Money Market Fund
until 3:00 p.m. Eastern time on each day on which the Federal Reserve and the
custodian/transfer agent are open for business ("Business Day"). Shares are
offered and orders are accepted for the U.S. Treasury Money Market Fund until
12:30 p.m. Eastern time and for the Municipal Money Market Fund until 12:00 p.m.
Eastern time on each Business Day. These purchases will receive that day's
dividend. Orders for purchase accompanied by a check or other negotiable bank
draft will be accepted and effected as of 3:00 p.m. Eastern time on the next
Business Day following receipt and such shares will receive the dividend for the
Business Day following the day the purchase is effected. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
from such check before shares will be purchased. The Trust reserves the right to
reject any order for the purchase of shares and to limit or suspend, without
prior notice, the offering of shares.
Firms provide varying arrangements for their clients with respect to the
purchase and redemption of Platinum Class shares and the confirmation thereof
and may arrange with their clients for other investment or administrative
services. Such firms are responsible for the prompt transmission of purchase and
redemption orders. Some firms may establish higher or lower minimum investment
requirements than set forth above. Such firms may independently establish and
charge additional amounts to their clients for their services, which charges
would reduce their clients' yield or return. Firms also may hold Platinum Class
shares in nominee or street name as agent for and on behalf of their clients. In
such instances, the transfer agent will have no information with respect to or
control over the accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
firm. Certain of these firms may receive compensation from the Manager for
recordkeeping and other expenses relating to these nominee accounts. In
addition, certain privileges with respect to the purchase and redemption of
shares (such as check writing) may not be available through such firms or may
only be available subject to certain conditions or limitations. Some firms may
participate in a program allowing them access to their clients' accounts for
servicing, including, without limitation, transfers of registration and dividend
payee changes, and may perform functions such as generation of confirmation
statements and disbursements of cash dividends.
HOW TO REDEEM SHARES
Shareholders should contact the firm through which their shares were purchased
for redemption instructions. Shares of a Fund may be redeemed by telephone, by
writing a check, by pre-authorized automatic redemption or by mail on any
Business Day. Shares will be redeemed at the net asset value next calculated
after the applicable Fund has
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received and accepted the redemption request. Proceeds from a redemption of
shares purchased by check or pre-authorized automatic purchase may be withheld
until the funds have cleared, which may take up to 15 days. Although the Funds
intend to redeem shares in cash, each Fund reserves the right to pay the
redemption price in whole or in part by a distribution of readily marketable
securities held by the applicable Fund's corresponding Portfolio. See the SAI
for further information concerning redemptions in kind.
Firms may charge a fee for wire redemptions to cover transaction costs.
Redemption proceeds will generally be sent within one Business Day, as
applicable. However, if making immediate payment could adversely affect a Fund,
it may take up to seven days to send payment.
To ensure acceptance of a redemption request, be sure to adhere to the
following procedures.
REDEEMING BY CHECK -- Upon request, shareholders will be provided with drafts to
be drawn on a Fund ("Redemption Checks"). Redemption Checks may be made payable
to the order of any person for an amount not less than $250 and not more than $5
million. When a Redemption Check is presented for payment, a sufficient number
of full and fractional shares in the shareholder's account will be redeemed at
the next determined net asset value to cover the amount of the Redemption Check.
This will enable the shareholder to continue earning dividends until the Fund
receives the Redemption Check. A shareholder wishing to use this method of
redemption must complete and file an account application which is available from
the Funds or firm through which shares were purchased. Redemption Checks should
not be used to close an account since the account normally includes accrued but
unpaid dividends. The Funds reserve the right to terminate or modify this
privilege at any time. This privilege may not be available through some firms
that distribute shares of the Funds. In addition, firms may impose minimum
balance requirements in order to obtain this feature. Firms also may impose fees
on investors for this privilege or, if approved by the Funds, establish
variations on minimum check amounts.
Unless one signer is authorized on the account application, Redemption
Checks must be signed by all shareholders. Any change in the signature
authorization must be made by written notice to the firm. Shares purchased by
check or through an Automated Clearing House ("ACH") transaction may not be
redeemed by Redemption Check until the shares have been on the Fund's books for
at least 15 days. The Funds reserve the right to terminate or modify this
privilege at any time.
The Funds may refuse to honor Redemption Checks whenever the right of
redemption has been suspended or postponed, or whenever the account is otherwise
impaired. A $15 service fee will be charged when a Redemption Check is presented
to redeem Fund shares in excess of the value of that Fund account or for an
amount less
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than $250 or when a Redemption Check is presented that would require redemption
of shares that were purchased by check or ACH transaction within 15 days. A fee
of $12 will be charged when "stop payment" of a Redemption Check is requested.
Firms may charge different service fees.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- Shareholders purchasing through some
firms can arrange to have a pre-authorized amount ($100 or more) redeemed from
their shareholder account and automatically deposited into a bank account on one
or more specified day(s) of each month. For more information regarding
pre-authorized automatic redemptions, contact your firm.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Fund generally will be paid at the time of
redemption.
VALUATION OF SHARES
The net asset value of each share (share price) of the Funds is determined as of
4:00 p.m. Eastern time on each Business Day. The net asset value of all
outstanding shares of all classes will be determined based on a pro rata
allocation of the Fund's corresponding Portfolio's investment income, expenses
and total capital gains and losses. The allocation will be based on comparative
net asset value at the beginning of the day except for expenses related solely
to one class of shares ("Class Expenses") which will be borne only by the
appropriate class of shares. Because of Class Expenses, the net income
attributable to and the dividends payable may be different for each class of
shares.
Obligations held by the Portfolios are valued in accordance with the
amortized cost method, which is designed to enable those Portfolios and their
corresponding Funds to maintain a consistent $1.00 per share net asset value.
The amortized cost method is described in the SAI.
DIVIDENDS AND TAX MATTERS
Dividends paid on each class of a Fund's shares are calculated at the same time
and in the same manner. All of each Fund's net investment income and net
short-term capital gain, if any, generally will be declared as dividends on each
Business Day immediately prior to the determination of the net asset value.
Dividends generally are paid on the first Business Day of the following month. A
Fund's net investment income attributable to the Platinum Class consists of that
class' pro rata share of the Fund's share of interest accrued and discount
earned on its corresponding Portfolio's securities, less amortization of
premium, and the estimated expenses of both the Portfolio and the
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Fund attributable to the Platinum Class. The Portfolios do not expect to realize
net capital gain, therefore the Funds do not foresee paying any capital gain
distributions. If any Fund (either directly or indirectly through its
corresponding Portfolio) incurred or anticipated any unusual expenses, loss or
depreciation that would adversely affect its net asset value or income for a
particular period, the Board would at that time consider whether to adhere to
the dividend policy described above or to revise it in the light of the then
prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends on a Fund's Platinum Class shares will be automatically declared and
paid in additional Platinum Class shares of that Fund. However, a shareholder
may choose to have dividends paid in cash. An election may be changed at any
time by delivering written notice to your firm at least ten days prior to the
payment date for a dividend.
Each Fund is treated as a separate corporation for federal income tax
purposes and intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended. In each
taxable year that a Fund so qualifies, the Fund (but not its shareholders) will
be relieved of federal income tax on that part of its investment company taxable
income (generally, taxable net investment income plus any net short-term capital
gain) that it distributed to its shareholders. However, a Fund will be subject
to a nondeductible 4% excise tax to the extent that it fails to distribute by
the end of any calendar year substantially all of its ordinary income for that
year and capital gain net income for the one-year period ending on October 31 of
that year, plus certain other amounts. For these and other purposes, dividends
declared by a Fund in December of any year and payable to shareholders of record
on a date in that month will be deemed to have been paid by the Fund and
received by the shareholders on December 31 of that year if they are paid by the
Fund during the following January. Each Portfolio has received a ruling from the
Internal Revenue Service that it is classified for federal income tax purposes
as a partnership; accordingly, no Portfolio is subject to federal income tax.
Dividends from a Fund's investment company taxable income will be taxable to
its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Platinum Class shares.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns taxable income from
any of its investments, the Municipal Money Market Fund's share of that income
will be distributed to its shareholders as a taxable dividend. To the extent
that Portfolio invests in certain private activity obligations, that Fund's
shareholders will be required to treat a portion of its dividends as a "tax
preference item" in determining their liability for the AMT. Exempt-interest
dividends also may be subject to tax under state and local tax laws. Because
some states exempt from tax the interest on their own obligations and
obligations of governmental agencies of and municipalities in the state,
shareholders
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will receive tax information each year regarding the Municipal Money Market
Fund's exempt-interest income by state. Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares of that Fund is not
deductible.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends paid (or deemed paid) that year. The notice sent by
the Municipal Money Market Fund specifies the amounts of exempt-interest
dividends (and the portion thereof, if any, that is a tax preference item for
purposes of the AMT) and any taxable dividends. Each Fund is required to
withhold 31% of all taxable dividends payable to any individuals and certain
other non-corporate shareholders who do not provide the Fund with a correct
taxpayer identification number or who otherwise are subject to back-up
withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Trust.
For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of eight separate investment portfolios. Each
Fund is comprised of three classes of shares, which can be issued in an
unlimited number. Each share represents an equal proportionate beneficial
interest in that Fund and is entitled to one vote. Only shares of a particular
class may vote on matters affecting that class. Only shares of a particular Fund
may vote on matters affecting that Fund. All shares of the Trust vote on matters
affecting the Trust as a whole. Share voting rights are not cumulative, and
shares have no preemptive or conversion rights. Shares of the Trust are
nontransferable.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by the Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the
PROSPECTUS
23
<PAGE> 24
Portfolio's report to shareholders will be provided to the shareholders of its
corresponding Fund.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
As more fully described in the SAI, the following persons may be deemed to
control a Fund by virtue of their ownership of more than 25% of the outstanding
shares of the Fund as of January 31, 1996:
<TABLE>
<S> <C>
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
Southwest Securities, Inc. 99%
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND
Southwest Securities, Inc. 74%
</TABLE>
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Trust
and the AMR Trust will be audited by Ernst & Young LLP, independent auditor, at
least annually. Shareholder inquiries and requests for information regarding the
other investment companies which also invest in the AMR Trust should be made by
contacting your firm or by calling (800) 388-3344 or by writing to the Funds at
P.O. Box 619003, MD 5645, Dallas/Fort Worth Airport, Texas 75261-9003.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
Platinum Class, PlanAhead Class, American AAdvantage Money Market Fund, American
AAdvantage Municipal Money Market Fund and American AAdvantage U.S. Treasury
Money Market Fund are service marks of AMR Investment Services, Inc.
PROSPECTUS
24
<PAGE> 25
-- NOTES --
<PAGE> 26
-- NOTES --
<PAGE> 27
-- NOTES --
<PAGE> 28
[LOGO]
- Platinum Class -(SM)
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
Available through
[LOGO]
MEMBER: NEW YORK STOCK EXCHANGE
1201 Elm Street, Suite 3500
Dallas, Texas
75270
(800) 973-7977
<PAGE> 29
THIS PROSPECTUS contains important information about the Institutional Class of
the American AAdvantage Funds ("Trust"), an open-end management investment
company which consists of multiple investment portfolios. This prospectus
pertains only to the seven funds listed on this cover page (individually
referred to as a "Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A
CORRESPONDING PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND,
COLLECTIVELY, "PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST")
WHICH HAS AN INVESTMENT OBJECTIVE IDENTICAL TO THAT FUND. The investment
experience of each Fund will correspond directly with the investment experience
of each Portfolio. Each Fund consists of multiple classes of shares designed to
meet the needs of different groups of investors. Institutional Class shares are
offered primarily to institutional investors, investing at least $2 million in
the Funds. Investors should read this Prospectus carefully before making an
investment decision and retain it for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1996 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 817-967-3509. For
further information about the Institutional Class or for information on the
other classes of shares, please refer to the appropriate address and phone
number on the back cover of this Prospectus.
AN INVESTMENT IN ANY OF THE MONEY MARKET FUNDS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL
BE ABLE TO MAINTAIN A STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
MARCH 1, 1996
[LOGO]
AMERICAN
AAdvantage
Funds(R)
- -Institutional Class-
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
<PAGE> 30
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
The AMERICAN AADVANTAGE MONEY MARKET FUND(SM) ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND(SM) ("U.S. Treasury Money
Market Fund") (collectively, the "Money Market Funds") each seeks current
income, liquidity, and the maintenance of a stable price per share of $1.00 by
investing all of its investable assets in the Money Market Portfolio of the AMR
Trust ("Money Market Portfolio"), the Municipal Money Market Portfolio of the
AMR Trust ("Municipal Money Market Portfolio") and the U.S. Treasury Money
Market Portfolio of the AMR Trust ("U.S. Treasury Money Market Portfolio"),
respectively (collectively the "Money Market Portfolios"), which in turn invest
in high quality, short-term obligations. The Municipal Money Market Portfolio
invests primarily in municipal obligations and the U.S. Treasury Money Market
Portfolio invests exclusively in obligations backed by the full faith and credit
of the U.S. Government and in repurchase agreements that are collateralized by
U.S. Government full faith and credit obligations.
Under a Hub and Spoke(R)(1) operating structure, each Fund seeks its investment
objective by investing all of its investable assets in a corresponding Portfolio
as described above. Each Portfolio's investment objective is identical to that
of its corresponding Fund. Whenever the phrase "all of the Fund's investable
assets" is used, it means that the only investment securities that will be held
by a Fund will be that Fund's interest in its corresponding Portfolio. AMR
Investment Services, Inc. ("Manager") provides investment management and
administrative services to the Portfolios and administrative services to the
Funds. This Hub and Spoke operating
- ---------------
(1) Hub and Spoke is a registered service mark of Signature Financial Group,
Inc.
PROSPECTUS
2
<PAGE> 31
structure is different from that of many other investment companies which
directly acquire and manage their own portfolios of securities. Accordingly,
investors should carefully consider this investment approach. See "Investment
Objectives, Policies and Risks -- Additional Information About the Portfolios."
A Fund may withdraw its investment in a corresponding Portfolio at any time if
the Trust's Board of Trustees ("Board") determines that it would be in the best
interest of that Fund and its shareholders to do so. Upon any such withdrawal,
that Fund's assets would be invested in accordance with the investment policies
and restrictions described in this Prospectus and the SAI.
<TABLE>
<S> <C>
Table of Fees and Expenses....................................... 3
Financial Highlights............................................. 4
Introduction..................................................... 10
Investment Objectives, Policies and Risks........................ 11
Investment Restrictions.......................................... 26
Yields and Total Returns......................................... 27
Management and Administration of the Trust....................... 28
Investment Advisers.............................................. 31
Purchase, Redemption and Valuation of Shares..................... 35
Dividends, Other Distributions and Tax Matters................... 39
General Information.............................................. 42
Shareholder Communications....................................... 43
</TABLE>
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
U.S.
GROWTH INTER- LIMITED- MUNICIPAL TREASURY
AND NATIONAL TERM MONEY MONEY MONEY
BALANCED INCOME EQUITY INCOME MARKET MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees(1) 0.28% 0.28% 0.43% 0.20% 0.15% 0.15% 0.15%
12b-1 Fees 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses 0.34 0.35 0.40 0.35 0.08 0.21 0.14
---- ---- ---- ---- ---- ---- ----
Total Operating Expenses 0.62% 0.63% 0.83% 0.55% 0.23% 0.36% 0.29%
==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) The "Management Fee" represents those investment advisory fees paid to the
Manager and the investment advisers.
PROSPECTUS
3
<PAGE> 32
The Board believes that the aggregate per share expenses of each Fund and
its corresponding Portfolio will be approximately equal to the expenses that the
Fund would incur if its assets were invested directly in the type of securities
held by the Portfolio.
EXAMPLES
An Institutional Class investor in each Fund would directly or indirectly
pay on a cumulative basis the following expenses on a $1,000 investment assuming
a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Balanced Fund $6 $20 $35 $ 77
Growth and Income Fund 6 20 35 79
International Equity Fund 8 26 46 103
Limited-Term Income Fund 6 18 31 69
Money Market Fund 2 7 13 29
Municipal Money Market Fund 4 12 20 46
U.S. Treasury Money Market Fund 3 9 16 37
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the Institutional Class of a Fund. Additional
information may be found under "Management and Administration of the Trust" and
"Investment Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditors. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge.
PROSPECTUS
4
<PAGE> 33
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BALANCED FUND -- INSTITUTIONAL CLASS
-------------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED OCTOBER 31, ENDED
---------------------------------------------------------------------------------------------- OCTOBER 31,
1995(4)(5) 1994(3) 1993 1992 1991 1990(2) 1989 1988 1987(1)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period $ 12.36 $ 13.23 $ 11.99 $ 11.60 $ 9.87 $ 11.05 $ 10.13 $ 9.08 $ 10.00
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Income from
investment
operations:
Net investment
income 0.54 0.57 0.49 0.55 0.58 0.57 0.53 0.56 0.16
Net gains or
(losses) on
securities
(both
realized and
unrealized) 1.71 (0.54) 1.57 0.41 1.79 (1.18) 0.90 0.73 (1.08)
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total from
investment
operations 2.25 0.03 2.06 0.96 2.37 (0.61) 1.43 1.29 (0.92)
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Less
distributions:
Dividends from
net
investment
income (0.52) (0.56) (0.52) (0.56) (0.64) (0.51) (0.51) (0.24) --
Distributions
from net
realized
gains on
securities (0.14) (0.34) (0.30) (0.01) -- (0.06) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Total
distributions (0.66) (0.90) (0.82) (0.57) (0.64) (0.57) (0.51) (0.24) --
-------- -------- -------- -------- -------- -------- -------- -------- ---------
Net asset
value,
end of period $ 13.95 $ 12.36 $ 13.23 $ 11.99 $ 11.60 $ 9.87 $ 11.05 $ 10.13 $ 9.08
======== ======== ======== ======== ======== ======== ======== ======== =========
Total return
(annualized)(6) 19.39% (0.08%) 19.19% 8.75% 25.35% (5.24%) 15.49% 14.63% (31.84%)
======== ======== ======== ======== ======== ======== ======== ======== =========
Ratios/supplemental
data:
Net assets,
end of period
(in
thousands) $249,913 $222,873 $532,543 $370,087 $311,906 $233,702 $210,119 $147,581 $ 118,985
Ratios to
average
net
assets(7)(8)(9):
Expenses 0.63% 0.36% 0.34% 0.35% 0.37% 0.44% 0.47% 0.52% 0.45%
Net
investment
income 4.30% 4.77% 4.91% 5.31% 6.06% 6.50% 6.32% 6.25% 5.59%
Portfolio
turnover rate 73% 48% 83% 80% 55% 62% 78% 77% 17%
</TABLE>
(1) The Balanced Fund commenced active operations on July 17, 1987.
(2) Penmark Investments, Inc. was replaced by Independence Investment
Associates, Inc. as an investment adviser to the Fund as of the close of
business on February 28, 1990.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) GSB Investment Management, Inc. was added as an investment adviser to the
Balanced Fund on January 1, 1995.
(5) Net investment income per share was calculated by subtracting class expenses
per share from net investment income per share for the Fund before class
expenses.
(6) Total return is calculated assuming an initial investment is made at the net
asset value last calculated on the business day before the first day of each
period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at net
asset value on the last day of each period reported.
(7) Effective August 1, 1994, expenses include administrative services fees paid
by the Fund to the Manager. Prior to that date, expenses exclude shareholder
services fees paid directly by shareholders to the Manager, which amounted
to approximately $.01 per share in each period on an annualized basis.
(8) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(9) Annualized.
PROSPECTUS
5
<PAGE> 34
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND--INSTITUTIONAL CLASS
---------------------------------------------------------------------------------------------------------
PERIOD
YEAR ENDED OCTOBER 31, ENDED
------------------------------------------------------------------------------------------ OCTOBER 31,
1995(5) 1994(4) 1993 1992(3) 1991 1990(2) 1989 1988 1987(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $ 14.19 $ 14.63 $ 12.79 $ 12.10 $ 9.47 $ 11.59 $ 9.96 $ 8.30 $ 10.00
------- ------- -------- -------- -------- -------- -------- -------- ---------
Income from
investment
operations:
Net investment
income 0.41 0.43 0.36 0.39 0.42 0.42 0.42 0.42 0.10
Net gains
(losses) on
securities
(both realized
and unrealized) 2.28 0.08 2.21 0.77 2.70 (1.94) 1.59 1.40 (1.80)
------- ------- -------- -------- -------- -------- -------- -------- ---------
Total from
investment
operations 2.69 0.51 2.57 1.16 3.12 (1.52) 2.01 1.82 (1.70)
------- ------- -------- -------- -------- -------- -------- -------- ---------
Less
distributions:
Dividends from
net investment
income (0.43) (0.41) (0.37) (0.39) (0.49) (0.43) (0.38) (0.16) --
Distributions
from net
realized gains
on securities (0.54) (0.54) (0.36) (0.08) -- (0.17) -- -- --
------- ------- -------- -------- -------- -------- -------- -------- ---------
Total
distributions (0.97) (0.95) (0.73) (0.47) (0.49) (0.60) (0.38) (0.16) --
------- ------- -------- -------- -------- -------- -------- -------- ---------
Net asset value,
end of period $ 15.91 $ 14.19 $ 14.63 $ 12.79 $ 12.10 $ 9.47 $ 11.59 $ 9.96 $ 8.30
======= ======= ======== ======== ======== ======== ======== ======== =========
Total return
(annualized)(6) 20.69% 3.36% 21.49% 10.00% 33.83% (13.52%) 20.94% 22.20% (58.51%)
======= ======= ======== ======== ======== ======== ======== ======== =========
Ratio/supplemental
data:
Net assets,
end of period
(in thousands) $71,608 $22,737 $477,088 $339,739 $264,628 $182,430 $187,869 $140,073 $ 134,796
Ratios to
average
net
assets(7)(8)(9):
Expenses 0.62% 0.33% 0.34% 0.36% 0.37% 0.45% 0.45% 0.53% 0.43%
Net investment
income 2.84% 3.28% 3.12% 3.57% 4.19% 4.49% 4.40% 4.20% 3.68%
Portfolio
turnover rate 26% 23% 30% 35% 52% 41% 50% 56% 22%
</TABLE>
(1) The Growth and Income Fund commenced active operations on July 17, 1987.
(2) GSB Investment Management, Inc. was added as an investment adviser to the
Growth and Income Fund on April 10, 1990.
(3) The assets of the Growth and Income Fund previously managed by Atlanta
Capital Management were transferred to GSB Investment Management, Inc. as of
the close of business on December 5, 1991.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class expenses
per share from net investment income per share for the Fund before class
expenses.
(6) Total return is calculated assuming an initial investment is made at the net
asset value last calculated on the business day before the first day of each
period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at net
asset value on the last day of each period reported.
(7) Effective August 1, 1994, expenses include administrative services fees paid
by the Fund to the Manager. Prior to that date, expenses exclude shareholder
services fees paid directly by shareholders to the Manager, which amounted
to less than $.01 per share in each period on an annualized basis.
(8) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(9) Annualized.
PROSPECTUS
6
<PAGE> 35
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND--INSTITUTIONAL CLASS
------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------------------------- OCTOBER 31,
1995(5) 1994(3)(4) 1993(2) 1992 1991(1)
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 12.87 $ 12.07 $ 8.93 $ 10.13 $ 10.00
-------- -------- ------ ------- --------
Income from investment operations:
Net investment income 0.27 0.32 0.17 0.12 --
Net gains (losses) on securities (both
realized and unrealized) 0.68 1.10 3.09 (1.31) 0.13
-------- -------- ------ ------- --------
Total from investment operations 0.95 1.42 3.26 (1.19) 0.13
-------- -------- ------ ------- --------
Less distributions:
Dividends from net investment income (0.21) (0.17) (0.12 ) (0.01) --
Distributions from net realized gains
on securities (0.32) (0.45) -- -- --
-------- -------- ------ ------- --------
Total distributions (0.53) (0.62) (0.12 ) (0.01) --
-------- -------- ------ ------- --------
Net asset value, end of period $ 13.29 $ 12.87 $12.07 $ 8.93 $ 10.13
======== ======== ====== ======= ========
Total return (annualized)(6) 7.90% 11.77% 36.56% (12.07%) 5.69%
======== ======== ====== ======= ========
Ratios/supplemental data:
Net assets, end of period (in thousands) $ 25,757 $ 23,115 $66,652 $38,837 $ 10,536
Ratios to average net assets
(annualized)(7)(8)(9):
Expenses 0.85% 0.61% 0.78% 1.17% 1.90%(10)
Net investment income 2.37% 2.74% 2.00% 2.04% 0.38%(10)
Portfolio turnover rate 21% 37% 61% 21% 2%
</TABLE>
(1) The International Equity Fund commenced active operations on August 7,
1991.
(2) HD International Limited was replaced by Hotchkis and Wiley as an
investment adviser to the International Equity Fund as of the close of
business on May 21, 1993.
(3) Morgan Stanley Asset Management Inc. was added as an investment adviser to
the International Equity Fund as of August 1, 1994.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.04 per share in each period on an annualized
basis and were waived by the Manager for the period ended October 31, 1991.
(8) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(9) Annualized.
(10) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
7
<PAGE> 36
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIMITED-TERM INCOME FUND--INSTITUTIONAL CLASS
----------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------------------------------------------------------ OCTOBER 31,
1995 1994(3) 1993 1992 1991(2) 1990 1989 1988(1)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 9.67 $ 10.23 $ 10.13 $ 10.07 $ 9.76 $ 9.94 $ 10.12 $ 10.00
-------- -------- -------- -------- -------- ------- ------- --------
Income from investment
operations:
Net investment income 0.62 0.52 0.58 0.75 0.83 0.92 0.96 0.64
Net gains or (losses)
on securities (both
realized and
unrealized) 0.15 (0.46) 0.15 0.06 0.31 (0.18) (0.12) 0.05
-------- -------- -------- -------- -------- ------- ------- --------
Total from investment
operations 0.77 0.06 0.73 0.81 1.14 0.74 0.84 0.69
-------- -------- -------- -------- -------- ------- ------- --------
Less distributions:
Dividends from net
investment income (0.62) (0.52) (0.58) (0.75) (0.83) (0.92) (1.02) (0.57)
Distributions from net
realized gains on
securities -- (0.10) (0.05) -- -- -- -- --
-------- -------- -------- -------- -------- ------- ------- --------
Total distributions (0.62) (0.62) (0.63) (0.75) (0.83) (0.92) (1.02) (0.57)
-------- -------- -------- -------- -------- ------- ------- --------
Net asset value, end of
period $ 9.82 $ 9.67 $ 10.23 $ 10.13 $ 10.07 $ 9.76 $ 9.94 $ 10.12
======== ======== ======== ======== ======== ======= ======= ========
Total return
(annualized)(4) 8.18% 0.42% 7.20% 7.94% 11.87% 7.51% 7.62% 7.41%
======== ======== ======== ======== ======== ======= ======= ========
Ratios/supplemental
data:
Net assets, end of
period
(in thousands) $137,293 $112,141 $238,874 $209,928 $141,629 $83,265 $60,507 $ 40,855
Ratios to average net
assets(5)(6)(7):
Expenses 0.60% 0.31% 0.26% 0.27% 0.35% 0.48% 0.59% 0.50%
Net investment income 6.36% 5.26% 5.76% 7.40% 8.42% 9.44% 9.77% 8.01%
Portfolio turnover rate 183% 94% 176% 133% 165% 156% 158% 127%
</TABLE>
(1) The Limited-Term Income Fund commenced active operations on December 3,
1987.
(2) AMR Investment Services, Inc. began portfolio management of the Limited-Term
Income Fund on March 1, 1991, replacing Brown Brothers, Harriman & Co. and
Barrow, Hanley, Mewhinney & Strauss, Inc.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) Total return is calculated assuming an initial investment is made at the net
asset value last calculated on the business day before the first day of each
period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at net
asset value on the last day of each period reported.
(5) Effective August 1, 1994, expenses include administrative services fees paid
by the Fund to the Manager. Prior to that date, expenses exclude shareholder
services fees paid directly by shareholders to the Manager. Such fees
amounted to less than $.03 per share in each period on an annualized basis.
(6) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(7) Annualized.
PROSPECTUS
8
<PAGE> 37
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET FUND--INSTITUTIONAL CLASS
-------------------------------------------------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------------------------------------------------------------------------------------- OCTOBER 31,
1995 1994(2) 1993 1992 1991 1990 1989 1988 1987(1)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net
investment
income 0.06 0.04 0.03 0.04 0.07 0.08 0.09 0.08 0.01
Less
dividends
from net
investment
income (0.06) (0.04) (0.03) (0.04) (0.07) (0.08) (0.09) (0.08) (0.01)
---------- ---------- ---------- ---------- -------- -------- -------- -------- --------
Net asset
value, end
of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
========== ========== =========== ========== ======== ======== ======== ======== ========
Total return
(annualized) 5.96% 3.85% 3.31% 4.41% 7.18% 8.50% 9.45% 7.54% 6.70%
========== ========== =========== ========== ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets,
end of
period
(in
thousands) $1,206,041 $1,893,144 $2,882,947 $2,223,829 $715,280 $745,405 $385,916 $330,230 $ 71,660
Ratios to
average
net assets
(3)(4)(5):
Expenses 0.23% 0.21% 0.23% 0.26% 0.24% 0.20% 0.22% 0.28% 0.48%
Net
investment
income 5.79% 3.63% 3.23% 4.06% 6.93% 8.19% 9.11% 7.54% 6.78%
</TABLE>
(1) The Money Market Fund commenced active operations on September 1, 1987.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1992.
(4) Effective October 1, 1990, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(5) Annualized.
PROSPECTUS
9
<PAGE> 38
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET U.S. TREASURY MONEY MARKET FUND-
FUND-INSTITUTIONAL CLASS INSTITUTIONAL CLASS
---------------------------- ---------------------------------------------------
YEAR PERIOD PERIOD
ENDED ENDED YEAR ENDED OCTOBER 31, ENDED
OCTOBER 31, OCTOBER 31, ---------------------------------- OCTOBER 31,
1995 1994(1) 1995 1994(2) 1993 1992(1)
---------------------------- ---------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00(2) $ 1.00 $ 1.00
------- ------- ------- ------- -------- -------
Net investment income 0.04 0.02 0.06 0.04 0.03 0.02
Less dividends from
net investment income (0.04) (0.02) (0.06) (0.04) (0.03) (0.02)
------- ------- ------- ------- -------- -------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======== =======
Total return
(annualized)(3) 3.75% 2.44% 5.67% 3.70% 3.07% 3.61%
======= ======= ======= ======= ======== =======
Ratios/supplemental data:
Net assets, end of period
(in thousands) $ 7 $ 9,736 $47,184 $67,607 $136,813 $91,453
Ratios to average net
assets(4)(5)(6):
Expenses 0.35% 0.30% 0.32% 0.25% 0.23% 0.27%(7)
Net investment income 3.70% 2.38% 5.49% 3.44% 2.96% 3.46%(7)
</TABLE>
(1) The U.S. Treasury Money Market Fund commenced active operations on March 2,
1992 and the Municipal Money Market Fund commenced active operations on
November 10, 1993.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) Total returns for the Municipal Money Market Fund exclude management and
administrative services fees waived by the Manager. Had the Fund paid such
fees, total returns would have been 2.24% for the period ended October 31,
1994 and 3.54% for the year ended October 31, 1995.
(4) The method of determining average net assets was changed from a monthly
average to a daily average starting with the period ended October 31, 1994.
(5) Operating results for the Municipal Money Market Fund exclude management and
administrative services fees waived by the Manager. Had the Fund paid such
fees, the ratio of expenses and net investment income to average net assets
would have been 0.50% and 2.18%, respectively, for the period ended October
31, 1994 and 0.55% and 3.50%, respectively, for the period ended October 31,
1995.
(6) Annualized
(7) Estimated based on expected annual expenses and actual average net assets.
INTRODUCTION
The Trust is an open-end, management investment company organized as a
Massachusetts business trust on January 16, 1987. The Funds are separate
investment portfolios of the Trust. Each Fund has a distinctive investment
objective and
PROSPECTUS
10
<PAGE> 39
investment policies. Each Fund will invest all of its investable assets in a
corresponding Portfolio of the AMR Trust which has an identical investment
objective. The Manager provides the Portfolios with business and asset
management services, including the evaluation and monitoring of the investment
advisers, and it provides the Funds with administrative services. The Balanced
Fund, the Growth and Income Fund, the International Equity Fund and the
Limited-Term Income Fund (collectively, the "Variable NAV Funds") consist of
multiple classes of shares, including the "Institutional Class" which is
primarily for institutional investors investing at least $2 million in the Funds
and the "PlanAhead Class" which is available to all investors, including smaller
institutional investors, investors using intermediary organizations such as
discount brokers or plan sponsors, individual retirement accounts ("IRAs"), and
self-employed individual retirement plans ("HR-10 Plans" or "Keogh Plans"). The
Money Market Funds also consist of multiple classes of shares, including the
Institutional Class, the PlanAhead Class and the "Platinum Class" which is
available to customers of certain broker-dealers as an investment for cash
balances in their brokerage accounts. For further information about the
PlanAhead Class, call (800) 388-3344. For further information about the Platinum
Class, call (800) 967-9009.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(losses) earned (or incurred) by the Fund. It also will bear its proportionate
share of expenses that are allocated to the Fund as a whole. However, certain
expenses presently are allocated separately to each class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. Investment decisions for the
Limited-Term Income Portfolio and the Money Market Portfolios are made directly
by the Manager. See "Investment Advisers." Each investment adviser has
discretion to purchase and sell portfolio securities in accordance with the
investment objectives, policies and restrictions described in this Prospectus
and in the SAI and by specific investment strategies developed by the Manager.
Institutional Class shares of each Fund are sold without any sales charges
at their net asset value next determined after an investment is received and
accepted. Shares will be redeemed at the next share price calculated after
receipt of a redemption order. See "Purchase, Redemption and Valuation of
Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent
PROSPECTUS
11
<PAGE> 40
with the investment objective of the applicable Fund. However, each Fund's
investment objective may not be changed without a majority vote of that Fund's
outstanding shares, which is defined as the lesser of (a) 67% of the shares of
the applicable Fund present or represented if the holders of more than 50% of
the shares are present or represented at the shareholders' meeting, or (b) more
than 50% of the shares of the applicable Fund (hereinafter, "majority vote"). A
Portfolio's investment objective may not be changed without a majority vote of
that Portfolio's interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the Board.
AMERICAN AADVANTAGE BALANCED FUND -- This Fund's investment objective is to
realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating organizations ("Rating Organizations") rating that
security such as Standard & Poor's or Moody's Investor Services, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser. Obligations rated in the fourth highest rating
category are limited to 25% of the Portfolio's debt allocation. Obligations
rated in the BBB or Baa categories by any Rating Organization have speculative
characteristics and thus changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. See the SAI for a description
of debt ratings. The Portfolio, at the discretion of the investment advisers,
may retain a security that has been downgraded below the initial investment
criteria. The Portfolio usually invests between 50% and 65% of its assets in
equity securities and between 35% and 50% of its assets in debt securities. The
remainder of the Portfolio's assets may be invested in cash or cash equivalents,
including obligations that are permitted investments for the Money Market
Portfolio and in other investment companies. However, when its investment
advisers deem that market conditions warrant, the Portfolio may, for temporary
defensive purposes, invest up to 100% of its assets in cash, cash equivalents
and investment grade short-term obligations.
PROSPECTUS
12
<PAGE> 41
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government and its agencies and instrumentalities,
including separately traded registered interest and principal securities
("STRIPS") and other zero coupon obligations; corporate bonds, notes and
debentures; non-convertible preferred stocks; mortgage-backed securities;
asset-backed securities; and domestic, Yankeedollar and Eurodollar bank deposit
notes, certificates of deposit, bonds and notes. Such obligations may have a
fixed, variable or floating rate of interest. See the SAI for a further
description of the foregoing securities. The value of the Portfolio's debt
investments will vary in response to interest rate changes as described in
"American AAdvantage Limited-Term Income Fund."
The Portfolio also may engage in dollar rolls or purchase or sell
securities on a "when-issued" and on a "forward commitment" basis. The purchase
or sale of when-issued securities enables an investor to hedge against
anticipated changes in interest rates and prices by locking in an attractive
price or yield. The price of when-issued securities is fixed at the time the
commitment to purchase or sell is made, but delivery and payment for the
when-issued securities take place at a later date, normally one to two months
after the date of purchase. During the period between purchase and settlement,
no payment is made by the purchaser to the issuer and no interest accrues to the
purchaser. Such transactions therefore involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date or if the
value of the security to be sold increases prior to the settlement date. A sale
of a when-issued security also involves the risk that the other party will be
unable to settle the transaction. Dollar rolls are a type of forward commitment
transaction. Purchases and sales of securities on a forward commitment basis
involve a commitment to purchase or sell securities with payment and delivery to
take place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date.
The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts which are
traded in the United States on exchanges and in the over-the-counter market.
When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations. The Manager
believes that purchasing securities which the investment advisers believe are
undervalued in the market and that have above average growth potential will
outperform other investment styles over the longer term while minimizing
volatility and downside risk. The Manager will recommend that, with respect to
portfolio management of equity assets, the Trust retain only those investment
advisers who, in the Manager's opinion, utilize such an approach.
PROSPECTUS
13
<PAGE> 42
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; CAPITAL GUARDIAN TRUST COMPANY;
GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE INVESTMENT
ASSOCIATES, INC. currently manage the assets of the Balanced Portfolio. If
approved by a majority of the interest holders of the Balanced Portfolio at a
meeting of shareholders of the Balanced Fund and other investors in the Balanced
Portfolio to be held on or about March 26, 1996, Brandywine Asset Management,
Inc. ("Brandywine") and Boatmen's Trust Company ("Boatmen's") will be added as
investment advisers of the Portfolio. If approved, it is expected that on or
about April 1, 1996, Brandywine will replace Capital Guardian Trust Company
("Capital") as an active investment adviser of the Portfolio. The Manager does
not expect to allocate assets to Boatmen's at this time. See "Investment
Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME FUND -- This Fund's investment objective
is to realize long-term capital appreciation and current income. This Fund seeks
its investment objective by investing all of its investable assets in the Growth
and Income Portfolio, which invests primarily in equity securities. Excluding
collateral for securities loaned, ordinarily at least 80% of the Portfolio's
assets will be invested in equity securities consisting of common stocks,
preferred stocks, securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants, and foreign
equity securities that are represented by U.S. dollar-denominated American
Depository Receipts which are traded in the United States on exchanges and in
the over-the-counter market. When purchasing equity securities, primary emphasis
will be placed on undervalued securities with above average growth expectations.
In order to seek either above average current income or capital appreciation
when interest rates are expected to decline, the Portfolio may invest in debt
securities which, at the time of purchase, are rated in one of the four highest
rating categories by all Rating Organizations rating that security or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. See "American AAdvantage Balanced Fund"
for a description of the risks involved with these obligations. See the SAI for
definitions of the foregoing securities and for a description of debt ratings.
The Portfolio may also invest in other investment companies or in cash and cash
equivalents, including obligations that are permitted investments for the Money
Market Portfolio, in order to maintain liquidity. However, when its investment
advisers deem that market conditions warrant, the Portfolio may, for temporary
defensive purposes, invest up to 100% of its assets in cash, cash equivalents
and investment grade short-term obligations. In addition, the Portfolio may
purchase or sell securities on a "when-issued" and on a "forward commitment"
basis as described in "American AAdvantage Balanced Fund."
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; CAPITAL GUARDIAN TRUST COMPANY;
GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS and WILEY; and INDEPENDENCE INVESTMENT
ASSOCIATES, INC. currently manage the assets of the Growth and Income Portfolio.
If approved by a majority of the interest holders of the Growth and Income
PROSPECTUS
14
<PAGE> 43
Portfolio at a meeting of shareholders of the Growth and Income Fund and other
investors in the Growth and Income Portfolio to be held on or about March 26,
1996, Brandywine and Boatmen's will be added as investment advisers of the
Portfolio. If approved, it is expected that on or about April 1, 1996,
Brandywine will replace Capital as an active investment adviser of the
Portfolio. The Manager does not expect to allocate assets to Boatmen's at this
time. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries located outside the
United States. However, excluding collateral for securities loaned, the
Portfolio generally invests in excess of 80% of its assets in such securities.
The remainder of the Portfolio's assets will be invested in non-U.S. debt
securities which, at the time of purchase, are rated in one of the three highest
rating categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including obligations that are
permitted investments for the Money Market Portfolio or in other investment
companies. However, when its investment advisers deem that market conditions
warrant, the Portfolio may, for temporary defensive purposes, invest up to 100%
of its assets in cash, cash equivalents, other investment companies and
investment grade short-term obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or expropriation
of assets and the risk of war; (2) less liquidity and greater volatility of
foreign investments; (3) less public information regarding foreign companies;
(4) less government regulation and supervision of foreign stock exchanges,
brokers and listed companies; (5) lack of uniform accounting, auditing and
financial reporting standards; (6) delays in transaction settlement in some
foreign markets; (7) possibility of an imposition of confiscatory foreign taxes;
(8) possible limitation on the removal of securities or other assets of the
Portfolio; (9) restrictions on foreign investments and repatriation of capital;
(10) currency fluctuations; (11) cost and possible restrictions of currency
conversion; (12) withholding taxes on dividends in foreign countries; and (13)
possibly higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
PROSPECTUS
15
<PAGE> 44
The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity aspects of a particular country's
market and the investment climate for foreign investors. The current countries
in which the Portfolio may invest are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland
and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are derivatives, to hedge currency fluctuations of underlying
stock or bond positions, or in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC"). Forward contracts to sell foreign currency
may be used when the management of the Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar. Forward
contracts are also entered into to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures ("futures") for the same
reasons as for entering into forward contracts as set forth above. Futures are
traded on U.S. and foreign currency exchanges. The use of futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the futures contracts themselves. The
Portfolio may not enter into futures contracts if the purchase or sale of such
contract would cause the sum of the Portfolio's initial and any variation margin
deposits to exceed 5% of its total assets. Futures contracts, which are
derivatives, are discussed in greater detail in the SAI.
HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio. If approved by a majority of the interest
holders of the International Equity Portfolio at a meeting of shareholders of
the International Equity Fund and other investors in the International Equity
Portfolio to be held on or about March 26,
PROSPECTUS
16
<PAGE> 45
1996, Rowe Price-Fleming International, Inc. ("Fleming") will be added as an
investment adviser to the Portfolio. The Manager does not expect to allocate
assets to Fleming at this time. See "Investment Advisers."
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND -- This Fund's investment objective
is to realize income and capital appreciation. As an investment policy, the Fund
primarily seeks income and secondarily seeks capital appreciation. The Fund
seeks its investment objective by investing all of its investable assets in the
Limited-Term Income Portfolio, which invests primarily in debt obligations.
Permissible investments include securities of the U.S. Government and its
agencies and instrumentalities, including STRIPS and other zero coupon
obligations; corporate bonds, notes and debentures; non-convertible preferred
stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
obligations that are permitted investments for the Money Market Portfolio. Such
obligations may have a fixed, variable or floating rate of interest. At the time
of purchase, all such securities will be rated in one of the four highest rating
categories by all Rating Organizations rating such obligation or, if unrated,
will be deemed to be of comparable quality by the investment adviser.
Obligations rated in the fourth highest rating category are limited to 25% of
the Portfolio's total assets. See "American AAdvantage Balanced Fund" for a
description of the risks involved with these obligations. The Portfolio, at the
discretion of the Manager, may retain a security which has been downgraded below
the initial investment criteria. See the SAI for definitions of the foregoing
securities and for a description of debt ratings. Principal and/or interest
payments for obligations of the U.S. Government's agencies or instrumentalities
may or may not be backed by the full faith and credit of the U.S. Government.
Investments in Yankeedollar and Eurodollar bonds, notes and certificates of
deposit involve risks that differ from investments in securities of domestic
issuers. See "American AAdvantage Money Market Fund" for a description of these
risks. The Portfolio also may engage in dollar rolls, or purchase or sell
securities on a "when-issued" or "forward commitment" basis as described under
"American AAdvantage Balanced Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments
should not vary as much due to the periodic adjustments in their interest rates.
An adjustment which increases the interest rate of such securities should reduce
or eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made
PROSPECTUS
17
<PAGE> 46
monthly, in effect, "passing through" monthly payments made by the individual
borrowers on the mortgage loans which underlie the securities (net of fees paid
to the issuer or guarantor of the securities). Early repayment of principal on
mortgage pass-through securities (arising from prepayments of principal due to
sale of the underlying property, refinancing, or foreclosure, net of fees and
costs which may be incurred) may expose the Portfolio to a lower rate of return
upon reinvestment of principal. Also, if a security subject to prepayment has
been purchased at a premium, in the event of prepayment, the value of the
premium would be lost. Like other debt securities, when interest rates rise, the
value of mortgage-related securities generally will decline; however, when
interest rates decline, the value of mortgage-related securities with prepayment
features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans, automobile and credit card receivables, and other types of receivables or
other assets as well as purchase contracts, financing leases and sales
agreements entered into by municipalities, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's and the Portfolio's investment objective, policies
and quality standards, the Portfolio may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not
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usually contain the benefit of a complete security interest in the related
collateral. For example, credit card receivables generally are unsecured and the
debtors are entitled to the protection of a number of state and federal consumer
credit laws, some of which may reduce the ability to obtain full payment. In the
case of automobile receivables, due to various legal and economic factors,
proceeds from repossessed collateral may not always be sufficient to support
payments on the securities. The risks associated with asset-backed securities
are often reduced by the addition of credit enhancements such as a letter of
credit from a bank, excess collateral or a third-party guarantee.
Although investments will not be restricted by the maturity of the
securities purchased, under normal circumstances, the Portfolio will seek to
maintain a dollar-weighted average maturity of one to five years. However, the
dollar weighted average maturity may temporarily be adjusted outside the one to
five year period if warranted by market conditions. For example, the average
maturity of the Portfolio may be shortened in order to minimize depreciation of
capital if the investment adviser anticipates a rise in interest rates.
Conversely, the average maturity may be lengthened in order to maximize return
if interest rates are expected to decline. In addition, portfolio securities may
be actively traded to realize gains (or losses) and increase yields by taking
advantage of short-term market variations. Because the timing on return of
principal for both asset-backed and mortgage-backed securities is uncertain, in
calculating the average weighted maturity of the Portfolio, the maturity of
these securities may be based on certain industry conventions. The Manager
serves as the sole active investment adviser to the Limited-Term Income Fund and
its corresponding Portfolio.
MONEY MARKET FUNDS -- The investment objectives of the Money Market Funds are to
seek current income, liquidity and the maintenance of a stable $1.00 price per
share. The Money Market Funds seek to achieve these objectives by investing all
of their investable assets in the Money Market Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of the amortized cost valuation method.
Obligations in which the Money Market Portfolios invest generally have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain variable and floating rate obligations may bear longer
final maturities. The average dollar-weighted portfolio maturity of each Money
Market Portfolio will not exceed 90 days. The Manager serves as the sole
investment adviser to the Money Market Funds. See "Management and Administration
of the Trust."
AMERICAN AADVANTAGE MONEY MARKET FUND -- The Fund's corresponding Portfolio may
invest in obligations permitted to be purchased under Rule 2a-7 of the 1940 Act
including, but not limited to, (1) obligations of the U.S. Government or its
agencies or
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instrumentalities; (2) loan participation interests, medium-term notes, funding
agreements and asset-backed securities; (3) domestic, Yankeedollar and
Eurodollar certificates of deposit, time deposits, bankers' acceptances,
commercial paper, bearer deposit notes and other promissory notes, including
floating or variable rate obligations issued by U.S. or foreign bank holding
companies and their bank subsidiaries, branches and agencies; and (4) repurchase
agreements involving the obligations listed above. The Money Market Portfolio
will invest only in issuers or instruments that at the time of purchase (1) have
received the highest short-term rating by at least two Rating Organizations such
as "A-1" by Standard & Poor's and "P-1" by Moody's; (2) are single rated and
have received the highest short-term rating by a Rating Organization; or (3) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by the AMR Trust Board and subject to the ratification of
the AMR Trust Board. See the SAI for definitions of the foregoing instruments
and rating systems. The Portfolio also may purchase or sell securities on a
"when-issued" or a "forward commitment" basis as described in "American
AAdvantage Balanced Fund."
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the Portfolio will not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the
United States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
adversely affect the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest can
be recovered under a variable amount master demand note generally shall not
exceed seven days. To the extent this period is exceeded, the note in question
would be considered illiquid. Issuers of variable amount master demand notes
must satisfy the same criteria as set forth for other promissory notes (e.g.
commercial paper). The Portfolio will invest in variable amount master demand
notes only when such notes are determined by the Manager, pursuant to guidelines
established by the AMR Trust Board, to be of
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comparable quality to rated issuers or instruments eligible for investment by
the Portfolio. In determining average dollar weighted portfolio maturity, a
variable amount master demand note will be deemed to have a maturity equal to
the longer of the period of time remaining until the next readjustment of the
interest rate or the period of time remaining until the principal amount can be
recovered from the issuer on demand.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND -- The Fund's corresponding
Portfolio may invest in municipal obligations issued by or on behalf of the
governments of states, territories, or possessions of the United States; the
District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Fund"); (3) are guaranteed by one or more municipal bond insurance policies that
cannot be canceled and issued by third-party guarantors possessing the highest
claims-paying rating from a Rating Organization; (4) have received one of the
two highest short-term ratings from at least two Rating Organizations; (5) are
single rated and have received one of the two highest short-term ratings from
that Rating Organization; (6) have no short-term rating but the instrument is
comparable to the issuer's rated short-term debt; (7) have no short-term rating
(or comparable rating) but have received one of the top two long-term ratings
from all Rating Organizations rating the issuer or instrument; or (8) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by, and subject to the oversight of, the AMR Trust Board.
The Portfolio may also invest in other investment companies. Ordinarily at least
80% of the Portfolio's net assets will be invested in municipal obligations, the
interest from which is exempt from federal income tax. However, should market
conditions warrant, the Portfolio may invest up to 20% (or for temporary
defensive purposes, up to 100%) of its assets in obligations subject to federal
income tax which are eligible investments for the Money Market Portfolio.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government
PROSPECTUS
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or federal agency obligations, while others are insured by private insurance
companies, while still others may be supported by letters of credit furnished by
domestic or foreign banks. The Portfolio's investments in municipal obligations
may include fixed, variable, or floating rate general obligations and revenue
obligations (including municipal lease obligations and resource recovery
obligations); zero coupon and asset-backed obligations; variable rate auction
and residual interest obligations; tax, revenue, or bond anticipation notes;
tax-exempt commercial paper; and purchase obligations that are subject to
restrictions on resale. See the SAI for a further discussion of the foregoing
obligations. The Portfolio may purchase or sell obligations on a "when-issued"
or "forward commitment" basis, as described under "American AAdvantage Balanced
Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, the Manager
believes this risk is mitigated because it is anticipated that most of the
Portfolio's assets will be insured or backed by bank letters of credit.
Additionally, the Portfolio may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
non-governmental users.
The Portfolio may also invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in private
activity obligations without limitation and it is anticipated that a substantial
portion of the Portfolio's assets will be invested in these obligations. As a
result, a substantial portion of the Fund's distributions may be a tax
preference item, which will reduce the net return from the Fund for taxpayers
subject to the AMT. Interest on "qualified" private activity obligations is
exempt from federal income tax.
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND -- The Fund's corresponding
Portfolio will invest exclusively in obligations backed by the full faith and
credit of the U.S. Government and repurchase agreements which are collateralized
by U.S. Government full faith and credit obligations. Counterparties for
repurchase agreements must be approved by the AMR Trust Board. For this purpose,
U.S. Government
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Agency mortgage-backed securities collateralized exclusively by full faith and
credit GNMA mortgages are considered eligible. Ordinarily at least 65% of the
Portfolio's assets will be invested in direct U.S. Treasury obligations. Such
obligations may include STRIPS issued by the U.S. Treasury which represent
either future interest or principal payments. STRIPS are issued at a discount to
their "face value," and may exhibit greater price volatility than ordinary debt
securities because of the manner in which their principal and interest are
returned to investors. The Fund may also invest in other full faith and credit
obligations of the U.S. Government, including securities issued by the Agency
for International Development, General Services Administration, GNMA, Rural
Electrification Administration, Small Business Administration, Federal Financing
Bank and others. See the SAI for a further discussion of the foregoing
obligations. The Portfolio may purchase or sell securities on a "when-issued" or
a "forward commitment" basis as described under "American AAdvantage Balanced
Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
Each Portfolio may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. Government and its
agencies and instrumentalities and approved bank letters of credit that at all
times equal at least 100% of the market value of the loaned securities. Such
loans will not be made if, as a result, the aggregate amount of all outstanding
securities loans by any Portfolio would exceed 33 1/3% of its total assets. A
Portfolio continues to receive interest on the securities loaned and
simultaneously earns either interest on the investment of the cash collateral or
fee income if the loan is otherwise collateralized. However, a Portfolio
normally pays (including, in some cases, payments to the Manager) lending fees
and related expenses from this interest or fee income. Should the borrower of
the securities fail financially, there is a risk of delay in recovery of the
securities loaned or loss of rights in the collateral. However, the Portfolios
seek to minimize this risk by making loans only to borrowers which are deemed by
the Manager to be of good financial standing and which have been approved by the
AMR Trust Board. For purposes of complying with each Portfolio's investment
policies and restrictions, collateral received in connection with securities
loans will be deemed an asset of a Portfolio to the extent required by law. See
the SAI for further information regarding loan transactions.
A repurchase agreement is an agreement under which securities are acquired
by a Portfolio from a securities dealer or bank subject to resale at an agreed
upon price on a later date. The acquiring Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Portfolio is delayed or prevented from exercising its rights to dispose
of the collateral securities. However, the investment advisers or the Manager
attempt to minimize this risk by entering into repurchase agreements only with
financial institutions which are deemed to be of good
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financial standing and which have been approved by the AMR Trust Board. See the
SAI for more information regarding repurchase agreements.
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (the "Securities Act"), and resold to qualified
institutional buyers under Rule 144A of the Securities Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios, that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be pursuant to an exempt transaction and may be accomplished in
accordance with Rule 144A. Section 4(2) securities normally are resold to other
institutional investors such as the Portfolios through or with the assistance of
the issuer or dealers that make a market in the Section 4(2) securities, thus
providing liquidity. The Money Market Portfolios will not invest more than 10%
(and the Variable NAV Funds' respective Portfolios, no more than 15%) of their
respective net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by such Portfolio in excess of this
level are at all times liquid.
Because it is not possible to predict with assurance exactly how this
market for Section 4(2) securities offered and sold under Rule 144A will
develop, the AMR Trust Board and the applicable investment adviser, pursuant to
the guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolios' investments in these securities, focusing on such important factors,
among others, as: valuation, liquidity, and availability of information.
Investments in Section 4(2) securities could have the effect of reducing a
Portfolio's liquidity to the extent that qualified institutional buyers no
longer wish to purchase these restricted securities.
BROKERAGE PRACTICES -- Each investment adviser will place its own orders to
execute securities transactions which are designed to implement the applicable
Portfolio's investment objective and policies. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. No Portfolio,
other than the Limited-Term Income Portfolio, currently expects its portfolio
turnover rate to exceed 100%. The portfolio turnover rate for the Limited-Term
Income Fund for the fiscal year ended October 31, 1995 was 183%. High portfolio
activity increases a Portfolio's transaction costs, including brokerage
commissions and may result in a greater number of taxable transactions.
The Money Market Portfolios and the Limited-Term Income Portfolio normally
will not incur any brokerage commissions on their transactions because money
market and debt instruments are generally traded on a "net" basis with dealers
acting as
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principal for their own accounts without a stated commission. The price of the
obligation, however, usually includes a profit to the dealer. Obligations
purchased in underwritten offerings include a fixed amount of compensation to
the underwriter, generally referred to as the underwriter's concession or
discount. No commissions or discounts are paid when securities are purchased
directly from an issuer.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio. Historically, the Manager has sponsored traditionally structured
funds and, therefore, has limited experience with funds that invest all their
assets in a separate portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust. In addition to selling
their interests to the Funds, the Portfolios may sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio will pay a proportionate share of the
Portfolio's expenses and will invest in that Portfolio on the same terms and
conditions. However, if another investment company invests all of its assets in
a Portfolio, it would not be required to sell its shares at the same public
offering price as a Fund and would be allowed to charge different sales
commissions. Therefore, investors in a Fund may experience different returns
from investors in another investment company that invests exclusively in that
Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for that Fund and could affect adversely its liquidity.
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The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with a Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust and the AMR Trust, (3) brokerage practices,
(4) the Funds' shares, including the rights and liabilities of its shareholders,
(5) additional performance information, including the method used to calculate
yield and total return, and (6) the determination of the value of each Fund's
shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restrictions are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and the Board. The following fundamental investment restrictions may
be changed with respect to a particular Fund by the majority vote of that Fund's
outstanding shares or with respect to a Portfolio by the majority vote of that
Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Money Market Portfolio and the U.S. Treasury Money Market
Portfolio apply this restriction with respect to 100% of their assets.
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- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities or, with respect to the Money Market
Portfolio, the banking industry. Municipal governments and their agencies
and authorities are not deemed to be industries. Finance companies as a
group are not considered a single industry for purposes of this policy.
The following non-fundamental investment restrictions may be changed with
respect to a particular Fund by a vote of a majority of the Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board. No
Portfolio may:
- Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if more than 5% of the
Portfolio's total assets would be invested in such securities. This
limitation does not apply with regard to collateralized trust securities.
- Invest more than 15% (or, with respect to any Money Market Portfolio, 10%)
of its net assets in illiquid securities, including time deposits and
repurchase agreements that mature in more than seven days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
From time to time each class of the Money Market Funds may advertise their
"current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
current yield refers to the income generated by an investment over a seven
calendar-day period (which period will be stated in the advertisement). This
income is then annualized by assuming the amount of income generated by the
investment during that week is earned each week over a one-year period, and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by the investment is assumed
to be reinvested. The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed reinvestment. The
Municipal Money Market Fund may also quote "tax equivalent yields," which show
the taxable yields a shareholder would have to earn before federal income taxes
to equal this Fund's tax-exempt yields. The tax equivalent yield is calculated
by dividing the Fund's tax-exempt yield by the result of one minus a stated
federal income tax rate. If only a portion of the Fund's income was tax-exempt,
only that portion is adjusted in the calculation. As stated earlier, the Fund
considers interest on private activity obligations to be exempt from federal
income tax. Each class of a Fund has different expenses which will impact its
performance.
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Advertised yields for the Institutional and PlanAhead Classes of the
Variable NAV Funds will be computed by dividing the net investment income per
share earned by the applicable class during the relevant time period by the
maximum offering price per share for that class on the last day of the period.
Total return quotations advertised by the Funds may reflect the average annual
compounded (or aggregate compounded) rate of return during the designated time
period based on a hypothetical initial investment and the redeemable value of
that investment at the end of the period. Additionally, each class of the
Limited-Term Income Fund may advertise a "monthly distribution rate." This rate
is based on an annualized monthly dividend accrual rate per share compared with
the month-end share price of each class of this Fund. The Funds will at times
compare their performance to applicable published indices, and may also disclose
their performance as ranked by certain ranking entities. See the SAI for more
information about the calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs. The Manager provides or oversees all administrative,
investment advisory and portfolio management services for the Trust pursuant to
a Management Agreement dated April 3, 1987, as amended October 1, 1995, together
with the Administrative Services Agreement described below. The AMR Trust and
the Manager also entered into a Management Agreement dated October 1, 1995 that
obligates the Manager to provide or oversee all administrative, investment
advisory and portfolio management services for the AMR Trust. The Manager,
located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a
wholly-owned subsidiary of AMR Corporation ("AMR"), the parent company of
American Airlines, Inc., and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services.
The assets of the corresponding Portfolios of the Balanced Fund, the Growth and
Income Fund and the International Equity Fund are allocated by the Manager among
one or more investment advisers designated for that Fund. See "Investment
Advisers." The Manager serves as the sole investment adviser to the
corresponding Portfolios of the Limited-Term Income Fund and the Money Market
Funds. In addition, with the exception of the International Equity Fund, if so
requested by any investment adviser, the Manager will make the investment
decisions with respect to assets allocated to that investment adviser which the
investment adviser determines should be invested in short-term obligations of
the type permitted for investment by the Money Market Portfolios. As of December
31, 1995, the Manager had assets under management totaling approximately $13.7
billion including approximately $4.5 billion under active management and $9.2
billion as named fiduciary or fiduciary adviser. Of the total, approximately
$10.1 billion of assets are related to AMR. American Airlines, Inc. is not
responsible for investments made in the American AAdvantage Funds.
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The Manager provides the Trusts with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also develops the investment programs for each Portfolio, selects and
changes investment advisers (subject to approval by the AMR Trust Board and
appropriate interest holders), allocates assets among investment advisers,
monitors the investment advisers' investment programs and results, and
coordinates the investment activities of the investment advisers to ensure
compliance with regulatory restrictions.
The Manager bears the expense of providing the above services and pays the
fees of the investment advisers of the Funds and their Portfolios. As
compensation for paying the investment advisory fees and for providing the
Portfolios with advisory and asset allocation services, the Manager receives
from the AMR Trust an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.15% of the net assets of the Money Market
Portfolios, (2) 0.25% of the net assets of the Limited-Term Income Portfolio,
(3) 0.10% of the net assets of the other Portfolios, plus (4) all fees payable
by the Manager to the AMR Trust's investment advisers as described in
"Investment Advisers." The advisory fee is payable quarterly in arrears. To the
extent that a Fund invests all of its investable assets in its corresponding
Portfolio, the Manager will not receive an advisory fee under its Management
Agreement with the Trust. The Manager is compensated through the Administrative
Services Agreement as described below for other services provided.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the independent
Trustees of each Board who are not parties to the Management Agreement or
"interested persons" as defined in the 1940 Act of any such party ("Independent
Trustees"), cast in person at a meeting called for the purpose of considering
such approval, or by the vote of a Fund's shareholders or a Portfolio's interest
holders. A Management Agreement may be terminated with respect to a Fund or a
Portfolio at any time, without penalty, by a majority vote of outstanding Fund
shares or Portfolio interests on sixty (60) days' written notice to the Manager,
or by the Manager, on sixty (60) days' written notice to the Trust or the AMR
Trust. A Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities
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for the registration of shares; fees and expenses of Independent Trustees;
insurance and fidelity bond premiums; and any extraordinary expenses of a
nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
FUND ADVISORY AGREEMENTS -- Each investment adviser has entered into a separate
investment advisory agreement with the Manager to provide investment advisory
services to the Funds and their corresponding Portfolios. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
an investment adviser will receive an advisory fee only on behalf of the
Portfolio and not on behalf of its corresponding Fund. Except for the Money
Market Portfolios and the Limited-Term Income Portfolio, the assets of each
Portfolio are allocated among the investment advisers designated for that
Portfolio and described in this Prospectus in "Investment Advisers." All new
investment advisers are subject to approval by the Board and the AMR Trust Board
and are currently subject to approval by the shareholders/interest holders of
the applicable Fund or Portfolio. However, there is currently pending with the
Securities and Exchange Commission an application for an exemptive order which,
if granted, would permit the hiring of investment advisers and the modification
of the fund advisory agreements solely on the Boards' approval and without prior
approval of shareholders or interest holders. Should the exemptive order be
granted, a Portfolio may rely upon the order only if a majority of the
applicable Portfolio's interest holders approve such a motion to be presented at
a meeting of shareholders on or about March 26, 1996. The Manager recommends
investment advisers to the Board and the AMR Trust Board based upon its
continuing quantitative and qualitative evaluation of the investment advisers'
skill in managing assets using specific investment styles and strategies. The
allocation of assets among investment advisers may be changed at any time by the
Manager. Allocations among advisers will vary based upon a variety of factors,
including the overall investment performance of each investment adviser, the
Portfolio's cash flow needs and market conditions. The Manager need not allocate
assets to each investment adviser designated for a Portfolio. The investment
advisers can be terminated without penalty to the AMR Trust by the Manager, the
AMR Trust Board or the interest holders of the applicable Portfolio. Short-term
investment performance, by itself, is not a significant factor in selecting or
terminating an investment adviser, and the Manager does not expect to recommend
frequent changes of investment advisers. The Prospectus will be supplemented if
additional investment advisers are retained or the contract with any existing
investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board and the Manager, these parties do not
evaluate the investment merits of specific securities
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transactions. As compensation for its services, each investment adviser is paid
a fee by the Manager out of the proceeds of the management fee received by the
Manager from the AMR Trust.
ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. As compensation for
these services, the Manager receives an annualized fee of 0.25% of the net
assets of the Institutional Class of the Variable NAV Funds and 0.05% of the net
assets of the Institutional Class of the Money Market Funds. The fee is payable
quarterly in arrears.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas 75205, serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Portfolios and the Funds and as transfer agent for
the Institutional Class. THE CHASE MANHATTAN BANK N.A., New York, New York, acts
as subcustodian for the International Equity Portfolio.
INDEPENDENT AUDITOR -- The independent auditor for the Trust and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each Fund
and its corresponding Portfolio, except for the Money Market Funds and their
corresponding Portfolios, whose sole investment adviser is the Manager.
References to the investment advisers retained by a Portfolio also apply to the
corresponding Fund. Except for the Manager, none of the investment advisers
provides any services to the Funds or the Portfolios except for portfolio
investment management and related recordkeeping services, or has any affiliation
with the Trust, the AMR Trust or the Manager.
William F. Quinn has served as President of the Manager since it was
founded in 1986 and Nancy A. Eckl currently serves as Vice President-Trust
Investments of the Manager. She previously served as Vice President-Finance and
Compliance of the Manager from December 1990 to May 1995. In these capacities,
Mr. Quinn and Ms. Eckl have primary responsibility for the day-to-day operations
of the Balanced Fund, the Growth and Income Fund, the International Equity Fund
and their corresponding Portfolios. These responsibilities include oversight of
the investment
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advisers, regular review of each adviser's performance and asset allocations
among investment advisers.
Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and currently serves as Vice
President-Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President of Institutional Fixed Income Sales at
Merrill Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment advisory services since 1979. The firm is
wholly owned by United Asset Management Corporation, a Delaware corporation,
which owns forty-five investment management companies, including Barrow. As of
December 31, 1995, Barrow had discretionary investment management authority with
respect to approximately $16.3 billion of assets, including approximately $1.4
billion of assets of AMR and its subsidiaries and affiliated entities. Barrow
serves as an investment adviser to the Balanced Portfolio, the Growth and Income
Portfolio and the Limited-Term Income Portfolio, although the Manager does not
presently intend to allocate any of the assets in the Limited-Term Income
Portfolio to Barrow. The Manager pays Barrow an annualized fee equal to .30% on
the first $200 million in AMR Trust assets under its discretionary management,
.20% on the next $300 million, .15% on the next $500 million, and .125% on
assets over $1 billion.
BRANDYWINE ASSET MANAGEMENT, INC., 201 North Walnut Street, Wilmington,
Delaware 19801, is a privately held professional investment counseling firm
founded in 1986. As of December 31, 1995, Brandywine had assets under management
totaling approximately $4.7 billion, including approximately $124 million of
assets of AMR and its subsidiaries and affiliated entities. If approved by
interest holders of the Balanced Portfolio and the Growth and Income Portfolio
at a meeting of shareholders and other investors of the Portfolios to be held on
or about March 26, 1996, Brandywine will serve as an investment adviser to those
Portfolios. For its services to the Balanced Portfolio and the Growth and Income
Portfolio, the Manager will pay Brandywine an annualized fee equal to .225% and
.25%, respectively, of the average daily net assets of each Portfolio allocated
to Brandywine for management.
BOATMEN'S TRUST COMPANY, 100 N. Broadway, St. Louis, Missouri 63178, is a
professional trust and investment advisory firm founded in 1889 and has been
providing investment services since the 1930s. Boatmen's is a wholly owned
subsidiary of Boatmen's Bancshares, Inc. As of December 31, 1995, Boatmen's had
assets under
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management totaling approximately $45 billion, including approximately $140
million of assets of AMR and its subsidiaries and affiliated entities. If
approved by interest holders of the Balanced Portfolio and the Growth and Income
Portfolio at a meeting of shareholders and other investors of the Portfolios to
be held on or about March 26, 1996, Boatmen's will serve as an investment
adviser to those Portfolios, although the Manager does not presently intend to
allocate assets to Boatmen's. For its services to the Balanced Portfolio and the
Growth and Income Portfolio, the Manager will pay Boatmen's an annualized fee
equal to .25% of the average daily net assets of each Portfolio allocated to
Boatmen's for management.
CAPITAL GUARDIAN TRUST COMPANY, 333 South Hope Street, Los Angeles,
California 90071, is a California state chartered trust company which was formed
in 1968. The firm is a wholly owned subsidiary of The Capital Group, Inc., a
company whose subsidiaries provide investment management and related financial
services. Capital managed approximately $49.5 billion in assets as of December
31, 1995, which included approximately $684 million of assets of AMR and its
subsidiaries and affiliated entities. Capital serves as an investment adviser to
the Balanced Portfolio, the Growth and Income Portfolio and the Limited-Term
Income Portfolio, although the Manager does not presently intend to allocate any
of the assets in the Limited-Term Income Portfolio to Capital. If Brandywine is
approved as an investment adviser to the Balanced Portfolio and the Growth and
Income Portfolio, the Manager intends to allocate a portion of the assets
managed by Capital to Brandywine. The Manager pays Capital an annualized fee
equal to .50% of the first $20 million of AMR Trust assets under its
discretionary management, .35% of the next $30 million of assets, and .225% of
all excess assets for the Growth and Income Portfolio and .20% of all excess
assets for the Balanced Portfolio. However, a 5% fee reduction applies to assets
between $500 million and $750 million, a 7.5% fee reduction on assets between
$750 million and $1 billion and a 10% fee reduction on assets over $1 billion.
The reduction is applied to the overall effective fee rate for all assets
managed by Capital.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation, which owns
forty-five investment management companies, including GSB. As of December 31,
1995, GSB managed approximately $2.9 billion of assets, including approximately
$611 million of assets of AMR and its subsidiaries and affiliated entities. GSB
serves as an investment adviser to the Balanced Portfolio and the Growth and
Income Portfolio. The Manager pays GSB an annualized fee equal to .30% of the
first $100 million in AMR Trust assets under its discretionary management, .25%
of the next $100 million, .20% of the next $100 million, and .15% on all excess
assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley, who are the firm's founding
General Partners.
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Assets under management as of December 31, 1995 were approximately $9.0 billion,
which included approximately $988 million of assets of AMR and its subsidiaries
and affiliated entities. Hotchkis and Wiley serves as an investment adviser to
the Balanced Portfolio, the Growth and Income Portfolio and the International
Equity Portfolio. The advisory contract provides for the Manager to pay Hotchkis
and Wiley an annualized fee equal to .60% of the first $10 million of assets
under its discretionary management, .50% of the next $140 million of assets,
.30% on the next $50 million of assets and .20% of all excess AMR Trust assets
managed by Hotchkis and Wiley.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1995,
including funds managed for its parent company, were approximately $21.4
billion, which included approximately $820 million of assets of AMR and its
subsidiaries and affiliated entities. IIA serves as an investment adviser to the
Balanced Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets, and .20%
of all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 1221 Avenue of the Americas,
New York, New York 10020, is a wholly owned subsidiary of Morgan Stanley Group
Inc. MSAM provides portfolio management and named fiduciary services to taxable
and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. As of
September 30, 1995, MSAM had assets under management totaling approximately
$55.2 billion, including approximately $40.1 billion under active management and
$15.1 billion as named fiduciary or fiduciary adviser. As of December 31, 1995,
MSAM had investment authority over approximately $404 million of assets of AMR
and its subsidiaries and affiliated entities. MSAM serves as an investment
adviser to the International Equity Portfolio. For this service, the Manager
pays MSAM an annual fee equal to .80% of the first $25 million in AMR Trust
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% on all excess assets.
ROWE PRICE-FLEMING INTERNATIONAL, INC., 100 East Pratt Street, Baltimore,
Maryland 21202, is a professional investment counseling firm founded in 1979.
Fleming is a joint venture owned entirely by its three parent companies, T. Rowe
Price, Robert Fleming and Jardine Fleming. As of December 31, 1995, Fleming had
assets under management totaling approximately $22.2 billion, including
approximately $197 million of assets of AMR and its subsidiaries and affiliated
entities. If approved by interest holders of the International Equity Portfolio
at a meeting of shareholders and other investors of the Portfolio to be held on
or about March 26, 1996, Fleming will serve as an investment adviser of the
Portfolio, although the Manager does not presently intend to allocate assets to
Fleming. For its services to the International
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Equity Portfolio when total assets under Fleming's management are less than $200
million, the Manager will pay Fleming an annualized fee equal to 0.75% of the
first $20 million, 0.60% of the next $30 million and 0.50% on amounts over $50
million. When assets under Fleming's management exceed $200 million but are less
than $500 million, the Manager will pay Fleming an annualized fee equal to 0.50%
on all assets. When assets under Fleming's management exceed $500 million but
are less than $750 million, the Manager will pay an annualized fee equal to
0.45% on all assets, and when assets exceed $750 million, the Manager will pay
Fleming a flat fee of 0.40% on all assets. When asset levels are between $184
million and $200 million, Fleming will pay the Manager a sliding credit to
adjust for the difference between the two fee schedules. The credit is
determined by pro-rating the difference between the original tiered fee and the
flat fee ($80,000 per annum at all asset levels) over the difference between
$200 million and the current asset size for billing purposes.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1995, Templeton had discretionary investment management authority with respect
to approximately $14.4 billion of assets, including approximately $288 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. For this
service, the Manager pays Templeton an annualized fee equal to .50% of the first
$100 million in AMR Trust assets under its discretionary management, .35% of the
next $50 million in assets, .30% of the next $250 million in assets and .25% on
assets over $400 million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser (except assets managed by
Barrow under the HALO Bond Program). For the purpose of determining the
applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the applicable Portfolio.
PURCHASE, REDEMPTION AND VALUATION OF SHARES
PURCHASING SHARES OF THE TRUST -- Institutional Class shares are offered without
a sales charge to institutions -- including bank trust departments acting on
behalf of their clients (such as employee benefit plans, personal trusts and
other accounts for which the bank acts as agent or fiduciary); endowment funds
and charitable foundations; employee welfare plans which are tax-exempt under
Section 501(c)(9) of the Internal Revenue Code of 1986, as amended ("Code");
qualified pension and profit sharing
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plans, and cash or deferred arrangements under Section 401(k) of the Code;
corporations; and others who make an initial investment of at least $2 million.
However, the Manager may waive this minimum investment requirement. In addition,
investors with less than $2 million currently can invest in the Funds indirectly
through certain institutions which may charge the investor an additional fee for
their services.
Trust shares are sold without a sales charge at the net asset value next
determined after the acceptance of a purchase order. Shares of the Variable NAV
Funds are offered and purchase orders accepted until 4:00 p.m. Eastern time on
each day on which the New York Stock Exchange (the "Exchange") is open for
trading and the custodian/transfer agent is open for business ("Business Day").
Shares of the Money Market Fund are offered and orders accepted until 3:00 p.m.
Eastern time on each day on which the Federal Reserve and the custodian/transfer
agent are open for business ("Money Market Business Day"). Shares are offered
and orders are accepted for the Municipal Money Market Fund until 12:00 p.m.
Eastern time and for the U.S. Treasury Money Market Fund until 12:30 p.m.
Eastern time on each Money Market Business Day. The Trust reserves the right to
reject any order for the purchase of shares and to limit or suspend, without
prior notice, the offering of shares.
Institutional Class shares may be purchased and redeemed as follows:
BY WIRE -- Purchases may be made by wiring funds. If opening a new account, an
investor should first forward a completed new account application to the Manager
at P.O. Box 619003, MD 5645, DFW Airport, TX 75261-9003 or by facsimile to (817)
967-0768. To ensure prompt receipt of a transmission by wire, the investor
should: telephone the transfer agent at (214) 508-5038 or (800) 658-5811 and
specify the Fund whose shares are to be purchased; provide the name, address,
telephone number and account number of the investor; and identify the amount
being wired and by which bank. The transfer agent will provide the investor with
an account number. The investor should instruct its bank to designate the
account number and transmit the federal funds to: Federal Reserve Bank, Dallas,
for NationsBank of Texas, N.A. ABA Routing #111-000-025, Corporate Trust
Suspense Account No. 0180019810, reference American AAdvantage Funds, attention:
Fund Account Services.
BY DEPOSITING SECURITIES -- Shares of a Fund may be purchased in exchange for an
investor's securities if the securities are acceptable to that Fund's
corresponding Portfolio and satisfy applicable investment objectives and
policies. Investors interested in exchanging securities must first contact the
Manager and acquire instructions regarding submission of a written description
of the securities which the investor wishes to exchange. The investor must
represent that all such securities offered to any Fund are not subject to any
sale restrictions. Within five business days after receipt of the written
description, the Manager will advise the investor whether the securities to be
exchanged are acceptable. There is no charge for this review by the Manager.
Securities accepted by a Fund must have a readily ascertainable value as
evidenced by a listing on the Exchange, American Stock Exchange or Nasdaq.
Securities are valued in
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the manner described for valuing Portfolio assets in the section entitled
"Valuation of Shares." Acceptance of such orders may occur on any day during the
five-day period afforded the Manager to review the acceptability of the
securities. Upon notice of acceptance of such orders, the securities must be
delivered in fully negotiable form within three days. The Manager will provide
delivery instructions at the time of acceptance. A gain or loss for federal
income tax purposes may be realized by the investor upon the securities
exchange, depending upon the adjusted tax basis and value of the securities
tendered. A Fund will accept securities in this manner only for purposes of
investment by its corresponding Portfolio, and not for resale.
BY MAIL -- Share purchases of any Fund may be made by mail by sending a check or
other negotiable bank draft payable to the applicable Fund to "NationsBank of
Texas, N.A., 11th Floor, Elm Place, P.O. Box 830840, Dallas, Texas 75283-0840,
Attn.: American AAdvantage Funds -- Institutional Class." An additional purchase
of shares should be accompanied by the shareholder's account number. Purchase
checks are accepted subject to collection at full face value in U.S. funds and
must be drawn in U.S. dollars on a U.S. bank.
REDEMPTION OF SHARES -- Variable NAV Fund shares may be redeemed on any Business
Day by writing directly to NationsBank of Texas, N.A. at the address above under
"Purchasing Shares of the Trust -- By Mail." Shares of the Money Market Funds
may be redeemed on any Money Market Business Day by writing to the same address.
The redemption price will be the net asset value per share next determined after
receipt by NationsBank of Texas, N.A. of all required documents in good order.
"Good order" means that the request must include a letter of instruction or
stock assignment specifying the number of shares or dollar amount to be
redeemed, signed by an authorized signatory for the owners of the shares in the
exact names in which they appear on the account, and accompanied by such other
supporting legal documents, if required, in the case of estates, trusts,
guardianships, custodians, corporations, IRAs and welfare, pension and
profit-sharing plans. In addition, any share certificates being redeemed must be
returned duly endorsed or accompanied by a stock assignment with signatures
guaranteed by a bank, trust company or member of a recognized stock exchange.
Payment for redeemed shares will be made in cash within seven days after
the receipt of a redemption request in good order. However, the Fund reserves
the right to suspend redemptions or postpone the date of payment (a) for any
periods during which the Exchange is closed (other than for customary weekend
and holiday closings), or when trading on the Exchange is restricted, (b) at
such time as an emergency exists as determined by the Securities and Exchange
Commission so that disposal of a Fund's investments or determination of its net
asset value is not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit for protection of the
Funds' shareholders. Shares purchased by check may not be redeemed until the
funds have cleared, which may take up to 15 days. Although the
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Funds intend to redeem shares in cash, each Fund reserves the right to pay the
redemption price in whole or in part by a distribution of readily marketable
securities held by the applicable Fund's corresponding Portfolio. See the SAI
for further information concerning redemptions in kind.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Money Market Fund generally will be paid at the
time of redemption.
DISTRIBUTION OF TRUST SHARES -- Shares are distributed through the Funds'
principal underwriter, BTS. BTS is compensated by the Manager, and not the
Trust. The Trust does not incur any direct distribution expenses other than
those related to Platinum Class shares. However, the Trust has adopted a
Distribution Plan in accordance with Rule 12b-1 under the 1940 Act which
authorizes the use of any fees received by the Manager in accordance with the
Administrative Services and Management Agreements and any fees received by the
investment advisers pursuant to their Advisory Agreements with the Manager, to
be used for distribution purposes.
VALUATION OF SHARES -- The net asset value of each share (share price) of the
Variable NAV Funds is determined as of 4:00 p.m. Eastern time on each Business
Day and the net asset value of each share of the Money Market Funds is
determined as of 4:00 p.m. Eastern time on each Money Market Business Day. The
net asset value of shares of the Institutional Class will be determined based on
a pro rata allocation of the value of the Fund's corresponding Portfolio's
investment income, expenses and total capital gains and losses. The allocation
will be based on comparative net asset value at the beginning of the day except
for expenses related solely to one class of shares ("Class Expenses") which will
be borne only by the appropriate class of shares. Because of the Class Expenses,
the net income attributable to and the dividends payable for each class of
shares may be different. Additionally, the Variable NAV Funds may compute
differing share prices as a result of Class Expenses.
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the Board. Over-the-counter equity securities are valued on the basis of the
last bid price
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on that date prior to the close of trading. Debt securities (other than
short-term securities) will normally 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 AMR Trust Board. Assets and liabilities denominated
in foreign currencies and forward currency contracts are translated into U.S.
dollar equivalents based on prevailing market rates. Portfolio obligations held
by the Money Market Portfolios are valued in accordance with the amortized cost
method, which is designed to enable those Portfolios and their corresponding
Funds to maintain a consistent $1.00 per share net asset value. Investment grade
short-term obligations with 60 days or less to maturity held by all other
Portfolios also are valued using the amortized cost method as described in the
SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and other distributions
paid on each class of a Fund's shares are calculated at the same time and in the
same manner. Dividends from the net investment income of the Balanced Fund, the
Growth and Income Fund and the International Equity Fund normally are declared
annually. Dividends consisting of substantially all of the net investment income
of the Limited-Term Income Fund, which are paid monthly, normally are declared
on each Business Day immediately prior to the determination of the net asset
value and are payable to shareholders of record as of the opening of business on
the day on which declared. A Fund's net investment income attributable to the
Institutional Class will consist of that class's pro rata share of the Fund's
share of dividends and interest (including discount) accrued on the securities
held by its corresponding Portfolio, less applicable expenses of the Fund and
the Portfolio attributable to the Institutional Class. Distributions of a Fund's
share of its corresponding Portfolio's realized net short-term capital gain, net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), and net gains from foreign currency transactions, if any,
normally will be made annually.
All of each Money Market Fund's net investment income and net short-term
capital gain, if any, generally is declared as dividends on each Money Market
Business Day immediately prior to the determination of the net asset value.
Dividends generally will be paid on the first Money Market Business Day of the
following month. Each Money Market Fund's net investment income attributable to
the Institutional Class will consist of that class' pro rata share of the Fund's
share of interest accrued and discount earned on its corresponding Portfolio's
securities, less amortization of premium and estimated expenses of both the
Portfolio and the Fund attributable to the Institutional Class. The Money Market
Portfolios do not expect to realize net
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capital gain and, therefore, the Money Market Funds do not foresee paying any
capital gain distributions. If any Money Market Fund (either directly or
indirectly through its corresponding Portfolio) incurred or anticipated any
unusual expenses, loss or depreciation that would adversely affect its net asset
value or income for a particular period, the Board would at that time consider
whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's Institutional Class shares will be
automatically declared and paid in additional Institutional Class shares of that
Fund. However, a shareholder may choose to have distributions of net capital
gain paid in shares and dividends paid in cash or to have all such distributions
and dividends paid in cash. An election may be changed at any time by delivering
written notice that is received by the transfer agent at least ten days prior to
the payment date for a dividend or other distribution.
TAX INFORMATION -- Each Fund is treated as a separate corporation for federal
income tax purposes and intends to continue to qualify for treatment as a
regulated investment company under the Code. In each taxable year that a Fund so
qualifies, the Fund (but not its shareholders) will be relieved of federal
income tax on that part of its investment company taxable income (generally, net
investment income plus any net short-term capital gain and gains from certain
foreign currency transactions) and net capital gain that it distributes to its
shareholders. However, a Fund will be subject to a nondeductible 4% excise tax
to the extent that it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that calendar year and its capital
gain net income for the one-year period ending on October 31 of that year, plus
certain other amounts. For these and other purposes, dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if they are paid by the Fund during the following
January. Each Portfolio received a ruling from the Internal Revenue Service that
it is classified for federal income tax purposes as a partnership; accordingly,
no Portfolio is subject to federal income tax.
Dividends from a Fund's investment company taxable income will be taxable
to its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Fund shares.
Distributions of a Fund's net capital gain (whether received in cash or paid in
additional Fund shares), when designated as such, generally will be taxable to
its shareholders as long-term capital gain, regardless of how long they have
held their Fund shares. A capital gain distribution from a Fund also may be
offset by capital losses from other sources.
Some foreign countries may impose withholding taxes on certain dividends
payable to the International Equity Portfolio. The International Equity Fund's
share of any such tax withheld may either be treated by that Fund as a deduction
or, if it
PROSPECTUS
40
<PAGE> 69
satisfies certain requirements, it may elect to flow the tax through to its
shareholders, who in turn may either treat it as a deduction or use it in
calculating a credit against their federal income tax.
A portion of the income dividends paid by the Balanced Fund and the Growth
and Income Fund is eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the respective Fund's
aggregate dividends received from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends-received
deduction may be subject indirectly to the AMT. The International Equity Fund's
dividends will most likely not qualify for the dividends-received deduction
because none of the dividends received by that Fund are expected to be paid by
U.S. corporations.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns taxable income from
any of its investments, the Municipal Money Market Fund's share of income will
be distributed to its shareholders as a taxable dividend. To the extent that
Portfolio invests in private activity obligations, that Fund's shareholders will
be required to treat a portion of its dividends as a "tax preference item" in
determining their liability for the AMT. Exempt-interest dividends also may be
subject to tax under state and local tax laws. Because some states exempt from
tax the interest on their own obligations and obligations of governmental
agencies and municipalities in the state, shareholders will receive tax
information each year regarding the Municipal Money Market Fund's
exempt-interest income by state. Interest on indebtedness incurred or continued
by a shareholder to purchase or carry shares of that Fund is not deductible.
Redemption of Fund shares (other than shares of the Money Market Funds) may
result in taxable gain or loss to the redeeming shareholder, depending upon
whether the fair market value of the redemption proceeds exceeds or is less than
the shareholder's adjusted basis for the redeemed shares. If shares of a Fund
are redeemed at a loss after being held for six months or less, the loss will be
treated as long-term, instead of short-term, capital loss to the extent of any
capital gain distributions received on those shares.
If shares are purchased shortly before the record date for a dividend
(other than an exempt-interest dividend) or other distribution, the investor
will pay full price for the shares and receive some portion of the price back as
a taxable distribution.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
(and for the International Equity Fund, if it satisfies the requirements and
makes the election referred to above, their share of that Fund's share of any
foreign taxes paid by the International Equity Portfolio) that year and of any
portion of those dividends that qualifies for the corporate dividends-received
deduction. The notice sent by the Municipal Money Market Fund specifies the
amounts of exempt-interest dividends
PROSPECTUS
41
<PAGE> 70
(and the portion thereof, if any, that is a tax preference item for purposes of
the AMT) and any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends, and, for
all Funds other than the Money Market Funds, capital gain distributions and
redemption proceeds payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer identification
number or (except with respect to redemption proceeds) who otherwise are subject
to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Trust.
For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of eight separate investment portfolios. Each
Fund is comprised of three classes of shares, which can be issued in an
unlimited number. Each share represents an equal proportionate beneficial
interest in that Fund and is entitled to one vote. Only shares of a particular
class may vote on matters affecting that class. Only shares of a particular Fund
may vote on matters affecting that Fund. All shares of the Trust vote on matters
affecting the Trust as a whole. Share voting rights are not cumulative, and
shares have no preemptive or conversion rights. Shares of the Trust are
nontransferable.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the Portfolio's report to shareholders will be provided to
the shareholders of its corresponding Fund.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
PROSPECTUS
42
<PAGE> 71
As more fully described in the SAI, the following persons may be deemed to
control certain Funds by virtue of their ownership of more than 25% of the
outstanding shares of a Fund as of January 31, 1996:
AMERICAN AADVANTAGE BALANCED FUND
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 68%
AMERICAN AADVANTAGE GROWTH AND INCOME FUND
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 90%
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 88%
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
Retirement Advisors of America, Inc. 40%
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 36%
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
Southwest Securities, Inc. 99%
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND
Southwest Securities, Inc. 74%
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Trust
will be audited by Ernst & Young LLP, independent auditor, at least annually.
Shareholder inquiries and requests for information regarding the other
investment companies which also invest in the AMR Trust should be made in
writing to the Funds at P.O. Box 619003, MD 5645, Dallas/Fort Worth Airport,
Texas 75261-9003, or by calling (800) 388-3344.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY INSTITUTIONAL CLASS SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
PlanAhead Class, Platinum Class, American AAdvantage Balanced Fund, American
AAdvantage Growth and Income Fund, American AAdvantage International Equity
Fund, American AAdvantage Limited-Term Income Fund, American AAdvantage Money
Market Fund, American AAdvantage Municipal Money Market Fund, American
AAdvantage U.S. Treasury Money Market Fund are service marks of AMR Investment
Services, Inc.
PROSPECTUS
43
<PAGE> 72
[LOGO]
- Institutional Class -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- PlanAhead Class -(SM)
P.O. Box 4580
Chicago, Illinois 60680-4580
(800) 388-3344
- Platinum Class -(SM)
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
<PAGE> 73
THIS PROSPECTUS contains important information about the PlanAhead Class of the
AMERICAN AADVANTAGE FUNDS ("Trust"), an open-end management investment company
which consists of multiple investment portfolios. This prospectus pertains only
to the seven funds listed on this cover page (individually referred to as a
"Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING
PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND, COLLECTIVELY,
"PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST") WHICH HAS AN
INVESTMENT OBJECTIVE IDENTICAL TO THAT FUND. The investment experience of each
Fund will correspond directly with the investment experience of each Portfolio.
Each Fund consists of multiple classes of shares designed to meet the needs of
different groups of investors. PlanAhead Class shares are available to all
investors, including smaller institutional investors, investors using
intermediary organizations such as discount brokers or plan sponsors,
individual retirement accounts, and self-employed individual retirement plans.
Investors should read this Prospectus carefully before making an investment
decision and retain it for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1996 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 800-423-7526. For
further information about the PlanAhead Class or for information on the other
classes of shares, please refer to the appropriate address and phone number on
the back cover of this Prospectus.
AN INVESTMENT IN THE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE TO
MAINTAIN A STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
MARCH 1, 1996
[LOGO]
AMERICAN
AAdvantage
Funds(R)
- -PlanAhead Class-(SM)
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. TREASURY MONEY MARKET FUND
<PAGE> 74
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
The AMERICAN AADVANTAGE MONEY MARKET FUND(SM) ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND(SM) ("U.S. Treasury Money
Market Fund") (collectively, the "Money Market Funds") each seeks current
income, liquidity, and the maintenance of a stable price per share of $1.00 by
investing all of its investable assets in the Money Market Portfolio of the AMR
Trust ("Money Market Portfolio"), the Municipal Money Market Portfolio of the
AMR Trust ("Municipal Money Market Portfolio") and the U.S. Treasury Money
Market Portfolio of the AMR Trust ("U.S. Treasury Money Market Portfolio"),
respectively (collectively the "Money Market Portfolios"), which in turn invest
in high quality, short-term obligations. The Municipal Money Market Portfolio
invests primarily in municipal obligations and the U.S. Treasury Money Market
Portfolio invests exclusively in obligations backed by the full faith and credit
of the U.S. Government and in repurchase agreements that are collateralized by
U.S. Government full faith and credit obligations.
Under a Hub and Spoke(R)(1) operating structure, each Fund seeks its
investment objective by investing all of its investable assets in a
corresponding Portfolio as described above. Each Portfolio's investment
objective is identical to that of its corresponding Fund. Whenever the phrase
"all of the Fund's investable assets" is used, it means that the only investment
securities that will be held by a Fund will be that Fund's interest in its
corresponding Portfolio. AMR Investment Services, Inc. ("Manager") provides
investment management and administrative services to the Portfolios and
administrative services to the Funds. This Hub and Spoke operating structure is
different from that of many other investment companies which directly
- ---------------
(1) Hub and Spoke is a registered service mark of Signature Financial Group,
Inc.
PROSPECTUS
2
<PAGE> 75
acquire and manage their own portfolios of securities. Accordingly, investors
should carefully consider this investment approach. See "Investment Objectives,
Policies and Risks -- Additional Information About the Portfolios." A Fund may
withdraw its investment in a corresponding Portfolio at any time if the Trust's
Board of Trustees ("Board") determines that it would be in the best interest of
that Fund and its shareholders to do so. Upon any such withdrawal, that Fund's
assets would be invested in accordance with the investment policies and
restrictions described in this Prospectus and the SAI.
<TABLE>
<S> <C>
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES... 3
FINANCIAL HIGHLIGHTS......... 4
INTRODUCTION................. 11
INVESTMENT OBJECTIVES,
POLICIES AND RISKS......... 12
INVESTMENT RESTRICTIONS...... 27
YIELDS AND TOTAL RETURNS..... 28
MANAGEMENT AND ADMINISTRATION
OF THE TRUST............... 28
INVESTMENT ADVISERS.......... 32
HOW TO PURCHASE SHARES....... 37
HOW TO REDEEM SHARES......... 38
RETIREMENT ACCOUNTS.......... 40
EXCHANGE PRIVILEGE........... 41
DISTRIBUTION OF TRUST
SHARES..................... 41
VALUATION OF SHARES.......... 41
DIVIDENDS, OTHER
DISTRIBUTIONS AND TAX
MATTERS.................... 42
GENERAL INFORMATION.......... 45
SHAREHOLDER COMMUNICATIONS... 47
</TABLE>
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
U.S.
GROWTH INTER- LIMITED- MUNICIPAL TREASURY
AND NATIONAL TERM MONEY MONEY MONEY
BALANCED INCOME EQUITY INCOME MARKET MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees(1) 0.28% 0.28% 0.43% 0.20% 0.15% 0.15% 0.15%
12b-1 Fees 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses (after fee waivers)(2) 0.71 0.71 0.80 0.65 0.40 0.53 0.45
---- --- ---- ---- --- ---- ----
Total Operating Expenses (after fee
waivers)(3) 0.99% 0.99% 1.23% 0.85% 0.55% 0.68% 0.60%
==== ==== ==== ==== ==== ==== ====
</TABLE>
(1) The "Management Fee" represents those investment advisory fees paid to the
Manager and the investment advisers.
(2) "Other Expenses" before fee waivers are estimated to be 0.75% for the
Balanced Fund and the Growth and Income Fund, 0.78% for the Limited-Term
Income Fund and 0.68% for the Municipal Money Market Fund.
(3) "Total Operating Expenses" before fee waivers are estimated to be 1.03% for
the Balanced Fund and the Growth and Income Fund, 0.98% for the Limited-Term
Income Fund and 0.83% for the Municipal Money Market Fund.
The Board believes that the aggregate per share expenses of each Fund and
its corresponding Portfolio will be approximately equal to the expenses that the
Fund would incur if its assets were invested directly in the type of securities
held by the Portfolio.
PROSPECTUS
3
<PAGE> 76
EXAMPLES
A PlanAhead Class investor in each Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Balanced Fund $10 $32 $55 $ 121
Growth and Income Fund 10 32 55 121
International Equity Fund 13 39 68 149
Limited-Term Income Fund 9 27 47 105
Money Market Fund 6 18 31 69
Municipal Money Market Fund 7 22 38 85
U.S. Treasury Money Market Fund 6 19 33 75
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the PlanAhead Class of a Fund. Additional
information may be found under "Management and Administration of the Trust" and
"Investment Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditors. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge.
PROSPECTUS
4
<PAGE> 77
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BALANCED FUND
----------------------------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
-------------------------- ---------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, ---------------------------------------------------------------------------
1995(4)(5) 1994(1)(3) 1994(3) 1993 1992 1991 1990(2) 1989 1988
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.35 $12.35 $13.23 $11.99 $11.60 $9.87 $11.05 $10.13 $9.08
------ ------ ------ ------ ------ ----- ------ ------ -----
Income from
investment
operations:
Net investment
income 0.54 0.12 0.57 0.49 0.55 0.58 0.57 0.53 0.56
Net gains
(losses) on
securities
(both realized
and unrealized) 1.67 (0.12) (0.54) 1.57 0.41 1.79 (1.18) 0.90 0.73
------ ------ ------ ------ ------ ----- ------ ------ -----
Total from
investment
operations 2.21 0.00 0.03 2.06 0.96 2.37 (0.61) 1.43 1.29
------ ------ ------ ------ ------ ----- ------ ------ -----
Less distributions:
Dividends from net
investment income (0.52) -- (0.56) (0.52) (0.56) (0.64) (0.51) (0.51) (0.24)
Distributions from
net realized gains
on securities (0.14) -- (0.34) (0.30) (0.01) -- (0.06) -- --
------ ------ ------ ------ ------ ----- ------ ------ -----
Total distributions (0.66) -- (0.90) (0.82) (0.57) (0.64) (0.57) (0.51) (0.24)
------ ------ ------ ------ ------ ----- ------ ------ -----
Net asset value,
end of period $13.90 $12.35 $12.36 $13.23 $11.99 $11.60 $9.87 $11.05 $10.13
====== ====== ====== ====== ====== ====== ===== ====== ======
Total return
(annualized)(6) 19.06% (0.16%)(7) (0.08%) 19.19% 8.75% 25.35% (5.24%) 15.49% 14.63%
====== ====== ====== ====== ====== ====== ===== ====== ======
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $5,450 $ 528 $222,873 $532,543 $370,087 $311,906 $233,702 $210,119 $147,581
Ratios to average
net assets(8)(9)
(10)(11):
Expenses 0.99% 0.92% 0.36% 0.34% 0.35% 0.37% 0.44% 0.47% 0.52%
Net investment
income 3.70% 4.04% 4.77% 4.91% 5.31% 6.06% 6.50% 6.32% 6.25%
Portfolio
turnover rate 73% 48% 48% 83% 80% 55% 62% 78% 77%
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1987(1)
-------------
<S> <C>
Net asset value,
beginning of period $10.00
------
Income from
investment
operations:
Net investment
income 0.16
Net gains
(losses) on
securities
(both realized
and unrealized) (1.08)
------
Total from
investment
operations (0.92)
------
Less distributions:
Dividends from net
investment income --
Distributions from
net realized gains
on securities --
------
Total distributions --
------
Net asset value,
end of period $9.08
======
Total return
(annualized)(6) (31.84%)
======
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $118,985
Ratios to average
net assets(8)(9)
(10)(11):
Expenses 0.45%
Net investment
income 5.59%
Portfolio
turnover rate 17%
</TABLE>
(1) The Balanced Fund commenced active operations on July 17, 1987. The
PlanAhead Class commenced active operations on August 1, 1994 and at that
time, existing shares of the Balanced Fund were designated as Institutional
Class shares.
(2) Penmark Investments, Inc. was replaced by Independence Investment
Associates, Inc. as an investment adviser to the Fund as of the close of
business on February 28, 1990.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) GSB Investment Management, Inc. was added as an investment adviser to the
Balanced Fund on January 1, 1995.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to approximately $.01 per share in each period on an
annualized basis.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(10) Operating results of the PlanAhead Class exclude fees waived by the
Manager. Had the PlanAhead Class paid such fees during the period, the
ratio of expenses and net investment income to average net assets would
have been 0.99% and 3.96%, respectively, for the period ended October 31,
1994 and 1.09% and 3.60%, respectively, for the year ended October 31,
1995.
(11) Annualized.
PROSPECTUS
5
<PAGE> 78
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
----------------------------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
-------------------------- ------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, ------------------------------------------------------------------------------
1995(5) 1994(1)(4) 1994(4) 1993 1992(3) 1991 1990(2) 1989 1988
----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $14.17 $13.99 $14.63 $12.79 $12.10 $9.47 $11.59 $9.96 $8.30
------ ------ ------ ------ ------ ----- ------ ----- -----
Income from investment
operations:
Net investment income 0.40 0.05 0.43 0.36 0.39 0.42 0.42 0.42 0.42
Net gains (losses) on
securities (both
realized and
unrealized) 2.22 0.13 0.08 2.21 0.77 2.70 (1.94) 1.59 1.40
------ ------ ------ ------ ------ ----- ------ ----- -----
Total from investment
operations 2.62 0.18 0.51 2.57 1.16 3.12 (1.52) 2.01 1.82
------ ------ ------ ------ ------ ----- ------ ----- -----
Less distributions:
Dividends from net
investment income (0.44) -- (0.41) (0.37) (0.39) (0.49) (0.43) (0.38) (0.16)
Distributions from net
realized gains on
securities (0.54) -- (0.54) (0.36) (0.08) -- (0.17) -- --
------ ------ ------ ------ ------ ----- ------ ----- -----
Total distributions (0.98) -- (0.95) (0.73) (0.47) (0.49) (0.60) (0.38) (0.16)
------ ------ ------ ------ ------ ----- ------ ----- -----
Net asset value,
end of period $15.81 $14.17 $14.19 $14.63 $12.79 $12.10 $9.47 $11.59 $9.96
====== ====== ====== ====== ====== ====== ===== ====== =====
Total return
(annualized)(6) 20.14% 3.21%(7) 3.36% 21.49% 10.00% 33.83% (13.52%) 20.94% 22.20%
====== ====== ====== ====== ====== ====== ===== ====== =====
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $4,821 $56 $22,737 $477,088 $339,739 $264,628 $182,430 $187,869 $140,073
Ratios to average
net assets(8)(9)
(10)(11):
Expenses 0.99% 0.95% 0.33% 0.34% 0.36% 0.37% 0.45% 0.45% 0.53%
Net investment
income 2.23% 1.50% 3.28% 3.12% 3.57% 4.19% 4.49% 4.40% 4.20%
Portfolio turnover
rate 26% 23% 23% 30% 35% 52% 41% 50% 56%
<CAPTION>
PERIOD ENDED
OCTOBER 31,
1987(1)
------------
<S> <C>
Net asset value,
beginning of period $10.00
------
Income from investment
operations:
Net investment income 0.10
Net gains (losses) on
securities (both
realized and
unrealized) (1.80)
------
Total from investment
operations (1.70)
------
Less distributions:
Dividends from net
investment income --
Distributions from net
realized gains on
securities --
------
Total distributions --
------
Net asset value,
end of period $8.30
======
Total return
(annualized)(6) (58.51%)
======
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $134,796
Ratios to average
net assets(8)(9)
(10)(11):
Expenses 0.43%
Net investment
income 3.68%
Portfolio turnover
rate 22%
</TABLE>
(1) The Growth and Income Fund commenced active operations on July 17, 1987.
The PlanAhead Class commenced active operations on August 1, 1994 and at
that time, existing shares of the Growth and Income Fund were designated as
Institutional Class shares.
(2) GSB Investment Management, Inc. was added as an investment adviser to the
Growth and Income Fund on April 10, 1990.
(3) The assets of the Growth and Income Fund previously managed by Atlanta
Capital Management were transferred to GSB Investment Management, Inc. as
of the close of business on December 5, 1991.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(10) Operating results of the PlanAhead Class exclude fees waived by the
Manager. Had the PlanAhead Class paid such fees during the period, the
ratio of expenses and net investment income to average net assets would
have been 1.05% and 1.40%, respectively, for the period ended October 31,
1994, and 1.08% and 2.14%, respectively, for the year ended October 31,
1995.
(11) Annualized
PROSPECTUS
6
<PAGE> 79
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------------------------------------
INSTITUTIONAL CLASS
PLANAHEAD CLASS -------------------------------------
--------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
OCTOBER 31, OCTOBER 31, ------------------------------------- OCTOBER 31,
1995(5) 1994(1)(3)(4) 1994(3)(4) 1993(2) 1992 1991(1)
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $12.85 $12.61 $12.07 $8.93 $10.13 $10.00
------ ------ ------ ----- ------ ------
Income from investment
operations:
Net investment income 0.24 0.06 0.32 0.17 0.12 --
Net gains (losses) on
securities (both realized and
unrealized) 0.64 0.18 1.10 3.09 (1.31) 0.13
------ ------ ------ ----- ------ ------
Total from investment operations 0.88 0.24 1.42 3.26 (1.19) 0.13
------ ------ ------ ----- ------ ------
Less distributions:
Dividends from net investment
income (0.21) -- (0.17) (0.12) (0.01) --
Distributions from net realized
gains on securities (0.32) -- (0.45) -- -- --
------ ------ ------ ----- ------ ------
Total distributions (0.53) -- (0.62) (0.12) (0.01) --
------ ------ ------ ----- ------ ------
Net asset value, end of period $13.20 $12.85 $12.87 $12.07 $8.93 $10.13
====== ====== ====== ====== ===== ======
Total return (annualized)(6) 7.37% 11.60%(7) 11.77% 36.56% (12.07%) 5.69%
====== ====== ====== ====== ===== ======
Ratios/supplemental data:
Net assets, end of period
(in thousands) $1,456 $ 375 $23,115 $66,652 $38,837 $10,536
Ratios to average net
assets(8)(9)(10):
Expenses 1.33% 1.25% 0.61% 0.78% 1.17% 1.90%(11)
Net investment income 2.08% 1.86% 2.74% 2.00% 2.04% 0.38%(11)
Portfolio turnover rate 21% 37% 37% 61% 21% 2%
</TABLE>
(1) The International Equity Fund commenced active operations on August 7,
1991. The PlanAhead Class commenced active operations on August 1, 1994 and
at that time, existing shares of the International Equity Fund were
designated as Institutional Class shares.
(2) HD International Limited was replaced by Hotchkis and Wiley as an
investment adviser to the International Equity Fund as of the close of
business on May 21, 1993.
(3) Morgan Stanley Asset Management Inc. was added as an investment adviser to
the International Equity Fund as of August 1, 1994.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.04 per share in each period on an
annualized basis and were waived by the Manager for the period ended
October 31, 1991.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(10) Annualized.
(11) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
7
<PAGE> 80
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIMITED-TERM INCOME FUND
---------------------------------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
------------------------- -------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
OCTOBER OCTOBER 31, ------------------------------------------------------------------- OCTOBER 31,
31, 1995 1994(1)(3) 1994(3) 1993 1992 1991(2) 1990 1989 1988(1)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $9.68 $9.78 $10.23 $10.13 $10.07 $9.76 $9.94 $10.12 $10.00
----- ----- ------ ------ ------ ------ ----- ------ ------
Income from
investment
operations:
Net investment
income 0.59 0.13 0.52 0.58 0.75 0.83 0.92 0.96 0.64
Net gains
(losses) on
securities (both
realized and
unrealized) 0.14 (0.10) (0.46) 0.15 0.06 0.31 (0.18) (0.12) 0.05
----- ----- ------ ------ ------ ------ ----- ------ ------
Total from
investment
operations 0.73 0.03 0.06 0.73 0.81 1.14 0.74 0.84 0.69
----- ----- ------ ------ ------ ------ ----- ------ ------
Less
distributions:
Dividends from
net investment
income (0.59) (0.13) (0.52) (0.58) (0.75) (0.83) (0.92) (1.02) (0.57)
Distributions
from net
realized gains
on securities -- -- (0.10) (0.05) -- -- -- -- --
----- ----- ------ ------ ------ ------ ----- ------ ------
Total
distributions (0.59) (0.13) (0.62) (0.63) (0.75) (0.83) (0.92) (1.02) (0.57)
----- ----- ------ ------ ------ ------ ----- ------ ------
Net asset value,
end of period $9.82 $9.68 $9.67 $10.23 $10.13 $10.07 $9.76 $9.94 $10.12
===== ===== ====== ====== ====== ====== ===== ====== ======
Total return
(annualized)(4)(5) 7.83% 0.45%(6) 0.42% 7.20% 7.94% 11.87% 7.51% 7.62% 7.41%
===== ===== ====== ====== ====== ====== ===== ====== ======
Ratios/supplemental
data:
Net assets, end
of period (in
thousands) $1,576 $403 $112,141 $238,874 $209,928 $141,629 $83,265 $60,507 $40,855
Ratios to average
net
assets(7)(8)(9)(10):
Expenses 0.83% 0.79% 0.31% 0.26% 0.27% 0.35% 0.48% 0.59% 0.50%
Net investment
income 6.16% 5.10% 5.26% 5.76% 7.40% 8.42% 9.44% 9.77% 8.01%
Portfolio
turnover rate 183% 94% 94% 176% 133% 165% 156% 158% 127%
</TABLE>
(1) The Limited-Term Income Fund commenced active operations on December 3,
1987. The PlanAhead Class commenced active operations on August 1, 1994 and
at that time existing shares of the Limited-Term Income Fund were
designated as Institutional Class shares.
(2) AMR Investment Services, Inc. began portfolio management of the
Limited-Term Income Fund on March 1, 1991 replacing Brown Brothers,
Harriman & Co. and Barrow, Hanley, Mewhinney & Strauss, Inc.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(5) Total returns for the PlanAhead Class exclude fees waived by the Manager.
Had the class paid such fees, total return for the PlanAhead Class would
have been .41% for the periods ended October 31, 1994 and 7.56% for the
year ended October 31, 1995.
(6) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(7) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.03 per share in each period on an
annualized basis.
(8) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(9) Operating results of the PlanAhead Class exclude fees waived by the
Manager. Had the PlanAhead Class paid such fees during the period, the
ratio of expenses and net investment income to average net assets would
have been 1.00% and 4.89%, respectively, for the period ended October 31,
1994, and 1.06% and 5.93%, respectively, for the year ended October 31,
1995.
(10) Annualized.
PROSPECTUS
8
<PAGE> 81
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
------------------------- ------------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, ------------------------------------------------------------------------------------
1995 1994(1)(2) 1994(2) 1993 1992 1991 1990 1989 1988
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- ----- -----
Net investment
income 0.05 0.01 0.04 0.03 0.04 0.07 0.08 0.09 0.08
Less dividends
from net
investment
income (0.05) (0.01) (0.04) (0.03) (0.04) (0.07) (0.08) (0.09) (0.08)
----- ----- ----- ----- ----- ----- ----- ----- -----
Net asset
value, end of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== ===== =====
Total return
(annualized) 5.60% 3.73%(3) 3.85% 3.31% 4.41% 7.18% 8.50% 9.45% 7.54%
===== ===== ===== ===== ===== ===== ===== ===== =====
Ratios/supplemental
data:
Net assets,
end of period
(in
thousands) $41,989 $25 $1,893,144 $2,882,974 $2,223,829 $715,280 $745,405 $385,916 $330,230
Ratios to
average net
assets(4)(5)(6):
Expenses 0.55% 0.70% 0.21% 0.23% 0.26% 0.24% 0.20% 0.22% 0.28%
Net
investment
income 5.56% 4.42% 3.63% 3.23% 4.06% 6.93% 8.19% 9.11% 7.54%
<CAPTION>
PERIOD
ENDED
OCTOBER 31,
1987(1)
-----------
<S> <C>
Net asset
value,
beginning of
period $1.00
-----
Net investment
income 0.01
Less dividends
from net
investment
income (0.01)
-----
Net asset
value, end of
period $1.00
=====
Total return
(annualized) 6.70%
=====
Ratios/suppleme
data:
Net assets,
end of period
(in
thousands) $71,660
Ratios to
average net
assets(4)(5)(
Expenses 0.48%
Net
investment
income 6.78%
</TABLE>
(1) The Money Market Fund commenced active operations on September 1, 1987 and
on November 1, 1991, the existing shares of the Fund were designated as
Institutional Class shares. The PlanAhead Class commenced active operations
on August 1, 1994.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of the
PlanAhead Class for the period August 1, 1994 (commencement of operations)
through October 31, 1994. Due to the different expense structures between
the classes, total return for the PlanAhead Class would vary from the
results shown had it been in operation for the entire year.
(4) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1992.
(5) Effective October 1, 1990, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(6) Annualized
PROSPECTUS
9
<PAGE> 82
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND U.S. TREASURY MONEY MARKET FUND
---------------------------------------- ---------------------------------------------------------------
INSTIT. INSTITUTIONAL CLASS
PLANAHEAD CLASS CLASS PLANAHEAD CLASS -----------------------------------
------------------------- ------------ ------------------------- YEAR ENDED OCTOBER
YEAR ENDED PERIOD ENDED PERIOD ENDED YEAR ENDED PERIOD ENDED 31, PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, ------------------ OCTOBER 31,
1995 1994(1) 1994(1) 1995 1994(1)(2) 1994(2) 1993 1992(1)
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
----- ----- ----- ----- ----- ----- ----- -----
Net investment
income 0.03 0.01 0.02 0.05 0.01 0.04 0.03 0.02
Less dividends
from net
investment income (0.03) (0.01) (0.02) (0.05) (0.01) (0.04 ) (0.03) (0.02)
----- ----- ----- ----- ----- ----- ----- -----
Net asset value,
end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
===== ===== ===== ===== ===== ===== ===== =====
Total return
(annualized) 3.39% 2.35%(4) 2.44% 5.19% 3.58%(4) 3.70 % 3.07% 3.61%
===== ===== ===== ===== ===== ===== ===== =====
Ratios/supplemental
data:
Net assets, end
of period (in
thousands) $129 $0 $9,736 $530 $0 $67,607 $136,813 $91,453
Ratios to average
net
assets(5)(6)(7):
Expenses 0.72% 0.77% 0.30% 0.76% 0.75% 0.25% 0.23% 0.27%(8)
Net investment
income 3.32% 2.49% 2.38% 5.19% 3.94% 3.44% 2.96% 3.46%(8)
</TABLE>
(1) The U.S. Treasury Money Market Fund commenced active operations on March 2,
1992. The PlanAhead Class of the U.S. Treasury Money Market Fund commenced
active operations on August 1, 1994. The Institutional Class of the
Municipal Money Market Fund commenced active operations on November 10, 1993
and the PlanAhead Class commenced active operations on August 1, 1994.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) Total returns for the Municipal Money Market Fund exclude management and
administrative services fees waived by the Manager. Had the Fund paid such
fees during the period ended October 31, 1994, annualized total returns
would have been 2.15% for the PlanAhead Class, 2.24% for the Institutional
Class and for the year ended October 31, 1995, 3.19% for the PlanAhead
Class.
(4) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from the beginning of the period through July 31, 1994 and
returns of the PlanAhead Class for the period August 1, 1994 (commencement
of operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(5) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31, 1994.
(6) Annualized.
(7) Operating results for the Municipal Money Market Fund exclude fees waived by
the Manager. Had the Fund paid such fees, the ratio of expenses and net
investment income to average net assets would have been 0.97% and 2.29%,
respectively, for the period ended October 31, 1994, and 0.92% and 3.12%,
respectively, for the year ended October 31, 1995 for the PlanAhead Class,
and 0.50% and 2.18%, respectively, for the Institutional Class for the
period ended October 31, 1994.
(8) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
10
<PAGE> 83
INTRODUCTION
The Trust is an open-end, management investment company organized as a
Massachusetts business trust on January 16, 1987. The Funds are separate
investment portfolios of the Trust. Each Fund has a distinctive investment
objective and investment policies. Each Fund will invest all of its investable
assets in a corresponding Portfolio of the AMR Trust which has an identical
investment objective. The Manager provides the Portfolios with business and
asset management services, including the evaluation and monitoring of the
investment advisers, and it provides the Funds with administrative services. The
Balanced Fund, the Growth and Income Fund, the International Equity Fund and the
Limited-Term Income Fund (collectively, the "Variable NAV Funds") consist of
multiple classes of shares, including the "PlanAhead Class" which is available
to all investors, including smaller institutional investors, investors using
intermediary organizations such as discount brokers or plan sponsors, individual
retirement accounts ("IRAs"), and self-employed individual retirement plans
("HR-10 Plans" or "Keogh Plans") and the "Institutional Class," which is
primarily for large institutional investors investing at least $2 million in the
Funds. The Money Market Funds also consist of multiple classes of shares,
including the PlanAhead Class, the Institutional Class and the "Platinum Class"
which is available to customers of certain broker-dealers as an investment for
cash balances in their brokerage accounts. For further information about the
Institutional Class, including eligibility requirements, and the Platinum Class,
call (800) 967-9009.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(losses) earned (or incurred) by the Fund. It also will bear its proportionate
share of expenses that are allocated to the Fund as a whole. However, certain
expenses presently are allocated separately to each class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. Investment decisions for the
Limited-Term Income Portfolio and the Money Market Portfolios are made directly
by the Manager. See "Investment Advisers." Each investment adviser has
discretion to purchase and sell portfolio securities in accordance with the
investment objectives, policies and restrictions described in this Prospectus
and in the SAI and by specific investment strategies developed by the Manager.
PlanAhead Class shares are sold without any sales charges at the next share
price calculated after an investment is received and accepted. Shares will be
redeemed at the
PROSPECTUS
11
<PAGE> 84
next share price calculated after receipt of a redemption order. See "How to
Purchase Shares" and "How to Redeem Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent with the investment objective of the applicable
Fund. However, each Fund's investment objective may not be changed without a
majority vote of that Fund's outstanding shares, which is defined as the lesser
of (a) 67% of the shares of the applicable Fund present or represented if the
holders of more than 50% of the shares are present or represented at the
shareholders' meeting, or (b) more than 50% of the shares of the applicable Fund
(hereinafter, "majority vote"). A Portfolio's investment objective may not be
changed without a majority vote of that Portfolio's interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the Board.
AMERICAN AADVANTAGE BALANCED FUND -- This Fund's investment objective is to
realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating organizations ("Rating Organizations") rating that
security such as Standard & Poor's or Moody's Investor Services, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser. Obligations rated in the fourth highest rating
category are limited to 25% of the Portfolio's debt allocation. Obligations
rated in the BBB or Baa categories by any Rating Organization have speculative
characteristics and thus changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. See the SAI for a description
of debt ratings. The Portfolio, at the discretion of the investment advisers,
PROSPECTUS
12
<PAGE> 85
may retain a security that has been downgraded below the initial investment
criteria. The Portfolio usually invests between 50% and 65% of its assets in
equity securities and between 35% and 50% of its assets in debt securities. The
remainder of the Portfolio's assets may be invested in cash or cash equivalents,
including obligations that are permitted investments for the Money Market
Portfolio and in other investment companies. However, when its investment
advisers deem that market conditions warrant, the Portfolio may, for temporary
defensive purposes, invest up to 100% of its assets in cash, cash equivalents
and investment grade short-term obligations.
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government and its agencies and instrumentalities,
including separately traded registered interest and principal securities
("STRIPS") and other zero coupon obligations; corporate bonds, notes and
debentures; non-convertible preferred stocks; mortgage-backed securities;
asset-backed securities; and domestic, Yankeedollar and Eurodollar bank deposit
notes, certificates of deposit, bonds and notes. Such obligations may have a
fixed, variable or floating rate of interest. See the SAI for a further
description of the foregoing securities. The value of the Portfolio's debt
investments will vary in response to interest rate changes as described in
"American AAdvantage Limited-Term Income Fund."
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" basis and on a "forward commitment" basis. The purchase or
sale of when-issued securities enables an investor to hedge against anticipated
changes in interest rates and prices by locking in an attractive price or yield.
The price of when-issued securities is fixed at the time the commitment to
purchase or sell is made, but delivery and payment for the when-issued
securities take place at a later date, normally one to two months after the date
of purchase. During the period between purchase and settlement, no payment is
made by the purchaser to the issuer and no interest accrues to the purchaser.
Such transactions therefore involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date. A sale of a
when-issued security also involves the risk that the other party will be unable
to settle the transaction. Dollar rolls are a type of forward commitment
transaction. Purchases and sales of securities on a forward commitment basis
involve a commitment to purchase or sell securities with payment and delivery to
take place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date.
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The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts which are
traded in the United States on exchanges and in the over-the-counter market.
When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations. The Manager
believes that purchasing securities which the investment advisers believe are
undervalued in the market and that have above average growth potential will
outperform other investment styles over the longer term while minimizing
volatility and downside risk. The Manager will recommend that, with respect to
portfolio management of equity assets, the Trust retain only those investment
advisers who, in the Manager's opinion, utilize such an approach.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; CAPITAL GUARDIAN TRUST COMPANY;
GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE INVESTMENT
ASSOCIATES, INC. currently manage the assets of the Balanced Portfolio. If
approved by a majority of the interest holders of the Balanced Portfolio at a
meeting of shareholders of the Balanced Fund and other investors in the Balanced
Portfolio to be held on or about March 26, 1996, Brandywine Asset Management,
Inc. ("Brandywine") and Boatmen's Trust Company ("Boatmen's") will be added as
investment advisers of the Portfolio. If approved, it is expected that on or
about April 1, 1996, Brandywine will replace Capital Guardian Trust Company
("Capital") as an active investment adviser of the Portfolio. The Manager does
not expect to allocate assets to Boatmen's at this time. See "Investment
Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME FUND -- This Fund's investment objective
is to realize long-term capital appreciation and current income. This Fund seeks
its investment objective by investing all of its investable assets in the Growth
and Income Portfolio, which invests primarily in equity securities. Excluding
collateral for securities loaned, ordinarily at least 80% of the Portfolio's
assets will be invested in equity securities consisting of common stocks,
preferred stocks, securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants, and foreign
equity securities that are represented by U.S. dollar-denominated American
Depository Receipts which are traded in the United States on exchanges and in
the over-the-counter market. When purchasing equity securities, primary emphasis
will be placed on undervalued securities with above average growth expectations.
In order to seek either above average current income or capital appreciation
when interest rates are expected to decline, the Portfolio may invest in debt
securities which, at the time of purchase, are rated in one of the four highest
rating categories by all Rating Organizations rating that security or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. See "American AAdvantage Balanced Fund"
for a description of the risks involved with these obligations. See the SAI for
definitions of the foregoing securities and for a description of debt ratings.
The Portfolio may also invest in other investment companies or in cash
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and cash equivalents, including obligations that are permitted investments for
the Money Market Portfolio, in order to maintain liquidity. However, when its
investment advisers deem that market conditions warrant, the Portfolio may, for
temporary defensive purposes, invest up to 100% of its assets in cash, cash
equivalents and investment grade short-term obligations. In addition, the
Portfolio may purchase or sell securities on a "when-issued" and on a "forward
commitment" basis as described in "American AAdvantage Balanced Fund."
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; CAPITAL GUARDIAN TRUST COMPANY;
GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE INVESTMENT
ASSOCIATES, INC. currently manage the assets of the Growth and Income Portfolio.
If approved by a majority of the interest holders of the Growth and Income
Portfolio at a meeting of shareholders of the Growth and Income Fund and other
investors in the Growth and Income Portfolio to be held on or about March 26,
1996, Brandywine and Boatmen's will be added as investment advisers of the
Portfolio. If approved, it is expected that on or about April 1, 1996,
Brandywine will replace Capital as an active investment adviser of the
Portfolio. The Manager does not expect to allocate assets to Boatmen's at this
time. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries located outside the
United States. However, excluding collateral for securities loaned, the
Portfolio generally invests in excess of 80% of its assets in such securities.
The remainder of the Portfolio's assets will be invested in non-U.S. debt
securities which, at the time of purchase, are rated in one of the three highest
rating categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including obligations that are
permitted investments for the Money Market Portfolio or in other investment
companies. However, when its investment advisers deem that market conditions
warrant, the Portfolio may, for temporary defensive purposes, invest up to 100%
of its assets in cash, cash equivalents, other investment companies and
investment grade short-term obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) political and
financial instability abroad,
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including risk of nationalization or expropriation of assets and the risk of
war; (2) less liquidity and greater volatility of foreign investments; (3) less
public information regarding foreign companies; (4) less government regulation
and supervision of foreign stock exchanges, brokers and listed companies; (5)
lack of uniform accounting, auditing and financial reporting standards; (6)
delays in transaction settlement in some foreign markets; (7) possibility of an
imposition of confiscatory foreign taxes; (8) possible limitation on the removal
of securities or other assets of the Portfolio; (9) restrictions on foreign
investments and repatriation of capital; (10) currency fluctuations; (11) cost
and possible restrictions of currency conversion; (12) withholding taxes on
dividends in foreign countries; and (13) possibly higher commissions, custodial
fees and management costs than in the U.S. market. These risks are often greater
for investments in emerging or developing countries.
The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity aspects of a particular country's
market and the investment climate for foreign investors. The current countries
in which the Portfolio may invest are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland
and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are derivatives, to hedge currency fluctuations of underlying
stock or bond positions, or in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC"). Forward contracts to sell foreign currency
may be used when the management of the Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar. Forward
contracts also are entered into to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures ("futures") for the same
reasons as for entering into forward contracts as set forth above. Futures are
traded on U.S. and foreign currency exchanges. The use of futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation;
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(2) imperfect correlation between the securities hedged and the contracts
themselves; (3) possible decrease in the total return of the Portfolio due to
hedging; (4) possible reduction in value for both the contracts and the
securities being hedged; and (5) potential losses in excess of the amounts
invested in the futures contracts themselves. The Portfolio may not enter into
futures contracts if the purchase or sale of such contract would cause the sum
of the Portfolio's initial and any variation margin deposits to exceed 5% of its
total assets. Futures contracts, which are derivatives, are discussed in greater
detail in the SAI.
HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio. If approved by a majority of the interest
holders of the International Equity Portfolio at a meeting of shareholders of
the International Equity Fund and other investors in the International Equity
Portfolio to be held on or about March 26, 1996, Rowe Price-Fleming
International, Inc. ("Fleming") will be added as an investment adviser to the
Portfolio. The Manager does not expect to allocate assets to Fleming at this
time. See "Investment Advisers."
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND -- This Fund's investment objective
is to realize income and capital appreciation. As an investment policy, the Fund
primarily seeks income and secondarily seeks capital appreciation. The Fund
seeks its investment objective by investing all of its investable assets in the
Limited-Term Income Portfolio, which invests primarily in debt obligations.
Permissible investments include securities of the U.S. Government and its
agencies and instrumentalities, including STRIPS and other zero coupon
obligations; corporate bonds, notes and debentures; non-convertible preferred
stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
obligations that are permitted investments for the Money Market Portfolio. Such
obligations may have a fixed, variable or floating rate of interest. At the time
of purchase, all such securities will be rated in one of the four highest rating
categories by all Rating Organizations rating such obligation or, if unrated,
will be deemed to be of comparable quality by the investment adviser.
Obligations rated in the fourth highest rating category are limited to 25% of
the Portfolio's total assets. See "American AAdvantage Balanced Fund" for a
description of the risks involved with these obligations. The Portfolio, at the
discretion of the Manager, may retain a security which has been downgraded below
the initial investment criteria. See the SAI for definitions of the foregoing
securities and for a description of debt ratings. Principal and/or interest
payments for obligations of the U.S. Government's agencies or instrumentalities
may or may not be backed by the full faith and credit of the U.S. Government.
Investments in Yankeedollar and Eurodollar bonds, notes and certificates of
deposit involve risks that differ from investments in securities of domestic
issuers. See "American AAdvantage Money Market Fund" for a description of these
risks. The
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Portfolio also may engage in dollar rolls, or purchase or sell securities on a
"when-issued" or "forward commitment" basis as described under "American
AAdvantage Balanced Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments
should not vary as much due to the periodic adjustments in their interest rates.
An adjustment which increases the interest rate of such securities should reduce
or eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment, the
value of the premium would be lost. Like other debt securities, when interest
rates rise, the value of mortgage-related securities generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid,
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in most cases, monthly. CMOs may be collateralized by whole mortgage loans but
are more typically collateralized by portfolios of mortgage pass-through
securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured in multiple
classes, with each class bearing a different stated maturity or interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans, automobile and credit card receivables, and other types of receivables or
other assets as well as purchase contracts, financing leases and sales
agreements entered into by municipalities, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's and the Portfolio's investment objective, policies
and quality standards, the Portfolio may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on the securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
Although investments will not be restricted by the maturity of the
securities purchased, under normal circumstances, the Portfolio will seek to
maintain a dollar weighted average maturity of one to five years. However, the
dollar-weighted average maturity may temporarily be adjusted outside the one to
five year period if warranted by market conditions. For example, the average
maturity of the Portfolio may be shortened in order to minimize depreciation of
capital if the investment adviser anticipates a rise in interest rates.
Conversely, the average maturity may be lengthened in order to maximize return
if interest rates are expected to decline. In addition, portfolio securities may
be actively traded to realize gains (or losses) and increase yields by taking
advantage of short-term market variations. Because the timing on return of
principal for both asset-backed and mortgage-backed securities is uncertain, in
calculating the average weighted maturity of the Portfolio, the maturity of
these securities may be based on certain industry conventions. The Manager
serves as the sole active investment adviser to the Limited-Term Income Fund and
its corresponding Portfolio.
MONEY MARKET FUNDS -- The investment objectives of the Money Market Funds are to
seek current income, liquidity and the maintenance of a stable $1.00 price per
share.
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The Money Market Funds seek to achieve these objectives by investing all of
their investable assets in the Money Market Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of the amortized cost valuation method.
Obligations in which the Money Market Portfolios invest generally have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain variable and floating rate obligations may bear longer
final maturities. The average dollar-weighted portfolio maturity of each Money
Market Portfolio will not exceed 90 days. The Manager serves as the sole
investment adviser to the Money Market Funds. See "Management and Administration
of the Trust."
AMERICAN AADVANTAGE MONEY MARKET FUND -- The Fund's corresponding Portfolio may
invest in obligations permitted to be purchased under Rule 2a-7 of the 1940 Act
including, but not limited to, (1) obligations of the U.S. Government or its
agencies or instrumentalities; (2) loan participation interests, medium-term
notes, funding agreements and asset-backed securities; (3) domestic,
Yankeedollar and Eurodollar certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bearer deposit notes and other promissory notes,
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies; and (4)
repurchase agreements involving the obligations listed above. The Money Market
Portfolio will invest only in issuers or instruments that at the time of
purchase (1) have received the highest short-term rating by at least two Rating
Organizations such as "A-1" by Standard & Poor's and "P-1" by Moody's; (2) are
single rated and have received the highest short-term rating by a Rating
Organization; or (3) are unrated, but are determined to be of comparable quality
by the Manager pursuant to guidelines approved by the AMR Trust Board and
subject to the ratification of the AMR Trust Board. See the SAI for definitions
of the foregoing instruments and rating systems. The Portfolio also may purchase
or sell securities on a "when-issued" or "forward commitment" basis as described
under "American AAdvantage Balanced Fund."
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the Portfolio will not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different
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accounting and financial standards; and the adoption of foreign governmental
restrictions may affect adversely the payment of principal and interest on
foreign investments. In addition, not all foreign branches of United States
banks are supervised or examined by regulatory authorities as are United States
banks, and such branches may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest can
be recovered under a variable amount master demand note generally shall not
exceed seven days. To the extent this period is exceeded, the note in question
would be considered illiquid. Issuers of variable amount master demand notes
must satisfy the same criteria as set forth for other promissory notes (e.g.
commercial paper). The Portfolio will invest in variable amount master demand
notes only when such notes are determined by the Manager, pursuant to guidelines
established by the AMR Trust Board, to be of comparable quality to rated issuers
or instruments eligible for investment by the Portfolio. In determining average
dollar weighted portfolio maturity, a variable amount master demand note will be
deemed to have a maturity equal to the longer of the period of time remaining
until the next readjustment of the interest rate or the period of time remaining
until the principal amount can be recovered from the issuer on demand.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND -- The Fund's corresponding
Portfolio may invest in municipal obligations issued by or on behalf of the
governments of states, territories, or possessions of the United States; the
District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Fund"); (3) are guaranteed by one or more municipal bond insurance policies that
cannot be canceled and issued by third-party guarantors possessing the highest
claims- paying rating from a Rating Organization; (4) have received one of the
two highest short-term ratings from at least two Rating Organizations; (5) are
single rated and have received one of the two highest short-term ratings from
that Rating Organization; (6) have no short-term rating but the instrument is
comparable to the issuer's rated short-term debt; (7) have no short-term rating
(or comparable rating) but have received one of the top two long-term ratings
from all Rating Organizations rating the issuer or instrument; or (8) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by, and subject to
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the oversight of, the AMR Trust Board. The Portfolio may also invest in other
investment companies. Ordinarily at least 80% of the Portfolio's net assets will
be invested in municipal obligations the interest from which is exempt from
federal income tax. However, should market conditions warrant, the Portfolio may
invest up to 20% (or for temporary defensive purposes, up to 100%) of its assets
in obligations subject to federal income tax which are eligible investments for
the Money Market Portfolio.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; and tax-exempt commercial paper; and
purchase obligations that are subject to restrictions on resale. See the SAI for
a further discussion of the foregoing obligations. The Portfolio may purchase or
sell obligations on a "when-issued" or "forward commitment" basis, as described
under "American AAdvantage Balanced Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, the Manager
believes this risk is mitigated because it is anticipated that most of the
Portfolio's assets will be insured or backed by bank letters of credit.
Additionally, the Portfolio may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
non-governmental users.
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The Portfolio may also invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in private
activity obligations without limitation and it is anticipated that a substantial
portion of the Portfolio's assets will be invested in these obligations. As a
result, a substantial portion of the Fund's distributions may be a tax
preference item, which will reduce the net return from the Fund for taxpayers
subject to the AMT. Interest on "qualified" private activity obligations is
exempt from federal income tax.
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND -- The Fund's corresponding
Portfolio will invest exclusively in obligations backed by the full faith and
credit of the U.S. Government and repurchase agreements which are collateralized
by U.S. Government full faith and credit obligations. Counterparties for
repurchase agreements must be approved by the AMR Trust Board. For this purpose,
U.S. Government Agency mortgage-backed securities collateralized exclusively by
full faith and credit GNMA mortgages are considered eligible. Ordinarily at
least 65% of the Portfolio's assets will be invested in direct U.S. Treasury
obligations. Such obligations may include STRIPS issued by the U.S. Treasury
which represent either future interest or principal payments. STRIPS are issued
at a discount to their "face value," and may exhibit greater price volatility
than ordinary debt securities because of the manner in which their principal and
interest are returned to investors. The Fund may also invest in other full faith
and credit obligations of the U.S. Government, including securities issued by
the Agency for International Development, General Services Administration, GNMA,
Rural Electrification Administration, Small Business Administration, Federal
Financing Bank and others. See the SAI for a further discussion of the foregoing
obligations. The Portfolio may purchase or sell securities on a "when-issued"
basis and on a "forward commitment" basis as described under "American
AAdvantage Balanced Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
Each Portfolio may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. Government and its
agencies and instrumentalities and approved bank letters of credit that at all
times equal at least 100% of the market value of the loaned securities. Such
loans will not be made if, as a
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result, the aggregate amount of all outstanding securities loans by any
Portfolio would exceed 33 1/3% of its total assets. A Portfolio continues to
receive interest on the securities loaned and simultaneously earns either
interest on the investment of the cash collateral or fee income if the loan is
otherwise collateralized. However, a Portfolio normally pays (including, in some
cases, payments to the Manager) lending fees and related expenses from this
interest or fee income. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities loaned or loss of rights
in the collateral. However, the Portfolios seek to minimize this risk by making
loans only to borrowers which are deemed by the Manager to be of good financial
standing and which have been approved by the AMR Trust Board. For purposes of
complying with each Portfolio's investment policies and restrictions, collateral
received in connection with securities loans will be deemed an asset of a
Portfolio to the extent required by law. See the SAI for further information
regarding loan transactions.
A repurchase agreement is an agreement under which securities are acquired
by a Portfolio from a securities dealer or bank subject to resale at an agreed
upon price on a later date. The acquiring Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Portfolio is delayed or prevented from exercising its rights to dispose
of the collateral securities. However, the investment advisers or the Manager
attempt to minimize this risk by entering into repurchase agreements only with
financial institutions which are deemed to be of good financial standing and
which have been approved by the AMR Trust Board. See the SAI for more
information regarding repurchase agreements.
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (the "Securities Act"), and resold to qualified
institutional buyers under Rule 144A of the Securities Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios who agree that they are purchasing the securities for
investment and not with an intention to distribute to the public. Any resale by
the purchaser must be pursuant to an exempt transaction and may be accomplished
in accordance with Rule 144A. Section 4(2) securities normally are resold to
other institutional investors such as the Portfolios through or with the
assistance of the issuer or dealers who make a market in the Section 4(2)
securities, thus providing liquidity. The Money Market Portfolios will not
invest more than 10% (and Variable NAV Funds' respective Portfolios, no more
than 15%) of their respective net assets in Section 4(2) securities and illiquid
securities unless the applicable investment adviser determines, by continuous
reference to the appropriate trading markets and pursuant to guidelines approved
by the AMR Trust Board, that any Section 4(2) securities held by such Portfolio
in excess of this level are at all times liquid.
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Because it is not possible to predict with assurance exactly how this market
for Section 4(2) securities offered and sold under Rule 144A will develop, the
AMR Trust Board and the applicable investment adviser, pursuant to the
guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolios' investments in these securities, focusing on such important factors,
among others, as valuation, liquidity, and availability of information.
Investments in Section 4(2) securities could have the effect of reducing a
Portfolio's liquidity to the extent that qualified institutional buyers no
longer wish to purchase these restricted securities.
BROKERAGE PRACTICES -- Each investment adviser will place its own orders to
execute securities transactions which are designed to implement the applicable
Portfolio's investment objective and policies. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. No Portfolio,
other than the Limited-Term Income Portfolio, currently expects its portfolio
turnover rate to exceed 100%. The portfolio turnover rate for the Limited-Term
Income Fund for the fiscal year ended October 31, 1995 was 183%. High portfolio
activity increases a Portfolio's transaction costs, including brokerage
commissions and may result in a greater number of taxable transactions.
The Money Market Portfolios and the Limited-Term Income Portfolio normally
will not incur any brokerage commissions on their transactions because money
market and debt instruments are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission. The
price of the obligation, however, usually includes a profit to the dealer.
Obligations purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No commissions or discounts are paid when securities are
purchased directly from an issuer.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio. Historically, the Manager has sponsored traditionally structured
funds and, therefore, has limited experience with funds that invest all their
assets in a separate portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale be investing in the AMR Trust. In addition to selling
their interests to the Funds, the Portfolios may sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio will pay a proportionate share of the
Portfolio's expenses and will invest in
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that Portfolio on the same terms and conditions. However, if another investment
company invests all of its assets in a Portfolio, it would not be required to
sell its shares at the same public offering price as a Fund and would be allowed
to charge different sales commissions. Therefore, investors in a Fund may
experience different returns from investors in another investment company that
invests exclusively in that Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for that Fund and could affect adversely its liquidity.
The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with the Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust and the AMR Trust, (3) brokerage practices,
(4) the Funds' shares, including the rights and liabilities of its shareholders,
(5) additional performance information,
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including the method used to calculate yield and total return, and (6) the
determination of the value of each Fund's shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restrictions are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and the Board. The following fundamental investment restrictions may
be changed with respect to a particular Fund by the majority vote of that Fund's
outstanding shares or with respect to a Portfolio by the majority vote of that
Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Money Market Portfolio and the U.S. Treasury Money Market
Portfolio apply this restriction with respect to 100% of their assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities or, with respect to the Money Market
Portfolio, the banking industry. Municipal governments and their agencies
and authorities are not deemed to be industries. Finance companies as a
group are not considered a single industry for purposes of this policy.
The following non-fundamental investment restrictions may be changed with
respect to a particular Fund by a vote of a majority of the Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board. No
Portfolio may:
- Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if more than 5% of the
Portfolio's total assets would be invested in such securities. This
limitation does not apply with regard to collateralized trust securities.
- Invest more than 15% (or, with respect to any Money Market Portfolio, 10%)
of its net assets in illiquid securities, including time deposits and
repurchase agreements that mature in more than seven days.
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The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
From time to time each class of the Money Market Funds may advertise their
"current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
current yield refers to the income generated by an investment over a seven
calendar-day period (which period will be stated in the advertisement). This
income is then annualized by assuming the amount of income generated by the
investment during that week is earned each week over a one-year period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by the investment is assumed
to be reinvested. The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed reinvestment. The
Municipal Money Market Fund may also quote "tax equivalent yields," which show
the taxable yields a shareholder would have to earn before federal income taxes
to equal this Fund's tax-exempt yields. The tax equivalent yield is calculated
by dividing the Fund's tax-exempt yield by the result of one minus a stated
federal income tax rate. If only a portion of the Fund's income was tax-exempt,
only that portion is adjusted in the calculation. As stated earlier, the Fund
considers interest on private activity obligations to be exempt from federal
income tax. Each class of a Fund has different expenses which will impact its
performance.
Advertised yields for the PlanAhead and Institutional Classes of the
Variable NAV Funds will be computed by dividing the net investment income per
share earned by the applicable class during the relevant time period by the
maximum offering price per share for that class on the last day of the period.
Total return quotations advertised by the Funds may reflect the average annual
compounded (or aggregate compounded) rate of return during the designated time
period based on a hypothetical initial investment and the redeemable value of
that investment at the end of the period. Additionally, each class of the
Limited-Term Income Fund may advertise a "monthly distribution rate." This rate
is based on an annualized monthly dividend accrual rate per share compared with
the month-end share price of each class of this Fund. The Funds will at times
compare their performance to applicable published indices, and may also disclose
their performance as ranked by certain ranking entities. See the SAI for more
information about the calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs. The Manager provides or oversees all administrative,
investment
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advisory and portfolio management services for the Trust pursuant to a
Management Agreement dated April 3, 1987, as amended October 1, 1995, together
with the Administrative Services Agreement described below. The AMR Trust and
the Manager also entered into a Management Agreement dated October 1, 1995 that
obligates the Manager to provide or oversee all administrative, investment
advisory and portfolio management services for the AMR Trust. The Manager,
located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a
wholly-owned subsidiary of AMR Corporation ("AMR"), the parent company of
American Airlines, Inc., and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services.
The assets of the corresponding Portfolios of the Balanced Fund, the Growth and
Income Fund and the International Equity Fund are allocated by the Manager among
one or more investment advisers designated for that Fund. See "Investment
Advisers." The Manager serves as the sole investment adviser to the
corresponding Portfolios of the Limited-Term Income Fund and the Money Market
Funds. In addition, with the exception of the International Equity Fund, if so
requested by any investment adviser, the Manager will make the investment
decisions with respect to assets allocated to that investment adviser which the
investment adviser determines should be invested in short-term obligations of
the type permitted for investment by the Money Market Portfolios. As of December
31, 1995, the Manager had assets under management totaling approximately $13.7
billion including approximately $4.5 billion under active management and $9.2
billion as named fiduciary or fiduciary adviser. Of the total, approximately
$10.1 billion of assets are related to AMR. American Airlines, Inc. is not
responsible for investments made in the American AAdvantage Funds.
The Manager provides the Trusts with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also develops the investment programs for each Portfolio, selects and
changes investment advisers (subject to approval by the AMR Trust Board and
appropriate interest holders), allocates assets among investment advisers,
monitors the investment advisers' investment programs and results, and
coordinates the investment activities of the investment advisers to ensure
compliance with regulatory restrictions.
The Manager bears the expense of providing the above services, and pays the
fees of the investment advisers of the Funds and their Portfolios. As
compensation for paying the investment advisory fees and for providing the
Portfolios with advisory and asset allocation services, the Manager receives
from the AMR Trust an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.15% of the net assets of the Money Market
Portfolios, (2) 0.25% of the net assets of the Limited-Term Income Portfolio,
(3) 0.10% of the net assets of the other Portfolios, plus (4) all fees payable
by the Manager to the AMR Trust's investment advisers as
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described in "Investment Advisers." The advisory fee is payable quarterly in
arrears. To the extent that a Fund invests all of its investable assets in its
corresponding Portfolio, the Manager will not receive an advisory fee under its
Management Agreement with the Trust. The Manager is compensated through the
Administrative Services Agreement as described below for other services
provided.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the independent
Trustees of each Board who are not parties to the Management Agreement or
"interested persons" as defined in the 1940 Act of any such party ("Independent
Trustees"), cast in person at a meeting called for the purpose of considering
such approval, or by the vote of a Fund's shareholders or a Portfolio's interest
holders. A Management Agreement may be terminated with respect to a Fund or a
Portfolio at any time, without penalty, by a majority vote of outstanding Fund
shares or Portfolio interests on sixty (60) days' written notice to the Manager,
or by the Manager, on sixty (60) days' written notice to the Trust or the AMR
Trust. A Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities for the registration of
shares; fees and expenses of Independent Trustees; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
FUND ADVISORY AGREEMENTS -- Each investment adviser has entered into a separate
investment advisory agreement with the Manager to provide investment advisory
services to the Funds and their corresponding Portfolios. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
an investment adviser will receive an advisory fee only on behalf of the
Portfolio and not on behalf of its corresponding Fund. Except for the Money
Market Portfolios and the Limited-Term Income Portfolio, the assets of each
Portfolio are allocated among the investment advisers designated for that
Portfolio and described in this Prospectus in "Investment Advisers." All new
investment advisers are subject to approval by the Board and the AMR Trust Board
and are currently subject to approval by the shareholders/interest holders of
the applicable Fund or Portfolio. However, there is currently pending with
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the Securities and Exchange Commission an application for an exemptive order
which, if granted, would permit the hiring of investment advisers and the
modification of the fund advisory agreements solely on the Boards' approval and
without prior approval of shareholders or interest holders. Should the exemptive
order be granted, a Portfolio may rely upon the order only if a majority of the
applicable Portfolio's interest holders approve such a motion to be presented at
a meeting of shareholders on or about March 26, 1996. The Manager recommends
investment advisers to the Board and the AMR Trust Board based upon its
continuing quantitative and qualitative evaluation of the investment advisers'
skill in managing assets using specific investment styles and strategies. The
allocation of assets among investment advisers may be changed at any time by the
Manager. Allocations among advisers will vary based upon a variety of factors,
including the overall investment performance of each investment adviser, the
Portfolio's cash flow needs and market conditions. The Manager need not allocate
assets to each investment adviser designated for a Portfolio. The investment
advisers can be terminated without penalty to the AMR Trust by the Manager, the
AMR Trust Board or the interest holders of the applicable Portfolio. Short-term
investment performance, by itself, is not a significant factor in selecting or
terminating an investment adviser, and the Manager does not expect to recommend
frequent changes of investment advisers. The Prospectus will be supplemented if
additional investment advisers are retained or the contract with any existing
investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board and the Manager, these parties do not
evaluate the investment merits of specific securities transactions. As
compensation for its services, each investment adviser is paid a fee by the
Manager out of the proceeds of the management fee received by the Manager from
the AMR Trust.
ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. As compensation for
these services, the Manager receives an annualized fee of 0.25% of the net
assets of the PlanAhead Class of the Variable NAV Funds and 0.05% of the net
assets of the PlanAhead Class of the Money Market Funds. The fee is payable
quarterly in arrears.
SERVICE PLAN -- The PlanAhead Class has adopted a service plan ("Service Plan")
which provides that each PlanAhead Class will pay 0.25% per annum of its average
daily net assets to the Manager (or another entity approved by the Board). The
Manager or these approved entities may spend such amounts on any activities or
expenses primarily intended to result in or relate to the servicing of PlanAhead
Class shares including but not limited to payment of shareholder service fees
and transfer agency or sub-transfer
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agency expenses. The fee, which is included as part of a Fund's "Other Expenses"
in the Table of Fees and Expenses of this prospectus, will be payable monthly in
arrears without regard to whether the amount of the fee is more or less than the
actual expenses incurred in a particular month by the entity for the services
provided pursuant to the Service Plan. The primary expenses expected to be
incurred under the Service Plan are transfer agency fees and servicing fees paid
to financial intermediaries such as plan sponsors and discount brokers.
The Service Plan will continue in effect so long as its continuance is
approved at least annually by a majority of the Trustees, including the
affirmative votes of a majority of the Trustees of the Board who are not parties
to the Service Plan or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of considering
such approval, or by the vote of shareholders. The Service Plan may be
terminated with respect to a particular PlanAhead Class at any time, without the
payment of any penalty, by a vote of a majority of the Independent Trustees or
by a vote of a majority of the outstanding voting securities of the applicable
Fund's PlanAhead Class.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas, 75205 serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- The PlanAhead Class transfer agent is GOLDMAN,
SACHS & CO. ("Goldman"). NATIONSBANK OF TEXAS, N.A., Dallas, Texas, serves as
custodian for the Portfolios and the Funds. THE CHASE MANHATTAN BANK N.A., New
York, New York, acts as subcustodian for the International Equity Portfolio.
INDEPENDENT AUDITOR -- The independent auditor for the Trust and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each
Fund and its corresponding Portfolio, except for the Money Market Funds and
their corresponding Portfolios, whose sole investment adviser is the Manager.
References to the investment advisers retained by a Portfolio also apply to the
corresponding Fund. Except for the Manager, none of the investment advisers
provides any services to the Funds or the Portfolios except for portfolio
investment management and related recordkeeping services, or has any affiliation
with the Trust, the AMR Trust or the Manager.
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William F. Quinn has served as President of the Manager since it was founded
in 1986, and Nancy A. Eckl currently serves as Vice President - Trust
Investments of the Manager. She previously served as Vice President - Finance
and Compliance of the Manager from December 1990 to May 1995. In these
capacities, Mr. Quinn and Ms. Eckl have primary responsibility for the
day-to-day operations of the Balanced Fund, the Growth and Income Fund, the
International Equity Fund and their corresponding Portfolios. These
responsibilities include oversight of the investment advisers, regular review of
each adviser's performance and asset allocations among investment advisers.
Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and currently serves as Vice
President-Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President, Institutional Fixed Income Sales at Merrill,
Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment advisory services since 1979. The firm is
wholly owned by United Asset Management Corporation, a Delaware corporation,
which owns forty-five investment management companies, including Barrow. As of
December 31, 1995, Barrow had discretionary investment management authority with
respect to approximately $16.3 billion of assets, including approximately $1.4
billion of assets of AMR and its subsidiaries and affiliated entities. Barrow
serves as an investment adviser to the Balanced Portfolio, the Growth and Income
Portfolio and the Limited-Term Income Portfolio, although the Manager does not
presently intend to allocate any of the assets in the Limited-Term Income
Portfolio to Barrow. The Manager pays Barrow an annualized fee equal to .30% on
the first $200 million in AMR Trust assets under its discretionary management,
.20% on the next $300 million, .15% on the next $500 million, and .125% on
assets over $1 billion.
BRANDYWINE ASSET MANAGEMENT, INC., 201 North Walnut Street, Wilmington,
Delaware 19801, is a privately held professional investment counseling firm
founded in 1986. As of December 31, 1995, Brandywine had assets under management
totaling approximately $4.7 billion, including approximately $124 million of
assets of AMR and its subsidiaries and affiliated entities. If approved by
interest holders of the Balanced Portfolio and the Growth and Income Portfolio
at a meeting of shareholders and other investors of the Portfolios to be held on
or about March 26, 1996, Brandywine will serve as an investment adviser to those
Portfolios. For its services to the Balanced Portfolio and the Growth and Income
Portfolio, the Manager will pay
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Brandywine an annualized fee equal to .225% and .25%, respectively, of the
average daily net assets of each Portfolio allocated to Brandywine for
management.
BOATMEN'S TRUST COMPANY, 100 N. Broadway, St. Louis, Missouri 63178, is a
professional trust and investment advisory firm founded in 1889 and has been
providing investment services since the 1930s. Boatmen's is a wholly owned
subsidiary of Boatmen's Bancshares, Inc. As of December 31, 1995, Boatmen's had
assets under management totaling approximately $45 billion, including
approximately $140 million of assets of AMR and its subsidiaries and affiliated
entities. If approved by interest holders of the Balanced Portfolio and the
Growth and Income Portfolio at a meeting of shareholders and other investors of
the Portfolios to be held on or about March 26, 1996, Boatmen's will serve as an
investment adviser to those Portfolios, although the Manager does not presently
intend to allocate assets to Boatmen's. For its services to the Balanced
Portfolio and the Growth and Income Portfolio, the Manager will pay Boatmen's an
annualized fee equal to .25% of the average daily net assets of each Portfolio
allocated to Boatmen's for management.
CAPITAL GUARDIAN TRUST COMPANY, 333 South Hope Street, Los Angeles,
California 90071, is a California state chartered trust company which was formed
in 1968. The firm is a wholly owned subsidiary of The Capital Group, Inc., a
company whose subsidiaries provide investment management and related financial
services. Capital managed approximately $49.5 billion in assets as of December
31, 1995, which included approximately $684 million of assets of AMR and its
subsidiaries and affiliated entities. Capital serves as an investment adviser to
the Balanced Portfolio, the Growth and Income Portfolio and the Limited-Term
Income Portfolio, although the Manager does not presently intend to allocate any
of the assets in the Limited-Term Income Portfolio to Capital. If Brandywine is
approved as an investment adviser to the Balanced Portfolio and the Growth and
Income Portfolio, the Manager intends to allocate a portion of the assets
managed by Capital to Brandywine. The Manager pays Capital an annualized fee
equal to .50% of the first $20 million of AMR Trust assets under its
discretionary management, .35% of the next $30 million of assets, and .225% of
all excess assets for the Growth and Income Portfolio and .20% of all excess
assets for the Balanced Portfolio. However, a 5% fee reduction applies to assets
between $500 million and $750 million, a 7.5% fee reduction on assets between
$750 million and $1 billion and a 10% fee reduction on assets over $1 billion.
The reduction is applied to the overall effective fee rate for all assets
managed by Capital.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation, which owns
forty-five investment management companies, including GSB. As of December 31,
1995, GSB managed approximately $2.9 billion of assets, including approximately
$611 million of assets of AMR and its subsidiaries and affiliated
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entities. GSB serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. The Manager pays GSB an annualized fee equal to
.30% of the first $100 million in AMR Trust assets under its discretionary
management, .25% of the next $100 million, .20% of the next $100 million, and
.15% on all excess assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley, who are the firm's founding
General Partners. Assets under management as of December 31, 1995 were
approximately $9.0 billion, which included approximately $988 million of assets
of AMR and its subsidiaries and affiliated entities. Hotchkis and Wiley serves
as an investment adviser to the Balanced Portfolio, the Growth and Income
Portfolio and the International Equity Portfolio. The advisory contract provides
for the Manager to pay Hotchkis and Wiley an annualized fee equal to .60% of the
first $10 million of assets under its discretionary management, .50% of the next
$140 million of assets, .30% on the next $50 million of assets and .20% of all
excess AMR Trust assets managed by Hotchkis and Wiley.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1995,
including funds managed for its parent company, were approximately $21.4
billion, which included approximately $820 million of assets of AMR and its
subsidiaries and affiliated entities. IIA serves as an investment adviser to the
Balanced Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets, and .20%
of all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 1221 Avenue of the Americas,
New York, New York 10020, is a wholly owned subsidiary of Morgan Stanley Group
Inc. MSAM provides portfolio management and named fiduciary services to taxable
and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. At
September 30, 1995, MSAM had assets under management totaling approximately
$55.2 billion, including approximately $40.1 billion under active management and
$15.1 billion as named fiduciary or fiduciary adviser. As of December 31, 1995,
MSAM had investment authority over approximately $404 million of assets of AMR
and its subsidiaries and affiliated entities. MSAM serves as an investment
adviser to the International Equity Portfolio. For this service, the Manager
pays MSAM an annual fee equal to .80% of the first $25 million in AMR Trust
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% on all excess assets.
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ROWE PRICE-FLEMING INTERNATIONAL, INC., 100 East Pratt Street, Baltimore,
Maryland 21202, is a professional investment counseling firm founded in 1979.
Fleming is a joint venture owned entirely by its three parent companies, T. Rowe
Price, Robert Fleming and Jardine Fleming. As of December 31, 1995, Fleming had
assets under management totaling approximately $22.2 billion, including
approximately $197 million of assets of AMR and its subsidiaries and affiliated
entities. If approved by interest holders of the International Equity Portfolio
at a meeting of shareholders and other investors of the Portfolio to be held on
or about March 26, 1996, Fleming will serve as an investment adviser of the
Portfolio, although the Manager does not presently intend to allocate assets to
Fleming. For its services to the International Equity Portfolio when total
assets under Fleming's management are less than $200 million, the Manager will
pay Fleming an annualized fee equal to 0.75% of the first $20 million, 0.60% of
the next $30 million and 0.50% on amounts over $50 million. When assets under
Fleming's management exceed $200 million but are less than $500 million, the
Manager will pay Fleming an annualized fee equal to 0.50% on all assets. When
assets under Fleming's management exceed $500 million but are less than $750
million, the Manager will pay an annualized fee equal to 0.45% on all assets,
and when assets exceed $750 million, the Manager will pay Fleming a flat fee of
0.40% on all assets. When asset levels are between $184 million and $200
million, Fleming will pay the Manager a sliding credit to adjust for the
difference between the two fee schedules. The credit is determined by pro-rating
the difference between the original tiered fee and the flat fee ($80,000 per
annum at all asset levels) over the difference between $200 million and the
current asset size for billing purposes.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1995, Templeton had discretionary investment management authority with respect
to approximately $14.4 billion of assets, including approximately $288 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. For this
service, the Manager pays Templeton an annualized fee equal to .50% of the first
$100 million in AMR Trust assets under its discretionary management, .35% of the
next $50 million in assets, .30% of the next $250 million in assets and .25% on
assets over $400 million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser (except assets managed by
Barrow under the HALO Bond Program). For the purpose of determining the
applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any
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such assets will result in lower overall fee rates being applied to the
applicable Portfolio.
HOW TO PURCHASE SHARES
Shares are sold on a continuous basis. Purchase orders should be directed to
the transfer agent either by mail, by pre-authorized investment or by wire as
described here and in the chart below. The minimum initial purchase for each
Fund is $10,000, except for accounts opened by employees or retirees of AMR
Corporation or one of its subsidiaries ("AMR Related Accounts") for which a
$5,000 minimum applies. The Funds have no obligation to accept purchase requests
or maintain accounts which do not meet minimum purchase requirements. Accounts
opened through financial intermediaries may be subject to lower or higher
minimums. The minimum for subsequent purchases is $250, except for wire
purchases for which a $1,000 minimum applies. The management of the Fund
reserves the right to waive or change the minimum investment requirements.
An order to purchase shares of a Variable NAV Fund will be executed at the
next share price calculated on the day on which the New York Stock Exchange (the
"Exchange") is open for trading and the custodian and transfer agent are open
for business ("Business Day"). Shares of the Variable NAV Funds are offered and
purchase orders are accepted until 4:00 p.m. Eastern time on each Business Day.
An order to purchase shares of the Money Market Funds will be executed at the
Fund's next determined net asset value per share on any day on which the Federal
Reserve, the Funds' custodian and Funds' transfer agent are open for business
("Money Market Business Day") and during which federal funds become available to
the Fund. Shares are offered and orders are accepted for the Municipal Money
Market Fund until 12:00 p.m. Eastern time and for the U.S. Treasury Money Market
Fund until 12:30 p.m. Eastern time and for the Money Market Fund until 3:00 p.m.
Eastern time, on each Money Market Business Day. The Trust reserves the right to
reject any order for the purchase of shares and to limit or suspend, without
prior notice, the offering of shares. "Federal funds" are funds deposited by a
commercial bank in an account at a federal reserve bank that can be transferred
to a similar account of another bank in one day and thus may be made immediately
available to a Money Market Fund through its custodian.
OPENING AN ACCOUNT -- A completed and signed PlanAhead Class application is
required for each new account opened, regardless of the method chosen for making
an initial investment. If assistance is required in filling out the application,
or if extra applications are required, call (800) 231-4252. See "Retirement
Accounts" for information on opening retirement accounts.
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HOW TO PURCHASE SHARES
<TABLE>
<CAPTION>
INITIAL SUBSEQUENT
INVESTMENT INVESTMENTS
<S> <C> <C>
MINIMUM $10,000 ($5,000 for AMR $250, ($1,000 for wire transfers)
INVESTMENT Related Accounts). Shares
purchased through financial
intermediaries may have
lower or higher minimums.
- ---------------------- ---------------------------- ----------------------------------
INVESTMENTS BY MAIL Please make check payable to Please make check payable to the
American AAdvantage Funds- applicable American AAdvantage
MAIL TO: PlanAhead Class-Specific Funds- PlanAhead Class and include
American AAdvantage Fund (Balanced, Growth and your account number on the check.
Funds-- Income, International Mail to the address printed on
PlanAhead Class Equity, Limited-Term Income, your account statement. Include
P.O. Box 4580 Money Market, Municipal either the detachable form from
Chicago, IL 60680-4580 Money Market or U.S. your account statement, the
Treasury Money Market Fund) deposit slips provided with your
and mail with your checkbook (if you have a Money
application. Market account and opted for
checking) or a letter with the
account name and number.
- ---------------------- ---------------------------- ----------------------------------
INVESTMENTS BY Not available. Amount is drawn on your bank
PRE-AUTHORIZED checking account and automatically
AUTOMATIC PURCHASE invested on a specific day each
Call (800) 231-4252 to month.
establish.
- ---------------------- ---------------------------- ----------------------------------
INVESTMENTS BY WIRE An application must precede $1,000 minimum
Call (800) 231-4252 to initial purchase. Indicate
wire funds. "new" for account number.
- ------------------------------------------------------------------------------------------
</TABLE>
Federal funds should be wired to: State Street Bank & Trust Co., ABA Routing
#0110-0002-8; BNF=GSFG/AC-25652520; Attn.: American AAdvantage
Funds -- PlanAhead Class -- Specific Fund (Balanced, Growth and Income,
International Equity, Limited-Term Income, Money Market, Municipal Money Market
or U.S. Treasury Money Market Fund) together with the account registration and
number. Investors will be responsible for any charges assessed by their bank to
handle wire transfers.
HOW TO REDEEM SHARES
Shares of the Variable NAV Funds may be redeemed by telephone, by pre-
authorized automatic redemption or by mail on any Business Day. Shares of the
Money Market Funds may be redeemed by telephone, by writing a check, by pre-
authorized automatic redemption or by mail on any Money Market Business Day.
Shares will be redeemed at the net asset value next calculated after the
applicable Fund has received and accepted the redemption request. Proceeds from
a redemption of shares purchased by check or pre-authorized automatic purchase
may be withheld until the funds have cleared, which may take up to 15 days.
Although the Funds intend to
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redeem shares in cash, each Fund reserves the right to pay the redemption price
in whole or in part by a distribution of readily marketable securities held by
the applicable Fund's corresponding Portfolio. See the SAI for further
information concerning redemptions in kind.
A shareholder's account will be charged $12 for wire redemptions to cover
transaction costs. Redemption proceeds will generally be sent within one
Business Day or Money Market Business Day, as applicable. However, if making
immediate payment could affect a Fund adversely, it may take up to seven days to
send payment.
A minimum of $5,000 is required in order to maintain an account in a Fund.
Otherwise, a Fund may give a shareholder 60 days' notice to increase the account
balance to this level in order to avoid account closure. If a shareholder does
not increase the account balance to $5,000 within the 60 day period, the Fund is
entitled to close the account and mail the proceeds to the address of record.
To ensure timely acceptance of a redemption request, please adhere to the
following procedures.
REDEEMING BY TELEPHONE -- Shares may be redeemed by telephone if the
shareholder's account application reflects authorization for that option.
Minimum redemption amounts are $100 for check redemptions and $1,000 for wire
redemptions. Telephone redemptions in any 30 day period shall not exceed $25,000
without the express written consent of the Trust. In order to redeem by
telephone, investors should call the transfer agent at (800) 231-4252.
Redemption proceeds will only be mailed to the address of record or mailed or
wired to a commercial bank account designated on the account application.
By establishing the telephone redemption service, investors authorize the
Funds or their agent to act upon verbal instructions to redeem shares for any
account for which such service has been authorized. In an effort to prevent
unauthorized or fraudulent redemption requests by telephone, the transfer agent
will employ reasonable procedures specified by the Funds to confirm that such
instructions are genuine. For instance, all telephone redemption requests will
be recorded and proceeds of telephone redemption requests will only be sent to
the address or account designated in the application. Neither the Funds, the
Trusts, the Manager, Goldman, or their trustees, directors or officers will be
liable for any unauthorized or fraudulent redemption instructions received by
telephone. If reasonable procedures as described above are not implemented,
these parties may be liable for any loss due to unauthorized or fraudulent
transactions. Due to the volume of calls or other unusual circumstances,
telephone redemptions may be difficult to implement during certain time periods.
This service may be amended or terminated at any time by the transfer agent or
the Trust without prior notice.
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REDEEMING BY CHECK -- If an investor elects on the application, shares of the
Money Market Funds may be redeemed through the check writing feature. There is
no limit on the number of checks written per month and no check redemption fees.
Checks must be written in amounts of $100 or more. Check drafts however, are not
returned to shareholders. If copies of drafts are required, a service charge of
$2 per check will be assessed to the shareholder.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- PlanAhead Class shareholders can arrange
to have a pre-authorized amount ($100 or more) redeemed from their shareholder
account and automatically deposited into a bank account on one or more specified
day(s) of each month. For more information regarding pre-authorized automatic
redemptions, contact the transfer agent at (800) 231-4252.
REDEEMING BY MAIL -- Except for certain intermediary accounts, a letter of
instruction may be mailed to Goldman c/o the American AAdvantage
Funds -- PlanAhead Class, P.O. Box 4580, Chicago, IL 60680-4580. It should
specify the Fund (Balanced, Growth and Income, International Equity,
Limited-Term Income, Money Market, Municipal Money Market or U.S. Treasury Money
Market Fund), the number of shares or dollar amount to be redeemed, the
shareholder's name and account number. The letter of instruction must be signed
by all persons required to sign for the account, exactly as it is registered.
For redemptions over $25,000, authorization to send redemption proceeds to an
address other than the address of record or to a commercial bank account other
than the account designated on the application, or redemptions on an account
whose address of record has been changed within thirty days, the letter of
instruction must be accompanied by a signature guarantee by a financial
institution satisfying the standards established by Goldman.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Money Market Fund generally will be paid at the
time of redemption.
RETIREMENT ACCOUNTS
Individual retirement accounts, including SEPs and Keoghs, are eligible
investors in the PlanAhead Class. State Street Bank generally serves as
custodian for retirement accounts in the PlanAhead Class. A special retirement
account application is required in order to open this type of account. Each
shareholder is charged an administrative fee of $12.00 per year for each
retirement account regardless of the number of Funds. To receive a retirement
account application, call (800) 423-7526. If you have any questions about
establishing this type of account, call Goldman at (800) 231-4252.
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EXCHANGE PRIVILEGE
PlanAhead Class shares which have been registered in a shareholder's name
for at least 15 days may be exchanged into shares of the PlanAhead Class of
another Fund. A minimum exchange of $250 is required into existing accounts. If
a shareholder wishes to establishes a new account in the PlanAhead Class of
another Fund by making an exchange, a $10,000 minimum ($5,000 for AMR Related
Accounts) is required.
Except for certain intermediary accounts, shareholders may exchange shares
by sending the Funds a written request or by calling Goldman at (800) 231-4252.
The exchange will be processed at the next share price calculated after the
request is received in good order by the Funds. In establishing a telephone
exchange service, shareholders authorize the Funds or their agent to act upon
verbal instructions to exchange shares from any account for which such service
is authorized to any identically registered PlanAhead Class account(s). Goldman
will use reasonable procedures specified by the Funds to confirm that such
instructions are genuine such as the recording of all telephone exchange
requests. If reasonable procedures as described above are implemented, neither
the Funds, the Trusts, the Manager, Goldman, nor their trustees, directors or
officers will be liable for any unauthorized or fraudulent instructions.
The general redemption policies apply to redemptions by telephone exchange.
The exchange privilege may be modified or terminated at any time by the Funds.
The Funds reserve the right to limit the number of exchanges an investor may
exercise.
DISTRIBUTION OF TRUST SHARES
Shares are distributed through the Funds' principal underwriter, BTS. BTS is
compensated by the Manager, and not the Trust. The Trust does not incur any
direct distribution expenses other than those relating to the Platinum Class.
However, the Trust has adopted a Distribution Plan in accordance with Rule 12b-1
under the 1940 Act which authorizes the use of any fees received by the Manager
in accordance with the Administrative Services and the Management Agreements and
any fees received by the investment advisers pursuant to their Advisory
Agreements with the Manager, to be used for distribution purposes.
VALUATION OF SHARES
The net asset value of each share (share price) of the Variable NAV Funds is
determined as of 4:00 p.m. Eastern time on each Business Day and the net asset
value of each share of the Money Market Funds is determined as of 4:00 p.m.
Eastern time on each Money Market Business Day. The net asset value of shares of
the PlanAhead Class will be determined based on a pro rata allocation of the
value of the Fund's corresponding Portfolio's investment income, expenses and
total capital gains and losses. The allocation will be based on comparative net
asset value at the beginning of
PROSPECTUS
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<PAGE> 114
the day except for expenses related solely to one class of shares ("Class
Expenses") which will be borne only by the appropriate class of shares. Because
of the Class Expenses, the net income attributable to and the dividends payable
may be different for each class of shares. Additionally, the Variable NAV Funds
may compute differing share prices as a result of Class Expenses.
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the AMR Board. 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) will normally 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 Board. Assets and liabilities denominated
in foreign currencies and forward currency contracts are translated into U.S.
dollar equivalents based on prevailing market rates. Portfolio obligations held
by the Money Market Portfolios are valued in accordance with the amortized cost
method, which is designed to enable those Portfolios and their corresponding
Funds to maintain a consistent $1.00 per share net asset value. Investment grade
short-term obligations with 60 days or less to maturity held by all other
Portfolios also are valued using the amortized cost method as described in the
SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
Dividends and other distributions paid on each class of a Fund's shares are
calculated at the same time and in the same manner. Dividends from the net
investment income of the Balanced Fund, the Growth and Income Fund and the
International Equity Fund normally are declared annually. Dividends consisting
of substantially all of the net investment income of the Limited-Term Income
Fund, which are paid monthly, normally are declared on each Business Day
immediately prior to the determination of the net asset value and are payable to
shareholders of record as of the opening of
PROSPECTUS
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<PAGE> 115
business on the day on which declared. A Fund's net investment income
attributable to the PlanAhead Class consists of that class's pro rata share of
the Fund's share of dividends and interest (including discount) accrued on its
corresponding Portfolio's securities, less applicable expenses of the Fund and
the Portfolio attributable to the PlanAhead Class. Distributions of a Fund's
share of its corresponding Portfolio's realized net short-term capital gain, net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), and net gains from foreign currency transactions, if any,
normally is made annually.
All of each Money Market Fund's net investment income and net short-term
capital gain, if any, generally is declared as dividends on each Money Market
Business Day immediately prior to the determination of the net asset value.
Dividends generally will be paid on the first Money Market Business Day of the
following month. Each Money Market Fund's net investment income attributable to
the PlanAhead Class will consist of that class' pro rata share of the Fund's
share of interest accrued and discount earned on its corresponding Portfolio's
securities less amortization of premium and estimated expenses of both the
Portfolio and the Fund attributable to the PlanAhead Class. The Money Market
Portfolios do not expect to realize net capital gain, and, therefore, the Money
Market Funds do not foresee paying any capital gain distributions. If any Money
Market Fund (either directly or indirectly through its corresponding portfolio)
incurred or anticipated any unusual expenses, loss or depreciation that would
adversely affect its net asset value or income for a particular period, the
Board would at that time consider whether to adhere to the dividend policy
described above or to revise it in the light of the then prevailing
circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's PlanAhead Class shares will be
automatically declared and paid in additional PlanAhead Class shares of that
Fund. However, a shareholder may choose to have distributions of net capital
gain paid in shares and dividends paid in cash or to have all such distributions
and dividends paid in cash. An election may be changed at any time by delivering
written notice that is received by the transfer agent at least ten days prior to
the payment date for a dividend or other distribution.
Each Fund is treated as a separate corporation for federal income tax
purposes and intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended. In each
taxable year that a Fund so qualifies, the Fund (but not its shareholders) will
be relieved of federal income tax on that part of its investment company taxable
income (generally, net investment income plus any net short-term capital gain
and gains from certain foreign currency transactions) and net capital gain that
it distributes to its shareholders. However, a Fund will be subject to a
nondeductible 4% excise tax to the extent that it fails to distribute by the end
of any calendar year substantially all of its ordinary income for that calendar
year and its capital gain net income for the one-year period ending on October
31 of that year, plus certain other amounts. For these and other purposes,
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dividends and other distributions declared by a Fund in October, November or
December of any year and payable to shareholders of record on a date in one of
those months will be deemed to have been paid by the Fund and received by the
shareholders on December 31 of that year if they are paid by the Fund during the
following January. Each Portfolio has received a ruling from the Internal
Revenue Service that it is classified for federal income tax purposes as a
partnership; accordingly, no Portfolio is subject to federal income tax.
Dividends from a Fund's investment company taxable income will be taxable to
its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Fund shares.
Distributions of a Fund's net capital gain (whether received in cash or paid in
additional Fund shares), when designated as such, generally will be taxable to
its shareholders as long-term capital gain, regardless of how long they have
held their Fund shares. A capital gain distribution from a Fund also may be
offset by capital losses from other sources.
Some foreign countries may impose withholding taxes on certain dividends
payable to the International Equity Portfolio. The International Equity Fund's
share of any such tax withheld may either be treated by that Fund as a deduction
or, if it satisfies certain requirements, it may elect to flow the tax through
to its shareholders, who in turn may either treat it as a deduction or use it in
calculating a credit against their federal income tax.
A portion of the income dividends paid by the Balanced Fund and the Growth
and Income Fund is eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the respective Fund's
aggregate dividends received from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends-received
deduction may be subject indirectly to the AMT. The International Equity Fund's
dividends will most likely not qualify for the dividends-received deduction
because none of the dividends received by that Fund are expected to be paid by
U.S. corporations.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns taxable income from
any of its investments, the Municipal Money Market Fund's share of income will
be distributed to its shareholders as a taxable dividend. To the extent that
Portfolio invests in certain private activity obligations, that Fund's
shareholders will be required to treat a portion of its dividends as a "tax
preference item" in determining their liability for the AMT. Exempt-interest
dividends also may be subject to state and local tax laws. Because some states
exempt from tax the interest on their own obligations and obligations of
governmental agencies of and municipalities in the state, shareholders will
receive tax information each year regarding the Municipal Money Market Fund's
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<PAGE> 117
exempt-interest income by state. Interest on indebtedness incurred or continued
by a shareholder to purchase or carry shares of that Fund is not deductible.
Redemption of Fund shares (other than shares of the Money Market Funds) may
result in taxable gain or loss to the redeeming shareholder, depending upon
whether the fair market value of the redemption proceeds exceeds or is less than
the shareholder's adjusted basis for the redeemed shares. An exchange of shares
of a Fund for shares of any other Fund (see "Exchange Privileges") generally
will have similar tax consequences. If shares of a Fund are sold at a loss after
being held for six months or less, the loss will be treated as long-term,
instead of short-term, capital loss to the extent of any capital gain
distributions received on those shares.
If shares are purchased shortly before the record date for a dividend (other
than an exempt-interest dividend) or other distribution, the investor will pay
full price for the shares and receive some portion of the price back as a
taxable distribution.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
(and for the International Equity Fund, if it satisfies the requirements and
makes the election referred to above, their share of that Fund's share of any
foreign taxes paid by the International Equity Portfolio) that year and of any
portion of those dividends that qualifies for the corporate dividends-received
deduction. The notice sent by the Municipal Money Market Fund specifies the
amounts of exempt-interest dividends (and the portion thereof, if any, that is a
tax preference item for purposes of the AMT) and any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends, and, for all
Funds other than the Money Market Funds, capital gain distributions and
redemption proceeds payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer identification
number or (except with respect to redemption proceeds) who otherwise are subject
to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Trust.
For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of eight separate investment portfolios.
Each Fund is comprised of three classes of shares, which can be issued in an
unlimited number. Each share represents an equal proportionate beneficial
interest in that Fund and is entitled to one vote. Only shares of a particular
class may vote on matters
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affecting that class. Only shares of a particular Fund may vote on matters
affecting that Fund. All shares of the Trust vote on matters affecting the Trust
as a whole. Share voting rights are not cumulative, and shares have no
preemptive or conversion rights. Shares of the Trust are nontransferable.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the Portfolio's report to shareholders will be provided to
the shareholders of its corresponding Fund.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
As more fully described in the SAI, the following persons may be deemed to
control certain Funds by virtue of their ownership of more than 25% of the
outstanding shares of a Fund as of January 31, 1996:
<TABLE>
<S> <C>
AMERICAN AADVANTAGE BALANCED FUND
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 68%
AMERICAN AADVANTAGE GROWTH AND INCOME FUND
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 90%
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 88%
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
Retirement Advisors of America, Inc. 40%
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 36%
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
Southwest Securities, Inc. 99%
AMERICAN AADVANTAGE U.S. TREASURY MONEY MARKET FUND
Southwest Securities, Inc. 74%
</TABLE>
PROSPECTUS
46
<PAGE> 119
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Trust
and the AMR Trust will be audited by Ernst & Young LLP, independent auditor, at
least annually. Shareholder inquiries and requests for information regarding the
other investment companies which also invest in the AMR Trust should be made in
writing to the Funds at P.O. Box 619003, MD5645, Dallas/Fort Worth Airport,
Texas 75261-9003, or by calling (800) 388-3344.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY PLANAHEAD CLASS SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
PlanAhead Class, Platinum Class, American AAdvantage Balanced Fund, American
AAdvantage Growth and Income Fund, American AAdvantage International Equity
Fund, American AAdvantage Limited-Term Income Fund, American AAdvantage Money
Market Fund, American AAdvantage Municipal Money Market Fund and American
AAdvantage U.S. Treasury Money Market Fund are service marks of AMR Investment
Services, Inc.
PROSPECTUS
47
<PAGE> 120
[LOGO]
- PlanAhead Class -(SM)
P.O. Box 4580
Chicago, Illinois 60680-4580
(800) 388-3344
- Platinum Class -(SM)
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- Institutional Class -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
<PAGE> 121
THIS PROSPECTUS contains important information about the AMR Class of the
American AAdvantage Funds ("Trust"), an open- end management investment
company, which consists of multiple investment portfolios. This Prospectus
pertains only to the four funds listed on this cover page (individually
referred to as a "Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A
CORRESPONDING PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND,
COLLECTIVELY, "PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST")
WHICH HAS AN INVESTMENT OBJECTIVE IDENTICAL TO THAT FUND. The investment
experience of each Fund will correspond directly with the investment experience
of each Portfolio. Each Fund consists of multiple classes of shares designed to
meet the needs of different groups of investors. AMR Class shares are offered
to tax exempt retirement and benefit plans of AMR Corporation and its
affiliates. Prospective investors in the AMR Class should read this Prospectus
carefully before making an investment decision and retain it for future
reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1996 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 817-967-3509. For
further information about the AMR Class or for information on the other classes
of shares, please refer to the appropriate address and phone number on the back
cover of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
MARCH 1, 1996
[LOGO]
AMERICAN
AAdvantage
Funds(R)
- -AMR Class- SM
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
<PAGE> 122
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
Under a Hub and Spoke(R)1 operating structure, each Fund seeks its
investment objective by investing all of its investable assets in a
corresponding Portfolio as described above. Each Portfolio's investment
objective is identical to that of its corresponding Fund. Whenever the phrase
"all of the Fund's investable assets" is used, it means that the only investment
securities that will be held by a Fund will be that Fund's interest in its
corresponding Portfolio. AMR Investment Services, Inc. ("Manager") provides
investment management and administrative services to the Portfolios and
administrative services to the Funds. This Hub and Spoke structure is different
from that of many other investment companies which directly acquire and manage
their own portfolios of securities. Accordingly, investors should carefully
consider this investment approach. See "Investment Objectives, Policies and
Risks -- Additional Information About the Portfolios." A Fund may withdraw its
investment in a corresponding Portfolio at any time if the Trust's Board of
Trustees ("Board") determines that it would be in the best interest of that Fund
and its shareholders to do so. Upon any such withdrawal, that Fund's assets
would be invested in accordance with the investment policies and restrictions
described in this Prospectus and the SAI.
<TABLE>
<S> <C>
TABLE OF FEES AND EXPENSES....................... 3
FINANCIAL HIGHLIGHTS............................. 4
INTRODUCTION..................................... 8
INVESTMENT OBJECTIVES, POLICIES AND RISKS........ 9
INVESTMENT RESTRICTIONS.......................... 21
YIELDS AND TOTAL RETURNS......................... 21
MANAGEMENT AND ADMINISTRATION OF THE TRUST....... 22
INVESTMENT ADVISERS.............................. 25
PURCHASE, REDEMPTION AND VALUATION OF SHARES..... 29
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS... 32
GENERAL INFORMATION.............................. 34
SHAREHOLDER COMMUNICATIONS....................... 35
</TABLE>
- ---------------
1 Hub and Spoke is a registered service mark of Signature Financial Group, Inc.
PROSPECTUS
2
<PAGE> 123
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
GROWTH AND INTERNATIONAL LIMITED-TERM
BALANCED FUND INCOME FUND EQUITY FUND INCOME FUND
<S> <C> <C> <C> <C>
Management Fees(1) 0.28% 0.28% 0.43% 0.20%
12b-1 Fees 0.00% 0.00% 0.00% 0.00%
Other Expenses 0.08% 0.08% 0.11% 0.11%
---- ---- ---- ----
Total Operating Expenses 0.36% 0.36% 0.54% 0.31%
==== ==== ==== ====
</TABLE>
(1) The "Management Fee" represents those investment advisory fees paid to the
Manager and the investment advisers.
The Board believes that the aggregate per share expenses of each Fund and
its corresponding Portfolio will be approximately equal to the expenses that the
Fund would incur if its assets were invested directly in the type of securities
held by the Portfolio.
EXAMPLES
An AMR Class investor in each Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Balanced Fund $ 4 $12 $20 $46
Growth and Income Fund 4 12 20 46
International Equity Fund 6 17 30 68
Limited-Term Income Fund 3 10 17 39
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the AMR Class of a Fund. Additional information
may be found under "Management and Administration of the Trust" and "Investment
Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
PROSPECTUS
3
<PAGE> 124
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditors. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge.
PROSPECTUS
4
<PAGE> 125
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BALANCED FUND
-----------------------------------------------------------------------------------------------------
AMR CLASS INSTITUTIONAL CLASS
---------------------------- -------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, -------------------------------------------------------------------
1995(4)(5) 1994(1)(3) 1994(3) 1993 1992 1991 1990(2) 1989
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period $ 12.36 $ 12.35 $ 13.23 $ 11.99 $ 11.60 $ 9.87 $ 11.05 $ 10.13
--------- --------- -------- -------- -------- -------- -------- --------
Income from
investment
operations:
Net investment
income 0.58 0.14 0.57 0.49 0.55 0.58 0.57 0.53
Net gains (losses)
on securities (both
realized
and unrealized) 1.71 (0.13) (0.54) 1.57 0.41 1.79 (1.18) 0.90
--------- --------- -------- -------- -------- -------- -------- --------
Total from
investment
operations 2.29 0.01 0.03 2.06 0.96 2.37 (0.61) 1.43
--------- --------- -------- -------- -------- -------- -------- --------
Less distributions:
Dividends from net
investment income (0.53) -- (0.56) (0.52) (0.56) (0.64) (0.51) (0.51)
Distributions from
net realized gains
on securities (0.14) -- (0.34) (0.30) (0.01) -- (0.06) --
--------- --------- -------- -------- -------- -------- -------- --------
Total distributions (0.67) -- (0.90) (0.82) (0.57) (0.64) (0.57) (0.51)
--------- --------- -------- -------- -------- -------- -------- --------
Net asset value, end
of period $ 13.98 $ 12.36 $ 12.36 $ 13.23 $ 11.99 $ 11.60 $ 9.87 $ 11.05
========= ========= ======== ======== ======== ======== ======== ========
Total return
(annualized)(6) 19.77% (0.08)%(7) (0.08)% 19.19% 8.75% 25.35% (5.24)% 15.49%
========= ========= ======== ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end of
period
(in thousands) $ 542,619 $ 393,504 $222,873 $532,543 $370,087 $311,906 $233,702 $210,119
Ratios to average
net assets(8)(9)(10):
Expenses 0.38% 0.36% 0.36% 0.34% 0.35% 0.37% 0.44% 0.47%
Net investment
income 4.54% 4.65% 4.77% 4.91% 5.31% 6.06% 6.50% 6.32%
Portfolio turnover
rate 73% 48% 48% 83% 80% 55% 62% 78%
<CAPTION>
BALANCED FUND
-----------------------------------------------
INSTITUTIONAL CLASS
-----------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------- OCTOBER 31,
1988 1987(1)
-----------------------------------------------
<S> <C> <C>
Net asset value,
beginning
of period $ 9.08 $ 10.00
-------- --------
Income from
investment
operations:
Net investment
income 0.56 0.16
Net gains (losses)
on securities (both
realized
and unrealized) 0.73 (1.08)
-------- --------
Total from
investment
operations 1.29 (0.92)
-------- --------
Less distributions:
Dividends from net
investment income (0.40) --
Distributions from
net realized gains
on securities -- --
-------- --------
Total distributions (0.24) --
-------- --------
Net asset value, end
of period $ 10.13 $ 9.08
======== ========
Total return
(annualized)(6) 14.63% (31.84)%
======== ========
Ratios/supplemental
data:
Net assets, end of
period
(in thousands) $147,581 $118,986
Ratios to average
net assets(8)(9)(10):
Expenses 0.52% 0.45%
Net investment
income 6.25% 5.59%
Portfolio turnover
rate 77% 17%
</TABLE>
(1) The Balanced Fund commenced active operations on July 17, 1987. The AMR
Class commenced active operations on August 1, 1994 and at that time
existing shares of the Balanced Fund were designated as Institutional Class
shares.
(2) Penmark Investments, Inc. was replaced by Independence Investment
Associates, Inc. as an investment adviser to the Fund as of the close of
business on February 28, 1990.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) GSB Investment Management, Inc. was added as an investment adviser to the
Balanced Fund on January 1, 1995.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to approximately $.01 per share in each period on an
annualized basis.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(10) Annualized.
PROSPECTUS
5
<PAGE> 126
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------------------------------------------------------------
AMR CLASS INSTITUTIONAL CLASS
-------------------------- ------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, OCTOBER 31, ------------------------------------------------------------------------
1995(5) 1994(1)(4) 1994(4) 1993 1992(3) 1991 1990(2) 1989
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning
of period $ 14.20 $ 13.99 $ 14.63 $ 12.79 $ 12.10 $ 9.47 $ 11.59 $ 9.96
--------- -------- ------- -------- --------- --------- --------- --------
Income from
investment
operations:
Net investment
income 0.44 0.11 0.43 0.36 0.39 0.42 0.42 0.42
Net gains (losses)
on
securities (both
realized
and unrealized) 2.30 0.10 0.08 2.21 0.77 2.70 (1.94) 1.59
--------- -------- ------- -------- --------- --------- --------- --------
Total from
investment
operations 2.74 0.21 0.51 2.57 1.16 3.12 (1.52) 2.01
--------- -------- ------- -------- --------- --------- --------- --------
Less distributions:
Dividends from net
investment income (0.45) -- (0.41) (0.37) (0.39) (0.49) (0.43) (0.38)
Distributions from
net realized
gains on
securities (0.54) -- (0.54) (0.36) (0.08) -- (0.17) --
--------- -------- ------- -------- --------- --------- --------- --------
Total distributions (0.99) -- (0.95) (0.73) (0.47) (0.49) (0.60) (0.38)
--------- -------- ------- -------- --------- --------- --------- --------
Net asset value,
end of period $ 15.95 $ 14.20 $ 14.19 $ 14.63 $ 12.79 $ 12.10 $ 9.47 $ 11.59
========= ======== ======= ======== ======== ======== ======== ========
Total return
(annualized)(6) 21.03% 3.43%(7) 3.36% 21.49% 10.00% 33.83% (13.52)% 20.94%
========= ======== ======= ======== ======== ======== ======== ========
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $ 706,884 $505,892 $22,737 $477,088 $339,739 $264,628 $182,430 $187,869
Ratios to average
net assets(8)(9)(10):
Expenses 0.38% 0.37% 0.33% 0.34% 0.36% 0.37% 0.45% 0.45%
Net investment
income 3.20% 3.18% 3.28% 3.12% 3.57% 4.19% 4.49% 4.40%
Portfolio turnover
rate 26% 23% 23% 30% 35% 52% 41% 50%
<CAPTION>
GROWTH AND INCOME FUND
------------------------------------------------
INSTITUTIONAL CLASS
------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------- OCTOBER 31,
1988 1987(1)
------------------------------------------------
<S> <C> <C>
Net asset value,
beginning
of period $ 8.30 $ 10.00
-------- --------
Income from
investment
operations:
Net investment
income 0.42 0.10
Net gains (losses)
on
securities (both
realized
and unrealized) 1.40 (1.80)
-------- --------
Total from
investment
operations 1.82 (1.70)
-------- --------
Less distributions:
Dividends from net
investment income (0.16) --
Distributions from
net realized
gains on
securities -- --
-------- --------
Total distributions (0.16) --
-------- --------
Net asset value,
end of period $ 9.96 $ 8.30
======== ========
Total return
(annualized)(6) 22.20% (58.51)%
======== ========
Ratios/supplemental
data:
Net assets, end
of period
(in thousands) $140,073 $134,796
Ratios to average
net assets(8)(9)(10):
Expenses 0.53% 0.43%
Net investment
income 4.20% 3.68%
Portfolio turnover
rate 56% 22%
</TABLE>
(1) The Growth and Income Fund commenced active operations on July 17, 1987.
The AMR Class commenced active operations on August 1, 1994 and at that
time existing shares of the Growth and Income Fund were designated as
Institutional Class shares.
(2) GSB Investment Management, Inc. was added as an investment adviser to the
Growth and Income Fund on April 10, 1990.
(3) The assets of the Growth and Income Fund previously managed by Atlanta
Capital Management were transferred to GSB Investment Management, Inc. as
of the close of business on December 5, 1991.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(10) Annualized
PROSPECTUS
6
<PAGE> 127
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
--------------------------------------------------------------------------------------
AMR CLASS INSTITUTIONAL CLASS
---------------------------- ----------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
OCTOBER 31, OCTOBER 31, ----------------------------------- OCTOBER 31,
1995(5) 1994(1)(3)(4) 1994(3)(4) 1993(2) 1992 1991(1)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 12.87 $ 12.61 $ 12.07 $ 8.93 $ 10.13 $ 10.00
--------- --------- -------- ------- ------- --------
Income from investment
operations:
Net investment income 0.30 0.05 0.32 0.17 0.12 --
Net gains (losses) on
securities
(both realized and
unrealized) 0.68 0.21 1.10 3.09 (1.31) 0.13
--------- --------- -------- ------- ------- --------
Total from investment operations 0.98 0.26 1.42 3.26 (1.19) 0.13
--------- --------- -------- ------- ------- --------
Less distributions:
Dividends from net investment
income (0.22) -- (0.17) (0.12) (0.01) --
Distributions from net realized
gains on securities (0.32) -- (0.45) -- -- --
--------- --------- -------- ------- ------- --------
Total distributions (0.54) -- (0.62) (0.12) (0.01) --
--------- --------- -------- ------- ------- --------
Net asset value, end of period $ 13.31 $ 12.87 $ 12.87 $ 12.07 $ 8.93 $ 10.13
========= ========= ======== ======= ======= ========
Total return (annualized)(6) 8.18% 11.77% 11.77%(7) 36.56% (12.07)% 5.69%
========= ========= ======== ======= ======= ========
Ratios/supplemental data:
Net assets, end of period (in
thousands) $ 227,939 $ 165,524 $ 23,115 $66,652 $38,837 $ 10,536
Ratios to average net
assets(8)(9)(10):
Expenses 0.60% 0.63% 0.61% 0.78% 1.17% 1.90%(11)
Net investment income 2.65% 1.41% 2.74% 2.00% 2.04% 0.38%(11)
Portfolio turnover rate 21% 37% 37% 61% 21% 2%
</TABLE>
(1) The International Equity Fund commenced active operations on August 7,
1991. The AMR Class commenced active operations on August 1, 1994 and at
that time existing shares of the International Equity Fund were designated
as Institutional Class shares.
(2) HD International Limited was replaced by Hotchkis and Wiley as an
investment adviser to the International Equity Fund as of May 21, 1993.
(3) Morgan Stanley Asset Management Inc. was added as an investment adviser to
the International Equity Fund as of August 1, 1994.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(7) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.04 per share in each period on an
annualized basis and were waived by the Manager for the period ended
October 31, 1991.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(10) Annualized.
(11) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
7
<PAGE> 128
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIMITED-TERM INCOME FUND
------------------------------------------------------------------------------------------------------------------
AMR CLASS INSTITUTIONAL CLASS
--------------------------- ----------------------------------------------------------------------------------
YEAR ENDED PERIOD ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
OCTOBER 31, OCTOBER 31, ------------------------------------------------------------------ OCTOBER 31,
1995 1994(1)(3) 1994(3) 1993 1992 1991(2) 1990 1989 1988(1)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset
value,
beginning of
period $ 9.68 $ 9.78 $ 10.23 $ 10.13 $ 10.07 $ 9.76 $ 9.94 $ 10.12 $ 10.00
Income from
investment
operations:
Net
investment
income 0.64 0.14 0.52 0.58 0.75 0.83 0.92 0.96 0.64
Net gains
(losses) on
securities
(both
realized
and
unrealized) 0.13 (0.10) (0.46) 0.15 0.06 0.31 (0.18) (0.12) 0.05
------- ------ ---- ---- ---- ---- ---- ---- ------
Total from
investment
operations 0.77 0.04 0.06 0.73 0.81 1.14 0.74 0.84 0.69
------- ------ ---- ---- ---- ---- ---- ---- ------
Less
distributions:
Dividends
from net
investment
income (0.64) (0.14) (0.52) (0.58) (0.75) (0.83) (0.92) (1.02) (0.57)
Distributions
from net
realized
gains on
securities -- -- (0.10) (0.05) -- -- -- -- --
------- ------ ---- ---- ---- ---- ---- ---- ------
Total
distributions (0.64) (0.14) (0.62) (0.63) (0.75) (0.83) (0.92) (1.02) (0.57)
------- ------ ---- ---- ---- ---- ---- ---- ------
Net asset
value, end of
period $ 9.81 $ 9.68 $ 9.67 $ 10.23 $ 10.13 $ 10.07 $ 9.76 $ 9.94 $ 10.12
======= ======== ======== ======== ======== ======== ======= ======= ========
Total return
(annualized)(4) 8.22% 0.59%(5) 0.42% 7.20% 7.94% 11.87% 7.51% 7.62% 7.41%
======= ======== ======== ======== ======== ======== ======= ======= ========
Ratios/supplemental
data:
Net assets,
end of
period (in
thousands) $64,595 $ 53,445 $112,141 $238,874 $209,928 $141,629 $83,265 $60,507 $ 40,855
Ratios to
average net
assets(6)(7)(8):
Expenses 0.36% 0.33% 0.31% 0.26% 0.27% 0.35% 0.48% 0.59% 0.50%
Net
investment
income 6.60% 5.77% 5.26% 5.76% 7.40% 8.42% 9.44% 9.77% 8.01%
Portfolio
turnover
rate 183% 94% 94% 176% 133% 165% 156% 158% 127%
</TABLE>
(1) The Limited-Term Income Fund commenced active operations on December 3,
1987. The AMR Class commenced active operations on August 1, 1994 and at
that time existing shares of the Limited-Term Income Fund were designated as
Institutional Class shares.
(2) AMR Investment Services, Inc. began portfolio management of the Limited-Term
Income Fund on March 1, 1991 replacing Brown Brothers, Harriman & Co. and
Barrow, Hanley, Mewhinney & Strauss, Inc.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) Total return is calculated assuming an initial investment is made at the net
asset value last calculated on the business day before the first day of each
period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at net
asset value on the last day of each period reported.
(5) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(6) Effective August 1, 1994, expenses include administrative services fees paid
by the Fund to the Manager. Prior to that date, expenses exclude shareholder
services fees paid directly by shareholders to the Manager. Such fees
amounted to less than $.03 per share in each period on an annualized basis.
(7) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31, 1994.
(8) Annualized.
INTRODUCTION
The Trust is an open-end, management investment company organized as a
Massachusetts business trust on January 16, 1987. The Funds are four of the
several investment portfolios of the Trust. Each Fund has a distinctive
investment objective and investment policies. Each Fund will invest all of its
investable assets in a
PROSPECTUS
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<PAGE> 129
corresponding Portfolio of the AMR Trust which has an identical investment
objective. The Manager provides the Portfolios with business and asset
management services, including the evaluation and monitoring of the investment
advisers, and it provides the Funds with administrative services. Each Fund
consists of multiple classes of shares, including the "AMR Class," for
tax-exempt retirement and benefit plans of AMR Corporation and its affiliates,
the "PlanAhead Class" which is available to all investors, including smaller
institutional investors, investors using intermediary organizations such as
discount brokers or plan sponsors, individual retirement accounts ("IRAs"), and
self-employed individual retirement plans ("HR-10 Plans" or "Keogh Plans"), and
the "Institutional Class" which is available to large institutional investors
investing at least $2 million in the Funds. For further information about the
Institutional Class call (800) 967-9009 and for the PlanAhead Class call (800)
388-3344.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(losses) earned (or incurred) by the Fund. It also will bear its proportionate
share of expenses that are allocated to the Fund as a whole. However, certain
expenses presently are allocated separately to each class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. Investment decisions for the
Limited-Term Income Portfolio are made directly by the Manager. See "Investment
Advisers." Each investment adviser has discretion to purchase and sell portfolio
securities in accordance with the investment objectives, policies and
restrictions described in this Prospectus and in the SAI and by specific
investment strategies developed by the Manager.
AMR Class shares are sold without any sales charges at the next share price
calculated after an investment is received and accepted. Shares will be redeemed
at the next share price calculated after receipt of a redemption order. See
"Purchase, Redemption and Valuation of Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent with the investment objective of the applicable
Fund. However, each Fund's investment objective may not be changed without a
majority vote of that Fund's outstanding shares, which is defined as the lesser
of (a) 67% of the shares of the
PROSPECTUS
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<PAGE> 130
applicable Fund present or represented if the holders of more than 50% of the
shares are present or represented at the shareholders' meeting, or (b) more than
50% of the shares of the applicable Fund (hereinafter, "majority vote"). A
Portfolio's investment objective may not be changed without a majority vote of
that Portfolio's interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the Board.
AMERICAN AADVANTAGE BALANCED FUND -- This Fund's investment objective is to
realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating organizations ("Rating Organizations") rating that
security such as Standard & Poor's or Moody's Investor Services, Inc. or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. Obligations rated in the BBB or Baa
categories by any Rating Organization have speculative characteristics and thus
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. See the SAI for a description of debt ratings. The
Portfolio, at the discretion of the investment advisers, may retain a security
that has been downgraded below the initial investment criteria. The Portfolio
usually invests between 50% and 65% of its assets in equity securities and
between 35% and 50% of its assets in debt securities. The remainder of the
Portfolio's assets may be invested in other investment companies and in cash or
cash equivalents, including investment-grade short-term obligations. However,
when its investment advisers deem that market conditions warrant, the Portfolio
may, for temporary defensive purposes, invest up to 100% of its assets in cash,
cash equivalents and investment grade short-term obligations.
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government and its agencies and instrumentalities,
including
PROSPECTUS
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<PAGE> 131
separately traded registered interest and principal securities ("STRIPS") and
other zero coupon obligations; corporate bonds, notes and debentures;
non-convertible preferred stocks; mortgage-backed securities; asset-backed
securities; and domestic, Yankeedollar and Eurodollar bank deposit notes,
certificates of deposit, bonds and notes. Such obligations may have a fixed,
variable or floating rate of interest. See the SAI for a further description of
the foregoing securities. The value of the Portfolio's debt investments will
vary in response to interest rate changes as described in "American AAdvantage
Limited-Term Income Fund."
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" and on a "forward commitment" basis. The purchase or sale of
when-issued securities enables an investor to hedge against anticipated changes
in interest rates and prices by locking in an attractive price or yield. The
price of when-issued securities is fixed at the time the commitment to purchase
or sell is made, but delivery and payment for the when-issued securities take
place at a later date, normally one to two months after the date of purchase.
During the period between purchase and settlement, no payment is made by the
purchaser to the issuer and no interest accrues to the purchaser. Such
transactions therefore involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date or if the value of the security
to be sold increases prior to the settlement date. A sale of a when-issued
security also involves the risk that the other party will be unable to settle
the transaction. Dollar rolls are a type of forward commitment transaction.
Purchases and sales of securities on a "forward commitment" basis involve a
commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or on a forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date.
The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts which are
traded in the United States on exchanges and in the over-the-counter market.
When purchasing equity securities, emphasis will be placed on undervalued
securities with above average growth expectations. The Manager believes that
purchasing securities which the investment advisers believe are undervalued in
the market and that have above average growth potential will outperform other
investment styles over the longer term while minimizing volatility and downside
risk. The Manager will recommend that, with respect to portfolio management of
equity assets, the Trust retain only those investment advisers who, in the
Manager's opinion, utilize such an approach.
PROSPECTUS
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<PAGE> 132
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; CAPITAL GUARDIAN TRUST COMPANY;
GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE INVESTMENT
ASSOCIATES, INC. currently manage the assets of the Balanced Portfolio. If
approved by a majority of the interest holders of the Balanced Portfolio at a
meeting of shareholders of the Balanced Fund and other investors in the Balanced
Portfolio to be held on or about March 26, 1996, Brandywine Asset Management,
Inc. ("Brandywine") and Boatmen's Trust Company ("Boatmen's") will be added as
investment advisers of the Portfolio. If approved, it is expected that on or
about April 1, 1996, Brandywine will replace Capital Guardian Trust Company
("Capital") as an active investment adviser of the Portfolio. The Manager does
not expect to allocate assets to Boatmen's at this time. See "Investment
Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME FUND -- This Fund's investment objective
is to realize long-term capital appreciation and current income. This Fund seeks
its investment objective by investing all of its investable assets in the Growth
and Income Portfolio, which invests primarily in equity securities. Excluding
collateral for securities loaned, ordinarily at least 80% of the Portfolio's
assets will be invested in equity securities consisting of common stocks,
preferred stocks, securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants, and foreign
equity securities that are represented by U.S. dollar-denominated American
Depository Receipts which are traded in the United States on exchanges and in
the over-the-counter market. When purchasing equity securities, primary emphasis
will be placed on undervalued securities with above average growth expectations.
In order to seek either above average current income or capital appreciation
when interest rates are expected to decline, the Portfolio may invest in debt
securities which, at the time of purchase, are rated in one of the four highest
rating categories by all Rating Organizations rating that security or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. See "American AAdvantage Balanced Fund"
for a description of the risks involved with these obligations. The Portfolio
may also invest in other investment companies or in cash and cash equivalents,
including investment grade short-term obligations, in order to maintain
liquidity. See the SAI for definitions of the foregoing securities and for a
description of debt ratings. However, when its investment advisers deem that
market conditions warrant, the Portfolio may, for temporary defensive purposes,
invest up to 100% of its assets in cash, cash equivalents and investment grade
short-term obligations. In addition, the Portfolio may purchase or sell
securities on a "when-issued" or on a "forward commitment" basis as described in
"American AAdvantage Balanced Fund."
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; CAPITAL GUARDIAN TRUST COMPANY;
GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE INVESTMENT
ASSOCIATES, INC. currently manage the assets of the Growth and Income Portfolio.
If approved by a majority of the interest holders of the Growth and Income
PROSPECTUS
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<PAGE> 133
Portfolio at a meeting of shareholders of the Growth and Income Fund and other
investors in the Growth and Income Portfolio to be held on or about March 26,
1996, Brandywine and Boatmen's will be added as investment advisers of the
Portfolio. If approved, it is expected that on or about April 1, 1996,
Brandywine will replace Capital as an active investment adviser of the
Portfolio. The Manager does not expect to allocate assets to Boatmen's at this
time. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries located outside the
United States. However, excluding collateral for securities loaned, the
Portfolio generally invests in excess of 80% of its assets in such securities.
The remainder of the Portfolio's assets will be invested in non-U.S. debt
securities which, at the time of purchase, are rated in one of the three highest
rating categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including investment grade
short-term obligations or in other investment companies. However, when its
investment advisers deem that market conditions warrant, the Portfolio may, for
temporary defensive purposes, invest up to 100% of its assets in cash, cash
equivalents, other investment companies and investment grade short-term
obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or expropriation
of assets and the risk of war; (2) less liquidity and greater volatility of
foreign investments; (3) less public information regarding foreign companies;
(4) less government regulation and supervision of foreign stock exchanges,
brokers and listed companies; (5) lack of uniform accounting, auditing and
financial reporting standards; (6) delays in transaction settlement in some
foreign markets; (7) possibility of an imposition of confiscatory foreign taxes;
(8) possible limitation on the removal of securities or other assets of the
Portfolio; (9) restrictions on foreign investments and repatriation of capital;
(10) currency fluctuations; (11) cost and possible restrictions of currency
conversion; (12) withholding taxes on dividends in foreign countries; and (13)
possibly higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
PROSPECTUS
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<PAGE> 134
The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity aspects of a particular country's
market and the investment climate for foreign investors. The current countries
in which the Portfolio may invest are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland
and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are derivatives, to hedge currency fluctuations of underlying
stock or bond positions or in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC"). Forward contracts to sell foreign currency
may be used when the management of the Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar. Forward
contracts are also entered into to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures ("futures") for the same
reasons as for entering into forward contracts as set forth above. Futures are
traded on U.S. and foreign currency exchanges. The use of futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the futures contracts themselves. The
Portfolio may not enter into futures contracts if the purchase or sale of such
contract would cause the sum of the Portfolio's initial and any variation margin
deposits to exceed 5% of its total assets. Futures contracts, which are
derivatives, are discussed in greater detail in the SAI.
HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio. If approved by a majority of the interest
holders of the International Equity Portfolio at a meeting of shareholders of
the International Equity Fund and
PROSPECTUS
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<PAGE> 135
other investors in the International Equity Portfolio to be held on or about
March 26, 1996, Rowe Price-Fleming International, Inc. ("Fleming") will be added
as an investment adviser to the Portfolio. The Manager does not expect to
allocate assets to Fleming at this time. See "Investment Advisers."
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND -- This Fund's investment objective
is to realize income and capital appreciation. As an investment policy, the Fund
primarily seeks income and secondarily seeks capital appreciation. The Fund
seeks its investment objective by investing all of its investable assets in the
Limited-Term Income Portfolio, which invests primarily in debt obligations.
Permissible investments include securities of the U.S. Government and its
agencies and instrumentalities, including STRIPS and other zero coupon
obligations; corporate bonds, notes and debentures; non-convertible preferred
stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
investment grade short-term obligations. Such obligations may have a fixed,
variable or floating rate of interest. At the time of purchase, all such
securities will be rated in one of the four highest rating categories by all
Rating Organizations rating such obligation or, if unrated, will be deemed to be
of comparable quality by the investment adviser. Obligations rated in the fourth
highest rating category are limited to 25% of the Portfolio's total assets. See
"American AAdvantage Balanced Fund" for a description of the risks involved with
these obligations. The Portfolio, at the discretion of the Manager, may retain a
security which has been downgraded below the initial investment criteria. See
the SAI for definitions of the foregoing securities and for a description of
debt ratings. Principal and/or interest payments for obligations of the U.S.
Government's agencies or instrumentalities may or may not be backed by the full
faith and credit of the U.S. Government.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
adversely affect the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements. The Portfolio also may engage in
dollar rolls or purchase or sell securities on a "when-issued" or "forward
commitment" basis as described under "American AAdvantage Balanced Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments will
not vary as much due to the
PROSPECTUS
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<PAGE> 136
periodic adjustments in their interest rates. An adjustment which increases the
interest rate of such securities should reduce or eliminate declines in market
value resulting from a prior upward movement in interest rates, and an
adjustment which decreases the interest rate of such securities should reduce or
eliminate increases in market value resulting from a prior downward movement in
interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment, the
value of the premium would be lost. Like other debt securities, when interest
rates rise, the value of mortgage-related securities generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special
PROSPECTUS
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<PAGE> 137
purpose subsidiaries, various types of assets, primarily home equity loans,
automobile and credit card receivables, and other types of receivables or other
assets as well as purchase contracts, financing leases and sales agreements
entered into by municipalities, are being securitized in pass-through structures
similar to the mortgage pass-through structures described above. Consistent with
the Fund's and the Portfolio's investment objective, policies and quality
standards, the Portfolio may invest in these and other types of asset-backed
securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on the securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
Although investments will not be restricted by the maturity of the
securities purchased, under normal circumstances, the Portfolio will seek to
maintain a dollar weighted average maturity of one to five years. However, the
dollar-weighted average maturity may temporarily be adjusted outside the one to
five year period if warranted by market conditions. For example, the average
maturity of the Portfolio will be shortened in order to minimize depreciation of
capital if the investment adviser anticipates a rise in interest rates.
Conversely, the average maturity will be lengthened in order to maximize return
if interest rates are expected to decline. In addition, portfolio securities may
be actively traded to realize gains (or losses) and increase yields by taking
advantage of short-term market variations. Because the timing on return of
principal for both asset-backed and mortgage-backed securities is uncertain, in
calculating the average weighted maturity of the Portfolio, the maturity of
these securities may be based on certain industry conventions. The Manager
serves as the sole active investment adviser to the Limited-Term Income Fund and
its corresponding Portfolio.
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
Each Portfolio may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. Government and its
agencies and instrumentalities and approved bank letters of credit that at all
times equal at least 100% of the market value of the loaned securities. Such
loans will not be made if, as a
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result, the aggregate amount of all outstanding securities loans by any
Portfolio would exceed 33 1/3% of its total assets. A Portfolio continues to
receive interest on the securities loaned and simultaneously earns either
interest on the investment of the cash collateral or fee income if the loan is
otherwise collateralized. However, a Portfolio normally pays (including, in some
cases, payments to the Manager) lending fees and related expenses from this
interest or fee income. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities loaned or loss of rights
in the collateral. However, the Portfolios seek to minimize this risk by making
loans only to borrowers which are deemed by the Manager to be of good financial
standing and which have been approved by the AMR Trust Board. For purposes of
complying with each Portfolio's investment policies and restrictions, collateral
received in connection with securities loans will be deemed an asset of a
Portfolio to the extent required by law. See the SAI for further information
regarding loan transactions.
A repurchase agreement is an agreement under which securities are acquired
by a Portfolio from a securities dealer or bank subject to resale at an agreed
upon price on a later date. The acquiring Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its obligations
and the Portfolio is delayed or prevented from exercising its rights to dispose
of the collateral securities. However, the investment advisers or the Manager
attempt to minimize this risk by entering into repurchase agreements only with
financial institutions which are deemed to be of good financial standing and
which have been approved by the AMR Trust Board. See the SAI for more
information regarding repurchase agreements.
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (the "Securities Act"), and resold to qualified
institutional buyers under Rule 144A of the Securities Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be pursuant to an exempt transaction and may be accomplished in
accordance with Rule 144A. Section 4(2) securities normally are resold to other
institutional investors such as the Portfolios through or with the assistance of
the issuer or dealers that make a market in the Section 4(2) securities, thus
providing liquidity. The Portfolios will not invest more than 15% of their
respective net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by such Portfolio in excess of this
level are at all times liquid.
Because it is not possible to predict with assurance exactly how this market
for Section 4(2) securities offered and sold under Rule 144A will develop, the
AMR
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Trust Board and the applicable investment adviser, pursuant to the guidelines
approved by the AMR Trust Board, will carefully monitor the Portfolios'
investments in these securities, focusing on such important factors, among
others, as valuation, liquidity, and availability of information. Investments in
Section 4(2) securities could have the effect of reducing a Portfolio's
liquidity to the extent that qualified institutional buyers no longer wish to
purchase these restricted securities.
BROKERAGE PRACTICES -- Each investment adviser will place its own orders to
execute securities transactions which are designed to implement the applicable
Portfolio's investment objective and policies. In placing such orders, each
investment adviser will seek the best available price and most favorable
execution. The full range and quality of services offered by the executing
broker or dealer is considered when making these determinations. No Portfolio,
other than the Limited-Term Income Portfolio, currently expects its portfolio
turnover rate to exceed 100%. The portfolio turnover rate for the Limited-Term
Income Fund for the fiscal year ended October 31, 1995 was 183%. High portfolio
activity increases a Portfolio's transaction costs, including brokerage
commissions, and may result in a greater number of taxable transactions.
The Limited-Term Income Portfolio normally will not incur any brokerage
commissions on its transactions because debt instruments are generally traded on
a "net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the obligation, however, usually includes a
profit to the dealer. Obligations purchased in underwritten offerings include a
fixed amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. No commissions or discounts are paid when
securities are purchased directly from an issuer.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio. Historically, the Manager has sponsored traditionally structured
funds and, therefore, has limited experience with funds that invest all their
assets in a separate portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust. In addition to selling
their interests to the Funds, the Portfolios may sell their interests to other
nonaffiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio will pay a proportionate share of the
Portfolio's expenses and will invest in that Portfolio on the same terms and
conditions. However, if another investment company invests all of its assets in
a Portfolio, it would not be required to sell its shares at the
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same public offering price as a Fund and would be allowed to charge different
sales commissions. Therefore, investors in a Fund may experience different
returns from investors in another investment company that invests exclusively in
that Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for that Fund and could affect adversely its liquidity.
The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with a Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust and the AMR Trust, (3) brokerage practices,
(4) the Funds' shares, including the rights and liabilities of its shareholders,
(5) additional performance information, including the method used to calculate
yield and total return, and (6) the determination of the value each Fund's
shares.
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INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restrictions are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and the Board. The following fundamental investment restrictions may
be changed with respect to a particular Fund by the majority vote of that Fund's
outstanding shares or with respect to a Portfolio by the majority vote of that
Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities. Finance companies as a group are not
considered a single industry for purposes of this policy.
The following non-fundamental investment restrictions may be changed with
respect to a particular Fund by a vote of a majority of the Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board. No
Portfolio may:
- Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if more than 5% of the
Portfolio's total assets would be invested in such securities. This
limitation does not apply with regard to collateralized trust securities.
- Invest more than 15% of its net assets in illiquid securities, including
time deposits and repurchase agreements that mature in more than seven
days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
Yields for the AMR Class of the Funds will be computed by dividing the net
investment income earned per AMR Class share during the relevant time period by
the maximum offering price per AMR Class share on the last day of the period.
Total return quotations for the AMR Class of the Funds may reflect the average
annual
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compounded (or aggregate compounded) rate of return during the designated time
period based on a hypothetical initial investment and the redeemable value of
that investment at the end of the period. Additionally, the AMR Class of the
Limited-Term Income Fund may advertise a "monthly distribution rate." This rate
is based on an annualized monthly dividend accrual rate per share compared with
the month-end share price of the AMR Class of this Fund. The Funds will at times
compare their performance to applicable published indices, and may also disclose
their performance as ranked by certain ranking entities. Each class of a Fund
has different expenses which will impact its performance. See the SAI for more
information about the calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs. The Manager provides or oversees all administrative,
investment advisory and portfolio management services for the Trust pursuant to
a Management Agreement dated April 3, 1987, as amended October 1, 1995, together
with the Administrative Services Agreement described below. The AMR Trust and
the Manager also entered into a Management Agreement dated October 1, 1995 that
obligates the Manager to provide or oversee all administrative, investment
advisory and portfolio management services for the AMR Trust. The Manager,
located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155, is a
wholly-owned subsidiary of AMR Corporation ("AMR"), the parent company of
American Airlines, Inc., and was organized in 1986 to provide business
management, advisory, administrative and asset management consulting services.
The assets of the corresponding Portfolios of the Balanced Fund, the Growth and
Income Fund and the International Equity Fund are allocated by the Manager among
one or more investment advisers designated for that Fund. See "Investment
Advisers." The Manager serves as the sole active investment adviser to the
corresponding Portfolio of the Limited-Term Income Fund. In addition, with the
exception of the International Equity Fund, if so requested by any investment
adviser, the Manager will make the investment decisions with respect to assets
allocated to that investment adviser which the investment adviser determines
should be invested in investment grade short-term obligations. As of December
31, 1995, the Manager had assets under management totaling approximately $13.7
billion including approximately $4.5 billion under active management and $9.2
billion as named fiduciary or fiduciary adviser. Of the total, approximately
$10.1 billion of assets are related to AMR. American Airlines, Inc. is not
responsible for investments made in the American AAdvantage Funds.
The Manager provides the Trusts with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also develops the
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investment programs for each Portfolio, selects and changes investment advisers
(subject to approval by the AMR Trust Board and appropriate interest holders),
allocates assets among investment advisers, monitors the investment advisers'
investment programs and results, and coordinates the investment activities of
the investment advisers to ensure compliance with regulatory restrictions.
The Manager bears the expense of providing the above services and pays the
fees of the investment advisers of the Funds and their Portfolios. As
compensation for paying the investment advisory fees and for providing the
Portfolios with advisory and asset allocation services, the Manager receives
from the AMR Trust an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.25% of the net assets of the Limited-Term
Income Portfolio, (2) 0.10% of the net assets of the other Portfolios, plus (3)
all fees payable by the Manager to the AMR Trust's investment advisers as
described in "Investment Advisers." The advisory fee is payable quarterly in
arrears. To the extent that a Fund invests all of its investable assets in its
corresponding Portfolio, the Manager will not receive an advisory fee under its
Management Agreement with the Trust.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the independent
Trustees of each Board who are not parties to the Management Agreement or
"interested persons" as defined in the Investment Company Act of 1940, as
amended ("1940 Act") of any such party ("Independent Trustees"), cast in person
at a meeting called for the purpose of considering such approval, or by the vote
of a Fund's shareholders or a Portfolio's interest holders. A Management
Agreement may be terminated with respect to a Fund or a Portfolio at any time,
without penalty, by a majority vote of outstanding Fund shares or Portfolio
interests on sixty (60) days' written notice to the Manager, or by the Manager,
on sixty (60) days' written notice to the Trust or the AMR Trust. A Management
Agreement will automatically terminate in the event of its "assignment" as
defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities for the registration of
shares; fees and expenses of Independent Trustees; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between
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the Trust and the AMR Trust, including creating a separate Board of Trustees of
the AMR Trust.
FUND ADVISORY AGREEMENTS -- Each investment adviser has entered into a separate
investment advisory agreement with the Manager to provide investment advisory
services to the Funds and their corresponding Portfolios. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
an investment adviser will receive an advisory fee only on behalf of the
Portfolio and not on behalf of its corresponding Fund. Except for the
Limited-Term Income Portfolio, the assets of each Portfolio are allocated among
the investment advisers designated for that Portfolio and described in this
Prospectus in "Investment Advisers." All new investment advisers are subject to
approval by the Board and the AMR Trust Board and are currently subject to
approval by the shareholders/interest holders of the applicable Fund or
Portfolio. However, there is currently pending with the Securities and Exchange
Commission an application for an exemptive order which, if granted, would permit
the hiring of investment advisers and the modification of the fund advisory
agreements solely on the Boards' approval and without prior approval of
shareholders or interest holders. Should the exemptive order be granted, a
Portfolio may rely upon the order only if a majority of the applicable
Portfolio's interest holders approve such a motion to be presented at a meeting
of shareholders on or about March 26, 1996. The Manager recommends investment
advisers to the Board and the AMR Trust Board based upon its continuing
quantitative and qualitative evaluation of the investment advisers' skill in
managing assets using specific investment styles and strategies. The allocation
of assets among investment advisers may be changed at any time by the Manager.
Allocations among advisers will vary based upon a variety of factors, including
the overall investment performance of each investment adviser, the Portfolio's
cash flow needs and market conditions. The Manager need not allocate assets to
each investment adviser designated for a Portfolio. The investment advisers can
be terminated without penalty to the AMR Trust by the Manager, the AMR Trust
Board or the interest holders of the applicable Portfolio. Short-term investment
performance, by itself, is not a significant factor in selecting or terminating
an investment adviser, and the Manager does not expect to recommend frequent
changes of investment advisers. The Prospectus will be supplemented if
additional investment advisers are retained or the contract with any existing
investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objective, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board and the Manager, these parties do not
evaluate the investment merits of specific securities transactions. As
compensation for its services, each investment adviser is paid a fee by the
Manager out of the proceeds of the management fee received by the Manager from
the AMR Trust.
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ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
the Manager will receive no fee under this Agreement.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas, 75205 serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Portfolios and the Funds and as transfer agent for
the AMR Class. THE CHASE MANHATTAN BANK N.A., New York, New York, acts as
subcustodian for the International Equity Portfolio and its corresponding Fund.
INDEPENDENT AUDITOR -- The independent auditor for the Trust and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each Fund
and its corresponding Portfolio. References to the investment advisers retained
by a Portfolio also apply to the corresponding Fund. Except for the Manager,
none of the investment advisers provides any services to the Funds or the
Portfolios except for portfolio investment management and related recordkeeping
services, or has any affiliation with the Trust, the AMR Trust or the Manager.
William F. Quinn has served as President of the Manager since it was founded
in 1986 and Nancy A. Eckl currently serves as Vice President - Trust Investments
of the Manager. She previously served as Vice President - Finance and Compliance
of the Manager from December 1990 to May 1995. In these capacities, Mr. Quinn
and Ms. Eckl have primary responsibility for the day-to-day operations of the
Balanced Fund, the Growth and Income Fund, the International Equity Fund and
their corresponding Portfolios. These responsibilities include oversight of the
investment advisers, regular review of each adviser's performance and asset
allocations among investment advisers.
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Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and currently serves as Vice
President-Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President, Institutional Fixed Income Sales at Merrill,
Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment advisory services since 1979. The firm is
wholly owned by United Asset Management Corporation, a Delaware corporation,
which owns forty-five investment management companies, including Barrow. As of
December 31, 1995, Barrow had discretionary investment management authority with
respect to approximately $16.3 billion of assets, including approximately $1.4
billion of assets of AMR and its subsidiaries and affiliated entities. Barrow
serves as an investment adviser to the Balanced Portfolio, the Growth and Income
Portfolio and the Limited-Term Income Portfolio, although the Manager does not
presently intend to allocate any of the assets in the Limited-Term Income
Portfolio to Barrow. The Manager pays Barrow an annualized fee equal to .30% on
the first $200 million in AMR Trust assets under its discretionary management,
.20% on the next $300 million, .15% on the next $500 million, and .125% on
assets over $1 billion.
BRANDYWINE ASSET MANAGEMENT, INC., 201 North Walnut Street, Wilmington,
Delaware 19801, is a privately held professional investment counseling firm
founded in 1986. As of December 31, 1995, Brandywine had assets under management
totaling approximately $4.7 billion, including approximately $124 million of
assets of AMR and its subsidiaries and affiliated entities. If approved by
interest holders of the Balanced Portfolio and the Growth and Income Portfolio
at a meeting of shareholders and other investors of the Portfolios to be held on
or about March 26, 1996, Brandywine will serve as an investment adviser to those
Portfolios. For its services to the Balanced Portfolio and the Growth and Income
Portfolio, the Manager will pay Brandywine an annualized fee equal to .225% and
.25%, respectively, of the average daily net assets of each Portfolio allocated
to Brandywine for management.
BOATMEN'S TRUST COMPANY, 100 N. Broadway, St. Louis, Missouri 63178, is a
professional trust and investment advisory firm founded in 1889 and has been
providing investment services since the 1930s. Boatmen's is a wholly owned
subsidiary of Boatmen's Bancshares, Inc. As of December 31, 1995, Boatmen's had
assets under management totaling approximately $45 billion, including
approximately $140 million of assets of AMR and its subsidiaries and affiliated
entities. If approved by interest
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holders of the Balanced Portfolio and the Growth and Income Portfolio at a
meeting of shareholders and other investors of the Portfolios to be held on or
about March 26, 1996, Boatmen's will serve as an investment adviser to those
Portfolios, although the Manager does not presently intend to allocate assets to
Boatmen's. For its services to the Balanced Portfolio and the Growth and Income
Portfolio, the Manager will pay Boatmen's an annualized fee equal to .25% of the
average daily net assets of each Portfolio allocated to Boatmen's for
management.
CAPITAL GUARDIAN TRUST COMPANY, 333 South Hope Street, Los Angeles,
California 90071, is a California state chartered trust company which was formed
in 1968. The firm is a wholly owned subsidiary of The Capital Group, Inc., a
company whose subsidiaries provide investment management and related financial
services. Capital managed approximately $49.5 billion in assets as of December
31, 1995, which included approximately $684 million of assets of AMR and its
subsidiaries and affiliated entities. Capital serves as an investment adviser to
the Balanced Portfolio, the Growth and Income Portfolio and the Limited-Term
Income Portfolio, although the Manager does not presently intend to allocate any
of the assets in the Limited-Term Income Portfolio to Capital. If Brandywine is
approved as an investment adviser to the Balanced Portfolio and the Growth and
Income Portfolio, the Manager intends to allocate a portion of the assets
managed by Capital to Brandywine. The Manager pays Capital an annualized fee
equal to .50% of the first $20 million of AMR Trust assets under its
discretionary management, .35% of the next $30 million of assets, and .225% of
all excess assets for the Growth and Income Portfolio and .20% of all excess
assets for the Balanced Portfolio. However, a 5% fee reduction applies to assets
between $500 million and $750 million, a 7.5% fee reduction on assets between
$750 million and $1 billion and a 10% fee reduction on assets over $1 billion.
The reduction is applied to the overall effective fee rate for all assets
managed by Capital.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation, which owns
forty-five investment management companies, including GSB. As of December 31,
1995, GSB managed approximately $2.9 billion of assets, including approximately
$611 million of assets of AMR and its subsidiaries and affiliated entities. GSB
serves as an investment adviser to the Balanced Portfolio and the Growth and
Income Portfolio. The Manager pays GSB an annualized fee equal to .30% of the
first $100 million in AMR Trust assets under its discretionary management, .25%
of the next $100 million, .20% of the next $100 million, and .15% on all excess
assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley, who are the firm's founding
General Partners. Assets under management as of December 31, 1995 were
approximately $9.0 billion,
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which included approximately $988 million of assets of AMR and its subsidiaries
and affiliated entities. Hotchkis and Wiley serves as an investment adviser to
the Balanced Portfolio, the Growth and Income Portfolio and the International
Equity Portfolio. The advisory contract provides for the Manager to pay Hotchkis
and Wiley an annualized fee equal to .60% of the first $10 million of assets
under its discretionary management, .50% of the next $140 million of assets,
.30% on the next $50 million of assets and .20% of all excess AMR Trust assets
managed by Hotchkis and Wiley.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1995,
including funds managed for its parent company, were approximately $21.4
billion, which included approximately $820 million of assets of AMR and its
subsidiaries and affiliated entities. IIA serves as an investment adviser to the
Balanced Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets, and .20%
of all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 1221 Avenue of the Americas,
New York, New York 10020, is a wholly owned subsidiary of Morgan Stanley Group
Inc. MSAM provides portfolio management and named fiduciary services to taxable
and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. As of
September 30, 1995, MSAM had assets under management totaling approximately
$55.2 billion, including approximately $40.1 billion under active management and
$15.1 billion as named fiduciary or fiduciary adviser. As of December 31, 1995,
MSAM had investment authority over approximately $404 million of assets of AMR
and its subsidiaries and affiliated entities. MSAM serves as an investment
adviser to the International Equity Portfolio. For this service, the Manager
pays MSAM an annual fee equal to .80% of the first $25 million in AMR Trust
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% on all excess assets.
ROWE PRICE-FLEMING INTERNATIONAL, INC., 100 East Pratt Street, Baltimore,
Maryland 21202, is a professional investment counseling firm founded in 1979.
Fleming is a joint venture owned entirely by its three parent companies, T. Rowe
Price, Robert Fleming and Jardine Fleming. As of December 31, 1995, Fleming had
assets under management totaling approximately $22.2 billion, including
approximately $197 million of assets of AMR and its subsidiaries and affiliated
entities. If approved by interest holders of the International Equity Portfolio
at a meeting of shareholders and other investors of the Portfolio to be held on
or about March 26, 1996, Fleming will serve as an investment adviser of the
Portfolio, although the Manager does not presently intend to allocate assets to
Fleming. For its services to the International
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Equity Portfolio when total assets under Fleming's management are less than $200
million, the Manager will pay Fleming an annualized fee equal to 0.75% of the
first $20 million, 0.60% of the next $30 million and 0.50% on amounts over $50
million. When assets under Fleming's management exceed $200 million but are less
than $500 million, the Manager will pay Fleming an annualized fee equal to 0.50%
on all assets. When assets under Fleming's management exceed $500 million but
are less than $750 million, the Manager will pay an annualized fee equal to
0.45% on all assets, and when assets exceed $750 million, the Manager will pay
Fleming a flat fee of 0.40% on all assets. When asset levels are between $184
million and $200 million, Fleming will pay the Manager a sliding credit to
adjust for the difference between the two fee schedules. The credit is
determined by pro-rating the difference between the original tiered fee and the
flat fee ($80,000 per annum at all asset levels) over the difference between
$200 million and the current asset size for billing purposes.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1995, Templeton had discretionary investment management authority with respect
to approximately $14.4 billion of assets, including approximately $288 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. For this
service, the Manager pays Templeton an annualized fee equal to .50% of the first
$100 million in AMR Trust assets under its discretionary management, .35% of the
next $50 million in assets, .30% of the next $250 million in assets and .25% on
assets over $400 million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser (except assets managed by
Barrow under the HALO Bond Program). For the purpose of determining the
applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the applicable Portfolio.
PURCHASE, REDEMPTION AND VALUATION OF SHARES
PURCHASING SHARES OF THE TRUST -- AMR Class shares are offered to tax-exempt
retirement and benefit plans of AMR Corporation and its affiliates. Shares are
sold without a sales charge at the next share price calculated after the
acceptance of a purchase order. AMR Class shares are offered and orders accepted
until 4:00 p.m. Eastern time on each day on which the New York Stock Exchange
(the "Exchange") is open for trading
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and the custodian/transfer agent is open for business ("Business Day"). The
Trust reserves the right to reject any order for the purchase of shares and to
limit or suspend, without prior notice, the offering of shares.
AMR Class shares may be purchased and redeemed as follows:
BY WIRE -- Purchases may be made by wiring funds. To ensure prompt receipt of a
transmission by wire, the investor should: telephone the transfer agent at (214)
508-5038 or (800) 658-5811 and specify the Fund whose shares are to be
purchased; provide the name, address, telephone number and account number of the
investor; and identify the amount being wired and by which bank. If the investor
is opening a new account, the transfer agent will provide the investor with an
account number. The investor should instruct its bank to designate the account
number which the transfer agent has assigned to the investor and to transmit the
federal funds to: Federal Reserve Bank, Dallas, for NationsBank of Texas, N.A.
ABA Routing #111-000-025, Corporate Trust Suspense Account No. 0180019810,
reference American AAdvantage Funds, attention: Fund Account Services.
BY DEPOSITING SECURITIES -- Shares of a Fund may be purchased in exchange for an
investor's securities if the securities are acceptable to its corresponding
Portfolio and satisfy applicable investment objectives and policies. Investors
interested in exchanging securities must first contact the Manager and acquire
instructions regarding submission of a written description of the securities
which the investor wishes to exchange. The investor must represent that all such
securities offered to any Fund are not subject to any sale restrictions. Within
five business days after receipt of the written description, the Manager will
advise the investor whether the securities to be exchanged are acceptable. There
is no charge for this review by the Manager. Securities accepted by a Fund must
have a readily ascertainable value as evidenced by a listing on the Exchange,
the American Stock Exchange or Nasdaq. Securities are valued in the manner
described for valuing Portfolio assets in the section entitled "Valuation of
Shares." Acceptance of such orders may occur on any day during the five-day
period afforded the Manager to review the acceptability of the securities. Upon
notice of acceptance of such orders, the securities must be delivered in fully
negotiable form within three days. The Manager will provide delivery
instructions at the time of acceptance. A gain or loss for federal income tax
purposes may be realized by the investor upon the securities exchange, depending
upon the adjusted tax basis and value of the securities tendered. A Fund will
accept securities in this manner only for investment by its corresponding
Portfolio, and not for resale.
BY MAIL -- Share purchases of any Fund may be made by mail by sending a check or
other negotiable bank draft payable to the applicable Fund to "NationsBank of
Texas, N.A., 11th Floor, Elm Place, P.O. Box 830840, Dallas, Texas 75283-0840,
Attn.: American AAdvantage Funds -- AMR Class." An additional purchase of shares
should be accompanied by the shareholder's account number. Purchase checks are
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accepted subject to collection at full face value in U.S. funds and must be
drawn in U.S. dollars on a U.S. bank.
REDEMPTION OF SHARES -- Fund shares may be redeemed on any Business Day by
writing directly to NationsBank of Texas, N.A. at the address above under
"Purchasing Shares of the Trust -- By Mail." The redemption price will be the
net asset value per share next determined after receipt by NationsBank of Texas,
N.A. of all required documents in good order. "Good order" means that the
request must include a letter of instruction or stock assignment specifying the
number of shares or dollar amount to be redeemed, signed by an authorized
signatory for the owners of the shares in the exact names in which they appear
on the account, and accompanied by such other supporting legal documents, if
required, in the case of estates, trusts, guardianships, custodians,
corporations, IRAs and welfare, pension and profit-sharing plans. In addition,
any share certificates being redeemed must be returned duly endorsed or
accompanied by a stock assignment with signatures guaranteed by a bank, trust
company or member of a recognized stock exchange.
Payment for redeemed shares will be made in cash within seven days after the
receipt of a redemption request in good order. However, the Fund reserves the
right to suspend redemptions or postpone the date of payment (a) for any periods
during which the Exchange is closed (other than for customary weekend and
holiday closings), or when trading on the Exchange is restricted, (b) at such
time as an emergency exists as determined by the Securities and Exchange
Commission so that disposal of a Fund's investments or determination of its net
asset value is not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit for protection of the
Funds' shareholders. Shares purchased by check may not be redeemed until the
funds have cleared, which may take up to 15 days. Although each Fund intends to
redeem shares in cash, each reserves the right to pay the redemption price in
whole or in part by a distribution of readily marketable securities held by the
applicable Fund's corresponding Portfolio. See the SAI for further information
concerning redemptions in kind.
DISTRIBUTION OF TRUST SHARES -- Shares are distributed through the Funds'
principal underwriter, BTS. BTS is compensated by the Manager, and not the
Trust. The Trust does not incur any direct distribution expenses. However, the
Trust has adopted a Distribution Plan in accordance with Rule 12b-1 under the
1940 Act which authorizes the use of any fees received by the Manager in
accordance with the Administrative Services and the Management Agreements and
any fees received by the investment advisers pursuant to their Advisory
Agreements with the Manager, to be used for distribution purposes.
VALUATION OF SHARES -- The net asset value of each share (share price) of the
Funds is determined as of 4:00 p.m. Eastern Time on each Business Day. The net
asset value of all outstanding shares of all classes will be determined based on
a pro rata allocation of the value of the Fund's corresponding Portfolio's
investment income, expenses and total capital gains and losses. The allocation
will be based on comparative net asset
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value at the beginning of the day except for expenses related solely to one
class of shares ("Class Expenses") which will be borne only by the appropriate
class of shares. Because of the Class Expenses, the net income attributable to
and the dividends payable for each class of shares may be different.
Additionally, the Funds may compute differing share prices as a result of Class
Expenses.
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the AMR Board. 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) will normally 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 Board. Assets and liabilities denominated
in foreign currencies and forward currency contracts are translated into U.S.
dollar equivalents based on prevailing market rates. Investment grade short-term
obligations with 60 days or less to maturity held by the Portfolios are valued
using the amortized cost method as described in the SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and other distributions
paid on each class of a Fund's shares are calculated at the same time and in the
same manner. Dividends from the net investment income of the Balanced Fund, the
Growth and Income Fund and the International Equity Fund are normally declared
annually. Dividends consisting of substantially all of the net investment income
of the Limited-Term Income Fund, which are paid monthly, normally are declared
on each Business Day immediately prior to the determination of the net asset
value, and are payable to shareholders of record as of the opening of business
on the day on which declared. A Fund's net investment income attributable to the
AMR Class consists of that class's share of the Fund's share of dividends and
interest (including discount) accrued on its corresponding Portfolio's
securities, less expenses of the Fund and the Portfolio
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attributable to the AMR Class. Distributions of a Fund's share of its
corresponding Portfolio's realized net short-term capital gain, net capital gain
(the excess of net long-term capital gain over net short-term capital loss), and
net gains from foreign currency transactions, if any, normally will be made
annually.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's AMR Class shares will be
automatically declared and paid in additional AMR Class shares of that Fund.
However, a shareholder may choose to have distributions of net capital gain paid
in shares and dividends paid in cash or to have all such distributions and
dividends paid in cash. An election may be changed at any time by delivering
written notice that is received by the transfer agent at least ten days prior to
the payment date for a dividend or other distribution.
TAX INFORMATION -- Each Fund is treated as a separate corporation for federal
income tax purposes and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. In each taxable year that a Fund so qualifies, the Fund (but not its
shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (generally, taxable net investment income plus
any net short-term capital gain and gains from certain foreign currency
transactions) and net capital gain that it distributes to its shareholders.
However, a Fund will be subject to a nondeductible 4% excise tax to the extent
that it fails to distribute by the end of any calendar year substantially all of
its ordinary income for that calendar year and its capital gain net income for
the one-year period ending on October 31 of that year, plus certain other
amounts. For these and other purposes, dividends and other distributions
declared by a Fund in October, November or December of any year and payable to
shareholders of record on a date in one of those months will be deemed to have
been paid by the Fund and received by the shareholders on December 31 of that
year if they are paid by the Fund during the following January. Each Portfolio
has received a ruling from the Internal Revenue Service that it is classified
for federal income tax purposes as a partnership; accordingly, no Portfolio is
subject to federal income tax.
Dividends from a Fund's investment company taxable income will be taxable to
its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Fund shares.
Distributions of a Fund's net capital gain (whether received in cash or paid in
additional Fund shares), when designated as such, generally will be taxable to
its shareholders as long-term capital gain, regardless of how long they have
held their Fund shares. A capital gain distribution from a Fund also may be
offset by capital losses from other sources. Some foreign countries may impose
withholding taxes on certain dividends payable to the International Equity
Portfolio.
Redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the fair market value of the
redemption proceeds exceeds or is less than the shareholder's adjusted basis for
the redeemed shares. If shares of a Fund are redeemed at a loss after being held
for six months or less, the loss will be
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treated as long-term, instead of short-term, capital loss to the extent of any
capital gain distributions received on those shares.
If shares are purchased shortly before the record date for a dividend (other
than an exempt-interest dividend) or other distribution, the investor will pay
full price for the shares and receive some portion of the price back as a
taxable distribution. Each Fund notifies its shareholders following the end of
each calendar year of the amounts of dividends and capital gain distributions
paid (or deemed paid).
Each Fund is required to withhold 31% of all taxable dividends, capital gain
distributions and redemption proceeds payable to any individuals and certain
other non-corporate shareholders who do not provide the Fund with a correct
taxpayer identification number or (except with respect to redemption proceeds)
who otherwise are subject to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Trust.
For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of eight separate investment portfolios.
Each Fund is comprised of three classes of shares, which can be issued in an
unlimited number. Each share represents an equal proportionate beneficial
interest in that Fund and is entitled to one vote. Only shares of a particular
class may vote on matters affecting that class. Only shares of a particular Fund
may vote on matters affecting that Fund. All shares of the Trust vote on matters
affecting the Trust as a whole. Share voting rights are not cumulative, and
shares have no preemptive or conversion rights. Shares of the Trust are
nontransferable.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the Portfolio's report to shareholders will be provided to
the shareholders of its corresponding Fund.
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As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
As more fully described in the SAI, the following persons may be deemed to
control certain Funds by virtue of their ownership of more than 25% of the
outstanding shares of a Fund as of January 31, 1996:
<TABLE>
<S> <C>
AMERICAN AADVANTAGE BALANCED FUND
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 68%
AMERICAN AADVANTAGE GROWTH AND INCOME FUND
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 90%
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 88%
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
Retirement Advisors of America, Inc. 40%
AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof 36%
</TABLE>
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Trust
and the AMR Trust will be audited by Ernst & Young LLP, independent auditor, at
least annually. Shareholder inquiries and requests for information regarding the
other investment companies which also invest in the AMR Trust should be made in
writing to the Funds at P.O. Box 619003, MD 5645, Dallas/Fort Worth Airport,
Texas 75261-9003 or by calling (800) 388-3344.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY AMR CLASS SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
AMR Class, PlanAhead Class, American AAdvantage Balanced Fund, American
AAdvantage Growth and Income Fund, American AAdvantage International Equity Fund
and American AAdvantage Limited-Term Income Fund are service marks of AMR
Investment Services, Inc.
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[LOGO]
- AMR CLASS -(SM)
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- INSTITUTIONAL CLASS -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- PLANAHEAD CLASS -(SM)
P.O. Box 4580
Chicago, Illinois 60680-4580
(800) 388-3344
