<PAGE> 1
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
AS SUPPLEMENTED
SEPTEMBER 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> 2
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> 3
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...................................... 27
Investment Advisers............................................................. 31
Purchase, Redemption and Valuation of Shares.................................... 34
Dividends, Other Distributions and Tax Matters.................................. 38
General Information............................................................. 41
Shareholder Communications...................................................... 42
</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> 4
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> 5
(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/supplement
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> 6
(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> 7
(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> 8
(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> 9
(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> 10
(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 $ 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
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<PAGE> 11
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
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<PAGE> 12
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
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<PAGE> 13
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
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<PAGE> 14
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Balanced
Portfolio. Boatmen's Trust Company ("Boatmen's") is also an investment adviser
of the Balanced Portfolio; however, none of the Portfolio's assets have been
allocated 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.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS and WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Growth and Income
Portfolio. Boatmen's Trust Company is also an investment adviser of the Growth
and Income Portfolio; however, none of the Portfolio's assets have been
allocated 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
PROSPECTUS
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<PAGE> 15
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.
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
PROSPECTUS
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<PAGE> 16
Kong, Ireland, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway,
Singapore, South Korea, 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. ROWE PRICE-FLEMING INTERNATIONAL, INC.
("Fleming") is also an investment adviser of the Portfolio; however, none of the
Portfolio's assets have been allocated 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
PROSPECTUS
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<PAGE> 17
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 Manager. 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 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.
PROSPECTUS
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<PAGE> 18
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 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 either maturity or duration
of the securities purchased, under normal circumstances, the Portfolio will seek
to maintain a dollar weighted average duration of one to three years. Because
the timing on return of
PROSPECTUS
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principal for both asset-backed and mortgage-backed securities is uncertain, in
calculating the average weighted duration of the Portfolio, the duration 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 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
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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.
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
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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 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
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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. For this purpose, U.S.
Government agency mortgage-backed securities collateralized exclusively by full
faith and credit GNMA mortgages are considered eligible. Counterparties for
repurchase agreements must be approved by the AMR Trust Board. 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.
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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 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
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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 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
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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.
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
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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.
- 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 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
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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
Balanced Portfolio, the Growth and Income Portfolio and the International Equity
Portfolio are allocated by the Manager among one or more investment advisers
designated for that Portfolio. See "Investment Advisers." The Manager serves as
the sole active investment adviser to the Money Market Portfolios and the
Limited-Term Income Portfolio. In addition, with the exception of the
International Equity Portfolio, 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 Portfolio. 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 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
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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 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." The Manager
is permitted to enter into new or modified advisory agreements with existing or
new investment advisers without approval of Fund Shareholders or Portfolio
interest holders, but subject to approval of the Board and the AMR Trust Board.
The Securities and Exchange Commission issued an exemptive order which
eliminates the need for shareholder/interest holder approval subject to
compliance with certain conditions. These conditions include the requirement
that within 90 days of hiring a new adviser or implementing a material change
with respect
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to an advisory contract, the applicable Fund send a notice to shareholders
containing information about the change that would be included in a proxy
statement. 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. As
of April 1, 1996, Capital Guardian Trust Company no longer actively managed
assets of the Balanced and the Growth and Income Portfolios.
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 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.
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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 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
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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. ("Brandywine"), 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.
Brandywine serves as an investment adviser to the Balanced and the Growth and
Income 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% of assets in the Balanced Portfolio and .25% of assets in the Growth and
Income Portfolio of the first $500 million of assets under its discretionary
management; .225% of the next $100 million on all assets and .20% on all excess
assets.
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. Boatmen's serves as an investment adviser to the Balanced and the
Growth and Income Portfolios, although the Manager does not presently intend to
allocate any of these Portfolios' assets to Boatmen's. 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.
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
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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. 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. Fleming serves as an investment adviser to the International Equity
Portfolio, although the Manager does not presently intend to allocate assets
from the Portfolio to Fleming. For its services to the International Equity
Portfolio when total assets under Fleming's
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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 credit the Manager with an adjustment 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 plans, and cash or deferred arrangements
under Section 401(k) of the Code;
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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 the manner described for valuing Portfolio assets in
the section entitled "Valuation of
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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 Funds intend to
redeem shares in cash, each Fund reserves the right to pay the
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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 on that date prior to the close of trading. Debt securities
(other than short-term
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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. Effective October 1, 1996, dividends from the
Limited-Term Income Fund will be payable to shareholders of record as of the
close 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
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the Institutional 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 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
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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 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
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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 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
PROSPECTUS
41
<PAGE> 42
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>
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 is a registered service mark, and 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
42
<PAGE> 43
[AMERICAN AADVANTAGE FUNDS(R) LOGO]
- Institutional Class -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- PlanAhead Class(R) -
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
