AMERICAN AADVANTAGE FUNDS, 497, 1996-03-04

AMERICAN AADVANTAGE FUNDS
497, 1996-03-04

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<PAGE> 1

STATEMENT OF ADDITIONAL INFORMATION

AMERICAN AADVANTAGE FUNDS

-- PLATINUM CLASS (sm) --

MARCH 1, 1996

The American AAdvantage Money Market Fund (sm) (the "Money Market Fund"),
the American AAdvantage Municipal Money Market Fund (sm) (the "Municipal Money
Market Fund"), and the American AAdvantage U.S. Treasury Money Market Fund (sm)
(the "U.S. Treasury Money Market Fund") (individually, a "Fund" and,
collectively, the "Funds") are three separate investment portfolios of the
American AAdvantage Funds (the "Trust"). The Trust is an open-end, diversified
management investment company. Each Fund constitutes a separate investment
portfolio with a distinct investment objective, and distinct purposes and
strategies. Each Fund consists of multiple classes of shares designed to meet
the needs of different groups of investors. This Statement of Additional
Information relates only to the Platinum Class of the Funds.

Each Fund seeks its investment objective by investing all of its
investable assets in a corresponding portfolio (individually, a "Portfolio"
and, collectively, the "Portfolios") of the AMR Investment Services Trust ("AMR
Trust") that has a similar name and an identical investment objective to the
investing Fund.

This Statement of Additional Information should be read in conjunction
with the Platinum Class prospectus dated March 1, 1996 ("Prospectus"), a copy
of which may be obtained without charge by calling (800) 973-7977.

This Statement of Additional Information is not a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by a current Prospectus.

INVESTMENT RESTRICTIONS

Each Fund has the following fundamental investment policy that enables it
to invest in a corresponding Portfolio of the AMR Trust:

Notwithstanding any other limitation, the Fund may invest all of
its investable assets in an open-end management investment company
with substantially the same investment objectives, policies and
limitations as the Fund. For this purpose, "all of the Fund's
investable assets" means that the only investment securities that
will be held by the Fund will be the Fund's interest in the
investment company.

All other fundamental investment policies and the non-fundamental
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 Trust's Board of Trustees ("Board").

In addition to the investment limitations noted in the Prospectus, the
following seven restrictions have been adopted by each Portfolio and may be
changed with respect to any Portfolio only by the majority vote of that
Portfolio's outstanding interests, which as used herein means the lesser of (a)
67% of the interests of the Portfolio present at the meeting if the holders of
more than 50% of the interests are present and represented at the interest
holders' meeting or (b) more than 50% of the interests of the Portfolio.
Whenever a Fund is requested to vote on a change in the investment restrictions
of its corresponding Portfolio, that Fund will hold a meeting of its
shareholders and will cast its votes as instructed by its shareholders.

No Portfolio may:

1. Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Portfolio may invest in securities
secured by real estate or interests therein or issued by companies which
invest in real estate or interests therein when consistent with the other
policies and limitations described in the Prospectus.
<PAGE> 2
2. Purchase or sell commodities (including direct interests and/or
leases in oil, gas or minerals) or commodities contracts, except with
respect to forward foreign currency exchange contracts, foreign currency
futures contracts and "when-issued" securities when consistent with the
other policies and limitations described in the Prospectus.

3. Engage in the business of underwriting securities issued by others
except to the extent that, in connection with the disposition of
securities, the Portfolio may be deemed an underwriter under federal
securities law.

4. Make loans to any person or firm, provided, however, that the
making of a loan shall not be construed to include (i) the acquisition
for investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that each Portfolio may lend its investment securities
to broker-dealers or other institutional investors in accordance with the
guidelines stated in the Prospectus.

5. Purchase from or sell portfolio securities to its officers,
Trustees or other "interested persons" of the AMR Trust, as defined in
the Investment Company Act of 1940 ("1940 Act"), including its investment
advisers and their affiliates, except as permitted by the 1940 Act and
exemptive rules or orders thereunder.

6. Issue senior securities except that the Portfolio may engage in
when-issued securities and forward commitment transactions.

7. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed
10% of the value of its total assets at the time of borrowing. In
addition, although not a fundamental policy, the Portfolios intend to
repay any money borrowed before any additional portfolio securities are
purchased. See "Other Information" for a further description regarding
reverse repurchase agreements.

The corresponding Portfolio of the Money Market Fund (the "Money Market
Portfolio"), as a fundamental policy, is restricted from purchasing the
securities of other investment companies except in connection with a merger,
consolidation, acquisition of assets or other reorganization approved by the
Portfolio's interest holders.

The following non-fundamental investment restrictions apply to each
Portfolio and may be changed with respect to a Portfolio by a majority vote of
the AMR Trust Board. No Portfolio may:

1. Purchase securities on margin, effect short sales (except that the
Portfolio may obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities) or purchase or sell call
options or engage in the writing of such options.

2. Purchase or retain the securities of an issuer if, to the AMR
Trust's knowledge, one or more of the trustees or officers of the AMR
Trust, or the investment adviser responsible for the investment of the
AMR Trust's assets or its directors or officers, individually own
beneficially more than 1/2 of 1% of the securities of such issuer and
together own beneficially more than 5% of such securities.

All Portfolios, other than the Money Market Portfolio, may invest up
to 10% of their total assets in the securities of other investment companies to
the extent permitted by law. A Portfolio may incur duplicate advisory or
management fees when investing in another mutual fund.

TRUSTEES AND OFFICERS

The Board provides broad supervision over the Trust's affairs. AMR
Investment Services, Inc. (the "Manager") is responsible for the management of
Trust assets, and the Trust's officers are responsible for the Trust's
operations. The Trustees and officers of the Trust and AMR Trust are listed
below together, with their principal occupations during the past five years.
Unless otherwise indicated, the address of each person listed below is 4333
Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155.

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<PAGE> 3
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE, AND ADDRESS EACH TRUST Principal Occupation During Past 5 Years
- ---------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (48) Trustee and President, AMR Investment Services, Inc. (November
President 1986-Present); Chairman, American Airlines Employees
Federal Credit Union (October 1989-Present); Trustee,
American Performance Funds (September 1990-July 1994);
Director, Crescent Real Estate Equities, Inc. (April
1994 - Present); Trustee, American AAdvantage Mileage
Funds (1995 - Present).

David G. Fox (72) Trustee Director, Capstead Mortgage Company (1985-1994);
5949 Sherry Lane Director, Southwestern Medical Foundation (1984-
Suite 1220, LB 125 Present); Trustee, Shelter Ministries of Dallas (1993-
Dallas, Texas 75225-6521 Present); Member, Dallas Citizens Council (1967-
Present); President, Dallas County Historical
Foundation (1987-1993); Chairman of the Board, Sensible
Metropolitan Area Rapid Transit (1987-1994); Chairman
of the Board, State Fair of Texas (April 1988-April
1993); Owner, David G. Fox Investments (1985-Present);
Trustee, American AAdvantage Mileage Funds (1995 -
Present).

John S. Justin (79) Trustee Chairman and Chief Executive Officer, Justin
2821 West Seventh Street Industries, Inc. (a diversified holding company) (1969-
Fort Worth, Texas 76107 Present); Executive Board Member, Blue Cross/Blue
Shield of Texas (1985-Present); Board Member, Zale
Lipshy Hospital (June 1993-Present); Trustee, Texas
Christian University (1980-Present); Director and
Executive Board Member, Moncrief Radiation Center
(1985-Present); Director, Texas New Mexico Enterprises
(1984-1993); Director, Texas New Mexico Power Company
(1979-1993); Trustee, American AAdvantage Mileage Funds
(1995 - Present).

Stephen D. O'Sullivan* (60) Trustee Consultant (July 1994-Present); Vice President and
Controller (April 1985-June 1994), American Airlines,
Inc.; Trustee, American AAdvantage Mileage Funds (1995
- Present).

</TABLE>

3
<PAGE> 4
<TABLE>
<CAPTION>
POSITION WITH
Name, Age and Address EACH TRUST Principal Occupation During Past 5 Years
--------------------- ------------- ----------------------------------------
<S> <C> <C>
Roger T. Staubach (54) Trustee Chairman of the Board and Chief Executive Officer
6750 LBJ Freeway (1982-present) and President (1983-1991) of The
Dallas, TX 75240 Staubach Company (a commercial real estate company);
Director, Halliburton Company (1991-present); Director,
First USA, Inc. (1993-present); Director, Brinker
International (1993-present); Director, Columbus Realty
Trust (1994-present); Member of the Advisory Board, The
Salvation Army; Member of the Advisory Board, Dallas
International Sports Commission; Member of the Advisory
Board, Hartford Whalers Hockey Club; Trustee, Institute
for Aerobics Research; Member of Executive Council,
Daytop/Dallas; former quarterback of the Dallas Cowboys
professional football team; Trustee, American
AAdvantage Mileage Funds (1995 - Present).

Nancy A. Eckl (33) Vice President Vice President (December 1990-Present), AMR Investment
Services, Inc.

Michael W. Fields (42) Vice President Vice President, AMR Investment Services, Inc. (August
1988-Present).

Barry Y. Greenberg (32) Vice President and Director, Legal and Compliance, AMR Investment
Assistant Secretary Services, Inc. (July 1995-Present); Branch Chief (May
1992-June 1995) and Staff Attorney (August 1988-May
1992), Securities and Exchange Commission Fort Worth
Branch Office.

Rebecca L. Harris (29) Treasurer Director of Finance (May 1995-Present), Controller
(November 1991-April 1995), AMR Investment Services,
Inc.; Financial Analyst, Sabre Travel Information
Network (December 1990-October 1991).

John B. Roberson (37) Vice President Vice President (June 1991-Present), Assistant Vice
President (August 1988-May 1991), AMR Investment
Services, Inc.

Janice B. Schwarz (36) Assistant Secretary Senior Compliance Analyst, AMR Investment Services,
Inc. (December 1990-Present).

Clifford J. Alexander (52) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)

Robert J. Zutz (43) Assistant Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
</TABLE>

* Messrs. Quinn and O'Sullivan, by virtue of their current or former
positions, are deemed to be "interested persons" of the Trust and the AMR
Trust as defined by the 1940 Act.

All Trustees and officers as a group own less than 1% of the outstanding
shares of any of the Funds.

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<PAGE> 5
Trustees' income tax on the value of this free airline travel. These amounts
are reflected in the following table for the fiscal year ended October 31,
1995.

<TABLE>
<CAPTION>
Total
Pension or
Aggregate Retirement Estimated Compensation
Compensation Benefits Accrued as Annual From
From the Part of the Benefits Upon AAdvantage
Name of Trustee Trust Trust's Expenses Retirement Funds Complex
--------------- ----- ---------------- ---------- ---------------
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $0
David G. Fox $27,511 $0 $0 $27,511
John S. Justin $14,475 $0 $0 $14,475
Stephen D. O'Sullivan $0 $0 $0 $0
Roger T. Staubach (1) $0 $0 $0 $0
</TABLE>

MANAGEMENT, ADMINISTRATIVE SERVICES AND DISTRIBUTION FEES

As described more fully in the Prospectus, the Manager is paid a
management fee as compensation for paying investment advisory fees and for
providing the Trust and the AMR Trust with advisory and asset allocation
services. Management fees for the fiscal years ended October 31 were
approximately as follows: 1993, $7,827,000 of which approximately $2,280,000
was paid by the Manager to the other investment advisers; 1994, $6,950,000 of
which approximately $2,965,000 was paid by the Manager to the other investment
advisers; and 1995, $7,603,000 of which approximately $3,985,000 was paid by
the Manager to the other investment advisers. Management fees in the amount of
approximately $214,000 and $29,000 were waived by the Manager during the
fiscal years ended October 31, 1994 and 1995, respectively. These amounts
include payments to portfolios of the Trust other than the Funds.

In addition to the management fee, the Manager is paid an administrative
services fee for providing administrative and management services (other than
investment advisory services) to the Trust. Administrative services fees for
the fiscal years ended October 31 were approximately as follows: 1993,
$1,544,000; 1994, $1,473,000 and 1995, $2,731,000. Administrative service fees
in the amount of approximately $14,000 and $9,000 were waived by the Manager
during the fiscal years ended October 31, 1994 and 1995, respectively. These
amounts include payments to portfolios of the Trust other than the Funds.

Brokers Transaction Services, Inc., as distributor of the Funds, receives
an annualized fee of $50,000 from the Manager for distributing the shares of
the Trust and the American AAdvantage Mileage Funds.

REDEMPTIONS IN KIND

Although each Fund intends to redeem shares in cash, each reserves the
right to pay the redemption price in whole or in part by a distribution of
readily marketable securities held by the applicable Fund's corresponding
Portfolio. However, shareholders always will be entitled to redeem shares for
cash up to the lesser of $250,000 or 1% of the applicable Fund's net asset
value during any 90-day period. Redemption in kind is not as liquid as a cash
redemption. In addition, if redemption is made in kind, shareholders who
receive securities and sell them could receive less than the redemption value
of their securities and could incur certain transactions costs.

EXPENSE LIMITATIONS

Subject to certain state law expense limits, the Trust pays all of its
expenses (including its share of the Portfolios' expenses) other than those
expressly assumed by the Manager. The most restrictive state expense limit
currently imposed is 2.5% of a Fund's first $30 million in assets, 2.0% of the
next $70 million in assets and 1.5% of all excess assets. If a Fund's expenses
exceed any applicable state expense limits, the Manager would have to bear such
excess expenses in order for the Trust to continue selling its shares in that

- ------------------------------
(1) Mr. Staubach became a Trustee in May 1995 and did not receive tax
reimbursement payments during fiscal year 1995 for his travel during that year.

5
<PAGE> 6
state. Any excess expenses assumed by the Manager can be reimbursed monthly
whenever a Fund's expenses are below applicable expense limits.

NET ASSET VALUE

It is the policy of the Funds to attempt to maintain a constant price per
share of $1.00. There can be no assurance that a $1.00 net asset value per
share will be maintained. These Funds' corresponding Portfolios' investment
securities are valued based on the amortized cost valuation technique pursuant
to Rule 2a-7 under the 1940 Act. This involves valuing an instrument at its
cost and thereafter assuming a constant amortization to maturity of any
discount or premium, even though the portfolio security may increase or
decrease in market value. Such market fluctuations are generally in response
to changes in interest rates. Use of the amortized cost valuation method
requires the Portfolios to purchase instruments having remaining maturities of
397 days or less, to maintain a dollar weighted average portfolio maturity of
90 days or less, and to invest only in securities determined by the AMR Trust
Board to be of high quality with minimal credit risks.

TAX INFORMATION

TAXATION OF THE FUNDS

To qualify for treatment as a regulated investment company ("RIC") under
the Internal Revenue Code of 1986, as amended ("Code"), each Fund (each of
which is treated as a separate corporation for these purposes) must, among
other requirements:

* Derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or certain
other income ;

* Derive less than 30% of its gross income each taxable year from the
sale or other disposition of securities that are not directly
related to the Fund's principal business of investing in securities,
that are held for less than three months ("Short-Short Limitation");

* Diversify its investments in securities within certain statutory
limits; and

* Distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, taxable net investment
income plus net short-term capital gain) plus, in the case of the
Municipal Money Market Fund, net interest income excludable from
gross income under section 103(a) of the Code ("Distribution
Requirement").

The Funds have received a ruling from the Internal Revenue Service
("IRS") that each Fund, as an investor in its corresponding Portfolio, is
deemed to own a proportionate share of the Portfolio's assets and to earn the
income on that share for purposes of determining whether the Fund satisfies all
the requirements described above to qualify as a RIC.

TAXATION OF THE PORTFOLIOS

The Portfolios have received a ruling from the IRS to the effect that,
among other things, each Portfolio is treated as a separate partnership for
federal income tax purposes and is not a "publicly traded partnership." As a
result, no Portfolio is subject to federal income tax; instead, each investor
in a Portfolio, such as a Fund, is required to take into account in determining
its federal income tax liability its share of the Portfolio's income, gains,
losses, deductions, credits and tax preference items, without regard to whether
it has received any cash distributions from the Portfolio.

Because the ruling from the IRS provides, as noted above, that each Fund
is deemed to own a proportionate share of its corresponding Portfolio's assets
and income for purposes of determining whether the Fund satisfies the
requirements to qualify as a RIC, each Portfolio intends to conduct its
operations so that its corresponding Fund will be able to satisfy all those
requirements.

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<PAGE> 7
Distributions to a Fund from its corresponding Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax purposes,
except that (1) gain will be recognized to the extent any cash that is
distributed exceeds the Fund's basis for its interest in the Portfolio before
the distribution, (2) income or gain will be recognized if the distribution is
in liquidation of the Fund's entire interest in the Portfolio and includes a
disproportionate share of any unrealized receivables held by the Portfolio and
(3) loss will be recognized if a liquidation distribution consists solely of
cash and/or unrealized receivables. A Fund's basis for its interest in its
corresponding Portfolio generally will equal the amount of cash and the basis
of any property the Fund invests in the Portfolio, increased by the Fund's
share of the Portfolio's net income and gains and decreased by (a) the amount
of cash and the basis of any property the Portfolio distributes to the Fund and
(b) the Fund's share of the Portfolio's losses.

The Municipal Money Market Fund's corresponding Portfolio may acquire
zero coupon or other securities issued with original issue discount. As an
investor in the Portfolio that holds those securities, the Municipal Money
Market Fund would have to include in its income its share of the original issue
discount that accrues on the securities during the taxable year, even if the
Portfolio (and, hence, the Fund) receives no corresponding payment on the
securities during the year. Because each Fund annually must distribute
substantially all of its investment company taxable income, including any
original issue discount, to satisfy the Distribution Requirement and avoid
imposition of the 4% excise tax described in the Prospectus, the Municipal
Money Market Fund may be required in a particular year to distribute as a
dividend an amount that is greater than the total amount of cash it actually
receives. Those distributions would be made from the Fund's cash assets, if
any, or the proceeds of redemption of a portion of the Municipal Money Market
Fund's interest in its corresponding Portfolio (which redemption proceeds would
be paid from the Portfolio's cash assets or the proceeds of sales of portfolio
securities, if necessary). The Portfolio might realize capital gains or losses
from any such sales, which would increase or decrease the Municipal Money
Market Fund's investment company taxable income and/or net capital gain (the
excess of net long-term capital gain over net short-term capital loss). In
addition, any such gains might be realized on the disposition of securities
held for less than three months. Because of the Short-Short Limitation
applicable to the Fund, any such gains would reduce the Portfolio's ability to
sell other securities held for less than three months that it might wish to
sell in the ordinary course of its portfolio management.

TAXATION OF THE FUNDS' SHAREHOLDERS

Distributions by the Municipal Money Market Fund of the amount by which
income on tax-exempt securities exceeds certain amounts disallowed as
deductions, designated by it as "exempt-interest dividends," generally may be
excluded from gross income by its shareholders. Dividends paid by the Fund
will qualify as exempt-interest dividends if, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets (including its
share of the Municipal Money Market Portfolio's assets) consists of securities
the interest on which is excludable from gross income under section 103(a) of
the Code. The Fund intends to continue to satisfy this requirement. The
aggregate dividends excludable from shareholders' gross income may not exceed
the Fund's net tax-exempt income. The shareholders' treatment of dividends
from the Fund under local and state income tax laws may differ from the
treatment thereof under the Code.

Exempt-interest dividends received by a corporate shareholder may be
indirectly subject to the alternative minimum tax. In addition, entities or
persons who are "substantial users" (or persons related to "substantial users")
of facilities financed by private activity bonds ("PABs") or industrial
development bonds ("IDBs") should consult their tax advisers before purchasing
shares of the Municipal Money Market Fund because, for users of certain of
these facilities, the interest on those bonds is not exempt from federal income
tax. For these purposes, the term "substantial user" is defined generally to
include a "non-exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of PABs or IDBs.

Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income
(including income from tax-exempt sources such as the Municipal Money Market
Fund) plus 50% of their benefits exceeds certain base amounts. Exempt-interest
dividends from the Fund still are tax-exempt to the extent described above;
they are only included in the calculation of whether a recipient's income
exceeds the established amounts.

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<PAGE> 8
prospective investors are advised to consult their own tax advisers for more
detailed information regarding the above and for information regarding federal,
state, local and foreign taxes.

YIELD AND TOTAL RETURN QUOTATIONS

The Platinum Class of the Funds commenced operations on November 7, 1995
For purposes of advertising performance, and in accordance with Securities and
Exchange Commission staff interpretations, the Funds have adopted the
performance of the Institutional Class of the Funds for periods prior to the
inception date. The performance figures for the Platinum Class will be lower,
however, because the performance figures for the Institutional Class do not
reflect the 12b-1 fees, Administrative Services Plan fees or other class
expenses that will be borne by the Platinum Class.

A quotation of yield on shares of the Funds may appear from time to time
in advertisements and in communications to shareholders and others. Quotations
of yields are indicative of yields for the limited historical period used but
not for the future. Yield will vary as interest rates and other conditions
change. Yield also depends on the quality, length of maturity and type of
instruments invested in by the Funds, and the applicable Fund's operating
expenses. A comparison of the quoted yields offered for various investments is
valid only if yields are calculated in the same manner. In addition, other
similar investment companies may have more or less risk due to differences in
the quality or maturity of securities held.

The yields of the Funds may be calculated in one of two ways:

(1) Current Yield--the net average annualized return without compounding
accrued interest income. For a 7-day current yield, this is computed by
dividing the net change in value over a 7 calendar-day period of a
hypothetical account having one share at the beginning of a 7
calendar-day period by the value of the account at the beginning of this
period to determine the "base period return". The quotient is multiplied
by 365 divided by 7 and stated to two decimal places. A daily current
yield is calculated by multiplying the net change in value over one day
by 365 and stating it to two decimal places. Capital changes, such as
realized gains and losses from the sale of securities and unrealized
appreciation and depreciation, are excluded in calculating the net change
in value of an account, but this calculation includes the aggregate fees
and other expenses that are charged to all shareholder accounts in a
Fund. In determining the net change in value of a hypothetical account,
this value is adjusted to reflect the value of any additional shares
purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares.

(2) Effective Yield--the net average annualized return as computed by
compounding accrued interest income. In determining the 7-day effective
yield, a Fund will compute the "base period return" in the same manner
used to compute the "current yield" over a 7 calendar-day period as
described above. One is then added to the base period return and the sum
is raised to the 365/7 power. One is subtracted from the result,
according to the following formula:

365/7
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1) ] - 1

The current and effective yields for the Institutional Class of the Funds
are as follows:

<TABLE>
<CAPTION>
Current daily Current yield for Effective yield for
yield as of the seven-day the seven-day
October 31, period ended period ended
1995 October 31, 1995 October 31, 1995
---- ---------------- ----------------
<S> <C> <C> <C>
Institutional Class
- -------------------
Money Market Fund 5.76% 5.74% 5.90%
Municipal Money Market Fund 3.84% 3.83% 3.90%
U.S. Treasury Money Market Fund 5.52% 5.54% 5.70%
</TABLE>

The Municipal Money Market Fund may also advertise a tax-equivalent
current and effective yield. The tax- equivalent yields are calculated as
follows:

CURRENT YIELD/(1 - APPLICABLE TAX RATE) = CURRENT TAX-EQUIVALENT YIELD

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<PAGE> 9
EFFECTIVE YIELD/(1 - APPLICABLE TAX RATE) = EFFECTIVE TAX-EQUIVALENT YIELD

Based on these formulas, the current and effective tax-equivalent yields for
the Institutional Class of the Municipal Money Market Fund for the seven day
periods ending October 31, 1995 were 5.89% and 6.00%, respectively (based upon
a 39.6% personal tax rate).

The advertised total return for a class of a Fund would be calculated by
equating an initial amount invested in a class of a Fund to the ending
redeemable value, according to the following formula:

n
P(1 + T) = ERV

where "P" is a hypothetical initial payment of $1,000; "T" is the average
annual total return for the Fund; "n" is the number of years involved; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made in
the Fund at the beginning of the investment period covered.

Based on this formula, annualized total returns for the Institutional
Class were as follows for the periods indicated:
<TABLE>
<CAPTION>
For the one-
year period For the five-year For the period from the
ended period ended commencement of active
October 31, October 31, operations through
1995 1995 (2) October 31, 1995 (1)
---- --------- --------------------
<S> <C> <C> <C>
Institutional Class
-------------------
Money Market Fund 5.96% 4.93% 6.27%
Municipal Money Market Fund (3) 3.75% N/A 3.10%
U.S. Treasury Money Market Fund 5.67% N/A 4.05%
</TABLE>

(1) Inception dates are as follows: Money Market Fund, September 1,
1987; Municipal Money Market Fund, November 10, 1993; and U.S. Treasury
Money Market Fund, March 2, 1992.

(2) The Municipal Money Market Fund and U.S. Treasury Money Market Fund
had not commenced active operations as of November 1, 1990.

(3) Management and Administrative Services fees have been waived for the
Municipal Money Market Fund since its inception. Performance prior to fee
waivers for the periods shown are 3.54% and 2.89% for the one year and the
since inception periods, respectively ,through October 31, 1995.

Each Fund also may use "aggregate" total return figures for various periods
which represent the cumulative change in value of an investment in a Fund for
the specific period. Such total returns reflect changes in share prices of a
Fund and assume reinvestment of dividends and distributions.

In reports or other communications to shareholders or in advertising
material, each Fund may from time to time compare its performance with that of
other mutual funds in rankings prepared by Lipper Analytical Services, Inc.,
IBC/Donoghue, Inc. and other similar independent services which monitor the
performance of mutual funds or publications such as the "New York Times" and
the "Wall Street Journal." Advertisements for the Funds may mention that the
Funds offer a variety of investment options. They may also compare the Funds
to federally insured investments such as bank certificates of deposit and
credit union deposits, including the long-term effects of inflation on these
types of investments. Advertisements may also compare the historical rate of
return of different types of investments. Information concerning
broker-dealers who sell the Funds may also appear in advertisements for the
Funds, including their ranking as established by various publications compared
to other broker-dealers.

DESCRIPTION OF THE TRUST

The Trust, organized on January 16, 1987, is an entity of the type commonly
known as a "Massachusetts business trust". Under Massachusetts law,
shareholders of such a trust may, under certain circumstances, be held
personally liable for its obligations. However, the Trust's Declaration of
Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Trust and provides for indemnification and reimbursement of
expenses out of Trust property for any shareholder held personally liable for
the obligations

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<PAGE> 10
of the Trust. The Declaration of Trust also provides that the Trust may
maintain appropriate insurance (for example, fidelity bonding) for the
protection of the Trust, its shareholders, Trustees, officers, employees and
agents to cover possible tort and other liabilities. Thus, the risk of a
shareholder incurring financial loss due to shareholder liability is limited to
circumstances in which both inadequate insurance existed and the Trust itself
was unable to meet its obligations. The Trust has not engaged in any other
business.

CONTROL PERSONS AND 5% SHAREHOLDERS

The following persons may be deemed to control certain Funds by virtue of
their ownership of more than 25% of the outstanding shares of a Fund as of
January 31, 1996:

American AAdvantage Municipal Money Market Fund
Southwest Securities, Inc . . . . . . . . . . . . . . . . . . . . . . . . . .99%
1201 Elm Street, Suite 4300
Dallas, Texas 75270

American AAdvantage U.S. Treasury Money Market Fund
Southwest Securities, Inc . . . . . . . . . . . . . . . . . . . . . . . . . .74%
1201 Elm Street, Suite 4300
Dallas, Texas 75270

Southwest Securities, Inc. owns 100% of the shares of the Platinum Class of
the Money Market Fund, the Municipal Money Market Fund and the U.S. Treasury
Money Market Fund.

In addition, the following persons own more than 5% of the outstanding
shares of a Fund as of January 31, 1996:
<TABLE>
<CAPTION>

American AAdvantage Money Market Fund Total Fund
- ------------------------------------- ----------
<S> <C>
NA Bank & Co. 11%
P.O. Box 2180
Tulsa, Oklahoma 74101
City of Chicago International Airport Revenue Bonds 8%
Harris Trust and Savings Bank(Indenture Trust Division)
P.O. Box 755
Chicago, Illinois 60690
Alliance Airport Authority 7%
Bank One, Texas, NA (Corporate Trust Department)
500 Throckmorton
Fort Worth, Texas 76113-2604
Dallas/Fort Worth International Airport Revenue Bonds 7%
Ameritrust Texas, N.A. (Corporate Trust Department)
P.O. Box 2320
Dallas, TX 75221-2320
NationsBank Trust Department (Securities Lending Assets) 6%
P.O. Box 83222, BC 492-16
Dallas, Texas 75283
Shell Oil Company 5%
Two Shell Plaza
P.O. Box 2099
Houston, TX 77252
Southwest Securities, Inc. 5%
1201 Elm Street, Suite 4300
Dallas, Texas 75270
Tulsa Municipal Airport Trust 5%
Bank of Oklahoma Trust Administration
P.O. Box 3200
Tulsa, Oklahoma 74192
</TABLE>

10
<PAGE> 11
<TABLE>
<CAPTION>
<S> <C>
American AAdvantage U.S. Treasury Money Market Fund
- ---------------------------------------------------
Hare & Co. 6%
Bank of New York
One Wall Street
New York, NY 10286
Lone Star Airport Improvement Authority 6%
First National Bank of Chicago
One First National Place
Chicago, Illinois 60670
All Saints Hospital 5%
1400 8th Avenue
Fort Worth, Texas 76104
Grapevine Industrial Development Corp 5%
First National Bank of Chicago
One First National Place
Chicago, Illinois 60670
</TABLE>

OTHER INFORMATION

Bank Deposit Notes-Bank deposit notes are obligations of a bank, rather
than bank holding company corporate debt. The only structural difference
between bank deposit notes and certificates of deposit is that interest on bank
deposit notes is calculated on a 30/360 basis as are corporate notes/bonds.
Similar to certificates of deposit, deposit notes represent bank level
investments and, therefore, are senior to all holding company corporate debt.

Bankers' Acceptances-Bankers' acceptances are short-term credit
instruments used to finance the import, export, transfer or storage of goods.
They are termed "accepted" when a bank guarantees their payment at maturity.

Cash Equivalents-Cash equivalents include certificates of deposit, bearer
deposit notes, bankers' acceptances, government obligations, commercial paper,
short-term corporate debt securities and repurchase agreements.

Certificates of Deposit-Certificates of deposit are issued against funds
deposited in an eligible bank (including its domestic and foreign branches,
subsidiaries and agencies), are for a definite period of time, earn a specified
rate of return and are normally negotiable.

Commercial Paper-Commercial paper refers to promissory notes representing
an unsecured debt of a corporation or finance company with a fixed maturity of
no more than 270 days.

General Obligation Bonds-General obligation bonds are secured by the
pledge of the issuer's full faith, credit, and usually, taxing power. The
taxing power may be an unlimited ad valorem tax or a limited tax, usually on
real estate and personal property. Most states do not tax real estate, but
leave that power to local units of government.

Full Faith and Credit Obligations of the U.S. Government-Securities
issued or guaranteed by the U.S. Treasury, backed by the full taxing power of
the U.S. Government or the right of the issuer to borrow from the U.S.
Treasury.

11
<PAGE> 12
borrower), so that the issuer may also be subject to the risk that the issuing
bank may become insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, the loan participation may be subject to
certain defenses that can be asserted by such borrower as a result of improper
conduct by the issuing bank. The secondary market, if any, for these loan
participations is extremely limited and any such participations purchased by
the investor are regarded as illiquid.

Loan Transactions-Loan transactions involve the lending of securities to
a broker-dealer or institutional investor for its use in connection with short
sales, arbitrages or other security transactions. The purpose of a qualified
loan transaction is to afford a lender the opportunity to continue to earn
income on the securities loaned and at the same time earn fee income or income
on the collateral held by it.

Securities loans will be made in accordance with the following
conditions: (1) the Portfolio must receive at least 100% collateral in the
form of cash or cash equivalents, securities of the U.S. Government and its
agencies and instrumentalities, and approved bank letters of credit; (2) the
borrower must increase the collateral whenever the market value of the loaned
securities (determined on a daily basis) rises above the level of collateral;
(3) the Portfolio must be able to terminate the loan after notice, at any time;
(4) the Portfolio must receive reasonable interest on the loan or a flat fee
from the borrower, as well as amounts equivalent to any dividends, interest or
other distributions on the securities loaned, and any increase in market value
of the loaned securities; (5) the Portfolio may pay only reasonable custodian
fees in connection with the loan; and (6) voting rights on the securities
loaned may pass to the borrower, provided, however, that if a material event
affecting the investment occurs, the AMR Trust Board must be able to terminate
the loan and vote proxies or enter into an alternative arrangement with the
borrower to enable the AMR Trust Board to vote proxies.

While there may be delays in recovery of loaned securities or even a loss
of rights in collateral supplied should the borrower fail financially, loans
will be made only to firms deemed by the AMR Trust Board to be of good
financial standing and will not be made unless the consideration to be earned
from such loans would justify the risk. Such loan transactions are referred to
in this Statement of Additional Information as "qualified" loan transactions.

The cash collateral so acquired through qualified loan transactions may
be invested only in those categories of high quality liquid securities
previously authorized by the AMR Trust Board.

Mortgage-Backed Securities-Mortgage-backed securities consist of both
collateralized mortgage obligations and mortgage pass-through certificates .

Collateralized Mortgage Obligations ("CMOs")-CMOs and interests in
real estate mortgage investment conduits ("REMICs") are debt securities
collateralized by mortgages, or mortgage pass-through securities. CMOs divide
the cash flow generated from the underlying mortgages or mortgage pass-through
securities into different groups referred to as "tranches," which are then
retired sequentially over time in order of priority. The principal
governmental issuers of such securities are the Federal National Mortgage
Association ("FNMA"), a government sponsored corporation owned entirely by
private stockholders and the Federal Home Loan Mortgage Corporation ("FHLMC"),
a corporate instrumentality of the United States created pursuant to an act of
Congress which is owned entirely by Federal Home Loan Banks. The issuers of
CMOs are structured as trusts or corporations established for the purpose of
issuing such CMOs and often have no assets other than those underlying the
securities and any credit support provided. A REMIC is a mortgage securities
vehicle, that holds residential or commercial mortgages and issues securities
representing interests in those mortgages. A REMIC may be formed as a
corporation, partnership, or segregated pool of assets. The REMIC itself is
generally exempt from federal income tax, but the income from the mortgages is
reported by investors. For investment purposes, interests in REMIC securities
are virtually indistinguishable from CMOs.

Mortgage Pass-Through Certificates-Mortgage pass-through
certificates are issued by governmental, government- related and private
organizations which are backed by pools of mortgage loans.

12
<PAGE> 13
principal and interest owed by the individual mortgagors, net of fees paid to
GNMA and to the issuer which assembles the mortgage pool and passes through the
monthly mortgage payments to the certificate holders (typically, a mortgage
banking firm), regardless of whether the individual mortgagor actually makes
the payment. Because payments are made to certificate holders regardless of
whether payments are actually received on the underlying mortgages, Ginnie Maes
are of the "modified pass-through" mortgage certificate type. The GNMA is
authorized to guarantee the timely payment of principal and interest on the
Ginnie Maes. The GNMA guarantee is backed by the full faith and credit of the
United States, and the GNMA has unlimited authority to borrow funds from the
U.S. Treasury to make payments under the guarantee. The market for Ginnie Maes
is highly liquid because of the size of the market and the active participation
in the secondary market of security dealers and a variety of investors.

(2) FHLMC Mortgage Participation Certificates ("Freddie Macs")-Freddie
Macs represent interests in groups of specified first lien residential
conventional mortgages underwritten and owned by the FHLMC. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or timely payment of
all principal payments on the underlying mortgage loans. In cases where the
FHLMC has not guaranteed timely payment of principal, the FHLMC may remit the
amount due because of its guarantee of ultimate payment of principal at any
time after default on an underlying mortgage, but in no event later than one
year after it becomes payable. Freddie Macs are not guaranteed by the United
States or by any of the Federal Home Loan Banks and do not constitute a debt or
obligation of the United States or of any Federal Home Loan Bank. The
secondary market for Freddie Macs is highly liquid because of the size of the
market and the active participation in the secondary market of the FHLMC,
security dealers and a variety of investors.

(3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie
Maes")-Fannie Maes represent an undivided interest in a pool of conventional
mortgage loans secured by first mortgages or deeds of trust, on one family or
two to four family, residential properties. The FNMA is obligated to
distribute scheduled monthly installments of principal and interest on the
mortgages in the pool, whether or not received, plus full principal of any
foreclosed or otherwise liquidated mortgages. The obligation of the FNMA under
its guarantee is solely its obligation and is not backed by, nor entitled to,
the full faith and credit of the United States.

(4) Mortgage-Related Securities Issued by Private Organizations-Pools
created by non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because there are no direct or
indirect government guarantees of payments in such pools. However, timely
payment of interest and principal of these pools is often partially supported
by various enhancements such as over-collateralization and senior/subordination
structures and by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurers or the mortgage
poolers. Although the market for such securities is becoming increasingly
liquid, securities issued by certain private organizations may not be readily
marketable.

Municipal Lease Obligations-Municipal lease obligations are issued by
state and local governments and authorities to acquire land and a wide variety
of equipment and facilities. These obligations typically are not fully backed
by the municipality's credit and thus interest may become taxable if the lease
is assigned. If funds are not appropriated for the following year's lease
payments, a lease may terminate with the possibility of default on the lease
obligation. With respect to municipal lease obligations ("MLOs") purchased by
the corresponding Portfolio of the Municipal Money Market Fund, the Board has
established the following guidelines for determining the liquidity of the MLOs
in its portfolio, and, subject to review by the AMR Trust Board, has delegated
that responsibility to the investment adviser: (1) the frequency of trades and
quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential buyers; (3) the willingness of
dealers to undertake to make a market in the security; (4) the nature of the
marketplace trades; (5) the likelihood that the marketability of the obligation
will be maintained through the time the security is held by the Portfolio; (6)
the credit quality of the issuer and the lessee; (7) the essentiality to the
lessee of the property covered by the lease and (8) for unrated MLOs, the MLOs'
credit status analyzed according to the factors reviewed by rating agencies.

13
<PAGE> 14
corporations in the financing of commercial or industrial facilities. The
principal and interest on these obligations may be payable from the general
revenues of the users of such facilities. Shareholders, depending on their
individual tax status, may be subject to the federal alternative minimum tax on
the portion of a distribution attributable to these obligations. Interest on
private activity obligations will be considered exempt from federal income
taxes; however, shareholders should consult their own tax advisers to determine
whether they may be subject to the federal alternative minimum tax.

Ratings of Long-Term Obligations-The Portfolio utilizes ratings provided
by the following nationally recognized statistical rating organizations
("Rating Organizations") in order to determine eligibility of long-term
obligations.

The two highest Moody's Investors Service, Inc. ("Moody's") ratings for
long-term obligations (or issuers thereof) are Aaa and Aa. Obligations rated
Aaa are judged by Moody's to be of the best quality. Obligations rated Aa are
judged to be of high quality by all standards. Together with the Aaa group,
such debt comprises what is generally known as high-grade debt. Moody's states
that debt rated Aa is rated lower than Aaa debt because margins of protection
or other elements make long-term risks appear somewhat larger than for Aaa
debt. Moody's also supplies numerical indicators 1, 2, and 3 to rating
categories. The modifier 1 indicates that the security is in the higher end of
its rating category; the modifier 2 indicates a mid-range ranking; and modifier
3 indicates a ranking toward the lower end of the category.

The two highest Standard & Poor's ratings for long-term obligations are
AAA and AA. Obligations rated AAA have the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely strong.
Obligations rated AA have a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.

Duff & Phelps' two highest ratings for long-term obligations are AAA and
AA. Obligations rated AAA have the highest credit quality with risk factors
being negligible. Obligations rated AA are of high credit quality and strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.

IBCA's two highest long-term obligation ratings are AAA and AA.
Obligations rated AAA are those for which there is the lowest expectation of
investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially. AA
obligations have a very low expectation of investment risk. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk albeit
not very significantly.

Standard & Poor's, Duff & Phelps and Fitch apply indicators "+","-," and
no character to indicate relative standing within the major rating categories.

14
<PAGE> 15
having variable short-term maturities but having neither a variable rate nor
demand feature. Factors used in determination of ratings include liquidity of
the borrower and short-term cyclical elements.

Standard & Poor's uses SP-1, SP-2, and SP-3 to rate short-term municipal
obligations. A rating of SP-1 denotes a very strong or strong capacity to pay
principal and interest.

Ratings of Short-term Obligations-The rating P-1 is the highest
short-term rating assigned by Moody's. Among the factors considered by Moody's
in assigning ratings are the following: (1) evaluations of the management of
the issuer; (2) economic evaluation of the issuer's industry or industries and
an appraisal of speculative-type risks which may be inherent in certain areas;
(3) evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.

Short-term obligations (or issuers thereof) rated A-1 by Standard &
Poor's have the following characteristics. Liquidity ratios are adequate to
meet cash requirements. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's short-term
obligation is rated A-1 or A-2.

IBCA's short-term rating of A1 indicates obligations supported by the
highest capacity for timely repayment. Where issues possess particularly
strong credit features, a rating of A1+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment.

The distinguishing feature of Duff & Phelps Credit Ratings' short-term
rating is the refinement of the traditional 1 category. The majority of
short-term debt issuers carry the highest rating, yet quality differences exist
within that tier. Obligations rated D-1+ indicate the highest certainty of
timely payment. Safety is just below risk-free U.S. Treasury obligations.
Obligations rated D-1 have a very high certainty of timely payment. Risk
factors are minor. Obligations rated D-1- have a high certainty of timely
payment. Risk factors are very small. Obligations rated D-2 have good
certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.

Thomson BankWatch short-term ratings are intended to assess the
likelihood of an untimely or incomplete payment of principal or interest.
Obligations rated TBW-1 indicate a very high likelihood that principal and
interest will be paid on a timely basis. While the degree of safety regarding
timely payment of principal and interest is strong for an obligation rated
TBW-2, the relative degree of safety is not as high as for issues rated TBW-1.

Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. A rating of F-1+ indicates exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. Obligations rated F-1 have very
strong credit quality. Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated F-1+. Issues
assigned a rating of F-2 indicate good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F- 1+ and F-1 ratings.

Repurchase Agreements-A repurchase agreement, which provides a means to
earn income on funds for periods as short as overnight, is an arrangement under
which the purchaser (e.g., a Portfolio) purchases securities and the seller
agrees, at the time of sale, to repurchase the securities at a specified time
and price. The repurchase price will be higher than the purchase price, the
difference being income to the purchaser, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the purchaser together
with the repurchase price on repurchase. In either case, the income to the
purchaser is unrelated to the interest rate on the securities subject to the
repurchase agreement.

15
<PAGE> 16
Each Portfolio may enter into repurchase agreements with any bank or
registered broker-dealer who, in the opinion of the AMR Trust Board, presents a
minimum risk of bankruptcy during the term of the agreement based upon
guidelines that periodically are reviewed by the AMR Trust Board. Each
Portfolio may enter into repurchase agreements as a short- term investment of
its idle cash in order to earn income. The securities will be held by a
custodian (or agent) approved by the AMR Trust Board during the term of the
agreement. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Portfolio will direct the seller of the securities to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price.

In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before the repurchase of the
securities under a repurchase agreement, a Portfolio may encounter a delay and
incur costs before being able to sell the security being held as collateral.
Delays may involve loss of interest or decline in price of the securities.
Apart from the risk of bankruptcy or insolvency proceedings, there is also the
risk that the seller may fail to repurchase the securities, in which case a
Portfolio may incur a loss if the proceeds to the Portfolio from the sale of
the securities to a third party are less than the repurchase price.

Reverse Repurchase Agreements-The Portfolios may borrow funds for
temporary purposes by entering into reverse repurchase agreements. Pursuant to
such agreements, a Portfolio would sell portfolio securities to financial
institutions such as banks and broker dealers and agree to repurchase them at a
mutually agreed-upon date and price. The Portfolios intend to enter into
reverse repurchase agreements only to avoid selling securities to meet
redemptions during market conditions deemed unfavorable by the investment
adviser possessing investment authority. At the time a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as liquid high quality debt securities having a value not less than
100% of the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such required value is
maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Portfolio may decline below the price at
which such Portfolio is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by an investment company
under the 1940 Act.

Resource Recovery Obligations-Resource recovery obligations are a type of
municipal revenue obligation issued to build facilities such as solid waste
incinerators or waste-to-energy plants. Usually, a private corporation will be
involved and the revenue cash flow will be supported by fees or units paid by
municipalities for use of the facilities. The viability of a resource recovery
project, environmental protection regulations and project operator tax
incentives may affect the value and credit quality of these obligations.

Revenue Obligations-Revenue obligations are backed by the revenue cash
flow of a project or facility.

Separately Traded Registered Interest and Principal Securities and Zero
Coupon Obligations-Separately traded registered interest and principal
securities or "STRIPS" and zero coupon obligations are securities that do not
make regular interest payments. Instead they are sold at a discount from their
face value. Each Portfolio will take into account as income a portion of the
difference between these obligations' purchase prices and their face values.
STRIPS are zero coupon bonds issued by the U.S. Treasury.

Tax, Revenue or Bond Anticipation Notes-Tax, revenue or bond anticipation
notes are issued by municipalities in expectation of future tax or other
revenues which are payable from these specific taxes or revenues. Bond
anticipation notes usually provide interim financing in advance of an issue of
bonds or notes, the proceeds of which are used to repay the anticipation notes.
Tax-exempt commercial paper is issued by municipalities to help finance
short-term capital or operating needs in anticipation of future tax or other
revenue.

U.S. Government Securities-U.S. Government securities are issued or
guaranteed by the U.S. Government and include U.S. Treasury obligations (see
definition below) and securities issued by U.S. agencies and instrumentalities.

16
<PAGE> 17
Maritime Administration, Tennessee Valley Authority, District of Columbia
Armory Board, Inter-American Development Bank, Asian-American Development Bank,
Agency for International Development, Student Loan Marketing Association and
International Bank of Reconstruction and Development.

Obligations of U.S. Government agencies and instrumentalities may or may
not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the Treasury; others are
supported by discretionary authority of the U.S. Government to purchase the
agencies' obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.

U.S. Treasury Obligations-U.S. Treasury obligations include bills, notes
and bonds issued by the U.S. Treasury and Separately Traded Registered Interest
and Principal component parts of such obligations known as STRIPS.

Variable or Floating Rate Obligations-A variable rate obligation is one
whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate obligation is one whose terms
provide for the adjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a
market value that approximates its par value. Variable or floating rate
obligations may be secured by bank letters of credit.

Pursuant to Rule 2a-7 under the 1940 Act, variable or floating rate
obligations with stated maturities of more than 397 days may be deemed to have
shorter maturities as follows:

(1) An obligation that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days will be deemed by a Portfolio
to have a maturity equal to the period remaining until the next readjustment of
the interest rate.

(2) A variable rate obligation, the principal amount of which is
scheduled on the face of the instrument to be paid in 397 days or less, will be
deemed by a Portfolio to have a maturity equal to the period remaining until
the next readjustment of the interest rate.

(3) A variable rate obligation that is subject to a demand feature will
be deemed by a Portfolio to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.

(4) A floating rate obligation that is subject to a demand feature will
be deemed by a Portfolio to have a maturity equal to the period remaining until
the principal amount can be recovered through demand.

As used above, an obligation is "subject to a demand feature" when a
Portfolio is entitled to receive the principal amount of the obligation either
at any time on no more than 30 days' notice or at specified intervals not
exceeding one year and upon no more than 30 days' notice.

Variable Rate Auction and Residual Interest Obligations-Variable rate
auction and residual interest obligations are created when an issuer or dealer
separates the principal portion of a long-term, fixed-rate municipal bond into
two long-term, variable-rate instruments. The interest rate on one portion
reflects short-term interest rates, while the interest rate on the other
portion is typically higher than the rate available on the original fixed-rate
bond.

FINANCIAL STATEMENTS

The American AAdvantage Funds' Annual Report to shareholders for the
fiscal year ended October 31, 1995 is supplied with the Statement of Additional
Information, and the financial statements and accompanying notes appearing
therein are incorporated by reference in this Statement of Additional
Information.

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<PAGE> 18
TABLE OF CONTENTS

Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management, Administrative Services and Distribution Fees . . . . . . . . . . .

Redemptions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expense Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Yield and Total Return Quotations . . . . . . . . . . . . . . . . . . . . . . .

Description of the Trust . . . . . . . . . . . . . . . . . . . . . . . . . . .

Control Persons and 5% Shareholders . . . . . . . . . . . . . . . . . . . . . .

Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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<PAGE> 19

STATEMENT OF ADDITIONAL INFORMATION

AMERICAN AADVANTAGE FUNDS(R)

AMR CLASS(SM)
INSTITUTIONAL CLASS
PLANAHEAD CLASS(SM)

MARCH 1, 1996

The American AAdvantage Balanced Fund(sm) (the "Balanced Fund"),
American AAdvantage Growth and Income Fund(sm), formerly the American
AAdvantage Equity Fund (the "Growth and Income Fund"), American AAdvantage
International Equity Fund(sm) (the "International Equity Fund"), American
AAdvantage Limited-Term Income Fund(sm), formerly the American AAdvantage Fixed
Income Fund (the "Limited-Term Income Fund"), American AAdvantage Money Market
Fund(sm) (the "Money Market Fund"), American AAdvantage Municipal Money Market
Fund(sm) (the "Municipal Money Market Fund") and American AAdvantage U.S.
Treasury Money Market Fund(sm) (the "U.S. Treasury Money Market Fund"),
(individually, a "Fund" and collectively, the "Funds") are seven separate
investment portfolios of the American AAdvantage Funds (the "Trust") a no-load,
open-end, diversified management investment company. Each Fund constitutes a
separate investment portfolio with a distinct investment objective, and
distinct purpose and strategy. Each Fund consists of multiple classes of
shares designed to meet the needs of different groups of investors. This
Statement of Additional Information relates to the AMR, Institutional and
PlanAhead Classes of the Trust.

Each Fund will seek its investment objective by investing all of its
investable assets in a corresponding portfolio (individually, a "Portfolio"
and, collectively, the "Portfolios") of the AMR Investment Services Trust ("AMR
Trust") that has a similar name and an identical investment objective to the
investing Fund.

This Statement of Additional Information should be read in conjunction
with an AMR Class, Institutional Class or PlanAhead Class prospectus dated
March 1, 1996, (individually, a "Prospectus"), copies of which may be obtained
without charge by calling (800) 423-7526 for a PlanAhead Class Prospectus or
(817) 967-3509 for an Institutional or AMR Class Prospectus.

This Statement of Additional Information is not a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by a current Prospectus.

INVESTMENT RESTRICTIONS

Each Fund has the following fundamental investment policy that enables
it to invest in a corresponding Portfolio of the AMR Trust:

Notwithstanding any other limitation, the Fund may invest all
of its investable assets in an open-end management investment
company with substantially the same investment objectives,
policies and limitations as the Fund. For this purpose, "all
of the Fund's investable assets" means that the only
investment securities that will be held by the Fund will be
the Fund's interest in the investment company.

All other fundamental investment policies and the non-fundamental
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 Trust's Board of Trustees ("Board").

2. Purchase or sell commodities (including direct interests
and/or leases in oil, gas or minerals) or commodities contracts,
except with respect to forward foreign currency exchange contracts,
foreign currency futures contracts and "when-issued" securities when
consistent with the other policies and limitations described in the
Prospectus.

3. Engage in the business of underwriting securities issued by
others, except to the extent that, in connection with the disposition
of securities, the Portfolio may be deemed an underwriter under
federal securities law.

4. Make loans to any person or firm, provided, however, that the
making of a loan shall not be construed to include (i) the acquisition
for investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that each Portfolio may lend its portfolio
securities to broker-dealers or other institutional investors in
accordance with the guidelines stated in the Prospectus.

5. Purchase from or sell portfolio securities to its officers,
Trustees or other "interested persons" of the Trust, as defined in the
Investment Company Act of 1940 ("1940 Act"), including its investment
advisers and their affiliates, except as permitted by the 1940 Act and
exemptive rules or orders thereunder.

6. Issue senior securities except that the Portfolio may engage
in when-issued securities and forward commitment transactions and the
International Equity Portfolio may engage in currency futures and
forward currency contracts.

7. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed
10% of the value of its total assets at the time of borrowing. In
addition, although not a fundamental policy, the Portfolios intend to
repay any money borrowed before any additional portfolio securities
are purchased. See "Other Information" for a further description
regarding reverse repurchase agreements.

The corresponding Portfolio of the Money Market Fund (the "Money
Market Portfolio"), as a fundamental policy, is restricted from purchasing the
securities of other investment companies except in connection with a merger,
consolidation, acquisition of assets or other reorganization approved by the
Portfolio's interest holders.

The following non-fundamental investment restrictions apply to each
Portfolio and may be changed with respect to a Portfolio by a majority vote of
the AMR Trust Board. No Portfolio may:

1. Purchase securities on margin, effect short sales (except that
the Portfolio may obtain such short-term credits as may be necessary
for the clearance of purchases or sales of securities) or purchase or
sell call options or engage in the writing of such options.

In addition, no Portfolio may invest in warrants, except as permitted
by its investment policies as described in the Prospectus, provided that no
such Portfolio shall invest more than 5% of its net assets, valued at the lower

2
<PAGE> 21
of cost or market, in warrants or more than 2% of its net assets in warrants
which are not listed on the New York or American Stock Exchanges.

TRUSTEES AND OFFICERS

<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (48) Trustee and President President, AMR Investment Services, Inc. (November 1986-
Present); Chairman, American Airlines Employees Federal
Credit Union (October 1989-Present); Trustee, American
Performance Funds (September 1990-July 1994); Director,
Crescent Real Estate Equities, Inc. (April 1994 -
Present); Trustee, American AAdvantage Mileage Funds
(1995 - Present).

David G. Fox (72) Trustee Director, Capstead Mortgage Company (1985-1994);
5949 Sherry Lane Director, Southwestern Medical Foundation (1984-
Suite 1220, LB 125 Present); Trustee, Shelter Ministries of Dallas (1993-
Dallas, Texas 75225-6521 Present); Member, Dallas Citizens Council (1967-
Present); President, Dallas County Historical Foundation
(1987-1993); Chairman of the Board, Sensible
Metropolitan Area Rapid Transit (1987-1994); Chairman of
the Board, State Fair of Texas (April 1988-April 1993);
Owner, David G. Fox Investments (1985-Present); Trustee,
American AAdvantage Mileage Funds (1995 - Present).

John S. Justin (79) Trustee Chairman and Chief Executive Officer, Justin Industries,
2821 West Seventh Street Inc. (a diversified holding company) (1969-Present);
Fort Worth, Texas 76107 Executive Board Member, Blue Cross/Blue Shield of Texas
(1985-Present); Board Member, Zale Lipshy Hospital (June
1993-Present); Trustee, Texas Christian University
(1980-Present); Director and Executive Board Member,
Moncrief Radiation Center (1985-Present); Director,
Texas New Mexico Enterprises (1984-1993); Director,
Texas New Mexico Power Company (1979-1993); Trustee,
American AAdvantage Mileage Funds (1995 - Present).

3
<PAGE> 22
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ----------------------------------------
<S> <C> <C>
Roger T. Staubach (54) Trustee Chairman of the Board and Chief Executive Officer (1982-
6750 LBJ Freeway present) and President (1983-1991) of The Staubach
Dallas, TX 75240 Company (a commercial real estate company); Director,
Halliburton Company (1991-present); Director, First USA,
Inc. (1993-present); Director, Brinker International
(1993-present); Director, Columbus Realty Trust (1994-
present); Member of the Advisory Board, The Salvation
Army; Member of the Advisory Board, Dallas International
Sports Commission; Member of the Advisory Board,
Hartford Whalers Hockey Club; Trustee, Institute for
Aerobics Research; Member of Executive Council,
Daytop/Dallas; former quarterback of the Dallas Cowboys
professional football team; Trustee, American AAdvantage
Mileage Funds (1995 - Present).

Nancy A. Eckl (33) Vice President Vice President (December 1990-Present), AMR Investment
Services, Inc.

Michael W. Fields (42) Vice President Vice President, AMR Investment Services, Inc. (August
1988-Present).

Barry Y. Greenberg (32) Vice President and Director, Legal and Compliance, AMR Investment Services,
Assistant Secretary Inc. (July 1995-Present); Branch Chief (May 1992-June
1995) and Staff Attorney (August 1988-May 1992),
Securities and Exchange Commission.

Rebecca L. Harris (28) Treasurer Director of Finance (May 1995-Present), Controller
(November 1991-April 1995), AMR Investment Services,
Inc.; Financial Analyst, Sabre Travel Information
Network (December 1990-October 1991).

John B. Roberson (37) Vice President Vice President (June 1991-Present), Assistant Vice
President (August 1988-May 1991), AMR Investment
Services, Inc.

Janice B. Schwarz (36) Assistant Secretary Senior Compliance Analyst, AMR Investment Services, Inc.
(December 1990-Present).

Clifford J. Alexander (52) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)

Robert J. Zutz (43) Assistant Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
</TABLE>

* Messrs. Quinn and O'Sullivan, by virtue of their current or former
positions, are deemed to be "interested persons" of the Trust as defined by
the 1940 Act.

All Trustees and officers as a group own less than 1% of the
outstanding shares of any of the Funds.

As compensation for their service to the Trusts, the Independent
Trustees and their spouses receive free air travel from American Airlines,
Inc., an affiliate of the Manager. The Trusts do not pay for these travel
arrangements. However, the Trusts compensate each Trustee with payments in an
amount equal to the Trustees' income tax on the value of this free airline
travel. These amounts are reflected in the following table for the fiscal year
ended October 31, 1995.

4
<PAGE> 23
<TABLE>
<CAPTION>
Pension or
Retirement Estimated Total
Aggregate Benefits Accrued as Annual Compensation
Compensation Part of the Benefits From American
From the AAdvantage Upon AAdvantage Fund
Name of Trustee Trust Trust's Expenses Retirement Complex
- --------------- ----- ---------------- ---------- -------
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $0
David G. Fox $27,510 $0 $0 $27,510
John S. Justin $14,475 $0 $0 $14,475
Stephen D. O'Sullivan $0 $0 $0 $0
Roger T. Staubach(1) $0 $0 $0 $0
</TABLE>

MANAGEMENT, ADMINISTRATIVE SERVICES AND DISTRIBUTION FEES

As described more fully in the Prospectus, the Manager is paid a
management fee as compensation for paying investment advisory fees and for
providing the Trust and the AMR Trust with advisory and asset allocation
services. Management fees for the fiscal years ended October 31 were
approximately as follows: 1993, $7,827,000 of which approximately $2,280,000
was paid by the Manager to the other investment advisers; 1994, $6,950,000 of
which approximately $2,965,000 was paid by the Manager to the other investment
advisers; and 1995 $7,603,000 of which approximately $3,985,000 was paid by the
Manager to the other investment advisers. Management fees in the amount of
approximately $214,000 and $29,000 were waived by the Manager during the fiscal
years ended October 31, 1994 and 1995, respectively.

Prior to August 1, 1994, shareholders of the Balanced, Growth and
Income, International Equity and Limited-Term Income Funds ("Variable NAV
Funds") were required to enter into a Shareholder Services Agreement with the
Manager which obligated the Manager to provide or oversee on behalf of the
shareholder's account certain administrative and management services (other
than investment advisory services). Shareholder services fees for the fiscal
year ended October 31, 1993 were approximately $1,244,000. Effective August 1,
1994, shareholder services agreements were eliminated and replaced by an
administrative services fee paid by each of the Variable NAV Funds to the
Manager. Shareholder services fees for the nine months ended July 31, 1994
were approximately $1,292,000.

In addition to the management fee, the Manager is paid an
administrative services fee for providing administrative and management
services (other than investment advisory services) to the Funds.
Administrative services fees for the fiscal years ended October 31 were
approximately as follows: 1993, $1,544,000; 1994, $1,473,000; and 1995,
$2,731,000. Administrative service fees in the amount of approximately $14,000
and $9,000 were waived by the Manager during the fiscal years ended October 31,
1994 and 1995, respectively.

On September 1, 1995, Brokers Transaction Services, Inc. ("BTS"),
became distributor of the Funds' shares, and as such began receiving an
annualized fee of $50,000 from the Manager for distributing the shares of the
Trust and the American AAdvantage Mileage Funds. Prior to this date, the Trust
was self-distributed.

APPROACH TO STOCK SELECTION

Investment advisers to the corresponding Portfolios of the Balanced,
Growth and Income and International Equity Funds will select equity securities
which, in their opinion, have above average growth potential and are also
selling at a discount to the market. This approach focuses on the purchase of
a diverse group of stocks below their perceived economic value. Each of the
investment advisers determines the growth prospects of firms based upon a
combination of internal and external research using fundamental economic cycle
analysis and considering changing economic trends. The determination of value
is based upon the analysis of several characteristics of the issuer and its
equity securities including price to earnings ratio, price to book value ratio,
assets carried below market value, financial strength and dividend yield.

__________________________________

(1) Mr. Staubach became a Trustee in May 1995 and did not receive tax
reimbursement payments during fiscal year 1995 for his travel during that year.

5
<PAGE> 24
REDEMPTIONS IN KIND

EXPENSE LIMITATIONS

INVESTMENT ADVISORY AGREEMENTS

Separate Investment Advisory Agreements between the investment
advisers of the corresponding Portfolios of the Balanced, Growth and Income,
International Equity and Limited-Term Income Funds and the AMR Trust, as
described in the Prospectus, were approved and became effective as of October
1, 1995. Prior to that date, these Funds had entered into Investment Advisory
Agreements with the same investment advisors. On October 1, 1995, each Fund
Investment Advisory Agreement was amended to provide that to the extent a Fund
invests all of its investable assets in its corresponding Portfolio, the
adviser will not receive an advisory fee under that Agreement.

Each such Agreement will automatically terminate if assigned, and may
be terminated without penalty at any time by the Manager, by a vote of a
majority of the Trustees or by a vote of a majority of the outstanding voting
securities of the applicable Fund on no less than thirty (30) days' nor more
than sixty (60) days' written notice to the investment adviser, or by the
investment adviser upon sixty (60) days' written notice to the Trust. The
Investment Advisory Agreements will continue in effect provided that annually
such continuance is specifically approved by a vote of the Trustees, including
the affirmative votes of a majority of the Trustees who are not parties to the
Agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of considering such
approval, or by the vote of shareholders.

PORTFOLIO SECURITIES TRANSACTIONS

The Investment Advisory Agreements provide, in substance, that in
executing portfolio transactions and selecting brokers or dealers, the
principal objective of each investment adviser is to seek the best net price
and execution available. It is expected that securities ordinarily will be
purchased in the primary markets, and that in assessing the best net price and
execution available, each investment adviser shall consider all factors it
deems relevant, including the breadth of the market in the security, the price
of the security, the financial condition and execution capability of the broker
or dealer and the reasonableness of the commission, if any, for the specific
transaction and on a continuing basis.

In selecting brokers or dealers to execute particular transactions,
investment advisers are authorized to consider "brokerage and research
services" (as those terms are defined in Section 28(e) of the Securities
Exchange Act of 1934), provision of statistical quotations (including the
quotations necessary to determine a Portfolio's net asset value), the sale of
Trust shares by such broker-dealer or the servicing of Trust shareholders by
such broker-dealer, and other information provided to the applicable Portfolio,
to the Manager and/or to the investment advisers (or their affiliates),
provided, however, that the investment adviser determines that it has

6
<PAGE> 25
received the best net price and execution available. The investment advisers
are also authorized to cause a Portfolio to pay a commission to a broker or
dealer who provides such brokerage and research services for executing a
portfolio transaction which is in excess of the amount of the commission
another broker or dealer would have charged for effecting that transaction.
The Trustees, the Manager or the investment advisers, as appropriate, must
determine in good faith, however, that such commission was reasonable in
relation to the value of the brokerage and research services provided viewed in
terms of that particular transaction or in terms of all the accounts over which
the Manager or the investment adviser exercises investment discretion.

For the fiscal years ended October 31, 1993, October 31, 1994, and October 31,
1995; the following brokerage commissions were paid by the Funds.

<TABLE>
<CAPTION>
Fund 1993 1994 1995
- ---- ---- ---- ----
<S> <C> <C> <C>
Balanced $284,089 $228,250 $388,253
Growth and Income $416,448 $300,096 $590,364
International Equity $115,463 $391,301 $422,670
Limited-Term Income $0 $0 $0
Money Market Funds $0 $0 $0
</TABLE>

For the fiscal years ended October 31, 1994 and October 31, 1995, the portfolio
turnover rates for the Funds were as follows:
<TABLE>
<CAPTION>
Fund 1994 1995
- ---- ---- ----
<S> <C> <C>
Balanced Fund 48% 73%
Growth and Income Fund 23% 26%
International Equity Fund 37% 21%
Limited-Term Income Fund 94% 183%
</TABLE>

High portfolio turnover can increase the Fund's transaction costs and generate
additional capital gains or losses.

The fees of the investment advisers are not reduced by reason of
receipt of such brokerage and research services. No investment adviser
provides any services to the Trust except portfolio investment management and
related recordkeeping services. However, with disclosure to and pursuant to
written guidelines approved by the Trustees, an investment adviser of a
Portfolio or its affiliated broker-dealer may execute portfolio transactions
and receive usual and customary brokerage commissions (within the meaning of
Rule 17e-1 under the 1940 Act) for doing so. During the fiscal year ended
October 31, 1993, the Balanced Fund and the Growth and Income Fund paid $1,150
and $750, respectively, in brokerage commissions to Sutro & Company, an
affiliate of Independence Investment Associates, an investment adviser to the
Balanced Fund and the Growth and Income Fund. The percentages of total
commissions of the Balanced and Growth and Income Funds paid to Sutro in 1993
were 0.4% and 0.2%, respectively. The transactions represented 0.2% of the
Balanced Fund's and 0.1% of the Growth and Income Fund's total dollar value of
portfolio transactions for the fiscal year ended October 31, 1993. The Funds
did not execute any portfolio transactions in fiscal year 1994 with affiliated
brokers. During the fiscal year ended October 31, 1995, the International
Equity Fund paid $18,937 in brokerage commissions to Morgan Stanley, Inc., an
affiliate of Morgan Stanley Asset Management, an investment adviser to the
International Equity Fund, and the Balanced Fund paid $18 in brokerage
commissions to Sutro & Company. The percentage of total commission of the
International Equity Fund paid to Morgan Stanley in 1995 was 4% representing 8%
of the International Equity Fund's total dollar value of transactions. The
percentage of total commission of the Balanced Fund paid to Sutro & Company in
1995 was 0.005% representing 0.03% of the Balanced Fund's total dollar value of
transactions.

NET ASSET VALUE

It is the policy of the Money Market Fund, Municipal Money Market Fund
and U.S. Treasury Money Market Fund (collectively the "Money Market Funds") to
attempt to maintain a constant price per share of $1.00. There can be no
assurance that a $1.00 net asset value per share will be maintained. The
portfolio instruments held by the Money Market Funds' corresponding Portfolios
are valued based on the amortized cost valuation technique pursuant to Rule
2a-7 under the 1940 Act. This involves valuing an instrument at its cost and
thereafter assuming a constant amortization to maturity of any discount or
premium, even though the portfolio security may increase or decrease in market
value. Such market fluctuations are generally in response to changes in
interest

7
<PAGE> 26
rates. Use of the amortized cost valuation method requires the corresponding
Portfolios of the Money Market Funds to purchase instruments having remaining
maturities of 397 days or less, to maintain a dollar weighted average portfolio
maturity of 90 days or less, and to invest only in securities determined by the
Trustees to be of high quality with minimal credit risks.

TAX INFORMATION

TAXATION OF THE FUNDS

To qualify as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986, as amended ("Code"), each Fund (each of which is
treated as a separate corporation for these purposes) must, among other
requirements:

- Derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or
(in the case of the International Equity Fund) foreign
currencies, or certain other income, including gains from
futures or forward contracts ("Income Requirement");

- Derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities, or (in the
case of the International Equity Fund) foreign currencies (or
futures or forward contracts thereon) that are not directly
related to the Fund's principal business of investing in
securities (or futures with respect thereto), that are held
for less than three months ("Short-Short Limitation");

- Diversify its investments in securities within certain
statutory limits; and

- Distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, taxable net
investment income plus net short-term capital gain) plus, in
the case of the Municipal Money Market Fund, net interest
income excludable from gross income under section 103(a) of
the Code ("Distribution Requirement").

See the next section for a discussion of the tax consequences to the
Balanced, Growth and Income and International Equity Funds of investments in
passive foreign investment companies ("PFICs") by the Balanced, Growth and
Income and International Equity Portfolios (collectively "Equity Portfolios"),
respectively, and, in the case of the International Equity Fund, of engaging in
hedging transactions by the International Equity Portfolio.

TAXATION OF THE PORTFOLIOS

The Portfolios have received a ruling from the IRS to the effect that,
among other things, each Portfolio is treated as a separate partnership for
federal income tax purposes and is not a "publicly traded partnership." As a
result, each Portfolio is not subject to federal income tax; instead, each
investor in a Portfolio, such as a Fund, is required to take into account in
determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether it has received any cash distributions from the Portfolio.

Because the ruling from the IRS provides, as noted above, that each
Fund is deemed to own a proportionate share of its corresponding Portfolio's
assets and income for purposes of determining whether the Fund satisfies the
requirements to qualify as a RIC, each Portfolio intends to conduct its
operations so that its corresponding Fund will be able to satisfy all those
requirements.

Distributions to a Fund from its corresponding Portfolio (whether
pursuant to a partial or complete withdrawal or otherwise) will not result in
the Fund's recognition of any gain or loss for federal income tax

8
<PAGE> 27
purposes, except that (1) gain will be recognized to the extent any cash that
is distributed exceeds the Fund's basis for its interest in the Portfolio
before the distribution, (2) income or gain will be recognized if the
distribution is in liquidation of the Fund's entire interest in the Portfolio
and includes a disproportionate share of any unrealized receivables held by the
Portfolio and (3) loss will be recognized if a liquidation distribution
consists solely of cash and/or unrealized receivables. A Fund's basis for its
interest in its corresponding Portfolio generally will equal the amount of cash
and the basis of any property the Fund invests in the Portfolio, increased by
the Fund's share of the Portfolio's net income and gains and decreased by (a)
the amount of cash and the basis of any property the Portfolio distributes to
the Fund and (b) the Fund's share of the Portfolio's losses.

A Portfolio may acquire zero coupon or other securities issued with
original issue discount. As an investor in a Portfolio that holds those
securities, a Fund would have to include in its income its share of the
original issue discount that accrues on the securities during the taxable year,
even if the Portfolio (and, hence, the Fund) receives no corresponding payment
on the securities during the year. Because each Fund annually must distribute
substantially all of its investment company taxable income, including any
original issue discount, to satisfy the Distribution Requirement and avoid
imposition of the 4% excise tax described in the Prospectus, a Fund may be
required in a particular year to distribute as a dividend an amount that is
greater than the total amount of cash it actually receives. Those
distributions would be made from the Fund's cash assets, if any, or the
proceeds of redemption of a portion of the Fund's interest in its corresponding
Portfolio (which redemption proceeds would be paid from the Portfolio's cash
assets or the proceeds of sales of portfolio securities, if necessary). The
Portfolio might realize capital gains or losses from any such sales, which
would increase or decrease the Fund's investment company taxable income and/or
net capital gain (the excess of net long-term capital gain over net short-term
capital loss). In addition, any such gains might be realized on the
disposition of securities held for less than three months. Because of the
Short-Short Limitation applicable to the Fund, any such gains would reduce the
Portfolio's ability to sell other securities (or, in the case of the
International Equity Portfolio, certain futures or forward contracts) held for
less than three months that it might wish to sell in the ordinary course of its
portfolio management.

If an Equity Portfolio acquires stock in a foreign corporation that is
a PFIC and holds the stock beyond the end of the year of acquisition, its
corresponding Fund will be subject to federal income tax on the Fund's share of
a portion of any "excess distribution" received by the Portfolio on the stock
or of any gain realized by the Portfolio from disposition of the stock
(collectively "PFIC income"), plus interest thereon, even if the Fund
distributes the PFIC income as a taxable dividend to its shareholders. A Fund
may avoid this tax and interest if its corresponding Portfolio elects to treat
the PFIC as a "qualified electing fund"; however, the requirements for that
election are difficult to satisfy. The Equity Portfolios currently do not
intend to acquire securities that are considered PFICs.

Hedging strategies, such as entering into forward contracts and selling
and purchasing futures contracts, involve complex rules that will determine for
federal income tax purposes the character and timing of recognition of gains and
losses the International Equity Portfolio realizes in connection therewith. The
International Equity Fund's share of the corresponding Portfolio's (1) income
from foreign currencies (except certain gains that may be excluded by future
regulations) and (2) income from transactions in futures and forward contracts
derived with respect to its business of investing in securities or foreign
currencies will qualify as allowable income for the Fund under the Income
Requirement. Income from the Portfolio's disposition of foreign currencies, and
futures and forward contracts on foreign currencies, that are not directly
related to its principal business of investing in securities (or futures with
respect thereto) also will be subject to the Short-Short Limitation for the Fund
if they are held for less than three months.

For purposes of determining whether the International Equity Fund
satisfies the Short-Short Limitation, if the International Equity Portfolio
satisfies certain requirements, an increase in value of a position that is part
of a designated hedge will be offset by any decrease in value (whether realized
or not) of the contra hedging position during the period of the hedge. Thus,
only the net gain (if any) will be included in gross income for purposes of
that limitation.

Dividends and interest received by the International Equity Portfolio
may be subject to income, withholding or other taxes imposed by foreign
countries and U.S. possessions that would reduce the yield on its securities.
Tax treaties between certain countries and the United States may reduce or
eliminate these foreign taxes, however, and many foreign countries do not
impose taxes on capital gains on investments by foreign investors.

9
<PAGE> 28
TAXATION OF THE FUNDS' SHAREHOLDERS

A portion of the dividends from a Fund's investment company taxable
income, whether received in cash or paid in additional Fund shares, may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the aggregate dividends received by the Fund
(directly or through its corresponding Portfolio) from U.S. corporations.
However, dividends received by a corporate shareholder and deducted by it
pursuant to the dividends-received deduction are subject indirectly to the
alternative minimum tax. No dividends paid by the Money Market Funds, the
International Equity Fund or the Limited-Term Income Fund are expected to be
eligible for this deduction.

Distributions by the Municipal Money Market Fund of the amount by
which income on tax-exempt securities exceeds certain amounts disallowed as
deductions, designated by it as "exempt-interest dividends," generally may be
excluded from gross income by its shareholders. Dividends paid by the Fund
will qualify as exempt-interest dividends if, at the close of each quarter of
its taxable year, at least 50% of the value of its total assets (including its
share of the Municipal Money Market Portfolio's assets) consists of securities
the interest on which is excludable from gross income under section 103(a) of
the Code. The Fund intends to continue to satisfy this requirement. The
aggregate dividends excludable from shareholders' gross income may not exceed
the Fund's net tax-exempt income. The shareholders' treatment of dividends
from the Fund under local and state income tax laws may differ from the
treatment thereof under the Code.

If more than 50% of the value of the International Equity Fund's total
assets (including its share of the International Equity Portfolio's total
assets) at the close of its taxable year consists of securities of foreign
corporations, the Fund will be eligible to, and may, file an election with the
Internal Revenue Service that will enable the Fund's shareholders, in effect,
to receive the benefit of the foreign tax credit with respect to the Fund's
share of any foreign and U.S. possessions income taxes paid by the Portfolio.
If the Fund makes this election, the Fund will treat those taxes as dividends
paid to its shareholders and each shareholder will be required to (1) include
in gross income, and treat as paid by him, his proportionate share of those
taxes, (2) treat his share of those taxes and of any dividend paid by the Fund
that represents income from foreign or U.S. possessions sources as his own
income from those sources and (3) either deduct the taxes deemed paid by him in
computing his taxable income or, alternatively, use the foregoing information
in calculating the foreign tax credit against his federal income tax. If the
election is made, the Fund will report to its shareholders shortly after each
taxable year their respective shares of its income (including its share of the
Portfolio's income) from foreign and U.S. possessions sources and its share of
the taxes paid by the Portfolio to foreign countries and U.S. possessions.

The foregoing is only a summary of some of the important federal tax
considerations affecting the Funds and their shareholders and is not intended
as a substitute for careful tax planning. Accordingly, prospective investors
are advised to consult their own tax advisers for more detailed information
regarding the above and for information regarding federal, state, local and
foreign taxes.

YIELD AND TOTAL RETURN QUOTATIONS

A quotation of yield on shares of each class of the Money Market Funds
may appear from time to time in

10
<PAGE> 29
advertisements and in communications to shareholders and others. Quotations of
yields are indicative of yields for the limited historical period used but not
for the future. Yield will vary as interest rates and other conditions change.
Yield also depends on the quality, length of maturity and type of instruments
invested in by the corresponding Portfolios of the Money Market Funds, and the
applicable class's operating expenses. A comparison of the quoted yields
offered for various investments is valid only if yields are calculated in the
same manner. In addition, other similar investment companies may have more or
less risk due to differences in the quality or maturity of securities held.

The yields of the Money Market Funds may be calculated in one of two
ways:

(1) Current Yield--the net average annualized return without
compounding accrued interest income. For a 7-day current yield, this
is computed by dividing the net change in value over a 7 calendar-day
period of a hypothetical account having one share at the beginning of
a 7 calendar-day period by the value of the account at the beginning
of this period to determine the "base period return." The quotient is
multiplied by 365 divided by 7 and stated to two decimal places. A
daily current yield is calculated by multiplying the net change in
value over one day by 365 and stating it to two decimal places.
Capital changes, such as realized gains and losses from the sale of
securities and unrealized appreciation and depreciation, are excluded
in calculating the net change in value of an account, but this
calculation includes the aggregate fees and other expenses that are
charged to all shareholder accounts in a class of a Fund. In
determining the net change in value of a hypothetical account, this
value is adjusted to reflect the value of any additional shares
purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares.

(2) Effective Yield--the net average annualized return as computed by
compounding accrued interest income. In determining the 7-day
effective yield, a class of a Fund will compute the "base period
return" in the same manner used to compute the "current yield" over a
7 calendar-day period as described above. One is then added to the
base period return and the sum is raised to the 365/7 power. One is
subtracted from the result, according to the following formula:

365/7
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1) ] - 1

Based on these formulas, the current and effective yields were as
follows for the periods and Funds indicated:
<TABLE>
<CAPTION>
Current yield for the Effective yield for the
Current daily yield as 7 day period ended 7 day period ended
of October 31, 1995 October 31, 1995 October 31, 1995
------------------- ---------------- ----------------
<S> <C> <C> <C>
Institutional Class
-------------------
Money Market Fund 5.76% 5.74% 5.90%
Municipal Money Market Fund 3.84% 3.83% 3.90%
U.S. Treasury Money Market Fund 5.52% 5.54% 5.70%

PlanAhead Class
---------------
Money Market Fund 5.47% 5.45% 5.59%
Municipal Money Market Fund 3.50% 3.49% 3.55%
U.S. Treasury Money Market Fund 5.06% 5.08% 5.21%
</TABLE>

The Municipal Money Market Fund also may advertise a tax equivalent
current and effective yield. The tax equivalent yields are calculated as
follows:

CURRENT YIELD/(1-APPLICABLE TAX RATE) = CURRENT TAX EQUIVALENT YIELD

EFFECTIVE YIELD/(1-APPLICABLE TAX RATE) = EFFECTIVE TAX EQUIVALENT YIELD

Based on these formulas, the current and effective tax equivalent yields for
the Municipal Money Market Fund for the seven day periods ending October 31,
1995 were:

11
<PAGE> 30
<TABLE>
<CAPTION>
Class Tax Equivalent Yield Tax Equivalent Yield
----- -------------------- --------------------
<S> <C> <C>
Institutional (based on a 35.0% corporate tax rate) 5.89% 6.00%
PlanAhead (based on a 39.6% personal tax rate) 5.78% 5.88%
</TABLE>

The advertised yields for each class of the Variable NAV Funds are
computed by dividing the net investment income per share earned during a 30-day
(or one month) period less the aggregate fees that are charged to all
shareholder accounts of the class in proportion to the 30-day (or one month)
period and the weighted average size of an account in that class of a Fund by
the maximum offering price per share of the class on the last day of the
period, according to the following formula:

6
YIELD = 2{(A-B + 1) - 1}
---
CD

where, with respect to a particular class of a Fund, "a" is the dividends and
interest earned during the period; "b" is the sum of the expenses accrued for
the period (net of reimbursement, if any) and the aggregate fees that are
charged to all shareholder accounts in proportion to the 30-day (or one month)
period and the weighted average size of an account in the class; "c" is the
average daily number of class shares outstanding during the period that were
entitled to receive dividends; and "d" is the maximum offering price per class
share on the last day of the period. Based on this formula, the estimated
30-day yield for the period ended October 31, 1995 for the Limited-Term Income
Fund was 6.46%, 6.20% and 5.90%, for the AMR, Institutional and PlanAhead
Classes, respectively.

Each class of the Limited-Term Income Fund may also advertise
a monthly distribution rate. The distribution rate gives the return of the
class based solely on the dividend payout to that class if someone was entitled
to the dividends for an entire month. A monthly distribution rate is
calculated from the following formula:

MONTHLY DISTRIBUTION RATE = A/P* (365/N)

where, with respect to a particular class of shares, "A" is the dividend
accrual per share during the month, "P" is the share price at the end of the
month and "N" is the number of days in the month. Based on this formula, the
monthly dividend rate for the AMR, Institutional and PlanAhead Classes of the
Limited-Term Income Fund for the month of October 1995 was 6.86%, 6.60% and
6.34%, respectively. The "monthly dividend rate" is a non-standardized
performance calculation and when used in an advertisement will be accompanied
by the appropriate standardized SEC calculations.

The advertised total return for a class of a Fund would be calculated
by equating an initial amount invested in a class of a Fund to the ending
redeemable value, according to the following formula:

n
P(1 + T) = ERV

where "P" is a hypothetical initial payment of $1,000; "T" is the average
annual total return for the class; "n" is the number of years involved; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made in
the class at the beginning of the investment period covered.

Based on this formula, annualized total returns were as follows for
the periods and Funds indicated:

<TABLE>
<CAPTION>
For the period from
the commencement of
For the one-year For the five-year active operations
period ended period ended through
October 31, 1995(1) October 31, 1995(1)(2) October 31,1995(1)(3)
-------------------- ---------------------- ---------------------
<S> <C> <C> <C>
AMR Class
- ---------
Balanced Fund 19.77% 14.23% 10.06%
Growth and Income Fund 21.03% 17.49% 11.00%
International Equity Fund 8.18% N/A 9.55%
Limited-Term Income Fund 8.22% 7.10% 7.25%
Institutional Class
- -------------------
Balanced Fund 19.39% 14.15% 10.02%
Growth and Income Fund 20.69% 17.41% 10.95%
International Equity Fund 7.90% N/A 9.48%
Limited-Term Income Fund 8.18% 7.06% 7.22%
</TABLE>

12
<PAGE> 31
<TABLE>
<CAPTION>
For the period from
the commencement of
For the one-year For the five-year active operations
period ended period ended through
October 31, 1995(1) October 31, 1995(1)(2) October 31,1995(1)(3)
-------------------- ---------------------- ---------------------
<S> <C> <C> <C>
Money Market Fund 5.96% 4.93% 6.27%
Municipal Money Market Fund (4) 3.75% N/A 3.10%
U.S. Treasury Money Market Fund 5.67% N/A 4.05%
PlanAhead Class
---------------
Balanced Fund (5) 19.06% 14.07% 9.97%
Growth and Income Fund 20.14% 17.27% 10.87%
International Equity Fund 7.37% N/A 9.31%
Limited-Term Income Fund (5) 7.83% 6.99% 7.18%
Money Market Fund 5.60% 4.84% 6.21%
Municipal Money Market Fund (4) 3.39% N/A 2.88%
U.S. Treasury Money Market Fund 5.19% N/A 3.89%
</TABLE>

(1) The Institutional Class is the initial class for each Fund.
The AMR Class and PlanAhead Class were not in existence prior to
August 1, 1994. Total returns for the PlanAhead and AMR Classes for
the periods ended October 31, 1995 reflect Institutional Class returns
from the date of commencement of operations of each of these Funds
through July 31, 1994 and returns of the applicable class for the
period August 1, 1994 (commencement of operations of the new classes)
through October 31, 1995. Due to the different expense structures
between the classes, total returns would vary from the results shown
had the classes been in operation for the entire periods.

(2) The International Equity Fund, Municipal Money Market Fund and
U.S. Treasury Money Market Fund had not commenced active operations as
of November 1, 1990.

(3) The Institutional Class of the Balanced Fund and the Growth
and Income Fund commenced active operations on July 17, 1987; the
Money Market Fund on September 1, 1987, the Limited-Term Income Fund
on December 3, 1987, the International Equity Fund on August 7, 1991,
the U.S. Treasury Money Market Fund on March 2, 1992 and the Municipal
Money Market Fund on November 10, 1993. The PlanAhead and AMR Classes
of all the Funds commenced active operations on August 1, 1994.

(4) Management and Administrative Services fees have been waived
for the Municipal Money Market Fund since its inception. Performance
prior to fee waivers for the periods shown are:

<TABLE>
<CAPTION>
For the period from the
commencement of active
For the one-year period ended operations through
Municipal Money Market Fund October 31, 1995 October 31, 1995
--------------------------- ------------------------------ -----------------------
<S> <C> <C>
Institutional Class 3.54% 2.89%
PlanAhead Class 3.19% 2.67%
</TABLE>

(5) A portion of the Service Plan Fees of the PlanAhead Class have
been waived for the Balanced and Limited-Term Income Funds since
August 1, 1994. Returns prior to waivers for the Limited-Term Income
Fund were 7.56%, 6.93% and 7.14% for the one, five and since inception
periods and were 18.98% before waivers for the Balanced Fund for the
one year period.

Each class of a Fund may also use "aggregate" total return figures for
various periods which represent the cumulative change in value of an investment
in a class of a Fund for the specific period. Such total returns reflect
changes in share prices of a class of a Fund and assume reinvestment of
dividends and distributions.

Each Fund may give total returns from inception using the date when
the current managers began active management as the inception date. However,
returns using the actual inception date of the Fund will also be provided.

In reports or other communications to shareholders or in advertising
material, each class of a Fund may from time to time compare its performance
with that of other mutual funds in rankings prepared by Lipper Analytical
Services, Inc., Morningstar, Inc., IBC/Donoghue, Inc. and other similar
independent services which monitor the performance of mutual funds or
publications such as the "New York Times", "Barrons" and the "Wall Street
Journal." Each class of a Fund may also compare its performance with various
indices prepared by independent services such as Standard & Poor's, Morgan
Stanley or Lehman Brothers.

Advertisements for the Funds may mention that the Funds offer a
variety of investment options. They may also compare the Funds to federally
insured investments such as bank certificates of deposit and credit union
deposits, including the long-term effects of inflation on these types of
investments. Advertisements may also compare the historical rate of return of
different types of investments. Information concerning broker-dealers who

13
<PAGE> 32

sell the Funds may also appear in advertisements for the Funds, including their
ranking as established by various publications compared to other
broker-dealers.

From time to time, the Manager may use contests as a means of
promoting the American AAdvantage Funds. Prizes may include free air travel
and/or hotel accommodations. Listings for certain of the Funds may be found in
newspapers under the heading Amer AAdvant.

DESCRIPTION OF THE TRUST

The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents to cover possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial
loss due to shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations. The Trust has not engaged in any other business.

The Trust was originally created to manage money for large
institutional investors, including pension and 401(k) plans for American
Airlines, Inc. The PlanAhead Class was later created to give individuals and
other smaller investors an opportunity to invest in the American AAdvantage
Funds. As a result, shareholders of the PlanAhead Class benefit from the
economies of scale generated by being part of a larger pool of assets.

The corresponding Portfolios of the Balanced, Growth and Income and
International Equity Funds utilize a multi- manager approach designed to reduce
volatility by diversifying assets over multiple investment management firms.
Each adviser is carefully chosen by the Manager through a rigorous screening
process.

CONTROL PERSONS AND 5% SHAREHOLDERS

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%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155

American AAdvantage Growth and Income Fund
- ------------------------------------------
AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof...............................90%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155

American AAdvantage International Equity Fund
- ---------------------------------------------
AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof...............................88%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155

American AAdvantage Limited-Term Income Fund
- --------------------------------------------
Retirement Advisors of America.............................................................................40%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244

AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof...............................36%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155

</TABLE>

<PAGE> 33
<TABLE>
<S> <C>
American AAdvantage Municipal Money Market Fund
- -----------------------------------------------
Southwest Securities, Inc.................................................................................99%
1201 Elm Street, Suite 4300
Dallas, Texas 75270

American AAdvantage U.S. Treasury Money Market Fund
- ---------------------------------------------------
Southwest Securities, Inc.................................................................................74%
1201 Elm Street, Suite 4300
Dallas, Texas 75270
</TABLE>

AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof own 100% of the shares of the AMR Class of the Balanced Fund, the
Growth and Income Fund, the International Equity Fund and the Limited-Term
Income Fund. Southwest Securities, Inc. owns 100% of the shares of the
Platinum Class of the Money Market Fund, the Municipal Money Market Fund and
the U.S. Treasury Money Market Fund.

In addition, the following persons own more than 5% of the outstanding
shares of a Fund or Class as of January 31, 1996:

<TABLE>
<CAPTION>
Total Fund Institutional PlanAhead
Class Class
---------- ------------ ---------
<S> <C> <C> <C>
American AAdvantage Balanced Fund
---------------------------------
Retirement Advisors of America 16% 53%
5005 LBJ Freeway, Suite 1350
Dallas, TX 75244
Sky Chefs Master Trust 10% 33%
601 Ryan Plaza Drive
Arlington, Texas 76011
NA Bank & Co. 0% 33%
P.O. Box 2180
Tulsa, Oklahoma 74101
Berg Electronics Inc. Savings Plan 0% 26%
4 New York Plaza - EBS 4th. Floor
New York, New York 10004-2413
Technical Products Group Inc. Retirement & Savings Plan 0% 7%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Chancellor Limited Partnership 0% 7%
5005 LBJ Freeway, Suite 630
Dallas, Texas 75244-6136
EPR Limited Partnership 0% 6%
5005 LBJ Freeway, Suite 630
Dallas, Texas 75244-6136

American AAdvantage Growth and Income Fund
------------------------------------------
Retirement Advisors of America 5% 60%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244
Coca-Cola Retirement Plan 1% 15%
Hamill and Company (Trust Operations)
P.O. Box 6558
Houston, TX 77252-2558
Wachovia Bank of North Carolina 1% 7%
P.O. Box 3002
Winston-Salem, North Carolina 27102
</TABLE>

<PAGE> 34
<TABLE>
<CAPTION>
Total Institutional PlanAhead
Fund Class Class
------ ------------- ---------
<S> <C> <C> <C>
Berg Electronics Inc. Savings Plan 0% 38%
4 New York Plaza - EBS 4th. Floor
New York, New York 10004-2413
Crowe & Dunlevy Profit sharing and Thrift Plan 0% 13%
20 N. Broadway, Suite 1800
Oklahoma City, Oklahoma 73102-8203
Technical Products Group Inc. Retirement & Savings Plan 0% 12%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019

American AAdvantage International Equity Fund
---------------------------------------------
NA Bank & Co. 5% 46%
P.O. Box 2180
Tulsa, Oklahoma 74101
Retirement Advisors of America
5005 LBJ Freeway, Suite 1350 3% 31%
Dallas, Texas 75244
Wachovia Bank of North Carolina 1% 9%
P.O. Box 3002
Winston-Salem, North Carolina 27102
Clarence Arthur & Co. 1% 6%
AmeriTrust, Texas N.A.
P.O. Box 951405
Dallas, TX 75395-1405
Crowe & Dunlevy Profit Sharing and Thrift Plan 0% 19%
20 N. Broadway, Suite 1800
Oklahoma City, Oklahoma 73102-8203
DLJ Securities Corp. 0% 16%
P.O. Box 2052
Jersey City, NJ 07303-2052
William R. Fulgham 0% 11%
P.O. Box 585
Gleneden Beach, OR 97388-0584
Chancellor Limited Partnership 0% 6%
5005 LBJ Freeway, Suite 630
Dallas, Texas 75244-6136
John May 0% 6%
P.O. Box 584
Gleneden Beach, Oregon 97388-0584

American AAdvantage Limited-Term Income Fund
--------------------------------------------
Retirement Advisors of America 40% 64%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244
Wachovia Bank of North Carolina 7% 12%
P.O. Box 3002
Winston-Salem, North Carolina 27102
Zale Lipshy University Hospital 5% 9%
5151 Harry Hines Blvd.
Dallas, TX 75235-7786
Technical Products Group Inc. Retirement and Savings Plan 0% 30%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Crowe & Dunlevy Profit Sharing and Thrift Plan 0% 17%
20 N. Broadway, Suite 1800
Oklahoma City, Oklahoma 73102-8203
Berg Electronics Inc. Savings Plan 0% 14%
4 New York Plaza - EBS 4th. Floor
New York, New York 10004-2413
</TABLE>

<PAGE> 35
<TABLE>
<CAPTION>
Total Institutional PlanAhead
Fund Class Class
------- -------------- ----------
<S> <C> <C> <C>
Chancellor Limited Partnership 0% 12%
5005 LBJ Freeway, Suite 630
Dallas, Texas 75244-6136
Peter C. Maffei IRA 0% 6%
P.O. Box 5900
Denver, Colorado 80217-5900
William R. Fulgham 0% 5%
P.O. Box 585
Gleneden Beach, OR 97388-0584

American AAdvantage Money Market Fund
-------------------------------------
NA Bank & Co. 11% 12%
P.O. Box 2180
Tulsa, Oklahoma 74101
City of Chicago International Airport Revenue Bonds 8% 9%
Harris Trust and Savings Bank(Indenture Trust Division)
P.O. Box 755
Chicago, Illinois 60690
Alliance Airport Authority 7% 8%
Bank One, Texas, NA (Corporate Trust Department)
500 Throckmorton
Fort Worth, Texas 76113-2604
Dallas/Fort Worth International Airport Revenue Bonds 7% 7%
AmeriTrust Texas, N.A. (Corporate Trust Department)
P.O. Box 2320
Dallas, TX 75221-2320
NationsBank Trust Department (Securities Lending Assets) 6% 7%
P.O. Box 83222, BC 492-16
Dallas, Texas 75283
Shell Oil Company 5% 6%
Two Shell Plaza
P.O. Box 2099
Houston, TX 77252
Southwest Securities, Inc. 5%
1201 Elm Street, Suite 4300
Dallas, Texas 75270
Tulsa Municipal Airport Trust 5% 5%
Bank of Oklahoma Trust Administration
P.O. Box 3200
Tulsa, Oklahoma 74192
Confederated Tribes of the Grande Ronde Community of 0% 6%
Oregon
9615 Garande Ronde Road
Grande Ronde, OR 97347-9712

American AAdvantage Municipal Money Market Fund
-----------------------------------------------
Samuel Mizener 0% 32%
146 Village Court
Pittsburgh, PA 15241-2474
Rose G. Averbach 0% 18%
6323 Beacon Street
Pittsburgh, PA 15217-1801
</TABLE>

<PAGE> 36
<TABLE>
<CAPTION>
Total Fund Institutional PlanAhead
Class Class
---------- ------------ ---------
<S> <C> <C> <C>
Howard S. Averbach 0% 17%
5551 Centre Ave. #409
Pittsburgh, PA 15232-1257
Nancy B. Gold 0% 17%
1454 Barnsdale Street
Pittsburgh, PA 15217-1308
Kenneth M. and Renee K. Chamblee 0% 7%
417 River Valley
Arlington, Texas 76006-3646
Onex Food Services 0% 80%
601 Ryan Plaza Drive
Arlington, Texas 76011
Clarence Arthur & Co. 0% 14%
Ameritrust, Texas N.A.
P.O. Box 951405
Dallas, TX 75395-1405
AMR Investment Services, Inc. 0% 6%
P.O. Box 619003 MD 5645
DFW Airport, TX 75261-9003

American AAdvantage U.S. Treasury Money Market Fund
---------------------------------------------------
Lone Star Airport Improvement Authority 6% 25%
First National Bank of Chicago
One First National Place
Chicago, Illinois 60670
Hare & Co. 6% 23%
Bank of New York (Special Prcessing Dept.)
One Wall Street
New York, NY 10286
Grapevine Industrial Development Corp 5% 20%
First National Bank of Chicago
One First National Place
Chicago, Illinois 60670
All Saints Hospital 5% 21%
1400 8th Avenue
Fort Worth, Texas 76104
British American Insurance Company 2% 9%
P.O. Box 1590
Dallas, Texas 75221-1590
Family Orthopedic Association Profit Sharing Plan 0% 42%
8953 Bath Road
Byron, MI 48418-9785
David J. & Jill E. Mancini 0% 22%
1632 Dale Street
San Diego, CA 92102-1428
Joseph R. Thomas, IRA 0% 14%
2898 NW 24th Court
Boca Raton, Florida 33431-6201
Bonnie M. Kroll 0% 9%
230 Belmont Ave.
Ambler, PA 19002-5908
</TABLE>

18
<PAGE> 37
OTHER INFORMATION

American Depository Receipts (ADRs), European Depository Receipts
(EDRs)-ADRs are depository receipts for foreign issuers in registered form
traded in U.S. securities markets, whereas, EDRs are in bearer form and traded
in European securities markets. These securities are not denominated in the
same currency as the securities into which they may be converted. Investing in
ADRs and EDRs involves greater risks than are normally present in domestic
investments. There is generally less publicly available information about
foreign companies and there may be less governmental regulation and supervision
of foreign stock exchanges, brokers and listed companies. In addition, such
companies may use different accounting and financial standards (and certain
currencies may become unavailable for transfer from a foreign currency),
resulting in a Fund's possible inability to convert proceeds realized upon the
sale of portfolio securities of the affected foreign companies immediately into
U.S. currency.

Bank Deposit Notes-Bank deposit notes are obligations of a bank,
rather than bank holding company corporate debt. The only structural
difference between bank deposit notes and certificates of deposit is that
interest on bank deposit notes is calculated on a 30/360 basis as are corporate
notes/bonds. Similar to certificates of deposit, deposit notes represent bank
level investments and, therefore, are senior to all holding company corporate
debt.

Cash Equivalents-Cash equivalents include certificates of deposit,
bearer deposit notes, bankers' acceptances, government obligations, commercial
paper, short-term corporate debt securities and repurchase agreements.

Certificates of Deposit-Certificates of deposit are issued against
funds deposited in an eligible bank (including its domestic and foreign
branches, subsidiaries and agencies), are for a definite period of time, earn a
specified rate of return and are normally negotiable.

Commercial Paper-Commercial paper refers to promissory notes
representing an unsecured debt of a corporation or finance company with a fixed
maturity of no more than 270 days.

Debentures-Debentures are unsecured debt securities. The holder of a
debenture is protected only by the general creditworthiness of the issuer.

Forward Foreign Currency Exchange Contracts-A forward foreign currency
exchange contract ("forward contract") is a contract to purchase or sell a
currency at a future date. The two parties to the contract set the number of
days and the price. Forward contracts are used as a hedge against movements in
future foreign exchange rates. The corresponding Portfolio of the
International Equity Fund may enter into forward contracts to purchase or sell
foreign currencies for a fixed amount of U.S. dollars or other foreign
currency.

Forward contracts may serve as long hedges -- for example, the
Portfolio may purchase a forward contract to lock in the U.S. dollar price of a
security denominated in a foreign currency that the Portfolio intends to
acquire. Forward contracts may also serve as short hedges -- for example, the
Portfolio may sell a forward contract to lock in the U.S. dollar equivalent of
the proceeds from the anticipated sale of a security denominated in a foreign
currency or from the anticipated dividend or interest payments denominated in a
foreign currency. The Manager may seek to hedge against changes in the value
of a particular currency by using forward contracts on another foreign currency
or basket of currencies, the value of which the Manager believes will bear a
positive correlation to the value of the currency being hedged.

The cost to the Portfolio of engaging in forward contracts varies with
factors such as the currency involved, the length of the contract period and
the market conditions then prevailing. Because forward contracts are usually
entered into on a principal basis, no fees or commissions are involved. When
the Portfolio enters into a forward contract, it relies on the contra party to
make or take delivery of the underlying currency at the maturity of the
contract. Failure by the contra party to do so would result in the loss of any
expected benefit of the transaction.

19
<PAGE> 38
Buyers and sellers of forward contracts can enter into offsetting
closing transactions by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Secondary markets generally do
not exist for forward contracts, with the result that closing transactions
generally can be made for forward contracts only by negotiating directly with
the contra party. Thus, there can be no assurance that the Portfolio will in
fact be able to close out a forward contract at a favorable price prior to
maturity. In addition, in the event of insolvency of the contra party, the
Portfolio might be unable to close out a forward contract at any time prior to
maturity. In either event, the Portfolio would continue to be subject to
market risk with respect to the position, and would continue to be required to
maintain a position in the securities or currencies that are the subject of the
hedge or to maintain cash or securities in a segregated account.

The precise matching of forward currency contract amounts and the
value of the securities involved generally will not be possible because the
value of such securities, measured in the foreign currency, will change after
the forward contract has been established. Thus, the Portfolio might need to
purchase or sell foreign currencies in the spot (cash) market to the extent
such foreign currencies are not covered by forward contracts. The projection
of short- term currency market movements is extremely difficult, and the
successful execution of a short-term hedging strategy is highly uncertain.

Current Securities and Exchange Commission policy requires that cash
or high grade liquid debt securities be set aside in a sufficient amount to
cover any cross hedging or other currency exchange contract that is deemed to
be speculative. These assets will be maintained in a segregated account and
marked to market daily.

Futures Contracts-Futures contracts obligate a purchaser to take
delivery of a specific amount of an obligation underlying the futures contract
at a specified time in the future for a specified price. Likewise, the seller
incurs an obligation to deliver the specified amount of the underlying
obligation. Futures are traded on both U.S. and foreign commodities exchanges.
Only currency futures will be permitted in the corresponding Portfolio of the
International Equity Fund. Futures contracts will be traded for the same
purposes as entering into forward contracts.

The purchase of futures can serve as a long hedge, and the sale of
futures can serve as a short hedge.

No price is paid upon entering into a futures contract. Instead, at
the inception of a futures contract the Portfolio is required to deposit
"initial margin" consisting of cash or U.S. Government Securities in an amount
generally equal to 10% or less of the contract value. Margin must also be
deposited when writing a call or put option on a futures contract, in
accordance with applicable exchange rules. Unlike margin in securities
transactions, initial margin on futures contracts does not represent a
borrowing, but rather is in the nature of a performance bond or good- faith
deposit that is returned to the Portfolio at the termination of the transaction
if all contractual obligations have been satisfied. Under certain
circumstances, such as periods of high volatility, the Portfolio may be
required by a futures exchange to increase the level of its initial margin
payment.

Subsequent "variation margin" payments are made to and from the
futures broker daily as the value of the futures position varies, a process
known as "marking-to-market." Variation margin does not involve borrowing, but
rather represents a daily settlement of the Portfolio's obligations to or from
a futures broker. When the Portfolio purchases or sells a futures contract, it
is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Portfolio has insufficient cash to
meet daily variation margin requirements, it might need to sell securities at a
time when such sales are disadvantageous.

Purchasers and sellers of futures contracts thereon can enter into
offsetting closing transactions, by selling or purchasing, respectively, an
instrument identical to the instrument purchased or sold. Positions in futures
contracts may be closed only on a futures exchange or board of trade that
provides a secondary market. The Portfolio intends to enter into futures
contracts only on exchanges or boards of trade where there appears to be a
liquid secondary market. However, there can be no assurance that such a market
will exist for a particular contract at a particular time. In such event, it
may not be possible to close a futures contract.

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<PAGE> 39
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.

If the Portfolio were unable to liquidate a futures contract due to
the absence of a liquid secondary market or the imposition of price limits, it
could incur substantial losses. The Portfolio would continue to be subject to
market risk with respect to the position. In addition, the Portfolio would
continue to be required to make daily variation margin payments and might be
required to maintain the position being hedged by the futures contract or
option thereon or to maintain cash or securities in a segregated account.

To the extent that the Portfolio enters into futures contracts, traded
on an exchange regulated by the Commodities Futures Trading Commission
("CFTC"), in each case other than for bona fide hedging purposes (as defined by
the CFTC), the aggregate initial margin and premiums required to establish
those positions (excluding the amount by which options are "in-the-money" at
the time of purchase) will not exceed 5% of the liquidation value of the
Portfolio's portfolio, after taking into account unrealized profits and
unrealized losses on any contracts that the Portfolio has entered into. This
policy does not limit to 5% the percentage of the Portfolio's assets that are
at risk in futures contracts and options on futures contracts.

Futures contracts require the segregation of initial margin valued at
a certain percentage of the contract and possibly adding "variation margin"
should the price of the contract move in an unfavorable direction. As with
forward contracts, the segregated assets must be either cash or high grade
liquid debt securities.

Loan Participation Interests-Loan participation interests represent
interests in bank loans made to corporations. The contractual arrangement with
the bank transfers the cash stream of the underlying bank loan to the
participating investor. Because the issuing bank does not guarantee the
participations, they are subject to the credit risks generally associated with
the underlying corporate borrower. In addition, because it may be necessary
under the terms of the loan participation for the investor to assert through
the issuing bank such rights as may exist against the underlying corporate
borrower, in the event the underlying corporate borrower fails to pay principal
and interest when due, the investor may be subject to delays, expenses and
risks that are greater than those that would have been involved if the investor
had purchased a direct obligation (such as commercial paper) of such borrower.
Moreover, under the terms of the loan participation, the investor may be
regarded as a creditor of the issuing bank (rather than of the underlying
corporate borrower), so that the issuer may also be subject to the risk that
the issuing bank may become insolvent. Further, in the event of the bankruptcy
or insolvency of the corporate borrower, the loan participation may be subject
to certain defenses that can be asserted by such borrower as a result of
improper conduct by the issuing bank. The secondary market, if any, for these
loan participations is extremely limited and any such participations purchased
by the investor are regarded as illiquid.

Loan Transactions-Loan transactions involve the lending of securities
to a broker-dealer or institutional investor for its use in connection with
short sales, arbitrages or other security transactions. The purpose of a
qualified loan transaction is to afford a lender the opportunity to continue to
earn income on the securities loaned and at the same time earn fee income or
income on the collateral held by it.

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<PAGE> 40
securities loaned may pass to the borrower, provided, however, that if a
material event affecting the investment occurs, the AMR Trust Board must be
able to terminate the loan and vote proxies or enter into an alternative
arrangement with the borrower to enable the AMR Trust Board to vote proxies.

While there may be delays in recovery of loaned securities or even a
loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to firms deemed by the AMR Trust Board to be of good
financial standing and will not be made unless the consideration to be earned
from such loans would justify the risk. Such loan transactions are referred to
in this Statement of Additional Information as "qualified" loan transactions.

The cash collateral so acquired through qualified loan transactions
may be invested only in those categories of high quality liquid securities
previously authorized by the AMR Trust Board.

Mortgage-Backed Securities-Mortgage-backed securities consist of both
collateralized mortgage obligations and mortgage pass-through certificates .

Collateralized Mortgage Obligations ("CMOs")-CMOs and
interests in real estate mortgage investment conduits ("REMICs") are debt
securities collateralized by mortgages, or mortgage pass-through securities.
CMOs divide the cash flow generated from the underlying mortgages or mortgage
pass-through securities into different groups referred to as "tranches," which
are then retired sequentially over time in order of priority. The principal
governmental issuers of such securities are the Federal National Mortgage
Association ("FNMA"), a government sponsored corporation owned entirely by
private stockholders and the Federal Home Loan Mortgage Corporation ("FHLMC"),
a corporate instrumentality of the United States created pursuant to an act of
Congress which is owned entirely by Federal Home Loan Banks. The issuers of
CMOs are structured as trusts or corporations established for the purpose of
issuing such CMOs and often have no assets other than those underlying the
securities and any credit support provided. A REMIC is a mortgage securities
vehicle that holds residential or commercial mortgages and issues securities
representing interests in those mortgages. A REMIC may be formed as a
corporation, partnership, or segregated pool of assets. The REMIC itself is
generally exempt from federal income tax, but the income from the mortgages is
reported by investors. For investment purposes, interests in REMIC securities
are virtually indistinguishable from CMOs.

Mortgage Pass-Through Certificates-Mortgage pass-through
certificates are issued by governmental, government-related and private
organizations which are basked by pools of mortgage loans.

(1) Government National Mortgage Association ("GNMA") Mortgage
Pass-Through Certificates ("Ginnie Maes")-GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
Ginnie Maes represent an undivided interest in a pool of mortgages that are
insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. Ginnie Maes
entitle the holder to receive all payments (including prepayments) of principal
and interest owed by the individual mortgagors, net of fees paid to GNMA and to
the issuer which assembles the mortgage pool and passes through the monthly
mortgage payments to the certificate holders (typically, a mortgage banking
firm), regardless of whether the individual mortgagor actually makes the
payment. Because payments are made to certificate holders regardless of
whether payments are actually received on the underlying mortgages, Ginnie Maes
are of the "modified pass-through" mortgage certificate type. The GNMA is
authorized to guarantee the timely payment of principal and interest on the
Ginnie Maes. The GNMA guarantee is backed by the full faith and credit of the
United States, and the GNMA has unlimited authority to borrow funds from the
U.S. Treasury to make payments under the guarantee. The market for Ginnie Maes
is highly liquid because of the size of the market and the active participation
in the secondary market of security dealers and a variety of investors.

(2) FHLMC Mortgage Participation Certificates ("Freddie
Macs")-Freddie Macs represent interests in groups of specified first lien
residential conventional mortgages underwritten and owned by the FHLMC.
Freddie Macs entitle the holder to timely payment of interest, which is
guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or
timely payment of all principal payments on the underlying mortgage loans. In
cases where the FHLMC has not guaranteed timely payment of principal, the FHLMC
may remit the amount due because of its guarantee of ultimate payment of
principal at any time after default on an underlying mortgage, but in no event
later than one year after it becomes payable. Freddie Macs are not guaranteed
by the United States or by any of the Federal Home Loan Banks and do not
constitute a debt or obligation of the United

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<PAGE> 41
States or of any Federal Home Loan Bank. The secondary market for Freddie Macs
is highly liquid because of the size of the market and the active participation
in the secondary market of the FHLMC, security dealers and a variety of
investors.

Municipal Lease Obligations ("MLOs")-MLOs are issued by state and
local governments and authorities to acquire land and a wide variety of
equipment and facilities. These obligations typically are not fully backed by
the municipality's credit and thus interest may become taxable if the lease is
assigned. If funds are not appropriated for the following year's lease
payments, a lease may terminate with the possibility of default on the lease
obligation. With respect to MLOs purchased by the corresponding Portfolios of
the Municipal Money Market Fund, the AMR Trust Board has established the
following guidelines for determining the liquidity of the MLOs in its
portfolio, and, subject to review by the AMR Trust Board, has delegated that
responsibility to the investment adviser: (1) the frequency of trades and
quotes for the security; (2) the number of dealers willing to purchase or sell
the security and the number of other potential buyers; (3) the willingness of
dealers to undertake to make a market in the security; (4) the nature of the
marketplace trades; (5) the likelihood that the marketability of the obligation
will be maintained through the time the security is held by the Portfolio; (6)
the credit quality of the issuer and the lessee; (7) the essentiality to the
lessee of the property covered by the lease and (8) for unrated MLOs, the MLOs'
credit status analyzed according to the factors reviewed by rating agencies.

Private Activity Obligations-Private activity obligations are issued to
finance, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain facilities for water supply, gas,
electricity or sewage or solid waste disposal. Private activity obligations are
also issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. The principal and interest on these
obligations may be payable from the general revenues of the users of such
facilities. Shareholders, depending on their individual tax status, may be
subject to the federal alternative minimum tax on the portion of a distribution
attributable to these obligations. Interest on private activity obligations
will be considered exempt from federal income taxes; however, shareholders
should consult their own tax advisers to determine whether they may be subject
to the federal alternative minimum tax.

Ratings of Long-Term Obligations-The Portfolio utilizes ratings
provided by the following nationally recognized statistical rating
organizations ("Rating Organizations") in order to determine eligibility of
long-term obligations.

The four highest Moody's Investors Service, Inc. ("Moody's") ratings
for long-term obligations (or issuers thereof) are Aaa, Aa, A and Baa.
Obligations rated Aaa are judged by Moody's to be of the best quality.
Obligations rated Aa are judged to be of high quality by all standards.
Together with the Aaa group, such debt comprises what is generally known as
high-grade debt. Moody's states that debt rated Aa is rated lower than Aaa
debt because margins of protection or other elements make long-term risks
appear somewhat larger than for Aaa debt. Obligations which are rated A by
Moody's possess many favorable investment attributes and are considered "upper
medium-grade obligations." Obligations which are rated Baa by Moody's are
considered to be medium grade obligations, i.e., they are neither highly
protected or poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be

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<PAGE> 42
characteristically unreliable over any great length of time. Moody's also
supplies numerical indicators 1, 2, and 3 to rating categories. The modifier 1
indicates that the security is in the higher end of its rating category; the
modifier 2 indicates a mid-range ranking; and modifier 3 indicates a ranking
toward the lower end of the category.

The four highest Standard & Poor's ratings for long-term obligations
are AAA, AA, A and BBB. Obligations rated AAA have the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay principal is
extremely strong. Obligations rated AA have a very strong capacity to pay
interest and repay principal and differs from the highest rated issues only in
a small degree. Obligations rated A have a strong capacity to pay principal
and interest, although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions. Obligations rated
BBB by Standard & Poor's are regarded as having adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

Duff & Phelps' four highest ratings for long-term obligations are AAA,
AA, A and BBB. Obligations rated AAA have the highest credit quality with risk
factors being negligible. Obligations rated AA are of high credit quality and
strong protection factors. Risk is modest but may vary slightly from time to
time because of economic conditions. Obligations rated A have average but
adequate protection factors. However, risk factors are more variable and
greater in periods of economic stress. Obligations rated BBB have below
average protection factors with considerable variability in risk during
economic cycles, but are still considered sufficient for prudent investment.

Thomson BankWatch ("Bankwatch") long-term debt ratings apply to
specific issues of long-term debt and preferred stock. They specifically
assess the likelihood of an untimely repayment of principal or interest over
the term to maturity of the rated instrument. BankWatch's four highest ratings
for long-term obligations are AAA, AA, A and BBB. Obligations rated AAA
indicate that the ability to repay principal and interest on a timely basis is
very high. Obligations rated AA indicate a superior ability to repay principal
and interest on a timely basis, with limited incremental risk compared to
issues rated in the highest category. Obligations rated A indicate the ability
to repay principal and interest is strong. Issues rated A could be more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings. BBB is the lowest investment grade category
and indicates an acceptable capacity to repay principal and interest. Issues
rated BBB are, however, more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.

Fitch Investors Service, Inc. ("Fitch") investment grade bond ratings
provide a guide to investors in determining the credit risk associated with a
particular security. The ratings represent Fitch's assessment of the issuer's
ability to meet the obligations of a specific debt issue or class of debt in a
timely manner. Obligations rated AAA are considered to be investment grade and
of the highest credit quality. The obligor has an exceptionally strong ability
to pay interest and repay principal, which is unlikely to be affected by
reasonable foreseeable events. Bonds rated AA are considered to be investment
grade and of very high credit quality. The obligor's ability to pay interest
and repay principal is very strong, although not quite as strong as bonds rated
AAA. Bonds rated A are considered to be investment grade and of high credit
quality. The obligor's ability to pay interest and repay principal is
considered to be strong, but may be more vulnerable to adverse changes in
economic conditions and circumstances than bonds with higher ratings. Bonds
rated BBB are considered to be investment grade and of satisfactory credit
quality. The obligor's ability to pay interest and repay principal is
considered to be adequate. Adverse changes in economic conditions and
circumstances, however, are more likely to have adverse impact on these bonds,
and therefore impair timely payment. The likelihood that the ratings of these
bonds will fall below investment grade is higher than for bonds with higher
ratings.

IBCA's four highest long term obligation ratings are AAA, AA, A and
BBB. Obligations rated AAA are those for which there is the lowest expectation
of investment risk. Capacity for timely repayment of principal and interest is
substantial such that adverse changes in business, economic or financial
conditions are unlikely to increase investment risk substantially. AA
obligations have a very low expectation of investment risk. Capacity for
timely repayment of principal and interest is substantial. Adverse changes in
business, economic, or financial conditions may increase investment risk albeit
not very significantly. Obligations rated A have a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic, or financial conditions
may lead to increased investment risk. Obligations rated BBB have a low
expectation of investment risk. Capacity for timely repayment of principal and
interest is adequate, although adverse changes in business, economic, or
financial conditions are more likely to lead to increased investment

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risk than for obligations in other categories.

Standard & Poor's, Duff & Phelps and Fitch apply indicators "+","-,"
and no character to indicate relative standing within the major rating
categories.

Ratings of Municipal Obligations-Moody's ratings for state and
municipal short-term obligations are designated Moody's Investment Grade or
"MIG" with variable rate demand obligations being designated as "VMIG." A VMIG
rating may also be assigned to commercial paper programs which are
characterized as having variable short-term maturities but having neither a
variable rate nor demand feature. Factors used in determination of ratings
include liquidity of the borrower and short-term cyclical elements.

Standard & Poor's uses SP-1, SP-2, and SP-3 to rate short-term
municipal obligations. A rating of SP-1 denotes a very strong or strong
capacity to pay principal and interest.

The distinguishing feature of Duff & Phelps Credit Ratings' short-term
rating is the refinement of the traditional 1 category. The majority of
short-term debt issuers carry the highest rating, yet quality differences exist
within that tier. Obligations rated D-1+ indicate the highest certainty of
timely payment. Safety is just below risk- free U.S. Treasury obligations.
Obligations rated D-1 have a very high certainty of timely payment. Risk
factors are minor. Obligations rated D-1- have a high certainty of timely
payment. Risk factors are very small. Obligations rated D-2 have good
certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing
requirements, access to capital markets is good. Risk factors are small.

Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. A rating of F-1+ indicates exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest
degree of assurance for timely payment. Obligations rated F-1 have very
strong credit quality. Issues assigned this rating reflect an assurance of
timely payment only slightly less in degree than issues rated F-1+. Issues
assigned a rating of F-2 indicate good credit quality. Issues assigned this
rating have a satisfactory degree of assurance for timely payment, but the
margin of safety is not as great as for issues assigned F- 1+ and F-1 ratings.

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Repurchase Agreements-A repurchase agreement, which provides a means
to earn income on funds for periods as short as overnight, is an arrangement
under which the purchaser (e.g.., a Portfolio) purchases securities and the
seller agrees, at the time of sale, to repurchase the securities at a specified
time and price. The repurchase price will be higher than the purchase price,
the difference being income to the purchaser, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to the purchaser
together with the repurchase price on repurchase. In either case, the income
to the purchaser is unrelated to the interest rate on the securities subject to
the repurchase agreement.

Each Portfolio may enter into repurchase agreements with any bank or
registered broker-dealer who, in the opinion of the AMR Trust Board, presents a
minimum risk of bankruptcy during the term of the agreement based upon
guidelines that periodically are reviewed by the AMR Trust Board. Each
Portfolio may enter into repurchase agreements as a short-term investment of
its idle cash in order to earn income. The securities will be held by a
custodian (or agent) approved by the AMR Trust Board during the term of the
agreement. However, if the market value of the securities subject to the
repurchase agreement becomes less than the repurchase price (including
interest), the Portfolio will direct the seller of the securities to deliver
additional securities so that the market value of all securities subject to the
repurchase agreement will equal or exceed the repurchase price.

In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before the repurchase
of the securities under a repurchase agreement, a Portfolio may encounter a
delay and incur costs before being able to sell the security being held as
collateral. Delays may involve loss of interest or decline in price of the
securities. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the securities, in
which case a Portfolio may incur a loss if the proceeds to the Portfolio from
the sale of the securities to a third party are less than the repurchase price.

Reverse Repurchase Agreements-The Portfolios may borrow funds for
temporary purposes by entering into reverse repurchase agreements. Pursuant to
such agreements, a Portfolio would sell portfolio securities to financial
institutions such as banks and broker/dealers and agree to repurchase them at a
mutually agreed-upon date and price. The Portfolios intend to enter into
reverse repurchase agreements only to avoid selling securities to meet
redemptions during market conditions deemed unfavorable by the investment
adviser possessing investment authority. At the time a Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as liquid high quality debt securities having a value not less than
100% of the repurchase price (including accrued interest), and will
subsequently monitor the account to ensure that such required value is
maintained. Reverse repurchase agreements involve the risk that the market
value of the securities sold by a Portfolio may decline below the price at
which such Portfolio is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by an investment company
under the 1940 Act.

Resource Recovery Obligations-Resource recovery obligations are a type
of municipal revenue obligation issued to build facilities such as solid waste
incinerators or waste-to-energy plants. Usually, a private corporation will be
involved and the revenue cash flow will be supported by fees or units paid by
municipalities for use of the facilities. The viability of a resource recovery
project, environmental protection regulations and project operator tax
incentives may affect the value and credit quality of these obligations.

Revenue Obligations-Revenue obligations are backed by the revenue cash
flow of a project or facility.

Rights and Warrants-Rights are short-term warrants issued in
conjunction with new stock issues. Warrants are options to purchase an
issuer's securities at a stated price during a stated term. There is no
specific limit on the percentage of assets a Portfolio may invest in rights and
warrants, although the ability of some of the Portfolios to so invest is
limited by their investment objectives or policies.

Separately Traded Registered Interest and Principal Securities and
Zero Coupon Obligations-Separately traded registered interest and principal
securities or "STRIPS" and zero coupon obligations are securities that do not
make regular interest payments. Instead they are sold at a discount from their
face value. Each Portfolio will take into account as income a portion of the
difference between these obligations' purchase prices and their face values.
Because they do not pay coupon income, the prices of STRIPS and zero coupon
obligations can be very volatile when interest rates change. STRIPS are zero
coupon bonds issued by the U.S. Treasury.

Tax, Revenue or Bond Anticipation Notes-Tax, revenue or bond
anticipation notes are issued by

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municipalities in expectation of future tax or other revenues which are payable
from these specific taxes or revenues. Bond anticipation notes usually provide
interim financing in advance of an issue of bonds or notes, the proceeds of
which are used to repay the anticipation notes. Tax-exempt commercial paper is
issued by municipalities to help finance short-term capital or operating needs
in anticipation of future tax or other revenue.

U. S. Government agencies or instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services Administration, Central Bank
for Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Inter-American Development Bank,
Asian-American Development Bank, Agency for International Development, Student
Loan Marketing Association and International Bank of Reconstruction and
Development.

Obligations of U.S. Government agencies and instrumentalities may or
may not be supported by the full faith and credit of the United States. Some
are backed by the right of the issuer to borrow from the Treasury; others are
supported by discretionary authority of the U.S. Government to purchase the
agencies' obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United
States, the investor must look principally to the agency issuing or
guaranteeing the obligation for ultimate repayment, and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitment.

U.S. Treasury Obligations-U.S. Treasury obligations include bills,
notes and bonds issued by the U.S. Treasury and Separately Traded Registered
Interest and Principal component parts of such obligations known as STRIPS.

Variable or Floating Rate Obligations-A variable rate obligation is
one whose terms provide for the adjustment of its interest rate on set dates
and which, upon such adjustment, can reasonably be expected to have a market
value that approximates its par value. A floating rate obligation is one whose
terms provide for the adjustment of its interest rate whenever a specified
interest rate changes and which, at any time, can reasonably be expected to
have a market value that approximates its par value. Variable or floating rate
obligations may be secured by bank letters of credit.

Pursuant to Rule 2a-7 under the 1940 Act, variable or floating rate
obligations with stated maturities of more than 397 days may be deemed to have
shorter maturities as follows:

(3) A variable rate obligation that is subject to a demand feature
will be deemed by a Portfolio to have a maturity equal to the longer of the
period remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.

(4) A floating rate obligation that is subject to a demand feature
will be deemed by a Portfolio to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.

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Variable Rate Auction and Residual Interest Obligations-Variable rate
auction and residual interest obligations are created when an issuer or dealer
separates the principal portion of a long-term, fixed-rate municipal bond into
two long-term, variable-rate instruments. The interest rate on one portion
reflects short-term interest rates, while the interest rate on the other
portion is typically higher than the rate available on the original fixed-rate
bond.

FINANCIAL STATEMENTS

The American AAdvantage Funds' Annual Report to shareholders for the
fiscal year ended October 31, 1995, is supplied with the Statement of
Additional Information, and the financial statements and accompanying notes
appearing therein are incorporated by reference in this Statement of Additional
Information.

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TABLE OF CONTENTS

<TABLE>
<S> <C>
Investment Restrictions......................................................

Trustees and Officers........................................................

Management, Administrative Services and Distribution Fees....................

Approach to Stock Selection..................................................

Redemptions in Kind..........................................................

Expense Limitations..........................................................

Investment Advisory Agreements...............................................

Portfolio Securities Transactions............................................

Net Asset Value..............................................................

Tax Information..............................................................

Yield and Total Return Quotations............................................

Description of the Trust.....................................................

Control Persons and 5% Shareholders..........................................

Other Information............................................................

Financial Statements.........................................................
</TABLE>