<PAGE> 1
As filed with the Securities and Exchange Commission on February 13, 1997
1933 Act File No. 33-11387
1940 Act File No. 811-4984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------
Form N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Post-Effective Amendment No. 19
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
Amendment No. 20
AMERICAN AADVANTAGE FUNDS
(Exact name of registrant as specified in charter)
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
(Address of principal executive offices)
Registrant's telephone number, including area code: (817)-967-3509
WILLIAM F. QUINN, PRESIDENT
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
(Name and address of agent for service)
Copies to:
CLIFFORD J. ALEXANDER, ESQ.
ROBERT J. ZUTZ, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, N.W.
Washington, D.C. 20036
Telephone: (202) 778-9000
It is proposed that this filing will become effective on April 14, 1997
pursuant to paragraph (a)(2) of Rule 485.
Registrant filed a Notice pursuant to Rule 24f-2 under the Investment Company
Act of 1940 on December 20, 1996.
Registrant has adopted a Hub and Spoke (R) operating structure for each of its
series except the American AAdvantage Short-Term Income Fund. This
Post-Effective Amendment includes a signature page for the AMR Investment
Services Trust and the Equity 500 Index Fund, each a hub trust.
<PAGE> 2
AMERICAN AADVANTAGE FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement is comprised of the following:
Cover Sheet
Contents of Registration Statement
Cross Reference Sheet
Prospectus for the Institutional Class consisting of the
following American AAdvantage Funds: Balanced Fund, Growth and
Income Fund, International Equity Fund, Limited-Term Income,
Fund Money Market Fund, Municipal Money Market Fund and U.S.
Government Money Market Fund.
Prospectus for the PlanAhead Class consisting of the following
American AAdvantage Funds: Balanced Fund, Growth and Income
Fund, International Equity Fund, Limited-Term Income Fund, Money
Market Fund, Municipal Money Market Fund and U.S. Government
Money Market Fund.
Prospectus for the AMR Class consisting of the following
American AAdvantage Funds: Balanced Fund, Growth and Income Fund,
International Equity Fund, Limited-Term Income Fund and S&P 500
Index Fund.
Prospectus for the the Platinum Class of the American AAdvantage
Money Market Fund, American AAdvantage Municipal Money Market
Fund, American AAdvantage U.S. Government Money Market Fund and
American AAdvantage Money Market Mileage Fund.
Prospectus of the American AAdvantage Short-Term Income Fund
Statement of Additional Information for the AMR Class,
Institutional Class and PlanAhead Class of the following
American AAdvantage Funds: Balanced Fund, Growth and Income Fund,
International Equity Fund, Limited-Term Income Fund, Money
Market Fund, Municipal Money Market Fund, S&P 500 Index Fund and
U.S. Treasury Money Market Fund.
Statement of Additional Information for the Platinum Class of
the American AAdvantage Money Market Fund, American AAdvantage
Municipal Money Market Fund, American AAdvantage U.S. Government
Money Market Fund and American AAdvantage Money Market Mileage
Fund.
Statement of Additional Information of the American AAdvantage
Short-Term Income Fund
<PAGE> 3
Part C
Signature Pages
Exhibits
<PAGE> 4
AMERICAN AADVANTAGE FUNDS
INSTITUTIONAL CLASS
FORM N-1A CROSS-REFERENCE SHEET
Part A
Form N-1A
Item No. PROSPECTUS CAPTION
1 Cover Page
2 Table of Fees and Expenses
3 Financial Highlights; Yields and Total Returns
4 Cover Page; Introduction; Investment Objectives, Policies and
Risks; Investment Restrictions
5 Management and Administration of the Trust; Investment
Advisers
5A Not Applicable
6 Dividends, Other Distributions and Tax Matters; General
Information; Shareholder Communications
7 Management and Administration of the Trust; Purchase,
Redemption and Valuation of Shares
8 Purchase, Redemption and Valuation of Shares
9 Inapplicable
Part B
STATEMENT OF ADDITIONAL
N-1A Item No. INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions; Approach to Stock Selection;
Other Information
<PAGE> 5
14 Trustees and Officers of the Trust and the AMR Trust
15 Control Persons and 5% Shareholders
16 Management, Administrative Services and Distribution Fees;
Investment Advisory Agreements
17 Portfolio Securities Transactions
18 Description of the Trust; Other Information
19 Net Asset Value; Redemptions in Kind
20 Tax Information
21 Inapplicable
22 Yield and Total Return Quotations
23 Financial Statements
<PAGE> 6
AMERICAN AADVANTAGE FUNDS
PLANAHEAD CLASS
FORM N-1A CROSS-REFERENCE SHEET
Part A
Form N-1A
Item No. PROSPECTUS CAPTION
1 Cover Page
2 Table of Fees and Expenses
3 Financial Highlights; Yields and Total Returns
4 Cover Page; Introduction; Investment Objectives, Policies
and Risks; Investment Restrictions
5 Management and Administration of the Trust; Investment
Advisers
5A Not Applicable
6 Dividends, Other Distributions and Tax Matters; General
Information; Shareholder Communications
7 Management and Administration of the Trust; How to
Purchase Shares; Retirement Accounts; Distribution of Trust
Shares; Valuation of Shares
8 How to Redeem Shares; Exchange Privilege
9 Inapplicable
Part B
STATEMENT OF ADDITIONAL
N-1A Item No. INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions; Approach to Stock Selection; Other
Information
<PAGE> 7
14 Trustees and Officers of the Trust and the AMR Trust
15 Control Persons and 5% Shareholders
16 Management, Administrative Services and Distribution Fees;
Investment Advisory Agreements
17 Portfolio Securities Transactions
18 Description of the Trust; Other Information
19 Net Asset Value; Redemptions in Kind
20 Tax Information
21 Inapplicable
22 Yield and Total Return Quotations
23 Financial Statements
<PAGE> 8
AMERICAN AADVANTAGE FUNDS
AMR CLASS
FORM N-1A CROSS-REFERENCE SHEET
Part A
Form N-1A
Item No. PROSPECTUS CAPTION
1 Cover Page
2 Table of Fees and Expenses
3 Financial Highlights; Yields and Total Returns
4 Cover Page; Introduction; Investment Objectives, Policies
and Risks; Investment Restrictions
5 Management and Administration of the Trusts; Investment
Advisers
5A Not Applicable
6 Dividends, Other Distributions and Tax Matters; General
Information; Shareholder Communications
7 Management and Administration of the Trusts; Purchase,
Redemption and Valuation of Shares
8 Purchase, Redemption and Valuation of Shares
9 Inapplicable
Part B
STATEMENT OF ADDITIONAL
N-1A Item No. INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions; Approach to Stock Selection; Other
Information
<PAGE> 9
14 Trustees and Officers of the Trust and the AMR Trust;
Trustees and Officers of the Equity 500 Index Portfolio
15 Control Persons and 5% Shareholders
16 Management, Administrative Services and Distribution Fees;
Investment Advisory Agreements
17 Portfolio Securities Transactions
18 Description of the Trust; Other Information
19 Net Asset Value; Redemptions in Kind
20 Tax Information
21 Inapplicable
22 Yield and Total Return Quotations
23 Financial Statements
<PAGE> 10
AMERICAN AADVANTAGE FUNDS
PLATINUM CLASS
FORM N-1A CROSS-REFERENCE SHEET
Part A
Form N-1A
Item No. PROSPECTUS CAPTION
1 Cover Page
2 Table of Fees and Expenses
3 Financial Highlights; Yields and Total Return
4 Cover Page; Introduction; Investment Objectives, Policies and
Risks; Investment Restrictions
5 Management and Administration of the Trust; Investment
Advisers
5A Not Applicable
6 Dividends and Tax Matters; General Information; Shareholder
Communications
7 Management and Administration of the Trusts; AAdvantage(R)
Miles; How to Purchase Shares; Valuation of Shares
8 How to Redeem Shares
9 Inapplicable
Part B
STATEMENT OF ADDITIONAL
N-1A Item No. INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions; Other Information
<PAGE> 11
14 Trustees and Officers of the Trusts and the AMR Trust
15 Control Persons and 5% Shareholders
16 Management, Administrative Services and Distribution Fees
17 Portfolio Securities Transactions
18 Description of the Trust; Other Information
19 Net Asset Value; Redemptions in Kind
20 Tax Information
21 Inapplicable
22 Yield and Total Return Quotations
23 Financial Statements
<PAGE> 12
AMERICAN AADVANTAGE FUNDS
AMERICAN AADVANTAGE SHORT-TERM INCOME FUND
FORM N-1A CROSS-REFERENCE SHEET
Part A
Form N-1A
Item No. PROSPECTUS CAPTION
1 Cover Page
2 Table of Fees and Expenses
3 Yield and Total Returns
4 Cover Page; Introduction; Investment Objective, Policies and
Risks; Investment Restrictions
5 Management and Administration of the Trust;
5A Not Applicable
6 Information Concerning Shares of the Trust
7 Management and Administration of the Trust; Purchase,
Redemption and Valuation of Shares
8 Purchase, Redemption and Valuation of Shares, Redemptions in
Kind
9 Inapplicable
Part B
STATEMENT OF ADDITIONAL
N-1A Item No. INFORMATION CAPTION
10 Cover Page
11 Table of Contents
12 Not Applicable
13 Investment Restrictions; Other Information
14 Trustees and Officers of the Trust
15 Not Applicable
<PAGE> 13
16 Distribution Fees
17 Portfolio Securities Transactions
18 Description of the Trust; Other Information
19 Net Asset Value
20 Tax Information
21 Inapplicable
22 Not Applicable
23 Not Applicable
PART C. OTHER INFORMATION
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C of this Registration Statement.
<PAGE> 14
THIS PROSPECTUS contains important information about the INSTITUTIONAL CLASS OF
THE AMERICAN AADVANTAGE FUNDS ("Trust"), an open-end management investment
company which consists of multiple investment portfolios. This prospectus
pertains only to the seven funds listed on this cover page (individually
referred to as a "Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A
CORRESPONDING PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND,
COLLECTIVELY, "PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST")
WHICH HAS AN INVESTMENT OBJECTIVE IDENTICAL TO THE INVESTING FUND. The
investment experience of each Fund will correspond directly with the investment
experience of each Portfolio. Each Fund consists of multiple classes of shares
designed to meet the needs of different groups of investors. Institutional
Class shares are offered primarily to institutional investors, investing at
least $2 million in the Funds. Investors should read this Prospectus carefully
before making an investment decision and retain it for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1997 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 817-967-3509. For
further information about the Institutional Class or for information on the
other classes of shares, please refer to the appropriate address and phone
number on the back cover of this Prospectus.
The Securities and Exchange Commission maintains a Web site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the Funds and the Portfolios.
AN INVESTMENT IN ANY OF THE MONEY MARKET FUNDS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL
BE ABLE TO MAINTAIN A STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
----------------------------------
[AMERICAN AADVANTAGE LOGO]
-- Institutional Class --
March 1, 1997
Managed by AMR Investment Services, Inc.
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
----------------------------------
<PAGE> 15
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
The AMERICAN AADVANTAGE MONEY MARKET FUND(SM) ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM) ("U.S. Government
Money Market Fund", formerly the American AAdvantage U.S. Treasury Money Market
Fund) (collectively, the "Money Market Funds") each seeks current income,
liquidity, and the maintenance of a stable price per share of $1.00 by investing
all of its investable assets in the Money Market Portfolio of the AMR Trust
("Money Market Portfolio"), the Municipal Money Market Portfolio of the AMR
Trust ("Municipal Money Market Portfolio") and the U.S. Government Money Market
Portfolio of the AMR Trust ("U.S. Government Money Market Portfolio", formerly
the American AAdvantage U.S. Treasury Money Market Portfolio), respectively
(collectively the "Money Market Portfolios"), which in turn invest in high
quality, short-term obligations. The Municipal Money Market Portfolio invests
primarily in municipal obligations and the U.S. Government Money Market
Portfolio invests exclusively in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements that
are collateralized by such obligations.
Under a Hub and Spoke(R)(1) operating structure, each Fund seeks its investment
objective by investing all of its investable assets in a corresponding Portfolio
as described above. Each Portfolio's investment objective is identical to that
of its corresponding Fund. Whenever the phrase "all of the Fund's investable
assets" is used, it means that the only investment securities that will be held
by a Fund will be that Fund's interest in its corresponding Portfolio. AMR
Investment Services, Inc. ("Manager") provides investment management and
administrative services to the Portfolios and administrative services to the
Funds. This Hub and Spoke operating structure is different from that of many
other investment companies which directly acquire and manage their own
portfolios of securities. Accordingly, investors should carefully consider this
investment approach. See "Investment Objectives, Policies and
Risks -- Additional Information About the Portfolios." A Fund may withdraw its
investment in a corresponding Portfolio at any time if the Trust's Board of
Trustees ("Board") determines that it would be in the best interest of that Fund
and its shareholders to do so. Upon any such withdrawal, that Fund's assets
would be invested in accordance with the investment policies and restrictions
described in this Prospectus and the SAI.
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
Table of Fees and Expenses........................ 3
Financial Highlights.............................. 3
Introduction...................................... 9
Investment Objectives, Policies and Risks......... 10
Investment Restrictions........................... 19
Yields and Total Returns.......................... 20
Management and Administration of the Trust........ 21
Investment Advisers............................... 23
Purchase, Redemption and Valuation of Shares...... 25
Dividends, Other Distributions and Tax Matters.... 28
General Information............................... 30
Shareholder Communications........................ 31
</TABLE>
- --------------------------------------------------------------------------------
- ---------------
(1) Hub and Spoke is a registered service mark of Signature Financial Group,
Inc.
PROSPECTUS
2
<PAGE> 16
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
U.S.
GROWTH INTER- LIMITED- MUNICIPAL GOVERNMENT
AND NATIONAL TERM MONEY MONEY MONEY
BALANCED INCOME EQUITY INCOME MARKET MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.33% 0.33% 0.48% 0.25% 0.15% 0.15% 0.15%
12b-1 Fees 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses 0.29 0.29 0.37 0.35 0.09 0.18 0.17
---- --- --- --- --- ----- -----
Total Operating Expenses 0.62% 0.62% 0.85% 0.60% 0.24% 0.33% 0.32%
---- --- --- --- --- ----- -----
---- --- --- --- --- ----- -----
</TABLE>
The above expenses reflect the expenses of each Fund and the Portfolio in
which it invests. The Board believes that the aggregate per share expenses of
each Fund and its corresponding Portfolio will be approximately equal to the
expenses that the Fund would incur if its assets were invested directly in the
type of securities held by the Portfolio.
EXAMPLES
An Institutional Class investor in each Fund would directly or indirectly
pay on a cumulative basis the following expenses on a $1,000 investment assuming
a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Balanced Fund $6 $20 $35 $77
Growth and Income Fund 6 20 35 77
International Equity Fund 9 27 47 105
Limited-Term Income Fund 6 19 33 75
Money Market Fund 2 8 14 31
Municipal Money Market Fund 3 11 19 42
U.S. Government Money Market Fund 3 10 18 41
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the Institutional Class of a Fund. Additional
information may be found under "Management and Administration of the Trust" and
"Investment Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditors. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge.
PROSPECTUS
3
<PAGE> 17
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BALANCED FUND -- INSTITUTIONAL CLASS
---------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------------------------
1996(5)(6) 1995(4)(5) 1994(3) 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 13.95 $ 12.36 $ 13.23 $ 11.99 $ 11.60 $ 9.87
------- ------- ----- ----- ----- -----
Income from investment operations:
Net investment income 0.59(7) 0.54 0.57 0.49 0.55 0.58
Net gains or (losses) on
securities (both realized and
unrealized) 1.61(7) 1.71 (0.54) 1.57 0.41 1.79
------- ------- ----- ----- ----- -----
Total from investment operations 2.20 2.25 0.03 2.06 0.96 2.37
------- ------- ----- ----- ----- -----
Less distributions:
Dividends from net investment
income (0.57) (0.52) (0.56) (0.52) (0.56) (0.64)
Distributions from net realized
gains on securities (0.44) (0.14) (0.34) (0.30) (0.01) --
------- ------- ----- ----- ----- -----
Total distributions (1.01) (0.66) (0.90) (0.82) (0.57) (0.64)
------- ------- ----- ----- ----- -----
Net asset value, end of period $ 15.14 $ 13.95 $ 12.36 $ 13.23 $ 11.99 $ 11.60
------- ------- ----- ----- ----- -----
------- ------- ----- ----- ----- -----
Total return (annualized)(8) 16.46% 19.39% (0.08%) 19.19% 8.75% 25.35%
------- ------- ----- ----- ----- -----
------- ------- ----- ----- ----- -----
Ratios/supplemental data:
Net assets, end of period (in
thousands) $298,009 $249,913 $222,873(13) $532,543 $370,087 $311,906
Ratios to average net
assets(9)(10)(11):
Expenses 0.62%(7) 0.63% 0.36% 0.34% 0.35% 0.37%
Net investment income 4.00%(7) 4.30% 4.77% 4.91% 5.31% 6.06%
Portfolio turnover rate(12) 76% 73% 48% 83% 80% 55%
Average commission rate paid(12) $ 0.0409 -- -- -- -- --
<CAPTION>
BALANCED FUND -- INSTITUTIONAL CLASS
--------------------------------------------
PERIOD
YEAR ENDED OCTOBER 31, ENDED
------------------------------ OCTOBER 31,
1990(2) 1989 1988 1987(1)
--------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.05 $ 10.13 $ 9.08 $ 10.00
----- ----- ----- --------
Income from investment operations:
Net investment income 0.57 0.53 0.56 0.16
Net gains or (losses) on
securities (both realized and
unrealized) (1.18) 0.90 0.73 (1.08)
----- ----- ----- --------
Total from investment operations (0.61) 1.43 1.29 (0.92)
----- ----- ----- --------
Less distributions:
Dividends from net investment
income (0.51) (0.51) (0.24) --
Distributions from net realized
gains on securities (0.06) -- -- --
----- ----- ----- --------
Total distributions (0.57) (0.51) (0.24) --
----- ----- ----- --------
Net asset value, end of period $ 9.87 $ 11.05 $ 10.13 $ 9.08
----- ----- ----- --------
----- ----- ----- --------
Total return (annualized)(8) (5.24%) 15.49% 14.63% (31.84%)
----- ----- ----- --------
----- ----- ----- --------
Ratios/supplemental data:
Net assets, end of period (in
thousands) $233,702 $210,119 $147,581 $118,985
Ratios to average net
assets(9)(10)(11):
Expenses 0.44% 0.47% 0.52% 0.45%
Net investment income 6.50% 6.32% 6.25% 5.59%
Portfolio turnover rate(12) 62% 78% 77% 17%
Average commission rate paid(12) -- -- -- --
</TABLE>
(1) The Balanced Fund commenced active operations on July 17, 1987.
(2) Penmark Investments, Inc. was replaced by Independence Investment
Associates, Inc. as an investment adviser to the Fund as of the close of
business on February 28, 1990.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) GSB Investment Management, Inc. was added as an investment adviser to the
Balanced Fund on January 1, 1995.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) Brandywine Asset Management, Inc. replaced Capital Guardian Trust Company
as an investment adviser to the Fund as of April 1, 1996.
(7) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Balanced Portfolio.
(8) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(9) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to approximately $.01 per share in each period on an
annualized basis.
(10) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(11) Annualized.
(12) On November 1, 1995 the Balanced Fund invested all of its investable assets
in the Balanced Portfolio. Portfolio turnover rate and average commission
rate paid for the year ended October 31, 1996 are those of the Balanced
Portfolio. Calculation and disclosure of the average commission rate paid
was not required in prior years.
(13) On August 1, 1994, assets of AMR Corporation and its employee benefit plans
were transferred to the AMR Class of the Fund.
PROSPECTUS
4
<PAGE> 18
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND--INSTITUTIONAL CLASS
------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------------
1996(5)(6) 1995(5) 1994(4) 1993 1992(3) 1991
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 15.91 $ 14.19 $ 14.63 $ 12.79 $ 12.10 $ 9.47
------- ----- ----- ----- ----- -----
Income from investment operations:
Net investment income 0.42(7) 0.41 0.43 0.36 0.39 0.42
Net gains (losses) on securities
(both realized and unrealized) 3.15(7) 2.28 0.08 2.21 0.77 2.70
------- ----- ----- ----- ----- -----
Total from investment operations 3.57 2.69 0.51 2.57 1.16 3.12
------- ----- ----- ----- ----- -----
Less distributions:
Dividends from net investment
income (0.41) (0.43) (0.41) (0.37) (0.39) (0.49)
Distributions from net realized
gains on securities (0.57) (0.54) (0.54) (0.36) (0.08) --
------- ----- ----- ----- ----- -----
Total distributions (0.98) (0.97) (0.95) (0.73) (0.47) (0.49)
------- ----- ----- ----- ----- -----
Net asset value,
end of period $ 18.50 $ 15.91 $ 14.19 $ 14.63 $ 12.79 $ 12.10
------- ----- ----- ----- ----- -----
------- ----- ----- ----- ----- -----
Total return (annualized)(8) 23.37% 20.69% 3.36% 21.49% 10.00% 33.83%
------- ----- ----- ----- ----- -----
------- ----- ----- ----- ----- -----
Ratio/supplemental data:
Net assets,
end of period
(in thousands) $81,183 $71,608 $22,737>(13) $477,088 $339,739 $264,628
Ratios to average
net assets(9)(10)(11):
Expenses 0.62%(7) 0.62% 0.33% 0.34% 0.36% 0.37%
Net investment income 2.55%(7) 2.84% 3.28% 3.12% 3.57% 4.19%
Portfolio turnover rate(12) 40% 26% 23% 30% 35% 52%
Average commission rate paid(12) $0.0412 -- -- -- -- --
<CAPTION>
GROWTH AND INCOME FUND--INSTITUTIONAL CLASS
--------------------------------------------
PERIOD
YEAR ENDED OCTOBER 31, ENDED
------------------------------ OCTOBER 31,
1990(2) 1989 1988 1987(1)
--------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 11.59 $ 9.96 $ 8.30 $ 10.00
----- ----- ----- -------
Income from investment operations:
Net investment income 0.42 0.42 0.42 0.10
Net gains (losses) on securities
(both realized and unrealized) (1.94) 1.59 1.40 (1.80)
----- ----- ----- -------
Total from investment operations (1.52) 2.01 1.82 (1.70)
----- ----- ----- -------
Less distributions:
Dividends from net investment
income (0.43) (0.38) (0.16) --
Distributions from net realized
gains on securities (0.17) -- -- --
----- ----- ----- -------
Total distributions (0.60) (0.38) (0.16) --
----- ----- ----- -------
Net asset value,
end of period $ 9.47 $ 11.59 $ 9.96 $ 8.30
----- ----- ----- -------
----- ----- ----- -------
Total return (annualized)(8) (13.52%) 20.94% 22.20% (58.51%)
----- ----- ----- -------
----- ----- ----- -------
Ratio/supplemental data:
Net assets,
end of period
(in thousands) $182,430 $187,869 $140,073 $134,796
Ratios to average
net assets(9)(10)(11):
Expenses 0.45% 0.45% 0.53% 0.43%
Net investment income 4.49% 4.40% 4.20% 3.68%
Portfolio turnover rate(12) 41% 50% 56% 22%
Average commission rate paid(12) -- -- -- --
</TABLE>
(1) The Growth and Income Fund commenced active operations on July 17, 1987.
(2) GSB Investment Management, Inc. was added as an investment adviser to the
Growth and Income Fund on April 10, 1990.
(3) The assets of the Growth and Income Fund previously managed by Atlanta
Capital Management were transferred to GSB Investment Management, Inc. as
of the close of business on December 5, 1991.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) Brandywine Asset Management, Inc. replaced Capital Guardian Trust Company
as an investment adviser to the Fund as of April 1, 1996.
(7) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Growth and Income Portfolio.
(8) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(9) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(10) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(11) Annualized.
(12) On November 1, 1995 the Growth and Income Fund invested all of its
investable assets in the Growth and Income Portfolio. Portfolio turnover
rate and average commission rate paid for the year ended October 31, 1996
are those of the Growth and Income Portfolio. Calculation and disclosure of
the average commission rate paid was not required in prior years.
(13) On August 1, 1994, assets of AMR Corporation and its employee benefit plans
were transferred to the AMR Class of the Fund.
PROSPECTUS
5
<PAGE> 19
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND--INSTITUTIONAL CLASS
--------------------------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------------------------------------------- OCTOBER 31,
1996(5) 1995(5) 1994(3)(4) 1993(2) 1992 1991(1)
--------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 13.29 $ 12.87 $ 12.07 $ 8.93 $ 10.13 $ 10.00
------ ------ -------- ------ ------ --------
Income from investment operations:
Net investment income 0.28(6) 0.27 0.32 0.17 0.12 --
Net gains (losses) on securities (both realized
and unrealized) 1.95(6) 0.68 1.10 3.09 (1.31) 0.13
------ ------ -------- ------ ------ --------
Total from investment operations 2.23 0.95 1.42 3.26 (1.19) 0.13
------ ------ -------- ------ ------ --------
Less distributions:
Dividends from net investment income (0.27) (0.21) (0.17) (0.12) (0.01) --
Distributions from net realized gains
on securities (0.24) (0.32) (0.45) -- -- --
------ ------ -------- ------ ------ --------
Total distributions (0.51) (0.53) (0.62) (0.12) (0.01) --
------ ------ -------- ------ ------ --------
Net asset value, end of period $ 15.01 $ 13.29 $ 12.87 $ 12.07 $ 8.93 $ 10.13
------ ------ -------- ------ ------ --------
------ ------ -------- ------ ------ --------
Total return (annualized)(7) 17.27% 7.90% 11.77% 36.56% (12.07%) 5.69%
------ ------ -------- ------ ------ --------
------ ------ -------- ------ ------ --------
Ratios/supplemental data:
Net assets, end of period (in thousands) $62,992 $25,757 $23,115(13) $66,652 $38,837 $10,536
Ratios to average net assets
(annualized)(8)(9)(10):
Expenses 0.85%(6) 0.85% 0.61% 0.78% 1.17% 1.90%(11)
Net investment income 2.19%(6) 2.37% 2.74% 2.00% 2.04% 0.38%(11)
Portfolio turnover rate(12) 19% 21% 37% 61% 21% 2%
Average commission rate paid(12) $0.0192 -- -- -- -- --
</TABLE>
(1) The International Equity Fund commenced active operations on August 7,
1991.
(2) HD International Limited was replaced by Hotchkis and Wiley as an
investment adviser to the International Equity Fund as of the close of
business on May 21, 1993.
(3) Morgan Stanley Asset Management Inc. was added as an investment adviser to
the International Equity Fund as of August 1, 1994.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the International Equity Portfolio.
(7) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(8) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.04 per share in each period on an annualized
basis and were waived by the Manager for the period ended October 31, 1991.
(9) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(10) Annualized.
(11) Estimated based on expected annual expenses and actual average net assets.
(12) On November 1, 1995 the International Equity Fund invested all of its
investable assets in the International Equity Portfolio. Portfolio turnover
rate and average commission rate paid for the year ended October 31, 1996
are those of the International Equity Portfolio. Calculation and disclosure
of the average commission rate paid was not required in prior years.
(13) On August 1, 1994 assets of AMR Corporation and its employee benefit plans
were transferred to the AMR Class of the Fund.
PROSPECTUS
6
<PAGE> 20
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIMITED-TERM INCOME FUND--INSTITUTIONAL CLAS
--------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------
1996 1995 1994(3) 1993
--------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 9.82 $ 9.67 $ 10.23 $ 10.13
----- ----- ----- -----
Income from investment operations:
Net investment income 0.62(4) 0.62 0.52 0.58
Net gains or (losses) on securities (both
realized and unrealized) (0.14)(4) 0.15 (0.46) 0.15
----- ----- ----- -----
Total from investment operations 0.48 0.77 0.06 0.73
----- ----- ----- -----
Less distributions:
Dividends from net investment income (0.62) (0.62) (0.52) (0.58)
Distributions from net realized gains on
securities -- -- (0.10) (0.05)
----- ----- ----- -----
Total distributions (0.62) (0.62) (0.62) (0.63)
----- ----- ----- -----
Net asset value, end of period $ 9.68 $ 9.82 $ 9.67 $ 10.23
----- ----- ----- -----
----- ----- ----- -----
Total return (annualized)(5) 5.10% 8.18% 0.42% 7.20%
----- ----- ----- -----
----- ----- ----- -----
Ratios/supplemental data:
Net assets, end of period (in thousands) $108,929 $137,293 $112,141(10) $238,874
Ratios to average net assets(6)(7)(8):
Expenses 0.60%(4) 0.60% 0.31% 0.26%
Net investment income 6.41%(4) 6.36% 5.26% 5.76%
Portfolio turnover rate(9) 304% 183% 94% 176%
<CAPTION>
LIMITED-TERM INCOME FUND--INSTITUTIONAL CLASS
------------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
--------------------------------------- OCTOBER 31,
1992 1991(2) 1990 1989 1988(1)
------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 10.07 $ 9.76 $ 9.94 $ 10.12 $ 10.00
----- ----- ----- ----- --------
Income from investment operations:
Net investment income 0.75 0.83 0.92 0.96 0.64
Net gains or (losses) on securities (both
realized and unrealized) 0.06 0.31 (0.18) (0.12) 0.05
----- ----- ----- ----- --------
Total from investment operations 0.81 1.14 0.74 0.84 0.69
----- ----- ----- ----- --------
Less distributions:
Dividends from net investment income (0.75) (0.83) (0.92) (1.02) (0.57)
Distributions from net realized gains on
securities -- -- -- -- --
----- ----- ----- ----- --------
Total distributions (0.75) (0.83) (0.92) (1.02) (0.57)
----- ----- ----- ----- --------
Net asset value, end of period $ 10.13 $ 10.07 $ 9.76 $ 9.94 $ 10.12
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Total return (annualized)(5) 7.94% 11.87% 7.51% 7.62% 7.41%
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Ratios/supplemental data:
Net assets, end of period (in thousands) $209,928 $141,629 $83,265 $60,507 $40,855
Ratios to average net assets(6)(7)(8):
Expenses 0.27% 0.35% 0.48% 0.59% 0.50%
Net investment income 7.40% 8.42% 9.44% 9.77% 8.01%
Portfolio turnover rate(9) 133% 165% 156% 158% 127%
</TABLE>
(1) The Limited-Term Income Fund commenced active operations on December 3,
1987.
(2) AMR Investment Services, Inc. began portfolio management of the
Limited-Term Income Fund on March 1, 1991, replacing Brown Brothers,
Harriman & Co. and Barrow, Hanley, Mewhinney & Strauss, Inc.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Limited-Term Income Portfolio.
(5) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(6) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.03 per share in each period on an
annualized basis.
(7) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1994.
(8) Annualized.
(9) On November 1, 1995 the Limited-Term Income Fund invested all of its
investable assets in the Limited-Term Income Portfolio. Portfolio turnover
rate for the year ended October 31, 1996 is that of the Limited-Term Income
Portfolio.
(10) On August 1, 1994, assets of AMR Corporation and its employee benefit plans
were transferred to the AMR Class of the Fund.
PROSPECTUS
7
<PAGE> 21
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET FUND--INSTITUTIONAL CLASS
----------------------------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------
1996 1995 1994(2) 1993 1992 1991
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ -----
Net investment income 0.05(3) 0.06 0.04 0.03 0.04 0.07
Less dividends from net
investment income (0.05) (0.06) (0.04) (0.03) (0.04) (0.07)
------ ------ ------ ------ ------ -----
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ -----
Total return (annualized) 5.57% 5.96% 3.85% 3.31% 4.41% 7.18%
------ ------ ------ ------ ------ -----
------ ------ ------ ------ ------ -----
Ratios/supplemental data:
Net assets, end of period
(in thousands) $1,406,939 $1,206,041 $1,893,144 $2,882,947 $2,223,829 $715,280
Ratios to average net assets
(4)(5)(6):
Expenses 0.24%(3) 0.23% 0.21% 0.23% 0.26% 0.24%
Net investment income 5.41%(3) 5.79% 3.63% 3.23% 4.06% 6.93%
<CAPTION>
MONEY MARKET FUND--INSTITUTIONAL CLASS
---------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------ OCTOBER 31,
1990 1989 1988 1987(1)
---------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- --------
Net investment income 0.08 0.09 0.08 0.01
Less dividends from net
investment income (0.08) (0.09) (0.08) (0.01)
----- ----- ----- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- --------
----- ----- ----- --------
Total return (annualized) 8.50% 9.45% 7.54% 6.70%
----- ----- ----- --------
----- ----- ----- --------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $745,405 $385,916 $330,230 $71,660
Ratios to average net assets
(4)(5)(6):
Expenses 0.20% 0.22% 0.28% 0.48%
Net investment income 8.19% 9.11% 7.54% 6.78%
</TABLE>
(1) The Money Market Fund commenced active operations on September 1, 1987.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Money Market Portfolio.
(4) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1992.
(5) Effective October 1, 1990, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(6) Annualized.
PROSPECTUS
8
<PAGE> 22
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND- U.S. GOVERNMENT MONEY MARKET FUND-
INSTITUTIONAL CLASS INSTITUTIONAL CLASS
------------------------------------- -------------------------------------------------------
PERIOD PERIOD
YEAR ENDED OCTOBER 31, ENDED YEAR ENDED OCTOBER 31, ENDED
----------------------- OCTOBER 31, ----------------------------------------- OCTOBER 31,
1996 1995 1994(1) 1996 1995 1994(2) 1993 1992(1)
------------------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---- ------ ------- ----- ------ ----- ------ -------
Net investment income 0.04(3) 0.04 0.02 0.05 0.06 0.04 0.03 0.02
Less dividends from
net investment income (0.04) (0.04) (0.02) (0.05)(3) (0.06) (0.04) (0.03) (0.02)
---- ------ -------- ----- ------ ----- ------ -------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---- ------ -------- ----- ------ ----- ------ -------
---- ------ -------- ---- ------ ----- ------ -------
Total return
(annualized)(4) 3.59% 3.75% 2.44% 5.29% 5.67% 3.70% 3.07% 3.61%
---- ------ -------- ----- ------ ----- ------ -------
---- ------ -------- ---- ------ ----- ------ -------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $ 6 $ 7 $9,736 $25,595 $47,184 $67,607 $136,813 $91,453
Ratios to average net
assets(5)(6)(7):
Expenses 0.27%(3) 0.35% 0.30% 0.32%(3) 0.32% 0.25% 0.23% 0.27%(8)
Net investment income 3.49%(3) 3.70% 2.38% 5.16%(3) 5.49% 3.44% 2.96% 3.46%(8)
</TABLE>
(1) The U.S. Government Money Market Fund commenced active operations on March
2, 1992 and the Municipal Money Market Fund commenced active operations on
November 10, 1993. Prior to March 1, 1997, the U.S. Government Money Market
Fund was known as the American AAdvantage U.S. Treasury Money Market Fund
and operated under different investment policies.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the U.S. Government Money Market Portfolio and the Municipal Money Market
Portfolio, respectively.
(4) Total returns for the Municipal Money Market Fund exclude management and
administrative services fees waived by the Manager. Had the Fund paid such
fees, total returns would have been 2.24% for the period ended October 31,
1994 and 3.54% for the year ended October 31, 1995.
(5) The method of determining average net assets was changed from a monthly
average to a daily average starting with the period ended October 31, 1994.
(6) Operating results for the Municipal Money Market Fund exclude management and
administrative services fees waived by the Manager. Had the Fund paid such
fees, the ratio of expenses and net investment income to average net assets
would have been 0.50% and 2.18%, respectively, for the period ended October
31, 1994, 0.55% and 3.50%, respectively, for the period ended October 31,
1995 and 0.33% and 3.43%, respectively, for the period ended October 31,
1996.
(7) Annualized.
(8) Estimated based on expected annual expenses and actual average net assets.
INTRODUCTION
The Trust is an open-end, diversified management investment company
organized as a Massachusetts business trust on January 16, 1987. The Funds are
separate investment portfolios of the Trust. Each Fund has a distinctive
investment objective and investment policies. Each Fund will invest all of its
investable assets in a corresponding Portfolio of the AMR Trust which has an
identical investment objective. The Manager provides the Portfolios with
business and asset management services, including the evaluation and monitoring
of the investment advisers, and it provides the Funds with administrative
services. The Balanced Fund, the Growth and Income Fund, the International
Equity Fund and the Limited-Term Income Fund (collectively, the "Variable NAV
Funds") consist of multiple classes of shares, including the "Institutional
Class" which is primarily for institutional investors investing at least $2
million in the Funds and the "PlanAhead Class" which is available to all
investors, including smaller institutional investors, investors using
intermediary organizations such as discount brokers or plan sponsors, individual
retirement accounts ("IRAs"), and self-employed individual retirement plans
PROSPECTUS
9
<PAGE> 23
("HR-10 Plans" or "Keogh Plans"). The Money Market Funds also consist of
multiple classes of shares, including the Institutional Class, the PlanAhead
Class and the "Platinum Class" which is available to customers of certain
broker-dealers as an investment for cash balances in their brokerage accounts.
For further information about the PlanAhead Class, call (800) 388-3344. For
further information about the Platinum Class, call (800) 967-9009.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(losses) earned (or incurred) by the Fund. It also will bear its proportionate
share of expenses that are allocated to the Fund as a whole. However, certain
expenses are allocated separately to each class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. Investment decisions for the
Limited-Term Income Portfolio and the Money Market Portfolios are made directly
by the Manager. Each investment adviser has discretion to purchase and sell
portfolio securities in accordance with the investment objectives, policies and
restrictions described in this Prospectus, the SAI, and by specific investment
strategies developed by the Manager. See "Investment Advisers."
Institutional Class shares are sold without any sales charges at their net
asset value next determined after an investment is received and accepted. Shares
will be redeemed at the next share price calculated after receipt of a
redemption order. See "Purchase, Redemption and Valuation of Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent with the investment objective of the applicable
Fund. However, each Fund's investment objective may not be changed without a
majority vote of that Fund's outstanding shares, which is defined as the lesser
of (a) 67% of the shares of the applicable Fund present or represented if the
holders of more than 50% of the shares are present or represented at the
shareholders' meeting, or (b) more than 50% of the shares of the applicable Fund
(hereinafter, "majority vote"). A Portfolio's investment objective may not be
changed without a majority vote of that Portfolio's interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the Board.
AMERICAN AADVANTAGE BALANCED FUND -- This Fund's investment objective is to
realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating organizations ("Rating Organizations") rating that
security such as Standard & Poor's or Moody's Investor Services, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser. Obligations rated in the fourth highest rating
category are limited to 25% of the Portfolio's debt allocation. Obligations
rated in the BBB or Baa categories by any Rating Organization have speculative
characteristics and thus changes in economic conditions or other
PROSPECTUS
10
<PAGE> 24
circumstances are more likely to lead to a weakened capacity to make principal
and interest payments than is the case with higher grade bonds. See the SAI for
a description of debt ratings. The Portfolio, at the discretion of the
investment advisers, may retain a security that has been downgraded below the
initial investment criteria. The Portfolio usually invests between 50% and 65%
of its assets in equity securities and between 35% and 50% of its assets in debt
securities. The remainder of the Portfolio's assets may be invested in cash or
cash equivalents, including obligations that are permitted investments for the
Money Market Portfolio and in other investment companies. However, when its
investment advisers deem that market conditions warrant, the Portfolio may, for
temporary defensive purposes, invest up to 100% of its assets in cash, cash
equivalents and investment grade short-term obligations.
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government and its agencies and instrumentalities,
including separately traded registered interest and principal securities
("STRIPS") and other zero coupon obligations; corporate bonds, notes and
debentures; non-convertible preferred stocks; mortgage-backed securities;
asset-backed securities; and domestic, Yankeedollar and Eurodollar bank deposit
notes, certificates of deposit, bonds and notes. Such obligations may have a
fixed, variable or floating rate of interest. See the SAI for a further
description of the foregoing securities. The value of the Portfolio's debt
investments will vary in response to interest rate changes as described in
"American AAdvantage Limited-Term Income Fund."
The Portfolio also may engage in dollar rolls or purchase or sell
securities on a "when-issued" and on a "forward commitment" basis. The purchase
or sale of when-issued securities enables an investor to hedge against
anticipated changes in interest rates and prices by locking in an attractive
price or yield. The price of when-issued securities is fixed at the time the
commitment to purchase or sell is made, but delivery and payment for the when-
issued securities take place at a later date, normally one to two months after
the date of purchase. During the period between purchase and settlement, no
payment is made by the purchaser to the issuer and no interest accrues to the
purchaser. Such transactions therefore involve a risk of loss if the value of
the security to be purchased declines prior to the settlement date or if the
value of the security to be sold increases prior to the settlement date. A sale
of a when-issued security also involves the risk that the other party will be
unable to settle the transaction. Dollar rolls are a type of forward commitment
transaction. Purchases and sales of securities on a forward commitment basis
involve a commitment to purchase or sell securities with payment and delivery to
take place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date.
The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts which are
traded in the United States on exchanges and in the over-the-counter market.
When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations. The Manager
believes that purchasing securities which the investment advisers believe are
undervalued in the market and that have above average growth potential will
outperform other investment styles over the longer term while minimizing
volatility and downside risk. The Manager will recommend that, with respect to
portfolio management of equity assets, the Trust retain only those investment
advisers who, in the Manager's opinion, utilize such an approach.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Balanced
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME FUND -- This Fund's investment objective
is to realize long-term capital appreciation and current income. This Fund seeks
its investment objective by investing all of its investable assets
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in the Growth and Income Portfolio, which invests primarily in equity
securities. Excluding collateral for securities loaned, ordinarily at least 80%
of the Portfolio's assets will be invested in equity securities consisting of
common stocks, preferred stocks, securities convertible into common stocks, and
securities having common stock characteristics, such as rights and warrants, and
foreign equity securities that are represented by U.S. dollar-denominated
American Depository Receipts which are traded in the United States on exchanges
and in the over-the-counter market. When purchasing equity securities, primary
emphasis will be placed on undervalued securities with above average growth
expectations. In order to seek either above average current income or capital
appreciation when interest rates are expected to decline, the Portfolio may
invest in debt securities which, at the time of purchase, are rated in one of
the four highest rating categories by all Rating Organizations rating that
security or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser. Obligations rated in the fourth highest rating
category are limited to 25% of the Portfolio's debt allocation. See "American
AAdvantage Balanced Fund" for a description of the risks involved with these
obligations. See the SAI for definitions of the foregoing securities and for a
description of debt ratings. The Portfolio also may invest in other investment
companies or in cash and cash equivalents, including obligations that are
permitted investments for the Money Market Portfolio. However, when its
investment advisers deem that market conditions warrant, the Portfolio may, for
temporary defensive purposes, invest up to 100% of its assets in cash, cash
equivalents and investment grade short-term obligations. In addition, the
Portfolio may purchase or sell securities on a "when-issued" and on a "forward
commitment" basis as described in "American AAdvantage Balanced Fund."
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Growth and Income
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries located outside the
United States. However, excluding collateral for securities loaned, the
Portfolio generally invests in excess of 80% of its assets in such securities.
The remainder of the Portfolio's assets will be invested in non-U.S. debt
securities which, at the time of purchase, are rated in one of the three highest
rating categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including obligations that are
permitted investments for the Money Market Portfolio or in other investment
companies. However, when its investment advisers deem that market conditions
warrant, the Portfolio may, for temporary defensive purposes, invest up to 100%
of its assets in cash, cash equivalents, other investment companies and
investment grade short-term obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or expropriation
of assets and the risk of war; (2) less liquidity and greater volatility of
foreign investments; (3) less public information regarding foreign companies;
(4) less government regulation and supervision of foreign stock exchanges,
brokers and listed companies; (5) lack of uniform accounting, auditing and
financial reporting standards; (6) delays in transaction settlement in some
foreign markets; (7) possibility of an imposition of confiscatory foreign taxes;
(8) possible limitation on the removal of securities or other assets of the
Portfolio; (9) restrictions on foreign investments and repatriation of capital;
(10) currency fluctuations; (11) cost and possible restrictions of currency
conversion; (12) withholding taxes on dividends in foreign countries; and (13)
possibly higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
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The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity aspects of a particular country's
market and the investment climate for foreign investors. The current countries
in which the Portfolio may invest are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Singapore, South Korea, Spain, Sweden,
Switzerland and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are derivatives, to hedge currency fluctuations of underlying
stock or bond positions, or in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC"). Forward contracts to sell foreign currency
may be used when the management of the Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar. Forward
contracts are also entered into to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures ("futures") for the same
reasons as for entering into forward contracts as set forth above. Futures are
traded on U.S. and foreign currency exchanges. The use of futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the futures contracts themselves. The
Portfolio may not enter into futures contracts if the purchase or sale of such
contract would cause the sum of the Portfolio's initial and any variation margin
deposits to exceed 5% of its total assets. Futures contracts, which are
derivatives, are discussed in greater detail in the SAI.
HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio. ROWE PRICE-FLEMING INTERNATIONAL,
INC.("Fleming") also is an investment adviser of the Portfolio; however, none of
the Portfolio's assets have been allocated to Fleming at this time. See
"Investment Advisers."
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND -- This Fund's investment objective
is to realize income and capital appreciation. As an investment policy, the Fund
primarily seeks income and secondarily seeks capital appreciation. The Fund
seeks its investment objective by investing all of its investable assets in the
Limited-Term Income Portfolio, which invests primarily in debt obligations.
Permissible investments include securities of the U.S. Government and its
agencies and instrumentalities, including STRIPS and other zero coupon
obligations; corporate bonds, notes and debentures; non-convertible preferred
stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
obligations that are permitted investments for the Money Market Portfolio. Such
obligations may have a fixed, variable or floating rate of interest. At the time
of purchase, all such securities will be rated in one of the four highest rating
categories by all Rating Organizations rating such obligation or, if unrated,
will be deemed to be of comparable quality by the Manager. Obligations rated in
the fourth highest rating category are limited to 25% of the Portfolio's total
assets. See "American AAdvantage Balanced Fund" for a description of the risks
involved with these obligations. The Portfolio, at the discretion of the
Manager, may retain a security which has been downgraded below the initial
investment criteria. See the SAI for definitions of the foregoing securities and
for a description of debt ratings. Principal and/or
PROSPECTUS
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interest payments for obligations of the U.S. Government's agencies or
instrumentalities may or may not be backed by the full faith and credit of the
U.S. Government.
Investments in Yankeedollar and Eurodollar bonds, notes and certificates of
deposit involve risks that differ from investments in securities of domestic
issuers. See "American AAdvantage Money Market Fund" for a description of these
risks. The Portfolio also may engage in dollar rolls, or purchase or sell
securities on a "when-issued" or "forward commitment" basis as described under
"American AAdvantage Balanced Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments
should not vary as much due to the periodic adjustments in their interest rates.
An adjustment which increases the interest rate of such securities should reduce
or eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment, the
value of the premium would be lost. Like other debt securities, when interest
rates rise, the value of mortgage-related securities generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans, automobile and credit card receivables, and other types of receivables or
other assets as well as purchase contracts, financing leases and sales
agreements entered into by municipalities, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's and the Portfolio's investment objective, policies
and quality standards, the Portfolio may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to
PROSPECTUS
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the protection of a number of state and federal consumer credit laws, some of
which may reduce the ability to obtain full payment. In the case of automobile
receivables, due to various legal and economic factors, proceeds from
repossessed collateral may not always be sufficient to support payments on the
securities. The risks associated with asset-backed securities are often reduced
by the addition of credit enhancements such as a letter of credit from a bank,
excess collateral or a third-party guarantee.
Although investments will not be restricted by either maturity or duration
of the securities purchased, under normal circumstances, the Portfolio will seek
to maintain a dollar weighted average duration of one to three years. Because
the timing on return of principal for both asset-backed and mortgage-backed
securities is uncertain, in calculating the average weighted duration of the
Portfolio, the duration of these securities may be based on certain industry
conventions. The Manager serves as the sole active investment adviser to the
Limited-Term Income Fund and its corresponding Portfolio.
MONEY MARKET FUNDS -- The investment objectives of the Money Market Funds are to
seek current income, liquidity and the maintenance of a stable $1.00 price per
share. The Money Market Funds seek to achieve these objectives by investing all
of their investable assets in the Money Market Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of the amortized cost valuation method.
Obligations in which the Money Market Portfolios invest generally have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain variable and floating rate obligations may bear longer
final maturities. The average dollar-weighted portfolio maturity of each Money
Market Portfolio will not exceed 90 days. The Manager serves as the sole
investment adviser to the Money Market Funds. See "Management and Administration
of the Trust."
AMERICAN AADVANTAGE MONEY MARKET FUND -- The Fund's corresponding Portfolio may
invest in obligations permitted to be purchased under Rule 2a-7 of the 1940 Act
including, but not limited to, (1) obligations of the U.S. Government or its
agencies or instrumentalities; (2) loan participation interests, medium-term
notes, funding agreements and asset-backed securities; (3) domestic,
Yankeedollar and Eurodollar certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bank deposit notes and other promissory notes,
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies; and (4)
repurchase agreements involving the obligations listed above. The Money Market
Portfolio will invest only in issuers or instruments that at the time of
purchase (1) have received the highest short-term rating by two Rating
Organizations such as "A-1" by Standard & Poor's and "P-1" by Moody's; (2) are
single rated and have received the highest short-term rating by a Rating
Organization; or (3) are unrated, but are determined to be of comparable quality
by the Manager pursuant to guidelines approved by the AMR Trust Board and
subject to the ratification of the AMR Trust Board. See the SAI for definitions
of the foregoing instruments and rating systems. The Portfolio may invest in
other investment companies. The Portfolio also may purchase or sell securities
on a "when-issued" or a "forward commitment" basis as described in "American
AAdvantage Balanced Fund."
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the Portfolio will not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the
United States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are
PROSPECTUS
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<PAGE> 29
supervised or examined by regulatory authorities as are United States banks, and
such branches may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest can
be recovered under a variable amount master demand note generally shall not
exceed seven days. To the extent this period is exceeded, the note in question
would be considered illiquid. Issuers of variable amount master demand notes
must satisfy the same criteria as set forth for other promissory notes (e.g.
commercial paper). The Portfolio will invest in variable amount master demand
notes only when such notes are determined by the Manager, pursuant to guidelines
established by the AMR Trust Board, to be of comparable quality to rated issuers
or instruments eligible for investment by the Portfolio. In determining average
dollar weighted portfolio maturity, a variable amount master demand note will be
deemed to have a maturity equal to the longer of the period of time remaining
until the next readjustment of the interest rate or the period of time remaining
until the principal amount can be recovered from the issuer on demand.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND -- The Fund's corresponding
Portfolio may invest in municipal obligations issued by or on behalf of the
governments of states, territories, or possessions of the United States; the
District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Fund"); (3) are guaranteed by one or more municipal bond insurance policies that
cannot be canceled and issued by third-party guarantors possessing the highest
claims-paying rating from a Rating Organization; (4) have received one of the
two highest short-term ratings from at least two Rating Organizations; (5) are
single rated and have received one of the two highest short-term ratings from
that Rating Organization; (6) have no short-term rating but the instrument is
comparable to the issuer's rated short-term debt; (7) have no short-term rating
(or comparable rating) but have received one of the top two long-term ratings
from all Rating Organizations rating the issuer or instrument; or (8) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by, and subject to the oversight of, the AMR Trust Board.
The Portfolio may also invest in other investment companies. Ordinarily at least
80% of the Portfolio's net assets will be invested in municipal obligations, the
interest from which is exempt from federal income tax. However, should market
conditions warrant, the Portfolio may invest up to 20% (or for temporary
defensive purposes, up to 100%) of its assets in obligations subject to federal
income tax which are eligible investments for the Money Market Portfolio.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; tax-exempt commercial paper; and purchase
obligations that are subject to restrictions on resale. See the SAI for a
further discussion of
PROSPECTUS
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<PAGE> 30
the foregoing obligations. The Portfolio may purchase or sell obligations on a
"when-issued" or "forward commitment" basis, as described under "American
AAdvantage Balanced Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, the Manager
believes this risk is mitigated because it is anticipated that most of the
Portfolio's assets will be insured or backed by bank letters of credit.
Additionally, the Portfolio may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
non-governmental users.
The Portfolio also may invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in private
activity obligations without limitation and it is anticipated that a substantial
portion of the Portfolio's assets will be invested in these obligations. As a
result, a substantial portion of the Fund's distributions may be a tax
preference item, which will reduce the net return from the Fund for taxpayers
subject to the AMT. Interest on "qualified" private activity obligations is
exempt from federal income tax.
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND -- The Fund's
corresponding Portfolio will invest exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements which are collateralized by such obligations. U.S.
Government securities include direct obligations of the U.S. Treasury (such as
Treasury bills, Treasury notes and Treasury bonds). The Fund may invest in
securities issued by the Agency for International Development, Farmers Home
Administration, Farm Credit Banks, Federal Home Loan Bank, Federal Intermediate
Credit Bank, Federal Financing Bank, Federal Land Bank, FNMA, GNMA, General
Services Administration, Rural Electrification Administration, Small Business
Administration, Tennessee Valley Authority, and others. Some of these
obligations, such as those issued by the Federal Home Loan Bank and FHLMC, are
supported only by the credit of the agency or instrumentality issuing the
obligation and the discretionary authority of the U.S. Government to purchase
the agency's obligations. See the SAI for a further discussion of the foregoing
obligations. Counterparties for repurchase agreements must be approved by the
AMR Trust Board. The Portfolio may purchase or sell securities on a
"when-issued" or a "forward commitment" basis as described under "American
AAdvantage Balanced Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
SECURITIES LENDING. Each Portfolio may lend securities to broker-dealers or
other institutional investors pursuant to agreements requiring that the loans be
continuously secured by any combination of cash, securities of the U.S.
Government and its agencies and instrumentalities and approved bank letters of
credit that at all times equal at least 100% of the market value of the loaned
securities. Such loans will not be made if, as a result, the aggregate amount of
all outstanding securities loans by any Portfolio would exceed 33 1/3% of its
total assets. A Portfolio continues to receive interest on the securities loaned
and simultaneously earns either interest on the investment of the cash
collateral or fee income if the loan is otherwise collateralized. Should the
borrower of the securities fail financially, there is a risk of delay in
recovery of the securities loaned or loss of rights in the collateral. However,
the Portfolios seek to minimize this risk by making loans only to borrowers
which are deemed by the Manager to be of good financial standing and which have
been approved by the AMR Trust Board. For purposes of complying with each
Portfolio's investment policies and restrictions, collateral received in
connection with
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securities loans will be deemed an asset of a Portfolio to the extent required
by law. The Manager will receive compensation for administrative and oversight
functions with respect to securities lending. The amount of such compensation
will depend on the income generated by the loan of each Portfolio's securities.
The SEC has granted exemptive relief that permits the Portfolios to invest cash
collateral received from securities lending transactions in shares of one or
more private investment companies managed by the Manager. See the SAI for
further information regarding loan transactions.
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement under which
securities are acquired by a Portfolio from a securities dealer or bank subject
to resale at an agreed upon price on a later date. The acquiring Portfolio bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, the
investment advisers or the Manager attempt to minimize this risk by entering
into repurchase agreements only with financial institutions which are deemed to
be of good financial standing and which have been approved by the AMR Trust
Board. See the SAI for more information regarding repurchase agreements.
PRIVATE PLACEMENT OFFERINGS. Investments in private placement offerings are made
in reliance on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios, that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be pursuant to an exempt transaction and may be accomplished in
accordance with Rule 144A. Section 4(2) securities normally are resold to other
institutional investors such as the Portfolios through or with the assistance of
the issuer or dealers that make a market in the Section 4(2) securities, thus
providing liquidity. The Money Market Portfolios will not invest more than 10%
(and the Variable NAV Funds' respective Portfolios, no more than 15%) of their
respective net assets in Section 4(2) securities and illiquid securities unless
the applicable investment adviser determines, by continuous reference to the
appropriate trading markets and pursuant to guidelines approved by the AMR Trust
Board, that any Section 4(2) securities held by such Portfolio in excess of this
level are at all times liquid.
The AMR Trust Board and the applicable investment adviser, pursuant to the
guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolios' investments in Section 4(2) securities offered and sold under Rule
144A, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing a Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
BROKERAGE PRACTICES AND PORTFOLIO TURNOVER -- Each investment adviser will place
its own orders to execute securities transactions which are designed to
implement the applicable Portfolio's investment objective and policies. In
placing such orders, each investment adviser will seek the best available price
and most favorable execution. The full range and quality of services offered by
the executing broker or dealer is considered when making these determinations.
Pursuant to written guidelines approved by the AMR Trust Board, 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 of the 1940 Act) for doing so.
The Money Market Portfolios and the Limited-Term Income Portfolio normally
will not incur any brokerage commissions on their transactions because money
market and debt instruments are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission. The
price of the obligation, however, usually includes a profit to the dealer.
Obligations purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No commissions or discounts are paid when securities are
purchased directly from an issuer.
No Portfolio, other than the Limited-Term Income Portfolio, currently
expects its portfolio turnover rate to exceed 100%. The portfolio turnover rate
for the Limited-Term Income Portfolio for the fiscal year ended
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October 31, 1996 was 304%. High portfolio activity increases a Portfolio's
transaction costs, including brokerage commissions and may result in a greater
number of taxable transactions.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust. In addition to selling
their interests to the Funds, the Portfolios may sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio will pay a proportionate share of the
Portfolio's expenses and will invest in that Portfolio on the same terms and
conditions. However, if another investment company invests all of its assets in
a Portfolio, it would not be required to sell its shares at the same public
offering price as a Fund and would be allowed to charge different sales
commissions. Therefore, investors in a Fund may experience different returns
from investors in another investment company that invests exclusively in that
Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for that Fund and could affect adversely its liquidity.
The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with a Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust and the AMR Trust, (3) brokerage practices,
(4) the Funds' shares, including the rights and liabilities of its shareholders,
(5) additional performance information, including the method used to calculate
yield and total return, and (6) the determination of the value of each Fund's
shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restriction are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the
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investment restrictions of each Portfolio and the AMR Trust Board, it applies
equally to each Fund and the Board. The following fundamental investment
restrictions may be changed with respect to a particular Fund by the majority
vote of that Fund's outstanding shares or with respect to a Portfolio by the
majority vote of that Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Money Market Portfolio and the U.S. Treasury Money Market
Portfolio apply this restriction with respect to 100% of their assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities or, with respect to the Money Market
Portfolio, the banking industry. Municipal governments and their agencies
and authorities are not deemed to be industries. Finance companies as a
group are not considered a single industry for purposes of this policy.
Further, wholly owned subsidiaries of finance companies will be considered
to be in the industries of their parent companies if their activities are
primarily related to financing the activities of their parent companies.
The following non-fundamental investment restriction may be changed with
respect to a particular Fund by a vote of a majority of the Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board: no
Portfolio may invest more than 15% (or, with respect to any Money Market
Portfolio, 10%) of its net assets in illiquid securities, including time
deposits and repurchase agreements that mature in more than seven days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
From time to time each class of the Money Market Funds may advertise their
"current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
current yield refers to the income generated by an investment over a seven
calendar-day period (which period will be stated in the advertisement). This
income is then annualized by assuming the amount of income generated by the
investment during that week is earned each week over a one-year period, and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by the investment is assumed
to be reinvested. The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed reinvestment. The
Municipal Money Market Fund also may quote "tax equivalent yields," which show
the taxable yields a shareholder would have to earn before federal income taxes
to equal this Fund's tax-exempt yields. The tax equivalent yield is calculated
by dividing the Fund's tax-exempt yield by the result of one minus a stated
federal income tax rate. If only a portion of the Fund's income was tax-exempt,
only that portion is adjusted in the calculation. As stated earlier, the Fund
considers interest on private activity obligations to be exempt from federal
income tax. Each class of a Fund has different expenses which will impact its
performance.
Advertised yields for the Institutional Class of the Variable NAV Funds
will be computed by dividing the net investment income per share earned by the
applicable class during the relevant time period by the maximum offering price
per share for that class on the last day of the period. Total return quotations
advertised by the Funds may reflect the average annual compounded (or aggregate
compounded) rate of return during the designated time period based on a
hypothetical initial investment and the redeemable value of that investment at
the end of the period. Additionally, each class of the Limited-Term Income Fund
may advertise a "monthly distribution rate." This rate is based on an annualized
monthly dividend accrual rate per share compared with the
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month-end share price of each class of this Fund. The Funds will at times
compare their performance to applicable published indices, and may also disclose
their performance as ranked by certain ranking entities. See the SAI for more
information about the calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs. The Manager provides or oversees all administrative,
investment advisory and portfolio management services for the Trust pursuant to
a Management Agreement dated April 3, 1987, as amended December 17, 1996,
together with the Administrative Services Agreement described below. The AMR
Trust and the Manager also entered into a Management Agreement dated November
22, 1996 that obligates the Manager to provide or oversee all administrative,
investment advisory and portfolio management services for the AMR Trust. The
Manager, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas
76155, is a wholly owned subsidiary of AMR Corporation ("AMR"), the parent
company of American Airlines, Inc., and was organized in 1986 to provide
investment management, advisory, administrative and asset management consulting
services. The assets of the Balanced Portfolio, the Growth and Income Portfolio
and the International Equity Portfolio are allocated by the Manager among one or
more investment advisers designated for that Portfolio. See "Investment
Advisers." The Manager serves as the sole active investment adviser to the Money
Market Portfolios and the Limited-Term Income Portfolio. In addition, with the
exception of the International Equity Portfolio, if so requested by any
investment adviser, the Manager will make the investment decisions with respect
to assets allocated to that investment adviser which the investment adviser
determines should be invested in short-term obligations of the type permitted
for investment by the Money Market Portfolio. As of December 31, 1996, the
Manager had assets under management totaling approximately $16.0 billion
including approximately $5.7 billion under active management and $10.3 billion
as named fiduciary or fiduciary adviser. Of the total, approximately $11.9
billion of assets are related to AMR. American Airlines, Inc. is not responsible
for investments made in the American AAdvantage Funds.
The Manager provides the Trust and the AMR Trust with office space, office
equipment and personnel necessary to manage and administer the Trusts'
operations. This includes complying with reporting requirements; corresponding
with shareholders; maintaining internal bookkeeping, accounting and auditing
services and records; and supervising the provision of services to the Trusts by
third parties. The Manager also oversees each Portfolio's participation in
securities lending activities and any actions taken by securities lending agents
in connection with those activities to ensure compliance with all applicable
regulatory and investment guidelines. The Manager also develops the investment
programs for each Portfolio, selects and changes investment advisers (subject to
approval by the AMR Trust Board and appropriate interest holders), allocates
assets among investment advisers, monitors the investment advisers' investment
programs and results, and coordinates the investment activities of the
investment advisers to ensure compliance with regulatory restrictions.
The Manager bears the expense of providing the above services and pays the
fees of the investment advisers of the Funds and their Portfolios. As
compensation for paying the investment advisory fees and for providing the
Portfolios with advisory and asset allocation services, the Manager receives
from the AMR Trust an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.15% of the net assets of the Money Market
Portfolios, (2) 0.25% of the net assets of the Limited-Term Income Portfolio,
(3) 0.10% of the net assets of the other Portfolios, plus (4) all fees payable
by the Manager to the AMR Trust's investment advisers as described in
"Investment Advisers." The advisory fee is payable quarterly in arrears. To the
extent that a Fund invests all of its investable assets in its corresponding
Portfolio, the Manager will not receive an advisory fee under its Management
Agreement with the Trust. The Manager receives compensation in connection with
securities lending activities. If a Portfolio lends its portfolio securities and
receives cash collateral from the borrower, the Manager will receive up to 25%
of the net annual interest income (the gross interest earned by the investment
less the amount paid to the borrower as well as related expenses) received from
the investment of such cash. If a borrower posts collateral other than cash, the
borrower will pay to the lender a loan fee. The Manager will receive up to 25%
of the loan fees posted by borrowers. The Manager is compensated through the
Administrative Services Agreement as described below for other services
provided.
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Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the Trustees of
each Board who are not parties to the Management Agreement or "interested
persons" as defined in the 1940 Act of any such party ("Independent Trustees"),
cast in person at a meeting called for the purpose of considering such approval,
or by the vote of a Fund's shareholders or a Portfolio's interest holders. A
Management Agreement may be terminated with respect to a Fund or a Portfolio at
any time, without penalty, by a majority vote of outstanding Fund shares or
Portfolio interests on sixty (60) days' written notice to the Manager, or by the
Manager, on sixty (60) days' written notice to the Trust or the AMR Trust. A
Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities for the registration of
shares; fees and expenses of Independent Trustees; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
FUND ADVISORY AGREEMENTS -- Each investment adviser has entered into a separate
investment advisory agreement with the Manager to provide investment advisory
services to the Funds and their corresponding Portfolios. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
an investment adviser will receive an advisory fee only on behalf of the
Portfolio and not on behalf of its corresponding Fund. Except for the Money
Market Portfolios and the Limited-Term Income Portfolio, the assets of each
Portfolio are allocated among the investment advisers designated for that
Portfolio and described in this Prospectus in "Investment Advisers." The Manager
is permitted to enter into new or modified advisory agreements with existing or
new investment advisers without approval of Fund shareholders or Portfolio
interest holders, but subject to approval of the Board and the AMR Trust Board.
The Securities and Exchange Commission issued an exemptive order which
eliminates the need for shareholder/interest holder approval subject to
compliance with certain conditions. These conditions include the requirement
that within 90 days of hiring a new adviser or implementing a material change
with respect to an advisory contract, the applicable Fund send a notice to
shareholders containing information about the change that would be included in a
proxy statement. The Manager recommends investment advisers to the Board and the
AMR Trust Board based upon its continuing quantitative and qualitative
evaluation of the investment advisers' skill in managing assets using specific
investment styles and strategies. The allocation of assets among investment
advisers may be changed at any time by the Manager. Allocations among investment
advisers will vary based upon a variety of factors, including the overall
investment performance of each investment adviser, the Portfolio's cash flow
needs and market conditions. The Manager need not allocate assets to each
investment adviser designated for a Portfolio. The investment advisers can be
terminated without penalty to the AMR Trust by the Manager, the AMR Trust Board
or the interest holders of the applicable Portfolio. Short-term investment
performance, by itself, is not a significant factor in selecting or terminating
an investment adviser, and the Manager does not expect to recommend frequent
changes of investment advisers. The Prospectus will be supplemented if
additional investment advisers are retained or the contract with any existing
investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board and the Manager, these parties do not
evaluate the investment merits of specific securities transactions. As
compensation for its services, each investment adviser is paid a fee by the
Manager out of the proceeds of the management fee received by the Manager from
the AMR Trust.
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ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. As compensation for
these services, the Manager receives an annualized fee of 0.25% of the net
assets of the Institutional Class of the Variable NAV Funds and 0.05% of the net
assets of the Institutional Class of the Money Market Funds. The fee is payable
quarterly in arrears.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas 75205, serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Portfolios and the Funds, except for the
International Equity Portfolio, and as transfer agent for the Institutional
Class. THE BANK OF NEW YORK, New York, New York, serves as custodian for the
International Equity Portfolio.
INDEPENDENT AUDITOR -- The independent auditor for the Funds and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each
Fund and its corresponding Portfolio, except for the Money Market Funds and
their corresponding Portfolios, whose sole investment adviser is the Manager.
References to the investment advisers retained by a Portfolio also apply to the
corresponding Fund. Except for the Manager, none of the investment advisers
provides any services to the Funds or the Portfolios except for portfolio
investment management and related recordkeeping services, or has any affiliation
with the Trust, the AMR Trust or the Manager.
William F. Quinn has served as President of the Manager since it was
founded in 1986 and Nancy A. Eckl serves as Vice President-Trust Investments of
the Manager. Ms. Eckl previously served as Vice President-Finance and Compliance
of the Manager from December 1990 to May 1995. In these capacities, Mr. Quinn
and Ms. Eckl have primary responsibility for the day-to-day operations of the
Balanced Fund, the Growth and Income Fund, the International Equity Fund and
their corresponding Portfolios. These responsibilities include oversight of the
investment advisers, regular review of each investment adviser's performance and
asset allocations among investment advisers.
Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and serves as Vice
President-Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President of Institutional Fixed Income Sales at
Merrill Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment advisory services since 1979. The firm is
wholly owned by United Asset Management Corporation, a Delaware corporation. As
of December 31, 1996, Barrow had discretionary investment management authority
with respect to approximately $20.5 billion of assets, including approximately
$1.5 billion of assets of AMR and its subsidiaries and affiliated entities.
Barrow serves as an investment adviser to the Balanced Portfolio, the Growth and
Income Portfolio and the Limited-Term Income Portfolio, although the Manager
does not presently intend to allocate any of the assets
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in the Limited-Term Income Portfolio to Barrow. The Manager pays Barrow an
annualized fee equal to .30% on the first $200 million in AMR Trust assets under
its discretionary management, .20% on the next $300 million, .15% on the next
$500 million, and .125% on assets over $1 billion.
BRANDYWINE ASSET MANAGEMENT, INC. ("Brandywine"), 201 North Walnut Street,
Wilmington, Delaware 19801, is a privately held professional investment
counseling firm founded in 1986. As of December 31, 1996, Brandywine had assets
under management totaling approximately $6 billion, including approximately $285
million of assets of AMR and its subsidiaries and affiliated entities.
Brandywine serves as an investment adviser to the Balanced and the Growth and
Income Portfolios. For its services to the Balanced Portfolio and the Growth and
Income Portfolio, the Manager pays Brandywine an annualized fee equal to .225%
of assets in the Balanced Portfolio and .25% of assets in the Growth and Income
Portfolio of the first $500 million of assets under its discretionary
management, .225% of the next $100 million and .20% on all excess assets.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation. As of
December 31, 1996, GSB managed approximately $3.2 billion of assets, including
approximately $802 million of assets of AMR and its subsidiaries and affiliated
entities. GSB serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. The Manager pays GSB an annualized fee equal to
.30% of the first $100 million in AMR Trust assets under its discretionary
management, .25% of the next $100 million, .20% of the next $100 million and
.15% on all excess assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley became a
division of Merrill Lynch Capital Management Group, a wholly owned subsidiary of
Merrill Lynch & Co., Inc. on November 12, 1996. Assets under management as of
December 31, 1996 were approximately $10.2 billion, which included approximately
$1.4 billion of assets of AMR and its subsidiaries and affiliated entities.
Hotchkis and Wiley serves as an investment adviser to the Balanced Portfolio,
the Growth and Income Portfolio and the International Equity Portfolio. The
advisory contract provides for the Manager to pay Hotchkis and Wiley an
annualized fee equal to .60% of the first $10 million of assets under its
discretionary management, .50% of the next $140 million of assets, .30% of the
next $50 million of assets, .20% of the next $800 million of assets and .15% of
all excess assets.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1996,
including funds managed for its parent company, were approximately $25.9
billion, which included approximately $981 million of assets of AMR and its
subsidiaries and affiliated entities. IIA serves as an investment adviser to the
Balanced Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets, and .20%
of all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 25 Cabot Square, London,
United Kingdom E14 4QA, is a wholly owned subsidiary of Morgan Stanley Group
Inc. MSAM provides portfolio management and named fiduciary services to taxable
and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. As of
September 30, 1996, MSAM had assets under management totaling approximately
$67.1 billion, including approximately $50.2 billion under active management and
$16.9 billion as named fiduciary or fiduciary adviser. As of December 31, 1996,
MSAM had investment authority over approximately $314 million of assets of AMR
and its subsidiaries and affiliated entities. MSAM serves as an investment
adviser to the International Equity Portfolio. For this service, the Manager
pays MSAM an annual fee equal to .80% of the first $25 million of assets under
its discretionary management, .60% of the next $25 million in assets, .50% of
the next $25 million in assets and .40% on all excess assets.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover &
Co. announced that they had entered into an Agreement and Plan of Merger to form
a new company to be named Morgan Stanley, Dean
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Witter, Discover & Co. Subject to certain conditions being met, it is currently
anticipated that the transaction will close in mid-1997. Thereafter, MSAM will
be a subsidiary of Morgan Stanley, Dean Witter, Discover & Co.
ROWE PRICE-FLEMING INTERNATIONAL, INC., 100 East Pratt Street, Baltimore,
Maryland 21202, is a professional investment counseling firm founded in 1979.
Fleming is a joint venture owned entirely by its three parent companies, T. Rowe
Price, Robert Fleming and Jardine Fleming. As of December 31, 1996, Fleming had
assets under management totaling approximately $29.0 billion, including
approximately $265 million of assets of AMR and its subsidiaries and affiliated
entities. Fleming serves as an investment adviser to the International Equity
Portfolio, although the Manager does not presently intend to allocate assets
from the Portfolio to Fleming. For its services to the International Equity
Portfolio when total assets under Fleming's management are less than $200
million, the Manager will pay Fleming an annualized fee equal to 0.75% of the
first $20 million, 0.60% of the next $30 million and 0.50% on amounts over $50
million. When assets under Fleming's management exceed $200 million but are less
than $500 million, the Manager will pay Fleming an annualized fee equal to 0.50%
on all assets. When assets under Fleming's management exceed $500 million but
are less than $750 million, the Manager will pay an annualized fee equal to
0.45% on all assets, and when assets exceed $750 million, the Manager will pay
Fleming a flat fee of 0.40% on all assets. When asset levels are between $184
million and $200 million, Fleming will credit the Manager with an adjustment for
the difference between the two fee schedules. The credit is determined by
pro-rating the difference between the original tiered fee and the flat fee
($80,000 per annum at all asset levels) over the difference between $200 million
and the current asset size for billing purposes.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1996, Templeton had discretionary investment management authority with respect
to approximately $21.7 billion of assets, including approximately $433.9 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. For this
service, the Manager pays Templeton an annualized fee equal to .50% of the first
$100 million of assets under its discretionary management, .35% of the next $50
million in assets, .30% of the next $250 million in assets and .25% on assets
over $400 million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser (except assets managed by
Barrow under the HALO Bond Program). For the purpose of determining the
applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the applicable Portfolio.
PURCHASE, REDEMPTION AND VALUATION OF SHARES
PURCHASING SHARES OF THE TRUST -- Institutional Class shares are offered without
a sales charge to institutions -- including bank trust departments acting on
behalf of their clients (such as employee benefit plans, personal trusts and
other accounts for which the bank acts as agent or fiduciary); endowment funds
and charitable foundations; employee welfare plans which are tax-exempt under
Section 501(c)(9) of the Internal Revenue Code of 1986, as amended ("Code");
qualified pension and profit sharing plans, and cash or deferred arrangements
under Section 401(k) of the Code; corporations; and other institutional
investors who make an initial investment of at least $2 million. The Manager may
allow a reasonable period of time after opening an account for an investor to
meet the initial investment requirement. The Manager may waive the minimum
investment requirement for certain individuals associated with AMR or the
Manager, as more fully described in the SAI. In addition, for investors such as
investment advisors, trust companies and financial advisors who make investments
for a group of clients, the minimum initial investment can be met through an
aggregated purchase order for more than one client.
Trust shares are sold without a sales charge at the net asset value next
determined after the acceptance of a purchase order. Shares of the Variable NAV
Funds are offered and purchase orders accepted until 4:00 p.m. Eastern time on
each day on which the New York Stock Exchange (the "Exchange") is open for
trading which
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excludes the following business holidays: New Year's Day, President's Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day ("Business Day"). Shares of the Money Market Fund are offered and
orders accepted until 3:00 p.m. Eastern time on each day on which the Federal
Reserve and the custodian/transfer agent are open for business ("Money Market
Business Day"). Shares are offered and orders are accepted for the Municipal
Money Market Fund until 12:00 p.m. Eastern time and for the U.S. Government
Money Market Fund until 2:00 p.m. Eastern time on each Money Market Business
Day. The Trust reserves the right to reject any order for the purchase of shares
and to limit or suspend, without prior notice, the offering of shares.
Institutional Class shares may be purchased and redeemed as follows:
BY WIRE -- Purchases may be made by wiring funds. If opening a new account, an
investor should first forward a completed new account application to the Manager
at P.O. Box 619003, MD 5645, DFW Airport, TX 75261-9003 or by facsimile to (817)
967-0768. To ensure prompt receipt of a transmission by wire, the investor
should: telephone the transfer agent at (214) 508-5038 or (800) 658-5811 and
specify the Fund whose shares are to be purchased; provide the name, address,
telephone number and account number of the investor; and identify the amount
being wired and by which bank. The transfer agent will provide the investor with
an account number. The investor should instruct its bank to designate the
account number and transmit the federal funds to: Federal Reserve Bank, Dallas,
for NationsBank of Texas, N.A. ABA Routing #111-000-025, Corporate Trust
Suspense Account No. 0180019810, reference American AAdvantage Funds, attention:
Fund Account Services.
BY DEPOSITING SECURITIES -- Shares of a Fund may be purchased in exchange for an
investor's securities if the securities are acceptable to that Fund's
corresponding Portfolio and satisfy applicable investment objectives and
policies. Investors interested in exchanging securities must first contact the
Manager and acquire instructions regarding submission of a written description
of the securities which the investor wishes to exchange. The investor must
represent that all such securities offered to any Fund are not subject to any
sale restrictions. Within five business days after receipt of the written
description, the Manager will advise the investor whether the securities to be
exchanged are acceptable. There is no charge for this review by the Manager.
Securities accepted by a Fund must have a readily ascertainable value as
evidenced by a listing on the Exchange, American Stock Exchange or Nasdaq.
Securities are valued in the manner described for valuing Portfolio assets in
the section entitled "Valuation of Shares." Acceptance of such orders may occur
on any day during the five-day period afforded the Manager to review the
acceptability of the securities. Upon notice of acceptance of such orders, the
securities must be delivered in fully negotiable form within three days. The
Manager will provide delivery instructions at the time of acceptance. A gain or
loss for federal income tax purposes may be realized by the investor upon the
securities exchange, depending upon the adjusted tax basis and value of the
securities tendered. A Fund will accept securities in this manner only for
purposes of investment by its corresponding Portfolio, and not for resale.
BY MAIL -- Share purchases of any Fund may be made by mail by sending a check or
other negotiable bank draft payable to the applicable Fund to "NationsBank of
Texas, N.A., 11th Floor, Elm Place, P.O. Box 830840, Dallas, Texas 75283-0840,
Attn.: American AAdvantage Funds -- Institutional Class." An additional purchase
of shares should be accompanied by the shareholder's account number. Purchase
checks are accepted subject to collection at full face value in U.S. funds and
must be drawn in U.S. dollars on a U.S. bank.
REDEMPTION OF SHARES -- Variable NAV Fund shares may be redeemed on any Business
Day by writing directly to NationsBank of Texas, N.A. at the address above under
"Purchasing Shares of the Trust -- By Mail." Shares of the Money Market Funds
may be redeemed on any Money Market Business Day by writing to the same address.
The redemption price will be the net asset value per share next determined after
receipt by NationsBank of Texas, N.A. of all required documents in good order.
"Good order" means that the request must include a letter of instruction or
stock assignment specifying the number of shares or dollar amount to be
redeemed, signed by an authorized signatory for the owners of the shares in the
exact names in which they appear on the account, and accompanied by such other
supporting legal documents, if required, in the case of estates, trusts,
guardianships, custodians, corporations, IRAs and welfare, pension and
profit-sharing plans. In addition, any share certificates
PROSPECTUS
26
<PAGE> 40
being redeemed must be returned duly endorsed or accompanied by a stock
assignment with signatures guaranteed by a bank, trust company or member of a
recognized stock exchange.
Payment for redeemed shares will be made in cash within seven days after
the receipt of a redemption request in good order. However, the Fund reserves
the right to suspend redemptions or postpone the date of payment (a) for any
periods during which the Exchange is closed (other than for customary weekend
and holiday closings), or when trading on the Exchange is restricted, (b) at
such time as an emergency exists as determined by the Securities and Exchange
Commission so that disposal of a Fund's investments or determination of its net
asset value is not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit for protection of the
Funds' shareholders. Shares purchased by check may not be redeemed until the
funds have cleared, which may take up to 15 days. Although the Funds intend to
redeem shares in cash, each Fund reserves the right to pay the redemption price
in whole or in part by a distribution of readily marketable securities held by
the applicable Fund's corresponding Portfolio. See the SAI for further
information concerning redemptions in kind.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Money Market Fund generally will be paid at the
time of redemption.
DISTRIBUTION OF TRUST SHARES -- Shares are distributed through the Funds'
principal underwriter, BTS. BTS is compensated by the Manager, and not the
Trust. The Trust does not incur any direct distribution expenses other than
those related to Platinum Class shares. However, the Trust has adopted a
Distribution Plan in accordance with Rule 12b-1 under the 1940 Act which
authorizes the use of any fees received by the Manager in accordance with the
Administrative Services and Management Agreements and any fees received by the
investment advisers pursuant to their Advisory Agreements with the Manager, to
be used for distribution purposes.
VALUATION OF SHARES -- The net asset value of each share (share price) of the
Variable NAV Funds is determined as of 4:00 p.m. Eastern time on each Business
Day and the net asset value of each share of the Money Market Funds is
determined as of 4:00 p.m. Eastern time on each Money Market Business Day. The
net asset value of shares of the Institutional Class will be determined based on
a pro rata allocation of the value of the Fund's corresponding Portfolio's
investment income, expenses and total capital gains and losses. The allocation
will be based on comparative net asset value at the beginning of the day except
for expenses related solely to one class of shares ("Class Expenses") which will
be borne only by the appropriate class of shares. Because of the Class Expenses,
the net income attributable to and the dividends payable for each class of
shares may be different. Additionally, the Variable NAV Funds may compute
differing share prices as a result of Class Expenses.
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the Board. Over-the-counter equity securities are valued on the basis of the
last bid price on that date prior to the close of trading. Debt securities
(other than short-term securities) will normally be valued on the basis of
prices provided by a pricing service and may take into account appropriate
factors such as institution-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. In some cases, the prices of debt securities may be determined
using quotes obtained from brokers. Securities for which market quotations are
not readily available are valued at fair value, as determined in good faith and
pursuant to procedures approved by the AMR Trust Board. Assets and liabilities
denominated in foreign currencies and forward currency contracts are translated
into U.S. dollar equivalents based on prevailing market rates. Portfolio
obligations held by the Money Market Portfolios are valued in accordance with
the
PROSPECTUS
27
<PAGE> 41
amortized cost method, which is designed to enable those Portfolios and their
corresponding Funds to maintain a consistent $1.00 per share net asset value.
Investment grade short-term obligations with 60 days or less to maturity held by
all other Portfolios also are valued using the amortized cost method as
described in the SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and other distributions
paid on each class of a Fund's shares are calculated at the same time and in the
same manner. Dividends from the net investment income of the Balanced Fund, the
Growth and Income Fund and the International Equity Fund normally are declared
annually. Dividends consisting of substantially all of the net investment income
of the Limited-Term Income Fund, which are paid monthly, normally are declared
on each Business Day immediately prior to the determination of the net asset
value and are payable to shareholders of record as of the close of business on
the day on which declared. A Fund's net investment income attributable to the
Institutional Class will consist of that class's pro rata share of the Fund's
share of dividends and interest (including discount) accrued on the securities
held by its corresponding Portfolio, less applicable expenses of the Fund and
the Portfolio attributable to the Institutional Class. Distributions of a Fund's
share of its corresponding Portfolio's realized net short-term capital gain, net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), and net gains from foreign currency transactions, if any,
normally will be made annually.
All of each Money Market Fund's net investment income and net short-term
capital gain, if any, generally is declared as dividends on each Money Market
Business Day immediately prior to the determination of the net asset value.
Dividends generally will be paid on the first day of the following month. Each
Money Market Fund's net investment income attributable to the Institutional
Class will consist of that class' pro rata share of the Fund's share of interest
accrued and discount earned on its corresponding Portfolio's securities, less
amortization of premium and estimated expenses of both the Portfolio and the
Fund attributable to the Institutional Class. The Money Market Portfolios do not
expect to realize net capital gain and, therefore, the Money Market Funds do not
foresee paying any capital gain distributions. If any Money Market Fund (either
directly or indirectly through its corresponding Portfolio) incurred or
anticipated any unusual expenses, loss or depreciation that would adversely
affect its net asset value or income for a particular period, the Board would at
that time consider whether to adhere to the dividend policy described above or
to revise it in the light of the then prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's Institutional Class shares will be
automatically declared and paid in additional Institutional Class shares of that
Fund. However, a shareholder may choose to have distributions of net capital
gain paid in shares and dividends paid in cash or to have all such distributions
and dividends paid in cash. An election may be changed at any time by delivering
written notice that is received by the transfer agent at least ten days prior to
the payment date for a dividend or other distribution.
TAX INFORMATION -- Each Fund is treated as a separate corporation for federal
income tax purposes and intends to continue to qualify for treatment as a
regulated investment company under the Code. In each taxable year that a Fund so
qualifies, the Fund (but not its shareholders) will be relieved of federal
income tax on that part of its investment company taxable income (generally, net
investment income plus any net short-term capital gain and gains from certain
foreign currency transactions) and net capital gain that it distributes to its
shareholders. However, a Fund will be subject to a nondeductible 4% excise tax
to the extent that it fails to distribute by the end of any calendar year
substantially all of its ordinary income for that calendar year and its capital
gain net income for the one-year period ending on October 31 of that year, plus
certain other amounts. For these and other purposes, dividends and other
distributions declared by a Fund in October, November or December of any year
and payable to shareholders of record on a date in one of those months will be
deemed to have been paid by the Fund and received by the shareholders on
December 31 of that year if they are paid by the Fund during the following
January. Each Portfolio received a ruling from the Internal Revenue Service that
it is classified for federal income tax purposes as a partnership; accordingly,
no Portfolio is subject to federal income tax.
PROSPECTUS
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<PAGE> 42
Dividends from a Fund's investment company taxable income will be taxable
to its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Fund shares.
Distributions of a Fund's net capital gain (whether received in cash or paid in
additional Fund shares), when designated as such, generally will be taxable to
its shareholders as long-term capital gain, regardless of how long they have
held their Fund shares. A capital gain distribution from a Fund also may be
offset by capital losses from other sources.
Some foreign countries may impose withholding taxes on certain dividends
payable to the International Equity Portfolio. The International Equity Fund's
share of any such tax withheld may either be treated by that Fund as a deduction
or, if it satisfies certain requirements, it may elect to flow the tax through
to its shareholders, who in turn may either treat it as a deduction or use it in
calculating a credit against their federal income tax.
A portion of the income dividends paid by the Balanced Fund and the Growth
and Income Fund is eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the respective Fund's
aggregate dividends received from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends-received
deduction may be subject indirectly to the AMT. The International Equity Fund's
dividends will most likely not qualify for the dividends-received deduction
because none of the dividends received by that Fund are expected to be paid by
U.S. corporations.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns taxable income from
any of its investments, the Municipal Money Market Fund's share of income will
be distributed to its shareholders as a taxable dividend. To the extent that
Portfolio invests in private activity obligations, that Fund's shareholders will
be required to treat a portion of its dividends as a "tax preference item" in
determining their liability for the AMT. Exempt-interest dividends also may be
subject to tax under state and local tax laws. Because some states exempt from
tax the interest on their own obligations and obligations of governmental
agencies and municipalities in the state, shareholders will receive tax
information each year regarding the Municipal Money Market Fund's
exempt-interest income by state. Interest on indebtedness incurred or continued
by a shareholder to purchase or carry shares of that Fund is not deductible.
Redemption of Fund shares (other than shares of the Money Market Funds) may
result in taxable gain or loss to the redeeming shareholder, depending upon
whether the fair market value of the redemption proceeds exceeds or is less than
the shareholder's adjusted basis for the redeemed shares. If shares of a Fund
are redeemed at a loss after being held for six months or less, the loss will be
treated as long-term, instead of short-term, capital loss to the extent of any
capital gain distributions received on those shares.
If shares are purchased shortly before the record date for a dividend
(other than an exempt-interest dividend) or other distribution, the investor
will pay full price for the shares and receive some portion of the price back as
a taxable distribution.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
(and for the International Equity Fund, if it satisfies the requirements and
makes the election referred to above, their share of that Fund's share of any
foreign taxes paid by the International Equity Portfolio) that year and of any
portion of those dividends that qualifies for the corporate dividends-received
deduction. The notice sent by the Municipal Money Market Fund specifies the
amounts of exempt-interest dividends (and the portion thereof, if any, that is a
tax preference item for purposes of the AMT) and any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends, and, for
all Funds other than the Money Market Funds, capital gain distributions and
redemption proceeds payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer identification
number or (except with respect to redemption proceeds) who otherwise are subject
to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific
PROSPECTUS
29
<PAGE> 43
questions as to the effect of federal, state or local income taxes on any
investment in the Trust. For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of nine separate investment portfolios.
Each Fund included in this Prospectus is comprised of three classes of shares,
which can be issued in an unlimited number. Each share represents an equal
proportionate beneficial interest in that Fund and is entitled to one vote. Only
shares of a particular class may vote on matters affecting that class. Only
shares of a particular Fund may vote on matters affecting that Fund. All shares
of the Trust vote on matters affecting the Trust as a whole. Share voting rights
are not cumulative, and shares have no preemptive or conversion rights. Shares
of the Trust are nontransferable. Each series in the Trust will not be involved
in any vote involving a Portfolio in which it does not invest its assets.
Shareholders of all of the series of the Trust, however, will vote together to
elect Trustees of the Trust and for certain other matters. Under certain
circumstances, the shareholders of one or more series could control the outcome
of these votes.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the Portfolio's report to shareholders will be provided to
the shareholders of its corresponding Fund.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
As more fully described in the SAI, the following persons may be deemed to
control certain Funds by virtue of their ownership of more than 25% of the
outstanding shares of a Fund as of January 31, 1997:
AMERICAN AADVANTAGE BALANCED FUND
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 66%
AMERICAN AADVANTAGE GROWTH AND INCOME FUND
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 89%
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 80%
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
Retirement Advisors of America, Inc. 60%
AMR Corporation and subsidiary companies and Employee Benefit Trusts
thereof 28%
PROSPECTUS
30
<PAGE> 44
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and
semi-annual reports which will include financial statements showing the results
of the Funds' operations and other information. The financial statements of the
Funds will be audited by Ernst & Young LLP, independent auditor, at least
annually. Shareholder inquiries and requests for information regarding the other
investment companies which also invest in the AMR Trust should be made in
writing to the Funds at P.O. Box 619003, MD 5645, Dallas/Fort Worth Airport,
Texas 75261-9003, or by calling (800) 388-3344.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY INSTITUTIONAL CLASS SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
PlanAhead Class is a registered service mark, and Platinum Class, American
AAdvantage Balanced Fund, American AAdvantage Growth and Income Fund, American
AAdvantage International Equity Fund, American AAdvantage Limited-Term Income
Fund, American AAdvantage Money Market Fund, American AAdvantage Municipal Money
Market Fund and American AAdvantage U.S. Government Money Market Fund are
service marks of AMR Investment Services, Inc.
PROSPECTUS
31
<PAGE> 45
THIS PROSPECTUS contains important information about the PLANAHEAD CLASS OF THE
AMERICAN AADVANTAGE FUNDS ("Trust"), an open-end management investment company
which consists of multiple investment portfolios. This prospectus pertains only
to the seven funds listed on this cover page (individually referred to as a
"Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING
PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND, COLLECTIVELY,
"PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST") WHICH HAS AN
INVESTMENT OBJECTIVE IDENTICAL TO THE INVESTING FUND. The investment experience
of each Fund will correspond directly with the investment experience of each
Portfolio. Each Fund consists of multiple classes of shares designed to meet
the needs of different groups of investors. PlanAhead Class shares are
available to all investors, including smaller institutional investors,
investors using intermediary organizations such as discount brokers or plan
sponsors, individual retirement accounts, and self-employed individual
retirement plans. Investors should read this Prospectus carefully before making
an investment decision and retain it for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1997 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 800-423-7526. For
further information about the PlanAhead Class or for information on the other
classes of shares, please refer to the appropriate address and phone number on
the back cover of this Prospectus.
The Securities and Exchange Commission maintains a Web Site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the Funds and the Portfolios.
AN INVESTMENT IN THE MONEY MARKET FUNDS IS NEITHER INSURED NOR GUARANTEED BY
THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE TO
MAINTAIN A STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
--------------------------------
[AMERICAN AADVANTAGE LOGO]
-- PlanAhead Class(R) --
March 1, 1997
Managed by AMR Investment Services, Inc.
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
----------------------------------
<PAGE> 46
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
The AMERICAN AADVANTAGE MONEY MARKET FUND(SM) ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM) ("U.S. Government
Money Market Fund," formerly the American AAdvantage U.S. Treasury Money Market
Fund) (collectively, the "Money Market Funds") each seeks current income,
liquidity, and the maintenance of a stable price per share of $1.00 by investing
all of its investable assets in the Money Market Portfolio of the AMR Trust
("Money Market Portfolio"), the Municipal Money Market Portfolio of the AMR
Trust ("Municipal Money Market Portfolio") and the U.S. Government Money Market
Portfolio of the AMR Trust ("U.S. Government Money Market Portfolio", formerly
the U.S. Treasury Money Market Portfolio), respectively (collectively the "Money
Market Portfolios"), which in turn invest in high quality, short-term
obligations. The Municipal Money Market Portfolio invests primarily in municipal
obligations and the U.S. Government Money Market Portfolio invests exclusively
in obligations issued or guaranteed by the U.S. Government, its agencies or
instrumentalities and in repurchase agreements that are collateralized by such
obligations.
Under a Hub and Spoke(R)(1) operating structure, each Fund seeks its
investment objective by investing all of its investable assets in a
corresponding Portfolio as described above. Each Portfolio's investment
objective is identical to that of its corresponding Fund. Whenever the phrase
"all of the Fund's investable assets" is used, it means that the only investment
securities that will be held by a Fund will be that Fund's interest in its
corresponding Portfolio. AMR Investment Services, Inc. ("Manager") provides
investment management and administrative services to the Portfolios and
administrative services to the Funds. This Hub and Spoke operating structure is
different from that of many other investment companies which directly acquire
and manage their own portfolios of securities. Accordingly, investors should
carefully consider this investment approach. See "Investment Objectives,
Policies and Risks -- Additional Information About the Portfolios." A Fund may
withdraw its investment in a corresponding Portfolio at any time if the Trust's
Board of Trustees ("Board") determines that it would be in the best interest of
that Fund and its shareholders to do so. Upon any such withdrawal, that Fund's
assets would be invested in accordance with the investment policies and
restrictions described in this Prospectus and the SAI.
- ---------------
(1) Hub and Spoke is a registered service mark of Signature Financial Group,
Inc.
PROSPECTUS
2
<PAGE> 47
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TABLE OF FEES AND EXPENSES.............. 3
FINANCIAL HIGHLIGHTS.................... 4
INTRODUCTION............................ 11
INVESTMENT OBJECTIVES, POLICIES AND
RISKS................................... 11
INVESTMENT RESTRICTIONS................. 21
YIELDS AND TOTAL RETURNS................ 22
MANAGEMENT AND ADMINISTRATION OF THE
TRUST................................... 22
INVESTMENT ADVISERS..................... 25
HOW TO PURCHASE SHARES.................. 27
HOW TO REDEEM SHARES.................... 29
RETIREMENT ACCOUNTS..................... 30
EXCHANGE PRIVILEGE...................... 30
DISTRIBUTION OF TRUST SHARES............ 30
VALUATION OF SHARES..................... 31
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX
MATTERS................................. 31
GENERAL INFORMATION..................... 33
SHAREHOLDER COMMUNICATIONS.............. 34
</TABLE>
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
U.S.
GROWTH INTER- LIMITED- MUNICIPAL GOVERNMENT
AND NATIONAL TERM MONEY MONEY MONEY
BALANCED INCOME EQUITY INCOME MARKET MARKET MARKET
FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
Management Fees 0.33% 0.33% 0.48% 0.25% 0.15% 0.15% 0.15%
12b-1 Fees 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Other Expenses (after fee waivers)(1) 0.64 0.63 0.69 0.60 0.43 0.52 0.52
---- --- ---- ---- --- ----- -----
Total Operating Expenses (after fee waivers)(2) 0.97% 0.96% 1.17% 0.85% 0.58% 0.67% 0.67%
---- --- ---- ---- --- ----- -----
---- --- ---- ---- --- ----- -----
</TABLE>
(1) "Other Expenses" before fee waivers are estimated to be 0.69% for the
PlanAhead Class of Limited-Term Income Fund.
(2) "Total Operating Expenses" before fee waivers are estimated to be 0.94% for
the PlanAhead Class of Limited-Term Income Fund.
The above expenses reflect the expenses of each Fund and the Portfolio in
which it invests. The Board believes that the aggregate per share expenses of
each Fund and its corresponding Portfolio will be approximately equal to the
expenses that the Fund would incur if its assets were invested directly in the
type of securities held by the Portfolio.
PROSPECTUS
3
<PAGE> 48
EXAMPLES
A PlanAhead Class investor in each Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Balanced Fund $10 $31 $54 $119
Growth and Income Fund 10 31 53 118
International Equity Fund 12 37 64 142
Limited-Term Income Fund 9 27 47 105
Money Market Fund 6 19 32 73
Municipal Money Market Fund 7 21 37 83
U.S. Government Money Market Fund 7 21 37 83
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the PlanAhead Class of a Fund. Additional
information may be found under "Management and Administration of the Trust" and
"Investment Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditors. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge.
PROSPECTUS
4
<PAGE> 49
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
BALANCED FUND
------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
---------------------------------------- ----------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31,
------------------------- OCTOBER 31, ----------------------------------------
1996(5)(6) 1995(4)(5) 1994(1)(3) 1994(3) 1993 1992 1991
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $13.90 $12.35 $12.35 $13.23 $11.99 $11.60 $9.87
------ ------ ------- ---- ---- ---- ----
Income from investment
operations:
Net investment income 0.57(7) 0.54 0.12 0.57 0.49 0.55 0.58
Net gains (losses) on
securities (both realized
and unrealized) 1.56(7) 1.67 (0.12) (0.54) 1.57 0.41 1.79
------ ------ ------- ---- ---- ---- ----
Total from investment
operations 2.13 2.21 0.00 0.03 2.06 0.96 2.37
------ ------ ------- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.56) (0.52) -- (0.56) (0.52) (0.56) (0.64)
Distributions from net
realized gains on
securities (0.44) (0.14) -- (0.34) (0.30) (0.01) --
------ ------ ------- ---- ---- ---- ----
Total distributions (1.00) (0.66) -- (0.90) (0.82) (0.57) (0.64)
------ ------ ------- ---- ---- ---- ----
Net asset value, end of
period $15.03 $13.90 $12.35 $12.36 $13.23 $11.99 $11.60
------ ------ ------- ---- ---- ---- ----
------ ------ ------- ---- ---- ---- ----
Total return (annualized)(8) 16.01% 19.06% (0.16%)(9) (0.08%) 19.19% 8.75% 25.35%
------ ------ ------- ---- ---- ---- ----
------ ------ ------- ---- ---- ---- ----
Ratios/supplemental data:
Net assets, end of period
(in thousands) $18,000 $5,450 $528 $222,873 $532,543 $370,087 $311,906
Ratios to average net
assets(10)(11)(12)(13):
Expenses 0.97%(7) 0.99% 0.92% 0.36% 0.34% 0.35% 0.37%
Net investment income 3.64%(7) 3.70% 4.04% 4.77% 4.91% 5.31% 6.06%
Portfolio turnover rate(14) 76% 73% 48% 48% 83% 80% 55%
Average commission rate
paid(14) $0.0409 -- -- -- -- -- --
<CAPTION>
BALANCED FUND
---------------------------------------------
INSTITUTIONAL CLASS
---------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------ OCTOBER 31,
1990(2) 1989 1988 1987(1)
---------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $11.05 $10.13 $9.08 $10.00
---- ---- ---- ------
Income from investment
operations:
Net investment income 0.57 0.53 0.56 0.16
Net gains (losses) on
securities (both realized
and unrealized) (1.18) 0.90 0.73 (1.08)
---- ---- ---- ------
Total from investment
operations (0.61) 1.43 1.29 (0.92)
---- ---- ---- ------
Less distributions:
Dividends from net
investment income (0.51) (0.51) (0.24) --
Distributions from net
realized gains on
securities (0.06) -- -- --
---- ---- ---- ------
Total distributions (0.57) (0.51) (0.24) --
---- ---- ---- ------
Net asset value, end of
period $9.87 $11.05 $10.13 $9.08
---- ---- ---- ------
---- ---- ---- ------
Total return (annualized)(8) (5.24%) 15.49% 14.63% (31.84%)
---- ---- ---- ------
---- ---- ---- ------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $233,702 $210,119 $147,581 $118,985
Ratios to average net
assets(10)(11)(12)(13):
Expenses 0.44% 0.47% 0.52% 0.45%
Net investment income 6.50% 6.32% 6.25% 5.59%
Portfolio turnover rate(14) 62% 78% 77% 17%
Average commission rate
paid(14) -- -- -- --
</TABLE>
(1) The Balanced Fund commenced active operations on July 17, 1987. The
PlanAhead Class commenced active operations on August 1, 1994 and at that
time, existing shares of the Balanced Fund were designated as Institutional
Class shares.
(2) Penmark Investments, Inc. was replaced by Independence Investment
Associates, Inc. as an investment adviser to the Fund as of the close of
business on February 28, 1990.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) GSB Investment Management, Inc. was added as an investment adviser to the
Balanced Fund on January 1, 1995.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) Capital Guardian Trust Company was replaced by Brandywine Asset Management,
Inc. as an investment adviser to the Balanced Fund on April 1, 1996.
(7) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Balanced Portfolio.
(8) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(9) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(10) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to approximately $.01 per share in each period on an
annualized basis.
(11) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(12) Operating results of the PlanAhead Class exclude fees waived by the
Manager. Had the PlanAhead Class paid such fees during the period, the
ratio of expenses and net investment income to average net assets would
have been 0.99% and 3.97%, respectively, for the period ended October 31,
1994 and 1.09% and 3.60%, respectively, for the year ended October 31,
1995.
(13) Annualized.
(14) On November 1, 1995, the Balanced Fund invested all of its investable
assets in the Balanced Portfolio. Portfolio turnover rate and average
commission rate paid for the year ended October 31, 1996 are those of the
Balanced Portfolio. Calculation and disclosure of the average commission
rate paid was not required in prior years.
PROSPECTUS
5
<PAGE> 50
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
GROWTH AND INCOME FUND
------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
---------------------------------------- ----------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31,
------------------------- OCTOBER 31, ----------------------------------------
1996(5)(6) 1995(5) 1994(1)(4) 1994(4) 1993 1992(3) 1991
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $15.81 $14.17 $13.99 $14.63 $12.79 $12.10 $9.47
------- ------ ------- ---- ---- ---- ----
Income from investment
operations:
Net investment income 0.39(7) 0.40 0.05 0.43 0.36 0.39 0.42
Net gains (losses) on
securities (both realized
and unrealized) 3.10(7) 2.22 0.13 0.08 2.21 0.77 2.70
------- ------ ------- ---- ---- ---- ----
Total from investment
operations 3.49 2.62 0.18 0.51 2.57 1.16 3.12
------- ------ ------- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.40) (0.44) -- (0.41) (0.37) (0.39) (0.49)
Distributions from net
realized gains on
securities (0.57) (0.54) -- (0.54) (0.36) (0.08) --
------- ------ ------- ---- ---- ---- ----
Total distributions (0.97) (0.98) -- (0.95) (0.73) (0.47) (0.49)
------ ------- ---- ---- ---- ----
Net asset value, end of
period $18.33 $15.81 $14.17 $14.19 $14.63 $12.79 $12.10
------ ------- ---- ---- ---- ----
------ ------- ---- ---- ---- ----
Total return (annualized)(8) 22.98% 20.14% 3.21%(9) 3.36% 21.49% 10.00% 33.83%
------- ------ ------- ---- ---- ---- ----
------ ------- ---- ---- ---- ----
Ratios/supplemental data:
Net assets, end of period
(in thousands) $16,084 $4,821 $56 $22,737 $477,088 $339,739 $264,628
Ratios to average net
assets(10)(11)(12)(13):
Expenses 0.94%(7) 0.99% 0.95% 0.33% 0.34% 0.36% 0.37%
Net investment income 2.16%(7) 2.23% 1.50% 3.28% 3.12% 3.57% 4.19%
Portfolio turnover rate(14) 40% 26% 23% 23% 30% 35% 52%
Average commission rate
paid(14) $0.0412 -- -- -- -- -- --
<CAPTION>
GROWTH AND INCOME FUND
---------------------------------------------
INSTITUTIONAL CLASS
---------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------ OCTOBER 31,
1990(2) 1989 1988 1987(1)
---------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $11.59 $9.96 $8.30 $10.00
---- ---- ---- ------
Income from investment
operations:
Net investment income 0.42 0.42 0.42 0.10
Net gains (losses) on
securities (both realized
and unrealized) (1.94) 1.59 1.40 (1.80)
---- ---- ---- ------
Total from investment
operations (1.52) 2.01 1.82 (1.70)
---- ---- ---- ------
Less distributions:
Dividends from net
investment income (0.43) (0.38) (0.16) --
Distributions from net
realized gains on
securities (0.17) -- -- --
---- ---- ---- ------
Total distributions (0.60) (0.38) (0.16) --
---- ---- ---- ------
Net asset value, end of
period $9.47 $11.59 $9.96 $8.30
---- ---- ---- ------
---- ---- ---- ------
Total return (annualized)(8) (13.52%) 20.94% 22.20% (58.51%)
---- ---- ---- ------
---- ---- ---- ------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $182,430 $187,869 $140,073 $134,796
Ratios to average net
assets(10)(11)(12)(13):
Expenses 0.45% 0.45% 0.53% 0.43%
Net investment income 4.49% 4.40% 4.20% 3.68%
Portfolio turnover rate(14) 41% 50% 56% 22%
Average commission rate
paid(14) -- -- -- --
</TABLE>
(1) The Growth and Income Fund commenced active operations on July 17, 1987.
The PlanAhead Class commenced active operations on August 1, 1994 and at
that time, existing shares of the Growth and Income Fund were designated as
Institutional Class shares.
(2) GSB Investment Management, Inc. was added as an investment adviser to the
Growth and Income Fund on April 10, 1990.
(3) The assets of the Growth and Income Fund previously managed by Atlanta
Capital Management were transferred to GSB Investment Management, Inc. as
of the close of business on December 5, 1991.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) Capital Guardian Trust Company was replaced by Brandywine Asset Management,
Inc. as an investment adviser to the Growth and Income Fund on April 1,
1996.
(7) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Growth and Income Portfolio.
(8) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(9) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(10) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(11) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(12) Operating results of the PlanAhead Class exclude fees waived by the
Manager. Had the PlanAhead Class paid such fees during the period, the
ratio of expenses and net investment income to average net assets would
have been 1.05% and 1.40%, respectively, for the period ended October 31,
1994, 1.08% and 2.14%, respectively, for the year ended October 31, 1995,
and 0.96% and 2.14%, respectively, for the year ended October 31, 1996.
(13) Annualized
(14) On November 1, 1995 the Growth and Income Fund invested all of its
investable assets in the Growth and Income Portfolio. Portfolio turnover
rate and average commission rate paid for the year ended October 31, 1996
are those of the Growth and Income Portfolio. Calculation and disclosure of
the average commission rate paid was not required in prior years.
PROSPECTUS
6
<PAGE> 51
(FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
--------------------------------------- ----------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
----------------------- OCTOBER 31, ------------------------------- OCTOBER 31,
1996(5) 1995(5) 1994(1)(3)(4) 1994(3)(4) 1993(2) 1992 1991(1)
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $13.20 $12.85 $12.61 $12.07 $8.93 $10.13 $10.00
----- ----- -------- ------ ---- ---- -------
Income from investment
operations:
Net investment income 0.26(6) 0.24 0.06 0.32 0.17 0.12 --
Net gains (losses) on securities (both
realized and unrealized) 1.92(6) 0.64 0.18 1.10 3.09 (1.31) 0.13
----- ----- -------- ------ ---- ---- -------
Total from investment operations 2.18 0.88 0.24 1.42 3.26 (1.19) 0.13
----- ----- -------- ------ ---- ---- -------
Less distributions:
Dividends from net investment income (0.24) (0.21) -- (0.17) (0.12) (0.01) --
Distributions from net realized gains
on securities (0.24) (0.32) -- (0.45) -- -- --
----- ----- -------- ------ ---- ---- -------
Total distributions (0.48) (0.53) -- (0.62) (0.12) (0.01) --
----- ----- -------- ------ ---- ---- -------
Net asset value, end of period $14.90 $13.20 $12.85 $12.87 $12.07 $8.93 $10.13
----- ----- -------- ------ ---- ---- -------
----- ----- -------- ------ ---- ---- -------
Total return (annualized)(7) 16.95% 7.37% 11.60%(8) 11.77% 36.56% (12.07%) 5.69%
----- ----- -------- ------ ---- ---- -------
----- ----- -------- ------ ---- ---- -------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $7,138 $1,456 $375 $23,115 $66,652 $38,837 $10,536
Ratios to average net
assets(9)(10)(11):
Expenses 1.17%(6) 1.33% 1.25% 0.61% 0.78% 1.17% 1.90%(12)
Net investment income 1.76%(6) 2.08% 1.86% 2.74% 2.00% 2.04% 0.38%(12)
Portfolio turnover rate(13) 19% 21% 37% 37% 61% 21% 2%
Average commission rate paid(13) $0.0192 -- -- -- -- -- --
</TABLE>
(1) The International Equity Fund commenced active operations on August 7,
1991. The PlanAhead Class commenced active operations on August 1, 1994 and
at that time, existing shares of the International Equity Fund were
designated as Institutional Class shares.
(2) HD International Limited was replaced by Hotchkis and Wiley as an
investment adviser to the International Equity Fund as of the close of
business on May 21, 1993.
(3) Morgan Stanley Asset Management Inc. was added as an investment adviser to
the International Equity Fund as of August 1, 1994.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Net investment income per share was calculated by subtracting class
expenses per share from net investment income per share for the Fund before
class expenses.
(6) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the International Equity Portfolio.
(7) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(8) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(9) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.04 per share in each period on an
annualized basis and were waived by the Manager for the period ended
October 31, 1991.
(10) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(11) Annualized.
(12) Estimated based on expected annual expenses and actual average net assets.
(13) On November 1, 1995 the International Equity Fund invested all of its
investable assets in the International Equity Portfolio. Portfolio turnover
rate and average commission rate paid for the year ended October 31, 1996
are those of the International Equity Portfolio. Calculation and disclosure
of the average commission rate paid was not required in prior years.
PROSPECTUS
7
<PAGE> 52
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIMITED-TERM INCOME FUND
------------------------------------------------------------------
PLANAHEAD CLASS
--------------------------------- INSTITUTIONAL CLASS
YEAR ENDED ------------------------------
OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31,
------------------ OCTOBER 31, ------------------------------
1996 1995 1994(1)(3) 1994(3) 1993 1992
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $9.82 $9.68 $9.78 $10.23 $10.13 $10.07
--- --- ------ --- --- ---
Income from investment operations:
Net investment income 0.60(4) 0.59 0.13 0.52 0.58 0.75
Net gains (losses) on securities
(both realized and unrealized) (0.14)(4) 0.14 (0.10) (0.46) 0.15 0.06
--- --- ------ --- --- ---
Total from investment operations 0.46 0.73 0.03 0.06 0.73 0.81
--- --- ------ --- --- ---
Less distributions:
Dividends from net investment
income (0.60) (0.59) (0.13) (0.52) (0.58) (0.75)
Distributions from net realized
gains on securities -- -- -- (0.10) (0.05) --
--- --- ------ --- --- ---
Total distributions (0.60) (0.59) (0.13) (0.62) (0.63) (0.75)
--- --- ------ --- --- ---
Net asset value, end of period $9.68 $9.82 $9.68 $9.67 $10.23 $10.13
--- --- ------ --- --- ---
--- --- ------ --- --- ---
Total return (annualized)(5)(6) 4.83% 7.83% 0.45%(6) 0.42% 7.20% 7.94%
--- --- ------ --- --- ---
--- --- ------ --- --- ---
Ratios/supplemental data:
Net assets, end of period (in
thousands) $3,399 $1,576 $403 $112,141 $238,874 $209,928
Ratios to average net
assets(7)(8)(9)(10):
Expenses 0.85%(4) 0.83% 0.79% 0.31% 0.26% 0.27%
Net investment income 6.11%(4) 6.16% 5.10% 5.26% 5.76% 7.40%
Portfolio turnover rate(11) 304% 183% 94% 94% 176% 133%
<CAPTION>
LIMITED-TERM INCOME FUND
-------------------------------------------
INSTITUTIONAL CLASS
-------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------------- OCTOBER 31,
1991(2) 1990 1989 1988(1)
-------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $9.76 $9.94 $10.12 $10.00
--- --- --- ------
Income from investment operations:
Net investment income 0.83 0.92 0.96 0.64
Net gains (losses) on securities
(both realized and unrealized) 0.31 (0.18) (0.12) 0.05
--- --- --- ------
Total from investment operations 1.14 0.74 0.84 0.69
--- --- --- ------
Less distributions:
Dividends from net investment
income (0.83) (0.92) (1.02) (0.57)
Distributions from net realized
gains on securities -- -- -- --
--- --- --- ------
Total distributions (0.83) (0.92) (1.02) (0.57)
--- --- --- ------
Net asset value, end of period $10.07 $9.76 $9.94 $10.12
--- --- --- ------
--- --- --- ------
Total return (annualized)(5)(6) 11.87% 7.51% 7.62% 7.41%
--- --- --- ------
--- --- --- ------
Ratios/supplemental data:
Net assets, end of period (in
thousands) $141,629 $83,265 $60,507 $40,855
Ratios to average net
assets(7)(8)(9)(10):
Expenses 0.35% 0.48% 0.59% 0.50%
Net investment income 8.42% 9.44% 9.77% 8.01%
Portfolio turnover rate(11) 165% 156% 158% 127%
</TABLE>
(1) The Limited-Term Income Fund commenced active operations on December 3,
1987. The PlanAhead Class commenced active operations on August 1, 1994 and
at that time existing shares of the Limited-Term Income Fund were
designated as Institutional Class shares.
(2) AMR Investment Services, Inc. began portfolio management of the
Limited-Term Income Fund on March 1, 1991 replacing Brown Brothers,
Harriman & Co. and Barrow, Hanley, Mewhinney & Strauss, Inc.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Limited-Term Income Portfolio.
(5) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of 0.30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(6) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of
the PlanAhead Class for the period August 1, 1994 (commencement of
operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(7) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.03 per share in each period on an
annualized basis.
(8) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(9) Operating results of the PlanAhead Class exclude fees waived by the
Manager. Had the PlanAhead Class paid such fees during the period, the
ratio of expenses and net investment income to average net assets would
have been 1.00% and 4.89%, respectively, for the period ended October 31,
1994, 1.06% and 5.94%, respectively, for the year ended October 31, 1995,
and 0.94% and 6.02%, respectively, for the year ended October 31, 1996.
(10) Annualized.
(11) On November 1, 1995 the Limited-Term Income Fund invested all of its
investable assets in the Limited-Term Income Portfolio. Portfolio turnover
rate for the year ended October 31, 1996 is that of the Limited-Term Income
Portfolio.
PROSPECTUS
8
<PAGE> 53
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET FUND
------------------------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
---------------------------------- -----------------------------------------------
YEAR ENDED
OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31,
------------------- OCTOBER 31, -----------------------------------------------
1996 1995 1994(1)(2) 1994(2) 1993 1992 1991
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
--- --- ------ --- --- --- ---
Net investment income 0.05(3) 0.05 0.01 0.04 0.03 0.04 0.07
Less dividends from net investment income (0.05) (0.05) (0.01) (0.04) (0.03) (0.04) (0.07)
--- --- ------ --- --- --- ---
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
--- --- ------ --- --- --- ---
--- --- ------ --- --- --- ---
Total return (annualized) 5.21% 5.60% 3.73%(4) 3.85% 3.31% 4.41% 7.18%
--- --- ------ --- --- --- ---
--- --- ------ --- --- --- ---
Ratios/supplemental data:
Net assets, end of period (in thousands) $106,890 $41,989 $25 $1,893,144 $2,882,974 $2,223,829 $715,280
Ratios to average net assets(5)(6)(7):
Expenses 0.58%(3) 0.55% 0.70% 0.21% 0.23% 0.26% 0.24%
Net investment income 5.06%(3) 5.56% 4.42% 3.63% 3.23% 4.06% 6.93%
<CAPTION>
MONEY MARKET FUND
---------------------------------------------
INSTITUTIONAL CLASS
---------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
------------------------------ OCTOBER 31,
1990 1989 1988 1987(1)
---------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
--- --- --- -----
Net investment income 0.08 0.09 0.08 0.01
Less dividends from net investment income (0.08) (0.09) (0.08) (0.01)
--- --- --- -----
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
--- --- --- -----
--- --- --- -----
Total return (annualized) 8.50% 9.45% 7.54% 6.70%
--- --- --- -----
--- --- --- -----
Ratios/supplemental data:
Net assets, end of period (in thousands) $745,405 $385,916 $330,230 $71,660
Ratios to average net assets(5)(6)(7):
Expenses 0.20% 0.22% 0.28% 0.48%
Net investment income 8.19% 9.11% 7.54% 6.78%
</TABLE>
(1) The Money Market Fund commenced active operations on September 1, 1987 and
on November 1, 1991, the existing shares of the Fund were designated as
Institutional Class shares. The PlanAhead Class commenced active operations
on August 1, 1994.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Money Market Portfolio.
(4) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from November 1, 1993 through July 31, 1994 and returns of the
PlanAhead Class for the period August 1, 1994 (commencement of operations)
through October 31, 1994. Due to the different expense structures between
the classes, total return for the PlanAhead Class would vary from the
results shown had it been in operation for the entire year.
(5) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1992.
(6) Effective October 1, 1990, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(7) Annualized.
PROSPECTUS
9
<PAGE> 54
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
------------------------------------------------
PLANAHEAD CLASS INSTIT. CLASS
-------------------------------- -------------
YEAR ENDED
OCTOBER 31, PERIOD ENDED PERIOD ENDED
----------------- OCTOBER 31, OCTOBER 31,
1996 1995 1994(1) 1994(1)
------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00
--- --- ------ ------
Net investment income 0.03(3) 0.03 0.01 0.02
Less dividends from net investment
income (0.03) (0.03) (0.01) (0.02)
--- --- ------ ------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00
--- --- ------ ------
--- --- ------ ------
Total return (annualized) 3.27% 3.39% 2.35%(4) 2.44%
--- --- ------ ------
--- --- ------ ------
Ratios/supplemental data:
Net assets, end of period (in
thousands) $2,340 $129 $0 $9,736
Ratios to average net
assets(5)(6)(7):
Expenses 0.62%(3) 0.72% 0.77% 0.30%
Net investment income 3.12%(3) 3.32% 2.49% 2.38%
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
----------------------------------------------------------------------
PLANAHEAD CLASS INSTITUTIONAL CLASS
---------------------------------- ---------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, PERIOD ENDED OCTOBER 31, PERIOD ENDED
------------------- OCTOBER 31, ------------------ OCTOBER 31,
1996 1995 1994(1)(2) 1994(2) 1993 1992(1)
----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
--- --- ------ ---- ---- -------
Net investment income 0.05(3) 0.05 0.01 0.04 0.03 0.02
Less dividends from net investment
income (0.05) (0.05) (0.01) (0.04) (0.03) (0.02)
--- --- ------ ---- ---- -------
Net asset value, end of period $1.00 $1.00 $1.00 $1.00 $1.00 $1.00
--- --- ------ ---- ---- -------
--- --- ------ ---- ---- -------
Total return (annualized) 4.94% 5.19% 3.58%(4) 3.70% 3.07% 3.61%
--- --- ------ ---- ---- -------
--- --- ------ ---- ---- -------
Ratios/supplemental data:
Net assets, end of period (in
thousands) $1,822 $530 $0 $67,607 $136,813 $91,453
Ratios to average net
assets(5)(6)(7):
Expenses 0.67%(3) 0.76% 0.75% 0.25% 0.23% 0.27%(8)
Net investment income 4.74%(3) 5.19% 3.94% 3.44% 2.96% 3.46%(8)
</TABLE>
(1) The U.S. Government Money Market Fund commenced active operations on March
2, 1992. The PlanAhead Class of the U.S. Government Money Market Fund
commenced active operations on August 1, 1994. Prior to March 1, 1997 the
U.S. Government Money Market Fund was known as the American AAdvantage U.S.
Treasury Money Market Fund and operated under different investment policies.
The Institutional Class of the Municipal Money Market Fund commenced active
operations on November 10, 1993 and the PlanAhead Class commenced active
operations on August 1, 1994.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Fund's corresponding Portfolio.
(4) Total return for the period ended October 31, 1994 reflects Institutional
Class returns from the beginning of the period through July 31, 1994 and
returns of the PlanAhead Class for the period August 1, 1994 (commencement
of operations) through October 31, 1994. Due to the different expense
structures between the classes, total return for the PlanAhead Class would
vary from the results shown had it been in operation for the entire year.
(5) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31, 1994.
(6) Annualized.
(7) Operating results for the Municipal Money Market Fund exclude fees waived by
the Manager. Had the Fund paid such fees, the ratio of expenses and net
investment income to average net assets would have been 0.97% and 2.29%,
respectively, for the period ended October 31, 1994, 0.92% and 3.12%,
respectively, for the year ended October 31, 1995, and 0.67% and 3.07%,
respectively, for the year ending October 31, 1996 for the PlanAhead Class,
and 0.50% and 2.18%, respectively, for the Institutional Class for the
period ended October 31, 1994.
(8) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
10
<PAGE> 55
INTRODUCTION
The Trust is an open-end, diversified management investment company
organized as a Massachusetts business trust on January 16, 1987. The Funds are
separate investment portfolios of the Trust. Each Fund has a distinctive
investment objective and investment policies. Each Fund will invest all of its
investable assets in a corresponding Portfolio of the AMR Trust which has an
identical investment objective. The Manager provides the Portfolios with
business and asset management services, including the evaluation and monitoring
of the investment advisers, and it provides the Funds with administrative
services. The Balanced Fund, the Growth and Income Fund, the International
Equity Fund and the Limited-Term Income Fund (collectively, the "Variable NAV
Funds") consist of multiple classes of shares, including the "PlanAhead Class"
which is available to all investors, including smaller institutional investors,
investors using intermediary organizations such as discount brokers or plan
sponsors, individual retirement accounts ("IRAs"), and self-employed individual
retirement plans ("HR-10 Plans" or "Keogh Plans") and the "Institutional Class,"
which is primarily for large institutional investors investing at least $2
million in the Funds. The Money Market Funds also consist of multiple classes of
shares, including the PlanAhead Class, the Institutional Class and the "Platinum
Class" which is available to customers of certain broker-dealers as an
investment for cash balances in their brokerage accounts. For further
information about the Institutional Class and the Platinum Class, including
eligibility requirements, call (800) 967-9009.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(losses) earned (or incurred) by the Fund. It also will bear its proportionate
share of expenses that are allocated to the Fund as a whole. However, certain
expenses are allocated separately to each class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. Investment decisions for the
Limited-Term Income Portfolio and the Money Market Portfolios are made directly
by the Manager. Each investment adviser has discretion to purchase and sell
portfolio securities in accordance with the investment objectives, policies and
restrictions described in this Prospectus, the SAI, and specific investment
strategies developed by the Manager. See "Investment Advisers."
PlanAhead Class shares are sold without any sales charges at the next share
price calculated after an investment is received and accepted. Shares will be
redeemed at the next share price calculated after receipt of a redemption order.
See "How to Purchase Shares" and "How to Redeem Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent with the investment objective of the applicable
Fund. However, each Fund's investment objective may not be changed without a
majority vote of that Fund's outstanding shares, which is defined as the lesser
of (a) 67% of the shares of the applicable Fund present or represented if the
holders of more than 50% of the shares are present or represented at the
shareholders' meeting, or (b) more than 50% of the shares of the applicable Fund
(hereinafter, "majority vote"). A Portfolio's investment objective may not be
changed without a majority vote of that Portfolio's interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the
PROSPECTUS
11
<PAGE> 56
investment policies of each Portfolio and the AMR Trust's Board of Trustees
("AMR Trust Board"), it applies equally to each Fund and the Board.
AMERICAN AADVANTAGE BALANCED FUND -- This Fund's investment objective is to
realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating organizations ("Rating Organizations") rating that
security such as Standard & Poor's or Moody's Investor Services, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser. Obligations rated in the fourth highest rating
category are limited to 25% of the Portfolio's debt allocation. Obligations
rated in the BBB or Baa categories by any Rating Organization have speculative
characteristics and thus changes in economic conditions or other circumstances
are more likely to lead to a weakened capacity to make principal and interest
payments than is the case with higher grade bonds. See the SAI for a description
of debt ratings. The Portfolio, at the discretion of the investment advisers,
may retain a security that has been downgraded below the initial investment
criteria. The Portfolio usually invests between 50% and 65% of its assets in
equity securities and between 35% and 50% of its assets in debt securities. The
remainder of the Portfolio's assets may be invested in cash or cash equivalents,
including obligations that are permitted investments for the Money Market
Portfolio and in other investment companies. However, when its investment
advisers deem that market conditions warrant, the Portfolio may, for temporary
defensive purposes, invest up to 100% of its assets in cash, cash equivalents
and investment grade short-term obligations.
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government and its agencies and instrumentalities,
including separately traded registered interest and principal securities
("STRIPS") and other zero coupon obligations; corporate bonds, notes and
debentures; non-convertible preferred stocks; mortgage-backed securities;
asset-backed securities; and domestic, Yankeedollar and Eurodollar bank deposit
notes, certificates of deposit, bonds and notes. Such obligations may have a
fixed, variable or floating rate of interest. See the SAI for a further
description of the foregoing securities. The value of the Portfolio's debt
investments will vary in response to interest rate changes as described in
"American AAdvantage Limited-Term Income Fund."
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" basis and on a "forward commitment" basis. The purchase or
sale of when-issued securities enables an investor to hedge against anticipated
changes in interest rates and prices by locking in an attractive price or yield.
The price of when-issued securities is fixed at the time the commitment to
purchase or sell is made, but delivery and payment for the when-issued
securities take place at a later date, normally one to two months after the date
of purchase. During the period between purchase and settlement, no payment is
made by the purchaser to the issuer and no interest accrues to the purchaser.
Such transactions therefore involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date. A sale of a
when-issued security also involves the risk that the other party will be unable
to settle the transaction. Dollar rolls are a type of forward commitment
transaction. Purchases and sales of securities on a forward commitment basis
involve a commitment to purchase or sell securities with payment and delivery to
take place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date.
PROSPECTUS
12
<PAGE> 57
The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts which are
traded in the United States on exchanges and in the over-the-counter market.
When purchasing equity securities, primary emphasis will be placed on
undervalued securities with above average growth expectations. The Manager
believes that purchasing securities which the investment advisers believe are
undervalued in the market and that have above average growth potential will
outperform other investment styles over the longer term while minimizing
volatility and downside risk. The Manager will recommend that, with respect to
portfolio management of equity assets, the Trust retain only those investment
advisers who, in the Manager's opinion, utilize such an approach.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Balanced
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME FUND -- This Fund's investment objective
is to realize long-term capital appreciation and current income. This Fund seeks
its investment objective by investing all of its investable assets in the Growth
and Income Portfolio, which invests primarily in equity securities. Excluding
collateral for securities loaned, ordinarily at least 80% of the Portfolio's
assets will be invested in equity securities consisting of common stocks,
preferred stocks, securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants, and foreign
equity securities that are represented by U.S. dollar-denominated American
Depository Receipts which are traded in the United States on exchanges and in
the over-the-counter market. When purchasing equity securities, primary emphasis
will be placed on undervalued securities with above average growth expectations.
In order to seek either above average current income or capital appreciation
when interest rates are expected to decline, the Portfolio may invest in debt
securities which, at the time of purchase, are rated in one of the four highest
rating categories by all Rating Organizations rating that security or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. See "American AAdvantage Balanced Fund"
for a description of the risks involved with these obligations. See the SAI for
definitions of the foregoing securities and for a description of debt ratings.
The Portfolio also may invest in other investment companies or in cash and cash
equivalents, including obligations that are permitted investments for the Money
Market Portfolio. However, when its investment advisers deem that market
conditions warrant, the Portfolio may, for temporary defensive purposes, invest
up to 100% of its assets in cash, cash equivalents and investment grade
short-term obligations. In addition, the Portfolio may purchase or sell
securities on a "when-issued" and on a "forward commitment" basis as described
in "American AAdvantage Balanced Fund."
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Growth and Income
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries located outside the
United States. However, excluding collateral for securities loaned, the
Portfolio generally invests in excess of 80% of its assets in such securities.
The remainder of the Portfolio's assets will be invested in non-U.S. debt
securities which, at the time of purchase, are rated in one of the three highest
rating categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including obligations that are
permitted investments for the Money Market Portfolio or in other investment
companies. However, when its investment advisers deem that market conditions
warrant, the Portfolio may, for temporary defensive purposes, invest up to 100%
of its assets in cash, cash equivalents, other investment companies and
investment grade short-term obligations.
PROSPECTUS
13
<PAGE> 58
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or expropriation
of assets and the risk of war; (2) less liquidity and greater volatility of
foreign investments; (3) less public information regarding foreign companies;
(4) less government regulation and supervision of foreign stock exchanges,
brokers and listed companies; (5) lack of uniform accounting, auditing and
financial reporting standards; (6) delays in transaction settlement in some
foreign markets; (7) possibility of an imposition of confiscatory foreign taxes;
(8) possible limitation on the removal of securities or other assets of the
Portfolio; (9) restrictions on foreign investments and repatriation of capital;
(10) currency fluctuations; (11) cost and possible restrictions of currency
conversion; (12) withholding taxes on dividends in foreign countries; and (13)
possibly higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity aspects of a particular country's
market and the investment climate for foreign investors. The current countries
in which the Portfolio may invest are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Singapore, South Korea, Spain, Sweden,
Switzerland and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are derivatives, to hedge currency fluctuations of underlying
stock or bond positions, or in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC"). Forward contracts to sell foreign currency
may be used when the management of the Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar. Forward
contracts also are entered into to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures ("futures") for the same
reasons as for entering into forward contracts as set forth above. Futures are
traded on U.S. and foreign currency exchanges. The use of futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the futures contracts themselves. The
Portfolio may not enter into futures contracts if the purchase or sale of such
contract would cause the sum of the Portfolio's initial and any variation margin
deposits to exceed 5% of its total assets. Futures contracts, which are
derivatives, are discussed in greater detail in the SAI.
HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio. Rowe Price-Fleming International, Inc.
("Fleming") is also an investment adviser to the Portfolio; however, none of the
Portfolio's assets have been allocated to Fleming at this time. See "Investment
Advisers."
PROSPECTUS
14
<PAGE> 59
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND -- This Fund's investment objective
is to realize income and capital appreciation. As an investment policy, the Fund
primarily seeks income and secondarily seeks capital appreciation. The Fund
seeks its investment objective by investing all of its investable assets in the
Limited-Term Income Portfolio, which invests primarily in debt obligations.
Permissible investments include securities of the U.S. Government and its
agencies and instrumentalities, including STRIPS and other zero coupon
obligations; corporate bonds, notes and debentures; non-convertible preferred
stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
obligations that are permitted investments for the Money Market Portfolio. Such
obligations may have a fixed, variable or floating rate of interest. At the time
of purchase, all such securities will be rated in one of the four highest rating
categories by all Rating Organizations rating such obligation or, if unrated,
will be deemed to be of comparable quality by the Manager. Obligations rated in
the fourth highest rating category are limited to 25% of the Portfolio's total
assets. See "American AAdvantage Balanced Fund" for a description of the risks
involved with these obligations. The Portfolio, at the discretion of the
Manager, may retain a security which has been downgraded below the initial
investment criteria. See the SAI for definitions of the foregoing securities and
for a description of debt ratings. Principal and/or interest payments for
obligations of the U.S. Government's agencies or instrumentalities may or may
not be backed by the full faith and credit of the U.S. Government.
Investments in Yankeedollar and Eurodollar bonds, notes and certificates of
deposit involve risks that differ from investments in securities of domestic
issuers. See "American AAdvantage Money Market Fund" for a description of these
risks. The Portfolio also may engage in dollar rolls, or purchase or sell
securities on a "when-issued" or "forward commitment" basis as described under
"American AAdvantage Balanced Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments
should not vary as much due to the periodic adjustments in their interest rates.
An adjustment which increases the interest rate of such securities should reduce
or eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment, the
value of the premium would be lost. Like other debt securities, when interest
rates rise, the value of mortgage-related securities generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
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Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans, automobile and credit card receivables, and other types of receivables or
other assets as well as purchase contracts, financing leases and sales
agreements entered into by municipalities, are being securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's and the Portfolio's investment objective, policies
and quality standards, the Portfolio may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on the securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
Although investments will not be restricted by either maturity or duration
of the securities purchased, under normal circumstances, the Portfolio will seek
to maintain a dollar weighted average duration of one to three years. Because
the timing on return of principal for both asset-backed and mortgage-backed
securities is uncertain, in calculating the average weighted duration of the
Portfolio, the duration of these securities may be based on certain industry
conventions. The Manager serves as the sole active investment adviser to the
Limited-Term Income Fund and its corresponding Portfolio.
MONEY MARKET FUNDS -- The investment objectives of the Money Market Funds are to
seek current income, liquidity and the maintenance of a stable $1.00 price per
share. The Money Market Funds seek to achieve these objectives by investing all
of their investable assets in the Money Market Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of the amortized cost valuation method.
Obligations in which the Money Market Portfolios invest generally have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain variable and floating rate obligations may bear longer
final maturities. The average dollar-weighted portfolio maturity of each Money
Market Portfolio will not exceed 90 days. The Manager serves as the sole
investment adviser to the Money Market Funds. See "Management and Administration
of the Trust."
AMERICAN AADVANTAGE MONEY MARKET FUND -- The Fund's corresponding Portfolio may
invest in obligations permitted to be purchased under Rule 2a-7 of the 1940 Act
including, but not limited to, (1) obligations of the U.S. Government or its
agencies or instrumentalities; (2) loan participation interests, medium-term
notes, funding agreements and asset-backed securities; (3) domestic,
Yankeedollar and Eurodollar certificates of deposit, time deposits, bankers'
acceptances, commercial paper, bearer deposit notes and other promissory notes,
including floating or variable rate obligations issued by U.S. or foreign bank
holding companies and their bank subsidiaries, branches and agencies; and (4)
repurchase agreements involving the obligations listed above. The Money Market
Portfolio will invest only in issuers or instruments that at the time of
purchase (1) have received the highest short-term rating by two Rating
Organizations such as "A-1" by Standard & Poor's and "P-1" by Moody's; (2) are
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single rated and have received the highest short-term rating by a Rating
Organization; or (3) are unrated, but are determined to be of comparable quality
by the Manager pursuant to guidelines approved by the AMR Trust Board and
subject to the ratification of the AMR Trust Board. See the SAI for definitions
of the foregoing instruments and rating systems. The Portfolio may invest in
other investment companies. The Portfolio also may purchase or sell securities
on a "when-issued" or "forward commitment" basis as described under "American
AAdvantage Balanced Fund."
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the Portfolio will not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest can
be recovered under a variable amount master demand note generally shall not
exceed seven days. To the extent this period is exceeded, the note in question
would be considered illiquid. Issuers of variable amount master demand notes
must satisfy the same criteria as set forth for other promissory notes (e.g.
commercial paper). The Portfolio will invest in variable amount master demand
notes only when such notes are determined by the Manager, pursuant to guidelines
established by the AMR Trust Board, to be of comparable quality to rated issuers
or instruments eligible for investment by the Portfolio. In determining average
dollar weighted portfolio maturity, a variable amount master demand note will be
deemed to have a maturity equal to the longer of the period of time remaining
until the next readjustment of the interest rate or the period of time remaining
until the principal amount can be recovered from the issuer on demand.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND -- The Fund's corresponding
Portfolio may invest in municipal obligations issued by or on behalf of the
governments of states, territories, or possessions of the United States; the
District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Fund"); (3) are guaranteed by one or more municipal bond insurance policies that
cannot be canceled and issued by third-party guarantors possessing the highest
claims- paying rating from a Rating Organization; (4) have received one of the
two highest short-term ratings from at least two Rating Organizations; (5) are
single rated and have received one of the two highest short-term ratings from
that Rating Organization; (6) have no short-term rating but the instrument is
comparable to the issuer's rated short-term debt; (7) have no short-term rating
(or comparable rating) but have received one of the top two long-term ratings
from all Rating Organizations rating the issuer or instrument; or (8) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by, and subject to the oversight of, the AMR Trust Board.
The Portfolio may also invest in other investment companies. Ordinarily at least
80% of the Portfolio's net assets will be invested in municipal obligations the
interest from which is exempt from federal income tax. However, should market
conditions
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warrant, the Portfolio may invest up to 20% (or for temporary defensive
purposes, up to 100%) of its assets in obligations subject to federal income tax
which are eligible investments for the Money Market Portfolio.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; and tax-exempt commercial paper; and
purchase obligations that are subject to restrictions on resale. See the SAI for
a further discussion of the foregoing obligations. The Portfolio may purchase or
sell obligations on a "when-issued" or "forward commitment" basis, as described
under "American AAdvantage Balanced Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, the Manager
believes this risk is mitigated because it is anticipated that most of the
Portfolio's assets will be insured or backed by bank letters of credit.
Additionally, the Portfolio may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
non-governmental users.
The Portfolio also may invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in private
activity obligations without limitation and it is anticipated that a substantial
portion of the Portfolio's assets will be invested in these obligations. As a
result, a substantial portion of the Fund's distributions may be a tax
preference item, which will reduce the net return from the Fund for taxpayers
subject to the AMT. Interest on "qualified" private activity obligations is
exempt from federal income tax.
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND -- The Fund's
corresponding Portfolio will invest exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements which are collateralized by such obligations. U.S.
Government securities include direct obligations of the U.S. Treasury (such as
Treasury bills, Treasury notes and Treasury bonds). The Fund may invest in
securities issued by the Agency for International Development, Farmers Home
Administration, Farm Credit Banks, Federal Home Loan Bank, Federal Intermediate
Credit Bank, Federal Financing Bank, Federal Land Bank, FNMA, GNMA, General
Services Administration, Rural Electrification Administration, Small Business
Administration, Tennessee Valley Authority, and others. Some of these
obligations, such as those issued by the Federal Home Loan Bank and FHLMC, are
supported only by the credit of the agency or instrumentality issuing the
obligation
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and the discretionary authority of the U.S. Government to purchase the agency's
obligations. See the SAI for a further discussion of the foregoing obligations.
Counterparties for repurchase agreements must be approved by the AMR Trust
Board. The Portfolio may purchase or sell securities on a "when-issued" or a
"forward commitment" basis as described under "American AAdvantage Balanced
Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
SECURITIES LENDING. Each Portfolio may lend securities to broker-dealers or
other institutional investors pursuant to agreements requiring that the loans be
continuously secured by any combination of cash, securities of the U.S.
Government and its agencies and instrumentalities and approved bank letters of
credit that at all times equal at least 100% of the market value of the loaned
securities. Such loans will not be made if, as a result, the aggregate amount of
all outstanding securities loans by any Portfolio would exceed 33 1/3% of its
total assets. A Portfolio continues to receive interest on the securities loaned
and simultaneously earns either interest on the investment of the cash
collateral or fee income if the loan is otherwise collateralized. Should the
borrower of the securities fail financially, there is a risk of delay in
recovery of the securities loaned or loss of rights in the collateral. However,
the Portfolios seek to minimize this risk by making loans only to borrowers
which are deemed by the Manager to be of good financial standing and which have
been approved by the AMR Trust Board. For purposes of complying with each
Portfolio's investment policies and restrictions, collateral received in
connection with securities loans will be deemed an asset of a Portfolio to the
extent required by law. The Manager will receive compensation for administrative
and oversight functions with respect to securities lending. The amount of such
compensation will depend on the income generated by the loan of each Portfolio's
securities. The SEC has granted exemptive relief that permits the Portfolios to
invest cash collateral received from securities lending transactions in shares
of one or more private investment companies managed by the Manager. See the SAI
for further information regarding loan transactions.
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement under which
securities are acquired by a Portfolio from a securities dealer or bank subject
to resale at an agreed upon price on a later date. The acquiring Portfolio bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, the
investment advisers or the Manager attempt to minimize this risk by entering
into repurchase agreements only with financial institutions which are deemed to
be of good financial standing and which have been approved by the AMR Trust
Board. See the SAI for more information regarding repurchase agreements.
PRIVATE PLACEMENT OFFERINGS. Investments in private placement offerings are made
in reliance on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios who agree that they are purchasing the securities for
investment and not with an intention to distribute to the public. Any resale by
the purchaser must be pursuant to an exempt transaction and may be accomplished
in accordance with Rule 144A. Section 4(2) securities normally are resold to
other institutional investors such as the Portfolios through or with the
assistance of the issuer or dealers who make a market in the Section 4(2)
securities, thus providing liquidity. The Money Market Portfolios will not
invest more than 10% (and Variable NAV Funds' respective Portfolios, no more
than 15%) of their respective net assets in Section 4(2) securities and illiquid
securities unless the applicable investment adviser determines, by continuous
reference to the appropriate trading markets and pursuant to guidelines approved
by the AMR Trust Board, that any Section 4(2) securities held by such Portfolio
in excess of this level are at all times liquid.
The AMR Trust Board and the applicable investment adviser, pursuant to the
guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolios' investments in Section 4(2) securities offered and sold under Rule
144A, focusing on such important factors, among others, as valuation, liquidity,
and availability of
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information. Investments in Section 4(2) securities could have the effect of
reducing a Portfolio's liquidity to the extent that qualified institutional
buyers no longer wish to purchase these restricted securities.
BROKERAGE PRACTICES AND PORTFOLIO TURNOVER -- Each investment adviser will place
its own orders to execute securities transactions which are designed to
implement the applicable Portfolio's investment objective and policies. In
placing such orders, each investment adviser will seek the best available price
and most favorable execution. The full range and quality of services offered by
the executing broker or dealer is considered when making these determinations.
Pursuant to written guidelines approved by the AMR Trust Board, 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.
The Money Market Portfolios and the Limited-Term Income Portfolio normally
will not incur any brokerage commissions on their transactions because money
market and debt instruments are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission. The
price of the obligation, however, usually includes a profit to the dealer.
Obligations purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No commissions or discounts are paid when securities are
purchased directly from an issuer.
No Portfolio, other than the Limited-Term Income Portfolio, currently
expects its portfolio turnover rate to exceed 100%. The portfolio turnover rate
for the Limited-Term Income Fund for the fiscal year ended October 31, 1996 was
304%. High portfolio activity increases a Portfolio's transaction costs,
including brokerage commissions and may result in a greater number of taxable
transactions.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust. In addition to selling
their interests to the Funds, the Portfolios may sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio will pay a proportionate share of the
Portfolio's expenses and will invest in that Portfolio on the same terms and
conditions. However, if another investment company invests all of its assets in
a Portfolio, it would not be required to sell its shares at the same public
offering price as a Fund and would be allowed to charge different sales
commissions. Therefore, investors in a Fund may experience different returns
from investors in another investment company that invests exclusively in that
Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for that Fund and could affect adversely its liquidity.
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The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with the Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust and the AMR Trust, (3) brokerage practices,
(4) the Funds' shares, including the rights and liabilities of its shareholders,
(5) additional performance information, including the method used to calculate
yield and total return, and (6) the determination of the value of each Fund's
shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restriction are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and the Board. The following fundamental investment restrictions may
be changed with respect to a particular Fund by the majority vote of that Fund's
outstanding shares or with respect to a Portfolio by the majority vote of that
Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Money Market Portfolio and the U.S. Treasury Money Market
Portfolio apply this restriction with respect to 100% of their assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities or, with respect to the Money Market
Portfolio, the banking industry. Municipal governments and their agencies
and authorities are not deemed to be industries. Finance companies as a
group are not considered a single industry for purposes of this policy.
Further, wholly owned subsidiaries of finance companies will be considered
to be in the industries of their parent companies if their activities are
primarily related to financing the activities of their parent companies.
The following non-fundamental investment restriction may be changed with
respect to a particular Fund by a vote of a majority of the Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board: no
Portfolio may invest more than 15% (or, with respect to any Money Market
Portfolio, 10%) of its net assets in illiquid securities, including time
deposits and repurchase agreements that mature in more than seven days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
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YIELDS AND TOTAL RETURNS
From time to time each class of the Money Market Funds may advertise their
"current yield" and "effective yield." Both yield figures are based on
historical earnings and are not intended to indicate future performance. The
current yield refers to the income generated by an investment over a seven
calendar-day period (which period will be stated in the advertisement). This
income is then annualized by assuming the amount of income generated by the
investment during that week is earned each week over a one-year period and is
shown as a percentage of the investment. The effective yield is calculated
similarly but, when annualized, the income earned by the investment is assumed
to be reinvested. The effective yield will be slightly higher than the current
yield because of the compounding effect of this assumed reinvestment. The
Municipal Money Market Fund also may quote "tax equivalent yields," which show
the taxable yields a shareholder would have to earn before federal income taxes
to equal this Fund's tax-exempt yields. The tax equivalent yield is calculated
by dividing the Fund's tax-exempt yield by the result of one minus a stated
federal income tax rate. If only a portion of the Fund's income was tax-exempt,
only that portion is adjusted in the calculation. As stated earlier, the Fund
considers interest on private activity obligations to be exempt from federal
income tax. Each class of a Fund has different expenses which will impact its
performance.
Advertised yields for the PlanAhead Class of the Variable NAV Funds will be
computed by dividing the net investment income per share earned by the
applicable class during the relevant time period by the maximum offering price
per share for that class on the last day of the period. Total return quotations
advertised by the Funds may reflect the average annual compounded (or aggregate
compounded) rate of return during the designated time period based on a
hypothetical initial investment and the redeemable value of that investment at
the end of the period. Additionally, each class of the Limited-Term Income Fund
may advertise a "monthly distribution rate." This rate is based on an annualized
monthly dividend accrual rate per share compared with the month-end share price
of each class of this Fund. The Funds will at times compare their performance to
applicable published indices, and may also disclose their performance as ranked
by certain ranking entities. See the SAI for more information about the
calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs. The Manager provides or oversees all administrative,
investment advisory and portfolio management services for the Trust pursuant to
a Management Agreement dated April 3, 1987, as amended December 17, 1996,
together with the Administrative Services Agreement described below. The AMR
Trust and the Manager also entered into a Management Agreement dated November
22, 1996 that obligates the Manager to provide or oversee all administrative,
investment advisory and portfolio management services for the AMR Trust. The
Manager, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas
76155, is a wholly-owned subsidiary of AMR Corporation ("AMR"), the parent
company of American Airlines, Inc., and was organized in 1986 to provide
investment management, advisory, administrative and asset management consulting
services. The assets of the Balanced Portfolio, the Growth and Income Portfolio
and the International Equity Portfolio are allocated by the Manager among one or
more investment advisers designated for that Portfolio. See "Investment
Advisers." The Manager serves as the sole active investment adviser to the Money
Market Portfolios and the Limited-Term Income Portfolio. In addition, with the
exception of the International Equity Portfolio, if so requested by any
investment adviser, the Manager will make the investment decisions with respect
to assets allocated to that investment adviser which the investment adviser
determines should be invested in short-term obligations of the type permitted
for investment by the Money Market Portfolio. As of December 31, 1996, the
Manager had assets under management totaling approximately $16.0 billion
including approximately $5.7 billion under active management and $10.3 billion
as named fiduciary or fiduciary adviser. Of the total, approximately $11.9
billion of assets are related to AMR. American Airlines, Inc. is not responsible
for investments made in the American AAdvantage Funds.
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The Manager provides the Trusts with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also oversees each Portfolio's participation in securities lending
activities and any actions taken by securities lending agents in connection with
those activities to ensure compliance with all applicable regulatory and
investment guidelines. The Manager also develops the investment programs for
each Portfolio, selects and changes investment advisers (subject to approval by
the AMR Trust Board and appropriate interest holders), allocates assets among
investment advisers, monitors the investment advisers' investment programs and
results, and coordinates the investment activities of the investment advisers to
ensure compliance with regulatory restrictions.
The Manager bears the expense of providing the above services, and pays the
fees of the investment advisers of the Funds and their Portfolios. As
compensation for paying the investment advisory fees and for providing the
Portfolios with advisory and asset allocation services, the Manager receives
from the AMR Trust an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.15% of the net assets of the Money Market
Portfolios, (2) 0.25% of the net assets of the Limited-Term Income Portfolio,
(3) 0.10% of the net assets of the other Portfolios, plus (4) all fees payable
by the Manager to the AMR Trust's investment advisers as described in
"Investment Advisers." The advisory fee is payable quarterly in arrears. To the
extent that a Fund invests all of its investable assets in its corresponding
Portfolio, the Manager will not receive an advisory fee under its Management
Agreement with the Trust. The Manager receives compensation in connection with
securities lending activities. If a Portfolio lends its portfolio securities and
receives cash collateral from the borrower, the Manager will receive up to 25%
of the net annual interest income (the gross interest earned by the investment
less the amount paid to the borrower as well as related expenses) received from
the investment of such cash. If a borrower posts collateral other than cash, the
borrower will pay to the lender a loan fee. The Manager will receive up to 25%
of the loan fees posted by borrowers. The Manager is compensated through the
Administrative Services Agreement as described below for other services
provided.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the Trustees of
each Board who are not parties to the Management Agreement or "interested
persons" as defined in the 1940 Act of any such party ("Independent Trustees"),
cast in person at a meeting called for the purpose of considering such approval,
or by the vote of a Fund's shareholders or a Portfolio's interest holders. A
Management Agreement may be terminated with respect to a Fund or a Portfolio at
any time, without penalty, by a majority vote of outstanding Fund shares or
Portfolio interests on sixty (60) days' written notice to the Manager, or by the
Manager, on sixty (60) days' written notice to the Trust or the AMR Trust. A
Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities for the registration of
shares; fees and expenses of Independent Trustees; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
FUND ADVISORY AGREEMENTS -- Each investment adviser has entered into a separate
investment advisory agreement with the Manager to provide investment advisory
services to the Funds and their corresponding Portfolios. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
an investment adviser
PROSPECTUS
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<PAGE> 68
will receive an advisory fee only on behalf of the Portfolio and not on behalf
of its corresponding Fund. Except for the Money Market Portfolios and the
Limited-Term Income Portfolio, the assets of each Portfolio are allocated among
the investment advisers designated for that Portfolio and described in this
Prospectus in "Investment Advisers." The Manager is permitted to enter into new
or modified advisory agreements with existing or new investment advisers without
the approval of Fund shareholders or Portfolio interest holders, but subject to
approval of the Board and the AMR Trust Board. The Securities and Exchange
Commission issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the applicable Fund send a notice to shareholders containing
information about the change that would be included in a proxy statement. The
Manager recommends investment advisers to the Board and the AMR Trust Board
based upon its continuing quantitative and qualitative evaluation of the
investment advisers' skill in managing assets using specific investment styles
and strategies. The allocation of assets among investment advisers may be
changed at any time by the Manager. Allocations among advisers will vary based
upon a variety of factors, including the overall investment performance of each
investment adviser, the Portfolio's cash flow needs and market conditions. The
Manager need not allocate assets to each investment adviser designated for a
Portfolio. The investment advisers can be terminated without penalty to the AMR
Trust by the Manager, the AMR Trust Board or the interest holders of the
applicable Portfolio. Short-term investment performance, by itself, is not a
significant factor in selecting or terminating an investment adviser, and the
Manager does not expect to recommend frequent changes of investment advisers.
The Prospectus will be supplemented if additional investment advisers are
retained or the contract with any existing investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board and the Manager, these parties do not
evaluate the investment merits of specific securities transactions. As
compensation for its services, each investment adviser is paid a fee by the
Manager out of the proceeds of the management fee received by the Manager from
the AMR Trust.
ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. As compensation for
these services, the Manager receives an annualized fee of 0.25% of the net
assets of the PlanAhead Class of the Variable NAV Funds and 0.05% of the net
assets of the PlanAhead Class of the Money Market Funds. The fee is payable
quarterly in arrears.
SERVICE PLAN -- The PlanAhead Class has adopted a service plan ("Service Plan")
which provides that each PlanAhead Class will pay 0.25% per annum of its average
daily net assets to the Manager (or another entity approved by the Board). The
Manager or these approved entities may spend such amounts on any activities or
expenses primarily intended to result in or relate to the servicing of PlanAhead
Class shares including but not limited to payment of shareholder service fees
and transfer agency or sub-transfer agency expenses. The fee, which is included
as part of a Fund's "Other Expenses" in the Table of Fees and Expenses of this
prospectus, will be payable monthly in arrears without regard to whether the
amount of the fee is more or less than the actual expenses incurred in a
particular month by the entity for the services provided pursuant to the Service
Plan. The primary expenses expected to be incurred under the Service Plan are
transfer agency fees and servicing fees paid to financial intermediaries such as
plan sponsors and discount brokers.
The Service Plan will continue in effect so long as its continuance is
approved at least annually by a majority of the Trustees, including the
affirmative votes of a majority of the Trustees of the Board who are not parties
to the Service Plan or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of considering
such approval, or by the vote of shareholders. The Service Plan may be
terminated with respect to a particular PlanAhead Class at any time, without the
payment of any penalty, by a
PROSPECTUS
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<PAGE> 69
vote of a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the applicable Fund's PlanAhead Class.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas, 75205 serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- The PlanAhead Class transfer agent is GOLDMAN,
SACHS & CO. ("Goldman"). NATIONSBANK OF TEXAS, N.A., Dallas, Texas, serves as
co-transfer agent for the PlanAhead Class and as custodian for the Portfolios
and the Funds, except for the International Equity Portfolio, whose custodian is
THE BANK OF NEW YORK, New York, New York.
INDEPENDENT AUDITOR -- The independent auditor for the Funds and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each
Fund and its corresponding Portfolio, except for the Money Market Funds and
their corresponding Portfolios, whose sole investment adviser is the Manager.
References to the investment advisers retained by a Portfolio also apply to the
corresponding Fund. Except for the Manager, none of the investment advisers
provides any services to the Funds or the Portfolios except for portfolio
investment management and related recordkeeping services, or has any affiliation
with the Trust, the AMR Trust or the Manager.
William F. Quinn has served as President of the Manager since it was founded
in 1986, and Nancy A. Eckl serves as Vice President - Trust Investments of the
Manager. Ms. Eckl previously served as Vice President - Finance and Compliance
of the Manager from December 1990 to May 1995. In these capacities, Mr. Quinn
and Ms. Eckl have primary responsibility for the day-to-day operations of the
Balanced Fund, the Growth and Income Fund, the International Equity Fund and
their corresponding Portfolios. These responsibilities include oversight of the
investment advisers, regular review of each investment adviser's performance and
asset allocations among investment advisers.
Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and serves as Vice
President-Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President, Institutional Fixed Income Sales at Merrill,
Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment advisory services since 1979. The firm is
wholly owned by United Asset Management Corporation, a Delaware corporation. As
of December 31, 1996, Barrow had discretionary investment management authority
with respect to approximately $20.5 billion of assets, including approximately
$1.5 billion of assets of AMR and its subsidiaries and affiliated entities.
Barrow serves as an investment adviser to the Balanced Portfolio, the Growth and
Income Portfolio and the Limited-Term Income Portfolio, although the Manager
does not presently intend to allocate any of the assets in the Limited-Term
Income Portfolio to Barrow. The Manager pays Barrow an annualized fee equal to
.30% on
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the first $200 million in AMR Trust assets under its discretionary management,
.20% on the next $300 million, .15% on the next $500 million and .125% on assets
over $1 billion.
BRANDYWINE ASSET MANAGEMENT, INC., ("Brandywine"), 201 North Walnut Street,
Wilmington, Delaware 19801, is a privately held professional investment
counseling firm founded in 1986. As of December 31, 1996, Brandywine had assets
under management totaling approximately $6 billion, including approximately $285
million of assets of AMR and its subsidiaries and affiliated entities.
Brandywine serves as an investment adviser to the Balanced and the Growth and
Income Portfolios. For its services to the Balanced Portfolio and the Growth and
Income Portfolio, the Manager will pay Brandywine an annualized fee equal to
.225% of assets in the Balanced Portfolio and .25% of assets in the Growth and
Income Portfolio of the first $500 million of assets under its discretionary
management; .225% of the next $100 million on all assets and .20% on all excess
assets.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation. As of
December 31, 1996, GSB managed approximately $3.2 billion of assets, including
approximately $802 million of assets of AMR and its subsidiaries and affiliated
entities. GSB serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. The Manager pays GSB an annualized fee equal to
.30% of the first $100 million in AMR Trust assets under its discretionary
management, .25% of the next $100 million, .20% of the next $100 million and
.15% on all excess assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley became a
division of Merrill Lynch Capital Management Group, a wholly owned subsidiary of
Merrill Lynch & Co., Inc., on November 12, 1996. Assets under management as of
December 31, 1996 were approximately $10.2 billion, which included approximately
$1.4 billion of assets of AMR and its subsidiaries and affiliated entities.
Hotchkis and Wiley serves as an investment adviser to the Balanced Portfolio,
the Growth and Income Portfolio and the International Equity Portfolio. The
Manager pays Hotchkis and Wiley an annualized fee equal to .60% of the first $10
million of AMR Trust assets under its discretionary management, .50% of the next
$140 million of assets, .30% on the next $50 million of assets, .20% of the next
$800 million of assets and .15% of all excess assets.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1996,
including funds managed for its parent company, were approximately $25.9
billion, which included approximately $981 million of assets of AMR and its
subsidiaries and affiliated entities. IIA serves as an investment adviser to the
Balanced Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets and .20% of
all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 25 Cabot Square, London,
United Kingdom, E14 4QA, is a wholly owned subsidiary of Morgan Stanley Group
Inc. MSAM provides portfolio management and named fiduciary services to taxable
and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. At
September 30, 1996, MSAM had assets under management totaling approximately
$67.1 billion, including approximately $50.2 billion under active management and
$16.9 billion as named fiduciary or fiduciary adviser. As of December 31, 1996,
MSAM had investment authority over approximately $314 million of assets of AMR
and its subsidiaries and affiliated entities. MSAM serves as an investment
adviser to the International Equity Portfolio. For this service, the Manager
pays MSAM an annual fee equal to .80% of the first $25 million in AMR Trust
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% on all excess assets.
PROSPECTUS
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On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover &
Co. announced that they had entered into an Agreement and Plan of Merger to form
a new company to be named Morgan Stanley, Dean Witter, Discover & Co. Subject to
certain conditions being met, it is currently anticipated that the transaction
will close in mid-1997. Thereafter, MSAM will be a subsidiary of Morgan Stanley,
Dean Witter, Discover & Co.
ROWE PRICE-FLEMING INTERNATIONAL, INC., 100 East Pratt Street, Baltimore,
Maryland 21202, is a professional investment counseling firm founded in 1979.
Fleming is a joint venture owned entirely by its three parent companies, T. Rowe
Price, Robert Fleming and Jardine Fleming. As of December 31, 1996, Fleming had
assets under management totaling approximately $29.0 billion, including
approximately $265 million of assets of AMR and its subsidiaries and affiliated
entities. Fleming serves as an investment adviser to the International Equity
Portfolio, although the Manager does not presently intend to allocate assets
from the Portfolio to Fleming. For its services to the International Equity
Portfolio when total assets under Fleming's management are less than $200
million, the Manager will pay Fleming an annualized fee equal to 0.75% of the
first $20 million, 0.60% of the next $30 million and 0.50% on amounts over $50
million. When assets under Fleming's management exceed $200 million but are less
than $500 million, the Manager will pay Fleming an annualized fee equal to 0.50%
on all assets. When assets under Fleming's management exceed $500 million but
are less than $750 million, the Manager will pay an annualized fee equal to
0.45% on all assets, and when assets exceed $750 million, the Manager will pay
Fleming a flat fee of 0.40% on all assets. When asset levels are between $184
million and $200 million, Fleming will credit the Manager with an adjustment for
the difference between the two fee schedules. The credit is determined by
pro-rating the difference between the original tiered fee and the flat fee
($80,000 per annum at all asset levels) over the difference between $200 million
and the current asset size for billing purposes.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1996, Templeton had discretionary investment management authority with respect
to approximately $21.7 billion of assets, including approximately $433.9 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. For this
service, the Manager pays Templeton an annualized fee equal to .50% of the first
$100 million of AMR Trust assets under its discretionary management, .35% of the
next $50 million of assets, .30% of the next $250 million of assets and .25% on
assets over $400 million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser (except assets managed by
Barrow under the HALO Bond Program). For the purpose of determining the
applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the applicable Portfolio.
HOW TO PURCHASE SHARES
Shares are sold on a continuous basis. Purchase orders should be directed to
the transfer agent either by mail, by pre-authorized investment or by wire as
described here and in the chart below. The minimum initial purchase for each
Fund is $10,000, except for accounts opened by employees or retirees of AMR
Corporation or one of its subsidiaries ("AMR Related Accounts") for which a
$5,000 minimum applies. The Funds have no obligation to accept purchase requests
or maintain accounts which do not meet minimum purchase requirements. Accounts
opened through financial intermediaries may be subject to lower or higher
minimums. The minimum for subsequent purchases is $250, except for wire
purchases for which a $1,000 minimum applies. The management of the Fund
reserves the right to waive or change the minimum investment requirements.
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An order to purchase shares of a Variable NAV Fund will be executed at the
next share price calculated on the day on which the New York Stock Exchange (the
"Exchange") is open for trading, which excludes the following business holidays:
New Year's Day, President's Day, Good Friday, Memorial Day, Independence Day,
Labor Day, Thanksgiving Day and Christmas Day ("Business Day"). Shares of the
Variable NAV Funds are offered and purchase orders are accepted until 4:00 p.m.
Eastern time on each Business Day. An order to purchase shares of the Money
Market Funds will be executed at the Fund's next determined net asset value per
share on any day on which the Exchange is open for business except for Martin
Luther King's Birthday, Columbus Day and Veteran's Day ("Money Market Business
Day") and during which federal funds become available to the Fund. Shares are
offered and orders are accepted for the Municipal Money Market Fund until 12:00
p.m. Eastern time and for the U.S. Government Money Market Fund until 2:00 p.m.
Eastern time and for the Money Market Fund until 3:00 p.m. Eastern time, on each
Money Market Business Day. The Trust reserves the right to reject any order for
the purchase of shares and to limit or suspend, without prior notice, the
offering of shares. "Federal funds" are funds deposited by a commercial bank in
an account at a federal reserve bank that can be transferred to a similar
account of another bank in one day and thus may be made immediately available to
a Money Market Fund through its custodian.
OPENING AN ACCOUNT -- A completed and signed PlanAhead Class application is
required for each new account opened, regardless of the method chosen for making
an initial investment. If assistance is required in filling out the application,
or if extra applications are required, call (800) 388-3344. See "Retirement
Accounts" for information on opening retirement accounts.
HOW TO PURCHASE SHARES
<TABLE>
<CAPTION>
INITIAL SUBSEQUENT
INVESTMENT INVESTMENTS
<S> <C> <C>
MINIMUM $10,000 ($5,000 for AMR Related $250, ($1,000 for wire transfers)
INVESTMENT Accounts). Shares purchased through
financial intermediaries may have
lower or higher minimums.
- ------------------------------- ------------------------------------ ------------------------------------------
INVESTMENTS BY MAIL Please make check payable to American Please make check payable to the American
AAdvantage Funds and mail with your AAdvantage Funds and include your account
MAIL TO: application. number and specific fund on the check. Mail
American AAdvantage Funds-- to the address printed on your account
PlanAhead Class statement. Include either the detachable
P.O. Box 4580 form from your account statement, the
Chicago, IL 60680-4580 deposit slips provided with your checkbook
(if you have a Money Market account and
opted for checking) or a letter with the
account name and number.
- ------------------------------- ------------------------------------ ------------------------------------------
INVESTMENTS BY PRE-AUTHORIZED Not available. Amount is drawn on your bank checking
AUTOMATIC PURCHASE account and automatically invested on a
Call (800) 388-3344 to specific day each month.
establish.
- ------------------------------- ------------------------------------ ------------------------------------------
INVESTMENTS BY WIRE An application must precede initial $1,000 minimum
Call (800) 388-3344 to wire purchase. Indicate "new" for account
funds. number.
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
Federal funds should be wired to: State Street Bank & Trust Co., ABA Routing
#0110-0002-8; BNF=GSFG/AC-25652520; Attn.: American AAdvantage
Funds -- PlanAhead Class -- Specific Fund (Balanced, Growth and Income,
International Equity, Limited-Term Income, Money Market, Municipal Money Market
or U.S. Government Money Market Fund) together with the account registration and
number. Investors will be responsible for any charges assessed by their bank to
handle wire transfers.
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HOW TO REDEEM SHARES
Shares of the Variable NAV Funds may be redeemed by telephone, by
pre-authorized automatic redemption or by mail on any Business Day. Shares of
the Money Market Funds may be redeemed by telephone, by writing a check, by
pre-authorized automatic redemption or by mail on any Money Market Business Day.
Shares will be redeemed at the net asset value next calculated after the
applicable Fund has received and accepted the redemption request. Proceeds from
a redemption of shares purchased by check or pre-authorized automatic purchase
may be withheld until the funds have cleared, which may take up to 15 days.
Although the Funds intend to redeem shares in cash, each Fund reserves the right
to pay the redemption price in whole or in part by a distribution of readily
marketable securities held by the applicable Fund's corresponding Portfolio. See
the SAI for further information concerning redemptions in kind.
A shareholder's account will be charged $12 for wire redemptions to cover
transaction costs. Redemption proceeds will generally be sent within one
Business Day or Money Market Business Day, as applicable. However, if making
immediate payment could affect a Fund adversely, it may take up to seven days to
send payment.
A minimum of $5,000 is required in order to maintain an account in a Fund.
Otherwise, a Fund may give a shareholder 60 days' notice to increase the account
balance to this level in order to avoid account closure. If a shareholder does
not increase the account balance to $5,000 within the 60 day period, the Fund is
entitled to close the account and mail the proceeds to the address of record.
To ensure timely acceptance of a redemption request, please adhere to the
following procedures.
REDEEMING BY TELEPHONE -- Shares may be redeemed by telephone if the
shareholder's account application reflects that option. Minimum redemption
amounts are $100 for check redemptions and $1,000 for wire redemptions.
Telephone redemptions in any 30 day period shall not exceed $25,000 without the
express written consent of the Trust. In order to redeem by telephone, investors
should call the transfer agent at (800) 388-3344. Redemption proceeds will only
be mailed to the address of record or mailed or wired to a commercial bank
account designated on the account application.
By establishing the telephone redemption service, investors authorize the
Funds or their agent to act upon verbal instructions to redeem shares for any
account for which such service has been authorized. In an effort to prevent
unauthorized or fraudulent redemption requests by telephone, the transfer agent
will employ reasonable procedures specified by the Funds to confirm that such
instructions are genuine. For instance, all telephone redemption requests will
be recorded and proceeds of telephone redemption requests will only be sent to
the address or account designated in the application. Neither the Funds, the
Trusts, the Manager, Goldman, or their trustees, directors or officers will be
liable for any unauthorized or fraudulent redemption instructions received by
telephone. If reasonable procedures as described above are not implemented,
these parties may be liable for any loss due to unauthorized or fraudulent
transactions. Due to the volume of calls or other unusual circumstances,
telephone redemptions may be difficult to implement during certain time periods.
This service may be amended or terminated at any time by the transfer agent or
the Trust without prior notice.
REDEEMING BY CHECK -- If an investor elects on the application, shares of the
Money Market Funds may be redeemed through the check writing feature. There is
no limit on the number of checks written per month and no check redemption fees.
Checks must be written in amounts of $100 or more. Check drafts however, are not
returned to shareholders. If copies of drafts are required, a service charge of
$2 per check will be assessed to the shareholder.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- PlanAhead Class shareholders can arrange
to have a pre-authorized amount ($100 or more) redeemed from their shareholder
account and automatically deposited into a bank account on one or more specified
day(s) of each month. For more information regarding pre-authorized automatic
redemptions, contact the transfer agent at (800) 388-3344.
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<PAGE> 74
REDEEMING BY MAIL -- Except for certain intermediary accounts, a letter of
instruction may be mailed to Goldman c/o the American AAdvantage
Funds -- PlanAhead Class, P.O. Box 4580, Chicago, IL 60680-4580. It should
specify the Fund (Balanced, Growth and Income, International Equity,
Limited-Term Income, Money Market, Municipal Money Market or U.S. Government
Money Market Fund), the number of shares or dollar amount to be redeemed, the
shareholder's name and account number. The letter of instruction must be signed
by all persons required to sign for the account, exactly as it is registered.
For redemptions over $25,000, authorization to send redemption proceeds to an
address other than the address of record or to a commercial bank account other
than the account designated on the application, or redemptions on an account
whose address of record has been changed within thirty days, the letter of
instruction must be accompanied by a signature guarantee by a financial
institution satisfying the standards established by Goldman.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Money Market Fund generally will be paid at the
time of redemption.
RETIREMENT ACCOUNTS
Individual retirement accounts, including SEPs and Keoghs, are eligible
investors in the PlanAhead Class. State Street Bank generally serves as
custodian for retirement accounts in the PlanAhead Class. A special retirement
account application is required in order to open this type of account. Each
shareholder is charged an administrative fee of $12.00 per year for each
retirement account regardless of the number of Funds. To receive a retirement
account application, or if you have any questions about establishing this type
of account, call Goldman at (800) 388-3344.
EXCHANGE PRIVILEGE
PlanAhead Class shares which have been registered in a shareholder's name
for at least 15 days may be exchanged into shares of the PlanAhead Class of
another Fund. A minimum exchange of $250 is required into existing accounts. If
a shareholder wishes to establishes a new account in the PlanAhead Class of
another Fund by making an exchange, a $10,000 minimum ($5,000 for AMR Related
Accounts) is required.
Except for certain intermediary accounts, shareholders may exchange shares
by sending the Funds a written request or by calling Goldman at (800) 388-3344.
The exchange will be processed at the next share price calculated after the
request is received in good order by the Funds. In establishing a telephone
exchange service, shareholders authorize the Funds or their agent to act upon
verbal instructions to exchange shares from any account for which such service
is authorized to any identically registered PlanAhead Class account(s). Goldman
will use reasonable procedures specified by the Funds to confirm that such
instructions are genuine such as the recording of all telephone exchange
requests. If reasonable procedures as described above are implemented, neither
the Funds, the Trusts, the Manager, Goldman, nor their trustees, directors or
officers will be liable for any unauthorized or fraudulent instructions.
The general redemption policies apply to redemptions by telephone exchange.
The exchange privilege may be modified or terminated at any time by the Funds.
The Funds reserve the right to limit the number of exchanges an investor may
exercise.
DISTRIBUTION OF TRUST SHARES
Shares are distributed through the Funds' principal underwriter, BTS. BTS is
compensated by the Manager, and not the Trust. The Trust does not incur any
direct distribution expenses other than those relating to the Platinum Class.
However, the Trust has adopted a Distribution Plan in accordance with Rule 12b-1
under the 1940 Act which authorizes the use of any fees received by the Manager
in accordance with the Administrative Services and the Management Agreements and
any fees received by the investment advisers pursuant to their Advisory
Agreements with the Manager, to be used for distribution purposes.
PROSPECTUS
30
<PAGE> 75
VALUATION OF SHARES
The net asset value of each share (share price) of the Variable NAV Funds is
determined as of 4:00 p.m. Eastern time on each Business Day and the net asset
value of each share of the Money Market Funds is determined as of 4:00 p.m.
Eastern time on each Money Market Business Day. The net asset value of shares of
the PlanAhead Class will be determined based on a pro rata allocation of the
value of the Fund's corresponding Portfolio's investment income, expenses and
total capital gains and losses. The allocation will be based on comparative net
asset value at the beginning of the day except for expenses related solely to
one class of shares ("Class Expenses") which will be borne only by the
appropriate class of shares. Because of the Class Expenses, the net income
attributable to and the dividends payable may be different for each class of
shares. Additionally, the Variable NAV Funds may compute differing share prices
as a result of Class Expenses.
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the AMR Board. Over-the-counter equity securities are valued on the basis of the
last bid price on that date prior to the close of trading. Debt securities
(other than short-term securities) will normally be valued on the basis of
prices provided by a pricing service and may take into account appropriate
factors such as institution-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. In some cases, the prices of debt securities may be determined
using quotes obtained from brokers. Securities for which market quotations are
not readily available are valued at fair value, as determined in good faith and
pursuant to procedures approved by the AMR Trust Board. Assets and liabilities
denominated in foreign currencies and forward currency contracts are translated
into U.S. dollar equivalents based on prevailing market rates. Portfolio
obligations held by the Money Market Portfolios are valued in accordance with
the amortized cost method, which is designed to enable those Portfolios and
their corresponding Funds to maintain a consistent $1.00 per share net asset
value. Investment grade short-term obligations with 60 days or less to maturity
held by all other Portfolios also are valued using the amortized cost method as
described in the SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
Dividends and Capital Gain Distributions -- Dividends and other
distributions paid on each class of a Fund's shares are calculated at the same
time and in the same manner. Dividends from the net investment income of the
Balanced Fund, the Growth and Income Fund and the International Equity Fund
normally are declared annually. Dividends consisting of substantially all of the
net investment income of the Limited-Term Income Fund, which are paid monthly,
normally are declared on each Business Day immediately prior to the
determination of the net asset value and are payable to shareholders of record
as of the close of business on the day on which declared. A Fund's net
investment income attributable to the PlanAhead Class consists of that class's
pro rata share of the Fund's share of dividends and interest (including
discount) accrued on its corresponding Portfolio's securities, less applicable
expenses of the Fund and the Portfolio attributable to the PlanAhead Class.
Distributions of a Fund's share of its corresponding Portfolio's realized net
short-term capital gain, net capital gain (the excess of net long-term capital
gain over net short-term capital loss), and net gains from foreign currency
transactions, if any, normally is made annually.
All of each Money Market Fund's net investment income and net short-term
capital gain, if any, generally is declared as dividends on each Money Market
Business Day immediately prior to the determination of the net asset value.
Dividends generally will be paid on the first day of the following month. Each
Money Market Fund's
PROSPECTUS
31
<PAGE> 76
net investment income attributable to the PlanAhead Class will consist of that
class' pro rata share of the Fund's share of interest accrued and discount
earned on its corresponding Portfolio's securities less amortization of premium
and estimated expenses of both the Portfolio and the Fund attributable to the
PlanAhead Class. The Money Market Portfolios do not expect to realize net
capital gain, and, therefore, the Money Market Funds do not foresee paying any
capital gain distributions. If any Money Market Fund (either directly or
indirectly through its corresponding portfolio) incurred or anticipated any
unusual expenses, loss or depreciation that would adversely affect its net asset
value or income for a particular period, the Board would at that time consider
whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's PlanAhead Class shares will be
automatically declared and paid in additional PlanAhead Class shares of that
Fund. However, a shareholder may choose to have distributions of net capital
gain paid in shares and dividends paid in cash or to have all such distributions
and dividends paid in cash. An election may be changed at any time by delivering
written notice that is received by the transfer agent at least ten days prior to
the payment date for a dividend or other distribution.
Tax Information -- Each Fund is treated as a separate corporation for federal
income tax purposes and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. In each taxable year that a Fund so qualifies, the Fund (but not its
shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (generally, net investment income plus any net
short-term capital gain and gains from certain foreign currency transactions)
and net capital gain that it distributes to its shareholders. However, a Fund
will be subject to a nondeductible 4% excise tax to the extent that it fails to
distribute by the end of any calendar year substantially all of its ordinary
income for that calendar year and its capital gain net income for the one-year
period ending on October 31 of that year, plus certain other amounts. For these
and other purposes, dividends and other distributions declared by a Fund in
October, November or December of any year and payable to shareholders of record
on a date in one of those months will be deemed to have been paid by the Fund
and received by the shareholders on December 31 of that year if they are paid by
the Fund during the following January. Each Portfolio has received a ruling from
the Internal Revenue Service that it is classified for federal income tax
purposes as a partnership; accordingly, no Portfolio is subject to federal
income tax.
Dividends from a Fund's investment company taxable income will be taxable to
its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Fund shares.
Distributions of a Fund's net capital gain (whether received in cash or paid in
additional Fund shares), when designated as such, generally will be taxable to
its shareholders as long-term capital gain, regardless of how long they have
held their Fund shares. A capital gain distribution from a Fund also may be
offset by capital losses from other sources.
Some foreign countries may impose withholding taxes on certain dividends
payable to the International Equity Portfolio. The International Equity Fund's
share of any such tax withheld may either be treated by that Fund as a deduction
or, if it satisfies certain requirements, it may elect to flow the tax through
to its shareholders, who in turn may either treat it as a deduction or use it in
calculating a credit against their federal income tax.
A portion of the income dividends paid by the Balanced Fund and the Growth
and Income Fund is eligible for the dividends-received deduction allowed to
corporations. The eligible portion may not exceed the respective Fund's
aggregate dividends received from U.S. corporations. However, dividends received
by a corporate shareholder and deducted by it pursuant to the dividends-received
deduction may be subject indirectly to the AMT. The International Equity Fund's
dividends will most likely not qualify for the dividends-received deduction
because none of the dividends received by that Fund are expected to be paid by
U.S. corporations.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns
PROSPECTUS
32
<PAGE> 77
taxable income from any of its investments, the Municipal Money Market Fund's
share of income will be distributed to its shareholders as a taxable dividend.
To the extent that Portfolio invests in certain private activity obligations,
that Fund's shareholders will be required to treat a portion of its dividends as
a "tax preference item" in determining their liability for the AMT.
Exempt-interest dividends also may be subject to state and local tax laws.
Because some states exempt from tax the interest on their own obligations and
obligations of governmental agencies of and municipalities in the state,
shareholders will receive tax information each year regarding the Municipal
Money Market Fund's exempt-interest income by state. Interest on indebtedness
incurred or continued by a shareholder to purchase or carry shares of that Fund
is not deductible.
Redemption of Fund shares (other than shares of the Money Market Funds) may
result in taxable gain or loss to the redeeming shareholder, depending upon
whether the fair market value of the redemption proceeds exceeds or is less than
the shareholder's adjusted basis for the redeemed shares. An exchange of shares
of a Fund for shares of any other Fund (see "Exchange Privileges") generally
will have similar tax consequences. If shares of a Fund are sold at a loss after
being held for six months or less, the loss will be treated as long-term,
instead of short-term, capital loss to the extent of any capital gain
distributions received on those shares.
If shares are purchased shortly before the record date for a dividend (other
than an exempt-interest dividend) or other distribution, the investor will pay
full price for the shares and receive some portion of the price back as a
taxable distribution.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
(and for the International Equity Fund, if it satisfies the requirements and
makes the election referred to above, their share of that Fund's share of any
foreign taxes paid by the International Equity Portfolio) that year and of any
portion of those dividends that qualifies for the corporate dividends-received
deduction. The notice sent by the Municipal Money Market Fund specifies the
amounts of exempt-interest dividends (and the portion thereof, if any, that is a
tax preference item for purposes of the AMT) and any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends, and, for all
Funds other than the Money Market Funds, capital gain distributions and
redemption proceeds payable to any individuals and certain other non-corporate
shareholders who do not provide the Fund with a correct taxpayer identification
number or (except with respect to redemption proceeds) who otherwise are subject
to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Trust.
For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of nine separate investment portfolios.
Each Fund included in this Prospectus is comprised of three classes of shares,
which can be issued in an unlimited number. Each share represents an equal
proportionate beneficial interest in that Fund and is entitled to one vote. Only
shares of a particular class may vote on matters affecting that class. Only
shares of a particular Fund may vote on matters affecting that Fund. All shares
of the Trust vote on matters affecting the Trust as a whole. Share voting rights
are not cumulative, and shares have no preemptive or conversion rights. Shares
of the Trust are nontransferable. Each series in the Trust will not be involved
in any vote involving a Portfolio in which it does not invest its assets.
Shareholders of all of the series of the Trust, however, will vote together to
elect Trustees of the Trust and for certain other matters. Under certain
circumstances, the shareholders of one or more series could control the outcome
of these votes.
PROSPECTUS
33
<PAGE> 78
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the Portfolio's report to shareholders will be provided to
the shareholders of its corresponding Fund.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
As more fully described in the SAI, the following persons may be deemed to
control certain Funds by virtue of their ownership of more than 25% of the
outstanding shares of a Fund as of January 31, 1997:
<TABLE>
<S> <C>
AMERICAN AADVANTAGE BALANCED FUND
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 66%
AMERICAN AADVANTAGE GROWTH AND INCOME FUND
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 89%
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 80%
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
Retirement Advisors of America, Inc. 60%
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 28%
</TABLE>
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Funds
will be audited by Ernst & Young LLP, independent auditor, at least annually.
Shareholder inquiries and requests for information regarding the other
investment companies which also invest in the AMR Trust should be made in
writing to the Funds at P.O. Box 619003, MD5645, Dallas/Fort Worth Airport,
Texas 75261-9003, or by calling (800) 388-3344.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY PLANAHEAD CLASS SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
PlanAhead Class is a registered service mark and Platinum Class, American
AAdvantage Balanced Fund, American AAdvantage Growth and Income Fund, American
AAdvantage International Equity Fund, American AAdvantage Limited-Term Income
Fund, American AAdvantage Money Market Fund, American AAdvantage Municipal Money
Market Fund and American AAdvantage U.S. Government Money Market Fund are
service marks of AMR Investment Services, Inc.
PROSPECTUS
34
<PAGE> 79
American Advantage Funds(R) Logo
- PLANAHEAD CLASS(R) -
P.O. Box 4580
Chicago, Illinois 60680-4580
(800) 388-3344
- PLATINUM CLASS(SM) -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- INSTITUTIONAL CLASS -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
PROSPECTUS
<PAGE> 80
THIS PROSPECTUS contains important information about the AMR Class of the
AMERICAN AADVANTAGE FUNDS ("Trust"), an open-end management investment company,
which consists of multiple investment portfolios. This Prospectus pertains only
to the five funds listed on this cover page (individually referred to as a
"Fund" and, collectively, the "Funds"). EACH FUND, EXCEPT THE S&P 500 INDEX
FUND, SEEKS ITS INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS
IN A CORRESPONDING PORTFOLIO OF THE AMR INVESTMENT SERVICES TRUST ("AMR
TRUST"). THE S&P 500 INDEX FUND INVESTS ALL OF ITS INVESTABLE ASSETS IN THE
EQUITY 500 INDEX PORTFOLIO. (THE EQUITY 500 INDEX PORTFOLIO AND THE PORTFOLIOS
OF THE AMR TRUST ARE REFERRED TO HEREIN INDIVIDUALLY AS A "PORTFOLIO" AND,
COLLECTIVELY, THE "PORTFOLIOS.") EACH PORTFOLIO HAS AN INVESTMENT OBJECTIVE
IDENTICAL TO THE INVESTING FUND. The investment experience of each Fund will
correspond directly with the investment experience of each Portfolio. Each Fund
offers the AMR Class of shares to tax exempt retirement and benefit plans of
AMR Corporation and its affiliates. Prospective investors in the AMR Class
should read this Prospectus carefully before making an investment decision and
retain it for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1997 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 817-967-3509. For
further information about the AMR Class or for information on the other classes
of shares, please refer to the appropriate address and phone number on the back
cover of this Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------
[AMERICAN AADVANTAGE LOGO]
March 1, 1997
- AMR Class(SM) -
Managed by AMR Investment Services, Inc.
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
S&P 500 INDEX FUND
---------------------
<PAGE> 81
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
The AMERICAN AADVANTAGE S&P 500 INDEX FUND(1) ("S&P 500 Index Fund") seeks to
provide investment results that, before expenses, correspond to the total return
of common stocks publicly traded in the United States, as represented by the
Standard & Poor's 500 Composite Stock Price Index (the "S&P 500" or "Index"), by
investing all of its investable assets in the Equity 500 Index Portfolio which
in turn invests in common stocks of companies that compose the S&P 500.
Under a Hub and Spoke(R)(2) operating structure (or, with respect to the
S&P 500 Index Fund, a Master-Feeder operating structure), each Fund seeks its
investment objective by investing all of its investable assets in a
corresponding Portfolio as described above. Each Portfolio's investment
objective is identical to that of its corresponding Fund. Whenever the phrase
"all of the Fund's investable assets" is used, it means that the only investment
securities that will be held by a Fund will be that Fund's interest in its
corresponding Portfolio. AMR Investment Services, Inc. ("Manager") provides
investment management and administrative services to the Portfolios, except for
the Equity 500 Index Portfolio, and administrative services to the Funds.
Bankers Trust Company ("BT") provides investment advisory, administrative and
other services to the Equity 500 Index Portfolio. This Hub and Spoke structure
(or Master-Feeder structure) is different from that of many other
- ---------------
(1) S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use. "Standard & Poor's(R)", "S&P(R)", "Standard & Poor's 500", "S&P
500(R)", and "500" are all trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by Bankers Trust Company. The S&P 500 Index Fund
is not sponsored, sold or promoted by Standard & Poor's, and Standard &
Poor's makes no representation regarding the advisability of investing in
that Fund.
(2) Hub and Spoke is a registered service mark of Signature Financial Group,
Inc.
PROSPECTUS
2
<PAGE> 82
investment companies which directly acquire and manage their own portfolios
of securities. Accordingly, investors should carefully consider this investment
approach. See "Investment Objectives, Policies and Risks -- Additional
Information About the Portfolios." A Fund may withdraw its investment in a
corresponding Portfolio at any time if the Trust's Board of Trustees ("Board")
determines that it would be in the best interest of that Fund and its
shareholders to do so. Upon any such withdrawal, that Fund's assets would be
invested in accordance with the investment policies and restrictions described
in this Prospectus and the SAI.
<TABLE>
<S> <C>
Table of Fees and Expenses................ 3
Financial Highlights...................... 4
Introduction.............................. 9
Investment Objectives, Policies and
Risks.................................... 19
Investment Restrictions................... 24
Yields and Total Returns.................. 25
Management and Administration of the Trusts... 25
Investment Advisers....................... 29
Purchase, Redemption and Valuation of
Shares................................... 33
Dividends, Other Distributions and Tax
Matters.................................. 36
General Information....................... 38
Shareholder Communications................ 39
</TABLE>
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets) of the
AMR Class:
<TABLE>
<CAPTION>
S&P 500
GROWTH AND INTERNATIONAL LIMITED-TERM INDEX
BALANCED FUND INCOME FUND EQUITY FUND INCOME FUND FUND(1)
<S> <C> <C> <C> <C> <C>
Management Fees (net of
waiver) 0.33% 0.33% 0.48% 0.25% 0.08%(2)
12b-1 Fees 0.00% 0.00% 0.00% 0.00% 0.00%
Other Expenses (net of
waiver) 0.04% 0.03% 0.09% 0.08% 0.12%(3)
------- ------ ------- ------ ----
Total Operating Expenses
(net of waiver) 0.37% 0.36% 0.57% 0.33% 0.20%(4)
------- ------ ------- ------ ----
------- ------ ------- ------ ----
</TABLE>
(1) Because the S&P 500 Index Fund's shares were not offered for sale prior to
January 1, 1997, its Annual Operating Expenses are based on estimated
expenses.
(2) The investment adviser has voluntarily agreed to waive a portion of its
investment advisory fee. Without such waiver, the "Management Fee" would be
equal to 0.10%.
(3) "Other Expenses" before fee waivers are estimated to be 0.14%.
(4) "Total Operating Expenses" before fee waivers are estimated to be 0.24%.
The above expenses reflect the expenses of each Fund and the Portfolio in
which it invests. The Board believes that the aggregate per share expenses of
each Fund and its corresponding Portfolio will be approximately equal to the
expenses that the Fund
PROSPECTUS
3
<PAGE> 83
would incur if its assets were invested directly in the type of securities held
by the Portfolio.
EXAMPLES
An AMR Class investor in each Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
Balanced Fund $4 $12 $ 21 $ 47
Growth and Income Fund 4 12 20 46
International Equity Fund 6 18 32 71
Limited-Term Income Fund 3 11 19 42
S&P 500 Index Fund 2 6 11 26
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the AMR Class of a Fund. Additional information
may be found under "Management and Administration of the Trusts" and "Investment
Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables have been derived from
financial statements of the Trust. The information has been audited by Ernst &
Young LLP, independent auditors. Such information should be read in conjunction
with the financial statements and the report of the independent auditors
appearing in the Annual Report incorporated by reference in the SAI, which
contains further information about performance of the Funds and can be obtained
by investors without charge. Financial highlights are not available for the S&P
500 Index Fund because it had not commenced operations.
PROSPECTUS
4
<PAGE> 84
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Balanced Fund
-------------------------------------------------------------------------------------
AMR Class Institutional Class
--------------------------------------- -----------------------------------------
Period
Year Ended October 31, Ended Year Ended October 31,
------------------------- October 31, -----------------------------------------
1996(5)(6) 1995(4)(5) 1994 (1)(3) 1994(3) 1993 1992 1991
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 13.98 $ 12.36 $ 12.35 $ 13.23 $ 11.99 $ 11.60 $ 9.87
------ ------ ------ ---- ---- ---- ----
Income from investment
operations:
Net investment income 0.63(7) 0.58 0.14 0.57 0.49 0.55 0.58
Net gains (losses) on
securities (both realized
and unrealized) 1.61(7) 1.71 (0.13) (0.54) 1.57 0.41 1.79
------ ------ ------ ---- ---- ---- ----
Total from investment
operations 2.24 2.29 0.01 0.03 2.06 0.96 2.37
------ ------ ------ ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.60) (0.53) -- (0.56) (0.52) (0.56) (0.64)
Distributions from net
realized gains on
securities (0.44) (0.14) -- (0.34) (0.30) (0.01) --
------ ------ ------ ---- ---- ---- ----
Total distributions (1.04) (0.67) -- (0.90) (0.82) (0.57) (0.64)
------ ------ ------ ---- ---- ---- ----
Net asset value, end
of period $ 15.18 $ 13.98 $ 12.36 $ 12.36 $ 13.23 $ 11.99 $ 11.60
------ ------ ------ ---- ---- ---- ----
------ ------ ------ ---- ---- ---- ----
Total return (annualized)(8) 16.77% 19.77% (0.08)%(9) (0.08)% 19.19% 8.75% 25.35%
------ ------ ------ ---- ---- ---- ----
------ ------ ------ ---- ---- ---- ----
Ratios/supplemental data:
Net assets, end of period
(in thousands) $576,673 $542,619 $393,504 $222,873 $532,543 $370,087 $311,906
Ratios to average net
assets(10)(11)(12):
Expenses 0.37%(7) 0.38% 0.36% 0.36% 0.34% 0.35% 0.37%
Net investment income 4.26%(7) 4.54% 4.65% 4.77% 4.91% 5.31% 6.06%
Portfolio turnover rate(13) 76% 73% 48% 48% 83% 80% 55%
Average commission rate
paid(13) $ 0.0409 -- -- -- -- -- --
<CAPTION>
Balanced Fund
--------------------------------------------
Institutional Class
--------------------------------------------
Period
Year Ended October 31, Ended
------------------------------ October 31,
1990(2) 1989 1988 1987(1)
--------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning
of period $ 11.05 $ 10.13 $ 9.08 $ 10.00
---- ---- ----- -------
Income from investment
operations:
Net investment income 0.57 0.53 0.56 0.16
Net gains (losses) on
securities (both realized
and unrealized) (1.18) 0.90 0.73 (1.08)
---- ---- ----- -------
Total from investment
operations (0.61) 1.43 1.29 (0.92)
---- ---- ----- -------
Less distributions:
Dividends from net
investment income (0.51) (0.51) (0.24) --
Distributions from net
realized gains on
securities (0.06) -- -- --
---- ---- ----- -------
Total distributions (0.57) (0.51) (0.24) --
---- ---- ----- -------
Net asset value, end
of period $ 9.87 $ 11.05 $ 10.13 $ 9.08
---- ---- ----- -------
---- ---- ----- -------
Total return (annualized)(8) (5.24)% 15.49% 14.63% (31.84)%
---- ---- ----- -------
---- ---- ----- -------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $233,702 $210,119 $147,581 $118,986
Ratios to average net
assets(10)(11)(12):
Expenses 0.44% 0.47% 0.52% 0.45%
Net investment income 6.50% 6.32% 6.25% 5.59%
Portfolio turnover rate(13) 62% 78% 77% 17%
Average commission rate
paid(13) -- -- -- --
</TABLE>
(1) The Balanced Fund commenced active operations on July 17, 1987. The AMR
Class commenced active operations on August 1, 1994 and at that time
existing shares of the Balanced Fund were designated as Institutional Class
shares.
(2) Penmark Investments, Inc. was replaced by Independence Investment
Associates, Inc. as an investment adviser to the Fund as of the close of
business on February 28, 1990.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) GSB Investment Management, Inc. was added as an investment adviser to the
Balanced Fund on January 1, 1995.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) Capital Guardian Trust Company was replaced by Brandywine Asset Management,
Inc. as an investment adviser to the Balanced Fund on April 1, 1996.
(7) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Balanced Portfolio.
(8) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(9) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(10) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to approximately $.01 per share in each period on an
annualized basis.
(11) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(12) Annualized.
(13) On November 1, 1995 the Balanced Fund invested all of its investable assets
in the Balanced Portfolio. Portfolio turnover rate and average commission
rate paid for the year ended October 31, 1996 are those of the Balanced
Portfolio. Calculation and disclosure of the average commission rate paid
was not required in prior years.
PROSPECTUS
5
<PAGE> 85
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
Growth and Income Fund
-------------------------------------------------------------------------------------
AMR Class Institutional Class
---------------------------------------- ----------------------------------------
Period
Year Ended October 31, Ended Year Ended October 31,
-------------------------- October 31, ----------------------------------------
1996(5)(6) 1995(5) 1994(1)(4) 1994(4) 1993 1992(3) 1991
-------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 15.95 $ 14.20 $ 13.99 $ 14.63 $ 12.79 $ 12.10 $ 9.47
----- ------- ------- ---- ---- ---- ----
Income from
investment
operations:
Net investment
income 0.47(7) 0.44 0.11 0.43 0.36 0.39 0.42
Net gains (losses)
on securities
(both realized and
unrealized) 3.15(7) 2.30 0.10 0.08 2.21 0.77 2.70
----- ------- ------- ---- ---- ---- ----
Total from investment
operations 3.62 2.74 0.21 0.51 2.57 1.16 3.12
----- ------- ------- ---- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.44) (0.45) -- (0.41) (0.37) (0.39) (0.49)
Distributions from
net realized gains
on securities (0.57) (0.54) -- (0.54) (0.36) (0.08) --
----- ------- ------- ---- ---- ---- ----
Total distributions (1.01) (0.99) -- (0.95) (0.73) (0.47) (0.49)
----- ------- ------- ---- ---- ---- ----
Net asset value, end
of period $ 18.56 $ 15.95 $ 14.20 $ 14.19 $ 14.63 $ 12.79 $ 12.10
----- ------- ------- ---- ---- ---- ----
----- ------- ------- ---- ---- ---- ----
Total return
(annualized)(8) 23.66% 21.03% 3.43%(9) 3.36% 21.49% 10.00% 33.83%
----- ------- ------- ---- ---- ---- ----
----- ------- ------- ---- ---- ---- ----
Ratios/supplemental
data:
Net assets, end of
period (in
thousands) $1,008,518 $706,884 $505,892 $22,737 $477,088 $339,739 $264,628
Ratios to average
net
assets(10)(11)(12):
Expenses 0.36%(7) 0.38% 0.37% 0.33% 0.34% 0.36% 0.37%
Net investment
income 2.80%(7) 3.20% 3.18% 3.28% 3.12% 3.57% 4.19%
Portfolio turnover
rate(13) 40% 26% 23% 23% 30% 35% 52%
Average commission
rate paid(13) $ 0.0412 -- -- -- -- -- --
<CAPTION>
Growth and Income Fund
--------------------------------------------
Institutional Class
--------------------------------------------
Period
Year Ended October 31, Ended
------------------------------ October 31,
1990(2) 1989 1988 1987(1)
--------------------------------------------
<S> <C> <C> <C> <C>
Net asset value,
beginning of period $ 11.59 $ 9.96 $ 8.30 $ 10.00
---- ---- ---- -------
Income from
investment
operations:
Net investment
income 0.42 0.42 0.42 0.10
Net gains (losses)
on securities
(both realized and
unrealized) (1.94) 1.59 1.40 (1.80)
---- ---- ---- -------
Total from investment
operations (1.52) 2.01 1.82 (1.70)
---- ---- ---- -------
Less distributions:
Dividends from net
investment income (0.43) (0.38) (0.16) --
Distributions from
net realized gains
on securities (0.17) -- -- --
---- ---- ---- -------
Total distributions (0.60) (0.38) (0.16) --
---- ---- ---- -------
Net asset value, end
of period $ 9.47 $ 11.59 $ 9.96 $ 8.30
---- ---- ---- -------
---- ---- ---- -------
Total return
(annualized)(8) (13.52)% 20.94% 22.20% (58.51)%
---- ---- ---- -------
---- ---- ---- -------
Ratios/supplemental
data:
Net assets, end of
period (in
thousands) $182,430 $187,869 $140,073 $134,796
Ratios to average
net
assets(10)(11)(12):
Expenses 0.45% 0.45% 0.53% 0.43%
Net investment
income 4.49% 4.40% 4.20% 3.68%
Portfolio turnover
rate(13) 41% 50% 56% 22%
Average commission
rate paid(13) -- -- -- --
</TABLE>
(1) The Growth and Income Fund commenced active operations on July 17, 1987.
The AMR Class commenced active operations on August 1, 1994 and at that
time existing shares of the Growth and Income Fund were designated as
Institutional Class shares.
(2) GSB Investment Management, Inc. was added as an investment adviser to the
Growth and Income Fund on April 10, 1990.
(3) The assets of the Growth and Income Fund previously managed by Atlanta
Capital Management were transferred to GSB Investment Management, Inc. as
of the close of business on December 5, 1991.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) Capital Guardian Trust Company was replaced by Brandywine Asset Management,
Inc. as an investment adviser to the Growth and Income Fund on April 1,
1996.
(7) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Growth and Income Portfolio.
(8) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(9) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(10) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
(11) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(12) Annualized.
(13) On November 1, 1995 the Growth and Income Fund invested all of its
investable assets in the Growth and Income Portfolio. Portfolio turnover
rate and average commission rate paid for the year ended October 31, 1996
are those of the Growth and Income Portfolio. Calculation and disclosure of
the average commission rate paid was not required in prior years.
PROSPECTUS
6
<PAGE> 86
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
----------------------------------------------------------------------------------------------------
AMR CLASS INSTITUTIONAL CLASS
----------------------------------------- -----------------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------- OCTOBER 31, ------------------------------------ OCTOBER 31,
1996(5) 1995(5) 1994(1)(3)(4) 1994(3)(4) 1993(2) 1992 1991(1)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period $ 13.31 $ 12.87 $ 12.61 $ 12.07 $ 8.93 $ 10.13 $ 10.00
----- ----- -------- ------ ---- ---- -------
Income from investment
operations:
Net investment income 0.31(6) 0.30 0.05 0.32 0.17 0.12 --
Net gains (losses) on
securities
(both realized and
unrealized) 1.98(6) 0.68 0.21 1.10 3.09 (1.31) 0.13
----- ----- -------- ------ ---- ---- -------
Total from investment
operations 2.29 0.98 0.26 1.42 3.26 (1.19) 0.13
----- ----- -------- ------ ---- ---- -------
Less distributions:
Dividends from net
investment income (0.30) (0.22) -- (0.17) (0.12) (0.01) --
Distributions from net
realized gains on
securities (0.24) (0.32) -- (0.45) -- -- --
----- ----- -------- ------ ---- ---- -------
Total distributions (0.54) (0.54) -- (0.62) (0.12) (0.01) --
----- ----- -------- ------ ---- ---- -------
Net asset value, end of
period $ 15.06 $ 13.31 $ 12.87 $ 12.87 $ 12.07 $ 8.93 $ 10.13
----- ----- -------- ------ ---- ---- -------
----- ----- -------- ------ ---- ---- -------
Total return
(annualized)(7) 17.72% 8.18% 11.77% 11.77%(8) 36.56% (12.07)% 5.69%
----- ----- -------- ------ ---- ---- -------
----- ----- -------- ------ ---- ---- -------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $330,898 $227,939 $165,524 $23,115 $66,652 $38,837 $10,536
Ratios to average net
assets(9)(10)(11):
Expenses 0.57%(6) 0.60% 0.63% 0.61% 0.78% 1.17% 1.90%(12)
Net investment income 2.49%(6) 2.65% 1.41% 2.74% 2.00% 2.04% 0.38%(12)
Portfolio turnover
rate(13) 19% 21% 37% 37% 61% 21% 2%
Average commission rate
paid(13) $ 0.0192 -- -- -- -- -- --
</TABLE>
(1) The International Equity Fund commenced active operations on August 7,
1991. The AMR Class commenced active operations on August 1, 1994 and at
that time existing shares of the International Equity Fund were designated
as Institutional Class shares.
(2) HD International Limited was replaced by Hotchkis and Wiley as an
investment adviser to the International Equity Fund as of May 21, 1993.
(3) Morgan Stanley Asset Management Inc. was added as an investment adviser to
the International Equity Fund as of August 1, 1994.
(4) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(5) Class expenses per share were subtracted from net investment income per
share for the Fund before class expenses to determine net investment income
per share.
(6) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the International Equity Portfolio.
(7) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(8) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(9) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.04 per share in each period on an
annualized basis and were waived by the Manager for the period ended
October 31, 1991.
(10) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(11) Annualized.
(12) Estimated based on expected annual expenses and actual average net assets.
(13) On November 1, 1995 the International Equity Fund invested all of its
investable assets in the International Equity Portfolio. Portfolio turnover
rate and average commission rate paid for the year ended October 31, 1996
are those of the International Equity Portfolio. Calculation and disclosure
of the average commission rate paid was not required in prior years.
PROSPECTUS
7
<PAGE> 87
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
LIMITED-TERM INCOME FUND
------------------------------------------------------------------------
AMR CLASS INSTITUTIONAL CLASS
-------------------------------------- ------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED YEAR ENDED OCTOBER 31,
----------------------- OCTOBER 31, ------------------------------
1996 1995 1994(1)(3) 1994(3) 1993 1992
------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of
period $ 9.81 $ 9.68 $ 9.78 $ 10.23 $ 10.13 $ 10.07
Income from investment
operations:
Net investment income 0.65(4) 0.64 0.14 0.52 0.58 0.75
Net gains (losses) on
securities (both realized
and unrealized) (0.14)(4) 0.13 (0.10) (0.46) 0.15 0.06
---- ---- ------- ---- ---- ----
Total from investment
operations 0.51 0.77 0.04 0.06 0.73 0.81
---- ---- ------- ---- ---- ----
Less distributions:
Dividends from net
investment income (0.65) (0.64) (0.14) (0.52) (0.58) (0.75)
Distributions from net
realized gains on
securities -- -- -- (0.10) (0.05) --
---- ---- ------- ---- ---- ----
Total distributions (0.65) (0.64) (0.14) (0.62) (0.63) (0.75)
---- ---- ------- ---- ---- ----
Net asset value, end of
period $ 9.67 $ 9.81 $ 9.68 $ 9.67 $ 10.23 $ 10.13
---- ---- ------- ---- ---- ----
---- ---- ------- ---- ---- ----
Total return (annualized)(5) 5.38% 8.22% 0.59%(6) 0.42% 7.20% 7.94%
---- ---- ------- ---- ---- ----
---- ---- ------- ---- ---- ----
Ratios/supplemental data:
Net assets, end of period
(in thousands) $59,526 $64,595 $53,445 $112,141 $238,874 $209,928
Ratios to average net
assets(7)(8)(9):
Expenses 0.33%(4) 0.36% 0.33% 0.31% 0.26% 0.27%
Net investment income 6.66%(4) 6.60% 5.77% 5.26% 5.76% 7.40%
Portfolio turnover rate(10) 304% 183% 94% 94% 176% 133%
<CAPTION>
LIMITED-TERM INCOME FUND
-------------------------------------------
INSTITUTIONAL CLASS
-------------------------------------------
YEAR ENDED OCTOBER 31, PERIOD ENDED
---------------------------- OCTOBER 31,
1991(2) 1990 1989 1988(1)
-------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of
period $ 9.76 $ 9.94 $ 10.12 $ 10.00
Income from investment
operations:
Net investment income 0.83 0.92 0.96 0.64
Net gains (losses) on
securities (both realized
and unrealized) 0.31 (0.18) (0.12) 0.05
---- ---- ---- -------
Total from investment
operations 1.14 0.74 0.84 0.69
---- ---- ---- -------
Less distributions:
Dividends from net
investment income (0.83) (0.92) (1.02) (0.57)
Distributions from net
realized gains on
securities -- -- -- --
---- ---- ---- -------
Total distributions (0.83) (0.92) (1.02) (0.57)
---- ---- ---- -------
Net asset value, end of
period $ 10.07 $ 9.76 $ 9.94 $ 10.12
---- ---- ---- -------
---- ---- ---- -------
Total return (annualized)(5) 11.87% 7.51% 7.62% 7.41%
---- ---- ---- -------
---- ---- ---- -------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $141,629 $83,265 $60,507 $40,855
Ratios to average net
assets(7)(8)(9):
Expenses 0.35% 0.48% 0.59% 0.50%
Net investment income 8.42% 9.44% 9.77% 8.01%
Portfolio turnover rate(10) 165% 156% 158% 127%
</TABLE>
(1) The Limited-Term Income Fund commenced active operations on December 3,
1987. The AMR Class commenced active operations on August 1, 1994 and at
that time existing shares of the Limited-Term Income Fund were designated
as Institutional Class shares.
(2) AMR Investment Services, Inc. began portfolio management of the
Limited-Term Income Fund on March 1, 1991 replacing Brown Brothers,
Harriman & Co. and Barrow, Hanley, Mewhinney & Strauss, Inc.
(3) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(4) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expense of
the Limited-Term Income Portfolio.
(5) Total return is calculated assuming an initial investment is made at the
net asset value last calculated on the business day before the first day of
each period reported, reinvestment of all dividends and capital gains
distributions on the payable date, accrual for the maximum shareholder
services fee of .30% (for periods prior to August 1, 1994) and a sale at
net asset value on the last day of each period reported.
(6) Total return for the AMR Class for the period ended October 31, 1994
reflects Institutional Class returns from November 1, 1993 through July 31,
1994 and returns of the AMR Class for the period August 1, 1994
(commencement of operations) through October 31, 1994. Due to the different
expense structures between the classes, total returns for the AMR Class
would vary from the results shown had it been in operation for the entire
year.
(7) Effective August 1, 1994, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager.
Such fees amounted to less than $.03 per share in each period on an
annualized basis.
(8) The method of determining average net assets was changed from a monthly
average to a daily average starting with the periods ended October 31,
1994.
(9) Annualized.
(10) On November 1, 1995 the Limited-Term Income Fund invested all of its
investable assets in the Limited-Term Portfolio. Portfolio turnover rate
for the year ended October 31, 1996 is that of the Limited-Term Income
Portfolio.
PROSPECTUS
8
<PAGE> 88
INTRODUCTION
The Trust is an open-end, diversified management investment company
organized as a Massachusetts business trust on January 16, 1987. The Funds are
five of the several investment portfolios of the Trust. Each Fund has a
distinctive investment objective and investment policies. Each Fund, except the
S&P 500 Index Fund, invests all of its investable assets in a corresponding
Portfolio of the AMR Trust that has an identical investment objective. The S&P
500 Index Fund invests all of its investable assets in the Equity 500 Index
Portfolio, which is a separate investment company, advised by BT, that has an
identical investment objective. The Manager provides the Portfolios, except the
Equity 500 Index Portfolio, with business and asset management services,
including the evaluation and monitoring of the investment advisers. The Manager
also provides the Funds with administrative services. BT provides the Equity 500
Index Portfolio with investment advisory, administrative and other services.
The Balanced Fund, Growth and Income Fund, International Equity Fund and
Limited-Term Income Fund consist of multiple classes of shares, including the
"AMR Class," for tax-exempt retirement and benefit plans of AMR Corporation and
its affiliates, the "PlanAhead Class" which is available to all investors,
including smaller institutional investors, investors using intermediary
organizations such as discount brokers or plan sponsors, individual retirement
accounts ("IRAs"), and self-employed individual retirement plans ("HR-10 Plans"
or "Keogh Plans"), and the "Institutional Class" which is available to large
institutional investors investing at least $2 million in the Funds. The S&P 500
Index Fund currently offers only the AMR Class of shares. For further
information about the Institutional Class call (800) 967-9009 and for the
PlanAhead Class call (800) 388-3344.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(losses) earned (or incurred) by the Fund. It also will bear its proportionate
share of expenses that are allocated to the Fund as a whole. However, certain
expenses are allocated separately to each class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. BT serves as the investment
adviser to the Equity 500 Index Portfolio, the Portfolio corresponding to the
S&P 500 Index Fund. Investment decisions for the Limited-Term Income Portfolio
are made directly by the Manager. With the exception of the S&P 500 Index Fund,
each investment adviser has discretion to purchase and sell portfolio securities
in accordance with the investment
PROSPECTUS
9
<PAGE> 89
objectives, policies and restrictions described in this Prospectus and in the
SAI and by specific investment strategies developed by the Manager. See
"Investment Advisers."
AMR Class shares are sold without any sales charges at the next share price
calculated after an investment is received and accepted. Shares will be redeemed
at the next share price calculated after receipt of a redemption order. See
"Purchase, Redemption and Valuation of Shares."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Board to the extent that
such changes are consistent with the investment objective of the applicable
Fund. However, each Fund's investment objective may not be changed without a
majority vote of that Fund's outstanding shares, which is defined as the lesser
of (a) 67% of the shares of the applicable Fund present or represented if the
holders of more than 50% of the shares are present or represented at the
shareholders' meeting, or (b) more than 50% of the shares of the applicable Fund
(hereinafter, "majority vote"). Except for the Equity 500 Index Portfolio, a
Portfolio's investment objective may not be changed without a majority vote of
that Portfolio's interest holders. The investment objective of the Equity 500
Index Portfolio is not a fundamental policy. Shareholders of the S&P 500 Index
Fund will receive thirty days prior written notice with respect to any change in
the investment objective of the Equity 500 Index Portfolio.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio, the AMR Trust's Board of
Trustees ("AMR Trust Board") and the Equity 500 Index Portfolio's Board of
Trustees ("Equity 500 Index Portfolio Board"), it applies equally to each Fund
and each Board.
AMERICAN AADVANTAGE BALANCED FUND -- This Fund's investment objective is to
realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating
PROSPECTUS
10
<PAGE> 90
organizations ("Rating Organizations") rating that security such as Standard &
Poor's ("S&P Rating") or Moody's Investor Services, Inc. ("Moody's") or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. Obligations rated in the BBB or Baa
categories by any Rating Organization have speculative characteristics and thus
changes in economic conditions or other circumstances are more likely to lead to
a weakened capacity to make principal and interest payments than is the case
with higher grade bonds. See the SAI for a description of debt ratings. The
Portfolio, at the discretion of the investment advisers, may retain a security
that has been downgraded below the initial investment criteria. The Portfolio
usually invests between 50% and 65% of its assets in equity securities and
between 35% and 50% of its assets in debt securities. The remainder of the
Portfolio's assets may be invested in other investment companies and in cash or
cash equivalents, including investment-grade short-term obligations. However,
when its investment advisers deem that market conditions warrant, the Portfolio
may, for temporary defensive purposes, invest up to 100% of its assets in cash,
cash equivalents and investment grade short-term obligations.
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government and its agencies and instrumentalities,
including separately traded registered interest and principal securities
("STRIPS") and other zero coupon obligations; corporate bonds, notes and
debentures; non-convertible preferred stocks; mortgage-backed securities;
asset-backed securities; and domestic, Yankeedollar and Eurodollar bank deposit
notes, certificates of deposit, bonds and notes. Such obligations may have a
fixed, variable or floating rate of interest. See the SAI for a further
description of the foregoing securities. The value of the Portfolio's debt
investments will vary in response to interest rate changes as described in
"American AAdvantage Limited-Term Income Fund."
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" and on a "forward commitment" basis. The purchase or sale of
when-issued securities enables an investor to hedge against anticipated changes
in interest rates and prices by locking in an attractive price or yield. The
price of when-issued securities is fixed at the time the commitment to purchase
or sell is made, but delivery and payment for the when-issued securities take
place at a later date, normally one to two months after the date of purchase.
During the period between purchase and settlement, no payment is made by the
purchaser to the issuer and no interest accrues to the purchaser. Such
transactions therefore involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date or if the value of the security
to be sold increases prior to the settlement date. A sale of a when-issued
security also involves the risk that the other party will be unable to settle
the transaction. Dollar rolls are a type of forward commitment transaction.
Purchases and sales of securities on a forward commitment basis involve a
commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally
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one to two months after the date of the transaction. As with when-issued
securities, these transactions involve certain risks, but they also enable an
investor to hedge against anticipated changes in interest rates and prices.
Forward commitment transactions are executed for existing obligations, whereas
in a when-issued transaction, the obligations have not yet been issued. When
purchasing securities on a when-issued or on a forward commitment basis, a
segregated account of liquid assets at least equal to the value of purchase
commitments for such securities will be maintained until the settlement date.
The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts which are
traded in the United States on exchanges and in the over-the-counter market.
When purchasing equity securities, emphasis will be placed on undervalued
securities with above average growth expectations. The Manager believes that
purchasing securities which the investment advisers believe are undervalued in
the market and that have above average growth potential will outperform other
investment styles over the longer term while minimizing volatility and downside
risk. The Manager will recommend that, with respect to portfolio management of
equity assets, the Trust retain only those investment advisers who, in the
Manager's opinion, utilize such an approach.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Balanced
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME FUND -- This Fund's investment objective
is to realize long-term capital appreciation and current income. This Fund seeks
its investment objective by investing all of its investable assets in the Growth
and Income Portfolio, which invests primarily in equity securities. Excluding
collateral for securities loaned, ordinarily at least 80% of the Portfolio's
assets will be invested in equity securities consisting of common stocks,
preferred stocks, securities convertible into common stocks, and securities
having common stock characteristics, such as rights and warrants, and foreign
equity securities that are represented by U.S. dollar-denominated American
Depository Receipts which are traded in the United States on exchanges and in
the over-the-counter market. When purchasing equity securities, primary emphasis
will be placed on undervalued securities with above average growth expectations.
In order to seek either above average current income or capital appreciation
when interest rates are expected to decline, the Portfolio may invest in debt
securities which, at the time of purchase, are rated in one of the four highest
rating categories by all Rating Organizations rating that security or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. See "American AAdvantage Balanced Fund"
for a description of the risks involved with these obligations. See the SAI for
definitions of the foregoing securities and for a description
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of debt ratings. The Portfolio also may invest in other investment companies or
in cash and cash equivalents, including investment grade short-term obligations.
However, when its investment advisers deem that market conditions warrant, the
Portfolio may, for temporary defensive purposes, invest up to 100% of its assets
in cash, cash equivalents and investment grade short-term obligations. In
addition, the Portfolio may purchase or sell securities on a "when-issued" or on
a "forward commitment" basis as described in "American AAdvantage Balanced
Fund."
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Growth and Income
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries located outside the
United States. However, excluding collateral for securities loaned, the
Portfolio generally invests in excess of 80% of its assets in such securities.
The remainder of the Portfolio's assets will be invested in non-U.S. debt
securities which, at the time of purchase, are rated in one of the three highest
rating categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including investment grade
short-term obligations, or in other investment companies. However, when its
investment advisers deem that market conditions warrant, the Portfolio may, for
temporary defensive purposes, invest up to 100% of its assets in cash, cash
equivalents, other investment companies and investment grade short-term
obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or expropriation
of assets and the risk of war; (2) less liquidity and greater volatility of
foreign investments; (3) less public information regarding foreign companies;
(4) less government regulation and supervision of foreign stock exchanges,
brokers and listed companies; (5) lack of uniform accounting, auditing and
financial reporting standards; (6) delays in transaction settlement in some
foreign markets; (7) possibility of an imposition of confiscatory foreign taxes;
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(8) possible limitation on the removal of securities or other assets of the
Portfolio; (9) restrictions on foreign investments and repatriation of capital;
(10) currency fluctuations; (11) cost and possible restrictions of currency
conversion; (12) withholding taxes on dividends in foreign countries; and (13)
possibly higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity aspects of a particular country's
market and the investment climate for foreign investors. The current countries
in which the Portfolio may invest are Australia, Austria, Belgium, Canada,
Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Singapore, South Korea, Spain, Sweden,
Switzerland and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are derivatives, to hedge currency fluctuations of underlying
stock or bond positions or in other circumstances permitted by the Commodity
Futures Trading Commission ("CFTC"). Forward contracts to sell foreign currency
may be used when the management of the Portfolio believes that the currency of a
particular foreign country may suffer a decline against the U.S. dollar. Forward
contracts are also entered into to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures for the same reasons as for
entering into forward contracts as set forth above. Currency futures are traded
on U.S. and foreign currency exchanges. The use of currency futures also entails
certain risks which include, but are not limited to: (1) less liquidity due to
daily limits on price fluctuation; (2) imperfect correlation between the
securities hedged and the contracts themselves; (3) possible decrease in the
total return of the Portfolio due to hedging; (4) possible reduction in value
for both the contracts and the securities being hedged; and (5) potential losses
in excess of the amounts invested in the currency futures contracts themselves.
The Portfolio may not enter into currency futures contracts if the purchase or
sale of such contract would cause the sum of the Portfolio's initial and
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any variation margin deposits to exceed 5% of its total assets. Currency futures
contracts, which are derivatives, are discussed in greater detail in the SAI.
HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio. Rowe Price-Fleming International, Inc.
("Fleming") also is an investment adviser to the International Equity Portfolio;
however, none of the Portfolio's assets have been allocated to Fleming at this
time. See "Investment Advisers."
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND -- This Fund's investment objective
is to realize income and capital appreciation. As an investment policy, the Fund
primarily seeks income and secondarily seeks capital appreciation. The Fund
seeks its investment objective by investing all of its investable assets in the
Limited-Term Income Portfolio, which invests primarily in debt obligations.
Permissible investments include securities of the U.S. Government and its
agencies and instrumentalities, including STRIPS and other zero coupon
obligations; corporate bonds, notes and debentures; nonconvertible preferred
stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
investment grade short-term obligations. Such obligations may have a fixed,
variable or floating rate of interest. At the time of purchase, all such
securities will be rated in one of the four highest rating categories by all
Rating Organizations rating such obligation or, if unrated, will be deemed to be
of comparable quality by the investment adviser. Obligations rated in the fourth
highest rating category are limited to 25% of the Portfolio's total assets. See
"American AAdvantage Balanced Fund" for a description of the risks involved with
these obligations. The Portfolio, at the discretion of the Manager, may retain a
security which has been downgraded below the initial investment criteria. See
the SAI for definitions of the foregoing securities and for a description of
debt ratings. Principal and/or interest payments for obligations of the U.S.
Government's agencies or instrumentalities may or may not be backed by the full
faith and credit of the U.S. Government.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements. The Portfolio also may engage in
dollar
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rolls or purchase or sell securities on a "when-issued" or "forward commitment"
basis as described under "American AAdvantage Balanced Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments will
not vary as much due to the periodic adjustments in their interest rates. An
adjustment which increases the interest rate of such securities should reduce or
eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment, the
value of the premium would be lost. Like other debt securities, when interest
rates rise, the value of mortgage-related securities generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National Mortgage Association ("FNMA")
or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are supported
only by the discretionary authority of the U.S. Government to purchase the
agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary market issuers) may be supported with various credit enhancements such
as pool insurance, guarantees issued by governmental entities, a letter of
credit from a bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are
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more typically collateralized by portfolios of mortgage pass-through securities
guaranteed by GNMA, FHLMC or FNMA. CMOs are structured in multiple classes, with
each class bearing a different stated maturity or interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans, automobile and credit card receivables, and other types of receivables or
other assets as well as purchase contracts, financing leases and sales
agreements entered into by municipalities, are securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's and the Portfolio's investment objective, policies
and quality standards, the Portfolio may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on the securities. The risks associated with
asset-backed securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
Although investments will not be restricted by either maturity or duration
of the securities purchased, under normal circumstances, the Portfolio will seek
to maintain a dollar weighted average duration of one to three years. Because
the timing on return of principal for both asset-backed and mortgage-backed
securities is uncertain, in calculating the average weighted duration of the
Portfolio, the duration of these securities may be based on certain industry
conventions. The Manager serves as the sole active investment adviser to the
Limited-Term Income Fund and its corresponding Portfolio.
AMERICAN AADVANTAGE S&P 500 INDEX FUND -- This Fund's investment objective is to
provide investment results that, before expenses, correspond to the total return
(the combination of capital changes and income) of common stocks publicly traded
in the United States, as represented by the S&P 500. This Fund seeks its
investment objective by investing all of its investable assets in the Equity 500
Index Portfolio which invests in common stocks of companies that compose the S&P
500. The Fund offers investors a convenient means of diversifying their holdings
of common stocks while relieving those investors of the administrative burdens
typically associated with purchasing and holding these instruments.
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The Portfolio is not managed according to traditional methods of "active"
investment management, which involve the buying and selling of securities based
upon economic, financial and market analyses and investment judgment. Instead,
the Portfolio, utilizing a "passive" or "indexing" investment approach, attempts
to replicate, before expenses, the performance of the S&P 500.
Under normal conditions, the Portfolio will invest at least 80% of its
assets in common stocks of companies that compose the S&P 500. In seeking to
replicate the performance of the S&P 500, BT, the Portfolio's investment
adviser, will attempt over time to allocate the Portfolio's investments among
common stocks in approximately the same weightings as the S&P 500, beginning
with the heaviest-weighted stocks that make up a larger portion of the Index's
value. Over the long term, BT normally seeks a correlation between the
performance of the Portfolio, before expenses, and that of the S&P 500 of 0.98
or better. A figure of 1.00 would indicate perfect correlation. In the unlikely
event that the correlation is not achieved, the Equity 500 Index Portfolio Board
will consider alternative structures.
BT utilizes a two-stage sampling approach in seeking to obtain the
objective. Stage one, which encompasses large capitalization stocks, maintains
the stock holdings at or near their benchmark weights. Large capitalization
stocks are defined as those securities that represent 0.10% or more of the
Index. In stage two, smaller stocks are analyzed and selected using risk
characteristics and industry weights in order to match the sector and risk
characteristics of the smaller companies in the S&P 500. This approach helps to
maximize portfolio liquidity while minimizing costs.
BT generally will seek to match the composition of the S&P 500, but usually
will not invest the Portfolio's stock portfolio to mirror the Index exactly.
Because of the difficulty and expense of executing relatively small stock
transactions, the Portfolio may not always be invested in the less heavily
weighted S&P 500 stocks and may at times have its portfolio weighted differently
from the S&P 500. When the Portfolio's size is greater, BT expects to purchase
more of the stocks in the S&P 500 and to match the relative weighting of the S&P
500 more closely and anticipates that the Portfolio will be able to mirror,
before expenses, the performance of the S&P 500 with little variance. In
addition, the Portfolio may omit or remove any S&P 500 stock from the Portfolio
if, following objective criteria, BT judges the stock to be insufficiently
liquid or believes the merit of the investment has been substantially impaired
by extraordinary events or financial conditions. BT will not purchase the stock
of Bankers Trust New York Corporation, which is included in the Index, and
instead will overweight its holdings of companies engaged in similar businesses.
Under normal conditions, BT will attempt to invest as much of the
Portfolio's assets as is practical in common stocks included in the S&P 500.
However, the Portfolio may maintain up to 20% of its assets in short-term debt
securities and
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money market instruments hedged with stock index futures and options to meet
redemption requests or to facilitate the investment in common stocks.
When the Portfolio has cash from new investments in the Portfolio or holds a
portion of its assets in money market instruments, it may enter into stock index
futures or options to attempt to increase its exposure to the stock market.
Strategies the Portfolio could use to accomplish this include purchasing futures
contracts, writing put options, and purchasing call options. When the Portfolio
wishes to sell securities, because of shareholder redemptions or otherwise, it
may use stock index futures or options thereon to hedge against market risk
until the sale can be completed. These strategies could include selling futures
contracts, writing call options, and purchasing put options.
BT will choose among futures and options strategies based on its judgment of
how best to meet the Portfolio's goals. In selecting futures and options, BT
will assess such factors as current and anticipated stock prices, relative
liquidity and price levels in the options and futures markets compared to the
securities markets, and the Portfolio's cash flow and cash management needs. If
BT judges these factors incorrectly, or if price changes in the Portfolio's
futures and options positions are not well correlated with those of its other
investments, the Portfolio could be hindered in the pursuit of the objective and
could suffer losses. The Portfolio could also be exposed to risks if it could
not close out its futures or options positions because of an illiquid secondary
market. BT will only use these strategies for cash management purposes. Futures
and options will not be used to increase portfolio risk above the level that
could be achieved using only traditional investment securities or to acquire
exposure to changes in the value of assets or indices that by themselves would
not be purchased for the Portfolio. Futures and options are discussed in greater
detail in the SAI.
The Portfolio intends to stay invested in the securities described above to
the extent practical in light of the objective and long-term investment
perspective. However, the Portfolio's assets may be invested in short-term
instruments with remaining maturities of 397 days or less to meet anticipated
redemptions and expenses or for day-to-day operating purposes. Short-term
instruments consist of (1) short-term obligations of the U.S. Government, its
agencies, instrumentalities, authorities or political subdivisions; (2) other
short-term debt securities rated Aa or higher by Moody's or AA or higher by S&P
Rating or, if unrated, of comparable quality in the opinion of BT; (3)
commercial paper; (4) bank obligations, including negotiable certificates of
deposit, time deposits and bankers' acceptances; and (5) repurchase agreements.
At the time the Portfolio invests in commercial paper, bank obligations or
repurchase agreements, the issuer or the issuer's parent must have outstanding
debt rated Aa or higher by Moody's or AA or higher by S&P Rating or outstanding
commercial paper or bank obligations rated Prime-1 by Moody's or A-1 by S&P
Rating; or, if no such ratings are available, the instrument must be of
comparable quality in the opinion of BT.
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The S&P 500 is a well-known stock market index that includes common stocks
of 500 companies from several industrial sectors representing a significant
portion of the market value of all common stocks publicly traded in the United
States, most of which are listed on the New York Stock Exchange (the
"Exchange"). Stocks in the S&P 500 are weighted according to their market
capitalization (the number of shares outstanding multiplied by the stock's
current price). BT believes that the performance of the S&P 500 is
representative of the performance of publicly traded common stocks in general.
The composition of the S&P 500 is determined by Standard & Poor's Corporation
("S&P") and is based on such factors as the market capitalization and trading
activity of each stock and its adequacy as a representation of stocks in a
particular industry group, and may be changed from time to time. For more
complete information about the Index, see the SAI.
The Fund and the Portfolio are not sponsored, endorsed, sold or promoted by
S&P. S&P makes no representation or warranty, express or implied, to the owners
of the Fund or the Portfolio or any member of the public regarding the
advisability of investing in securities generally or in the Fund and the
Portfolio particularly or the ability of the S&P 500 to track general stock
market performance. S&P does not guarantee the accuracy and/or the completeness
of the S&P 500 or any data included therein.
S&P MAKES NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE RESULTS TO BE OBTAINED
BY THE FUND OR THE PORTFOLIO, OWNERS OF THE FUND OR THE PORTFOLIO, OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE S&P 500 OR ANY DATA INCLUDED THEREIN. S&P
MAKES NO EXPRESS OR IMPLIED WARRANTIES AND HEREBY EXPRESSLY DISCLAIMS ALL SUCH
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH
RESPECT TO THE S&P 500 OR ANY DATA INCLUDED THEREIN.
The ability of the Fund and the Portfolio to meet their investment objective
depends to some extent on the cash flow experienced by the Fund and by the other
investors in the Portfolio, since investments and redemptions by shareholders of
the Fund generally will require the Portfolio to purchase or sell securities. BT
will make investment changes to accommodate cash flow in an attempt to maintain
the similarity of the Portfolio to the S&P 500. An investor should also be aware
that the performance of the S&P 500 is a hypothetical number that does not take
into account brokerage commissions and other costs of investing, unlike the
Portfolio which must bear these costs. Finally, since the Portfolio seeks to
track the S&P 500, BT generally will not attempt to judge the merits of any
particular stock as an investment.
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
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SECURITIES LENDING Each Portfolio (except for the Equity 500 Index
Portfolio) may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. Government and its
agencies and instrumentalities and approved bank letters of credit that at all
times equal at least 100% of the market value of the loaned securities. Such
loans will not be made if, as a result, the aggregate amount of all outstanding
securities loans by any Portfolio of the AMR Trust would exceed 33 3/8% of its
total assets. A Portfolio continues to receive interest on the securities loaned
and simultaneously earns either interest on the investment of the cash
collateral or fee income if the loan is otherwise collateralized. Should the
borrower of the securities fail financially, there is a risk of delay in
recovery of the securities loaned or loss of rights in the collateral. However,
the Portfolios seek to minimize this risk by making loans only to borrowers
which are deemed by the Manager to be of good financial standing and which have
been approved by the AMR Trust Board. For purposes of complying with each
Portfolio's investment policies and restrictions, collateral received in
connection with securities loans will be deemed an asset of a Portfolio to the
extent required by law. The Manager will receive compensation for administrative
and oversight functions with respect to securities lending. The amount of such
compensation will depend on the income generated by the loan of each Portfolio's
securities. The SEC has granted exemptive relief that permits the Portfolios to
invest cash collateral received from securities lending transactions in shares
of one or more private investment companies managed by the Manager. See the SAI
for further information regarding loan transactions.
REPURCHASE AGREEMENTS A repurchase agreement is an agreement under which
securities are acquired by a Portfolio from a securities dealer or bank subject
to resale at an agreed upon price on a later date. The acquiring Portfolio bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, the
investment advisers or the Manager attempt to minimize this risk by entering
into repurchase agreements only with financial institutions which are deemed to
be of good financial standing and which have been approved by the AMR Trust
Board or the Equity 500 Index Portfolio Board, as appropriate. See the SAI for
more information regarding repurchase agreements.
PRIVATE PLACEMENT OFFERINGS Investments in private placement offerings are
made in reliance on the "private placement" exemption from registration afforded
by Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws and generally are sold to institutional investors such
as the Portfolios that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be pursuant to an exempt transaction and may be accomplished in
accordance with Rule 144A. Section 4(2) securities normally
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are resold to other institutional investors such as the Portfolios through or
with the assistance of the issuer or dealers that make a market in the Section
4(2) securities, thus providing liquidity. The Portfolios will not invest more
than 15% of their respective net assets in Section 4(2) securities and illiquid
securities unless the applicable investment adviser determines, by continuous
reference to the appropriate trading markets and pursuant to guidelines approved
by the AMR Trust Board or the Equity 500 Index Portfolio Board that any Section
4(2) securities held by such Portfolio in excess of this level are at all times
liquid.
The AMR Trust Board, the Equity 500 Index Portfolio Board and the applicable
investment adviser, pursuant to the guidelines approved by the respective
Boards, will carefully monitor the respective Portfolios' investments in Section
4(2) securities offered and sold under Rule 144A, focusing on such important
factors, among others, as valuation, liquidity, and availability of information.
Investments in Section 4(2) securities could have the effect of reducing a
Portfolio's liquidity to the extent that qualified institutional buyers no
longer wish to purchase these restricted securities.
BROKERAGE PRACTICES AND PORTFOLIO TURNOVER -- Each investment adviser will place
its own orders to execute securities transactions which are designed to
implement the applicable Portfolio's investment objective and policies. In
placing such orders, each investment adviser will seek the best available price
and most favorable execution. The full range and quality of services offered by
the executing broker or dealer is considered when making these determinations.
Pursuant to written guidelines approved by the AMR Trust Board or the Equity 500
Index Portfolio Board, as appropriate, 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 Investment Company Act of 1940, as amended ("1940 Act")) for doing so.
The Limited-Term Income Portfolio normally will not incur any brokerage
commissions on its transactions because debt instruments are generally traded on
a "net" basis with dealers acting as principal for their own accounts without a
stated commission. The price of the obligation, however, usually includes a
profit to the dealer. Obligations purchased in underwritten offerings include a
fixed amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. No commissions or discounts are paid when
securities are purchased directly from an issuer.
No Portfolio, other than the Limited-Term Income Portfolio, currently
expects its portfolio turnover rate to exceed 100%. The portfolio turnover rate
for the Limited-Term Income Portfolio for the fiscal year ended October 31, 1996
was 304%. A Portfolio's turnover rate, or the frequency of portfolio
transactions, will vary from year to year depending on market conditions and the
Portfolio's cash flows. High portfolio
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activity increases a Portfolio's transaction costs, including brokerage
commissions, and may result in a greater number of taxable transactions.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment company
managed by the Manager, or in the Equity 500 Index Portfolio, which is a
separate investment company advised by BT. Since a Fund will invest only in its
corresponding Portfolio, that Fund's shareholders will acquire only an indirect
interest in the investments of the Portfolio. Historically, the Manager has
sponsored traditionally structured funds and, therefore, has limited experience
with funds that invest all their assets in a separate portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust and the Equity 500
Index Portfolio. In addition to selling their interests to the Funds, the
Portfolios may sell their interests to other nonaffiliated investment companies
and/or other institutional investors. All institutional investors in a Portfolio
will pay a proportionate share of the Portfolio's expenses and will invest in
that Portfolio on the same terms and conditions. However, if another investment
company invests all of its assets in a Portfolio, it would not be required to
sell its shares at the same public offering price as a Fund and would be allowed
to charge different sales commissions. Therefore, investors in a Fund may
experience different returns from investors in another investment company that
invests exclusively in that Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution
"in kind" of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution "in kind" could result in a less diversified portfolio
of investments for that Fund and could affect adversely its liquidity.
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The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Trusts" for a complete description
of the investment management fee and other expenses associated with a Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the Trust, the AMR Trust, and the Equity 500 Index
Portfolio Board, (3) brokerage practices, (4) the Funds' shares, including the
rights and liabilities of its shareholders, (5) additional performance
information, including the method used to calculate yield and total return, and
(6) the determination of the value each Fund's shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restriction are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio, the AMR Trust Board and the Equity 500 Index
Portfolio, it applies equally to each Fund and Board. The following fundamental
investment restrictions may be changed with respect to a particular Fund by the
majority vote of that Fund's outstanding shares or with respect to a Portfolio
by the majority vote of that Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities. Finance companies as a group are not
considered a single industry for purposes of this policy. Further, wholly
owned subsidiaries of finance companies will be considered to be in the
industries of their parent
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companies if their activities are primarily related to financing the
activities of their parent companies.
The following non-fundamental investment restriction may be changed with respect
to a particular Fund by a vote of a majority of the Board or with respect to a
Portfolio by a vote of a majority of the AMR Trust Board or the Equity 500 Index
Portfolio Board, as appropriate: no Portfolio may Invest more than 15% of its
net assets in illiquid securities, including time deposits and repurchase
agreements that mature in more than seven days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
Yields for the AMR Class of the Funds will be computed by dividing the net
investment income earned per AMR Class share during the relevant time period by
the maximum offering price per AMR Class share on the last day of the period.
Total return quotations for the AMR Class of the Funds may reflect the average
annual compounded (or aggregate compounded) rate of return during the designated
time period based on a hypothetical initial investment and the redeemable value
of that investment at the end of the period. Additionally, the AMR Class of the
Limited-Term Income Fund may advertise a "monthly distribution rate." This rate
is based on an annualized monthly dividend accrual rate per share compared with
the month-end share price of the AMR Class of this Fund. The Funds will at times
compare their performance to applicable published indices, and may also disclose
their performance as ranked by certain ranking entities. Each class of a Fund
has different expenses which will impact its performance. See the SAI for more
information about the calculation of yields and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUSTS
FUND MANAGEMENT AGREEMENT -- The Board has general supervisory responsibility
over the Trust's affairs, while the business affairs of the AMR Trust and of the
Equity 500 Index Portfolio are subject to the supervision of their respective
Board of Trustees. The Manager provides or oversees all administrative,
investment advisory and portfolio management services for the Trust pursuant to
a Management Agreement dated April 3, 1987, as amended December 17, 1996,
together with the Administrative Services Agreement described below. The AMR
Trust and the Manager also entered into a Management Agreement dated November
22, 1996 that obligates the Manager to provide or oversee all administrative,
investment advisory and portfolio management services for the AMR Trust. The
Manager, located at 4333 Amon Carter Boulevard,
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MD 5645, Fort Worth, Texas 76155, is a wholly owned subsidiary of AMR
Corporation ("AMR"), the parent company of American Airlines, Inc., and was
organized in 1986 to provide investment management, advisory, administrative and
asset management consulting services. The assets of the Balanced Portfolio, the
Growth and Income Portfolio and the International Equity Portfolio are allocated
by the Manager among one or more investment advisers designated for that
Portfolio. See "Investment Advisers." BT serves as investment adviser and
administrator of, and provides custody and transfer agency services to, the
Equity 500 Index Portfolio. The Manager serves as the sole active investment
adviser to the Limited-Term Income Portfolio. In addition, with the exception of
the International Equity Portfolio and the Equity 500 Index Portfolio, if so
requested by any of its investment advisers, the Manager will make the
investment decisions with respect to assets allocated to that investment adviser
which the investment adviser determines should be invested in investment grade
short-term obligations. As of December 31, 1996, the Manager had assets under
management totaling approximately $16.0 billion, including approximately $5.7
billion under active management and $10.3 billion as named fiduciary or
fiduciary adviser. Of the total, approximately $11.9 billion of assets are
related to AMR. American Airlines, Inc. is not responsible for investments made
in the American AAdvantage Funds.
The Manager provides the Trust and the AMR Trust with office space, office
equipment and personnel necessary to manage and administer the Trusts'
operations. This includes complying with reporting requirements; corresponding
with shareholders; maintaining internal bookkeeping, accounting and auditing
services and records; and supervising the provision of services to the Trusts by
third parties. The Manager also oversees each Portfolio's participation in
securities lending activities and any actions taken by securities lending agents
in connection with those activities to ensure compliance with all applicable
regulatory and investment guidelines. The Manager also develops the investment
programs for each Portfolio of the AMR Trust, selects and changes investment
advisers (subject to approval by the AMR Trust Board and appropriate interest
holders), allocates assets among investment advisers, monitors the investment
advisers' investment programs and results, and coordinates the investment
activities of the investment advisers to ensure compliance with regulatory
restrictions.
The Manager bears the expense of providing the above services and pays the
fees of the investment advisers of the Funds and the Portfolios of the AMR
Trust. As compensation for paying the investment advisory fees and for providing
the Portfolios with advisory and asset allocation services, the Manager receives
from the AMR Trust an annualized advisory fee that is calculated and accrued
daily, equal to the sum of (1) 0.25% of the net assets of the Limited-Term
Income Portfolio, (2) 0.10% of the net assets of the other Portfolios of the AMR
Trust, plus (3) all fees payable by the Manager to the AMR Trust's investment
advisers as described in "Investment Advisers." The advisory fee is payable
quarterly in arrears. To the extent that a Fund
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invests all of its investable assets in its corresponding Portfolio, the Manager
will not receive an advisory fee under its Management Agreement with the Trust.
The Manager receives compensation in connection with securities lending
activities. If a Portfolio lends its portfolio securities and receives cash
collateral from the borrower, the Manager will receive up to 25% of the net
annual interest income (the gross interest earned by the investment less the
amount paid to the borrower as well as related expenses) received from the
investment of such cash. If a borrower posts collateral other than cash, the
borrower will pay to the lender a loan fee. The Manager will receive up to 25%
of the loan fees posted by borrowers.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Board and the AMR
Trust Board, including the affirmative votes of a majority of the Trustees of
each Board who are not parties to the Management Agreement or "interested
persons" as defined in the 1940 Act of any such party ("Independent Trustees"),
cast in person at a meeting called for the purpose of considering such approval,
or by the vote of a Fund's shareholders or a Portfolio's interest holders. A
Management Agreement may be terminated with respect to a Fund or a Portfolio at
any time, without penalty, by a majority vote of outstanding Fund shares or
Portfolio interests on sixty (60) days' written notice to the Manager, or by the
Manager, on sixty (60) days' written notice to the Trust or the AMR Trust. A
Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Trust is responsible for the following expenses: audits by independent
auditors; transfer agency, custodian, dividend disbursing agent and shareholder
recordkeeping services; taxes, if any, and the preparation of each Fund's tax
returns; interest; costs of Trustee and shareholder meetings; printing and
mailing prospectuses and reports to existing shareholders; fees for filing
reports with regulatory bodies and the maintenance of the Funds' existence;
legal fees; fees to federal and state authorities for the registration of
shares; fees and expenses of Independent Trustees; insurance and fidelity bond
premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
FUND ADVISORY AGREEMENTS -- Each investment adviser, except BT, has entered into
a separate investment advisory agreement with the Manager to provide investment
advisory services to the Funds and Portfolios of the AMR Trust. To the extent
that a Fund invests all of its investable assets in a corresponding Portfolio,
however, an investment adviser will receive an advisory fee only on behalf of
the Portfolio and not on behalf of its corresponding Fund. Except for the
Limited-Term Income Portfolio and the Equity 500 Index Portfolio, the assets of
each Portfolio are allocated among
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the investment advisers designated for that Portfolio and described in this
Prospectus in "Investment Advisers." The Manager is permitted to enter into new
or modified advisory agreements with existing or new investment advisers without
approval of Fund shareholders or Portfolio interest holders, but subject to
approval of the Board and the AMR Trust Board. The Securities and Exchange
Commission issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the applicable Fund send a notice to shareholders containing
information about the change that would be included in a proxy statement. The
Manager recommends investment advisers to the Board and the AMR Trust Board
based upon its continuing quantitative and qualitative evaluation of the
investment advisers' skill in managing assets using specific investment styles
and strategies. The allocation of assets among investment advisers may be
changed at any time by the Manager. Allocations among advisers will vary based
upon a variety of factors, including the overall investment performance of each
investment adviser, the Portfolio's cash flow needs and market conditions. The
Manager need not allocate assets to each investment adviser designated for a
Portfolio. The investment advisers can be terminated without penalty to the AMR
Trust by the Manager and the AMR Trust Board or the interest holders of the
applicable Portfolio. Short-term investment performance, by itself, is not a
significant factor in selecting or terminating an investment adviser, and the
Manager does not expect to recommend frequent changes of investment advisers.
The Prospectus will be supplemented if additional investment advisers are
retained or the contract with any existing investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objective, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board, the Equity 500 Index Portfolio Board and/or
the Manager, as appropriate, these parties do not evaluate the investment merits
of specific securities transactions. As compensation for its services, each
investment adviser, except BT, is paid a fee by the Manager out of the proceeds
of the management fee received by the Manager from the AMR Trust.
ADMINISTRATIVE SERVICES AGREEMENTS -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. To the extent that a
Fund invests all of its investable assets in a corresponding Portfolio, however,
the Manager will receive no fee under this Agreement.
BT serves as the administrator to the Equity 500 Index Portfolio. Under an
Administration and Services Agreement with the Portfolio, BT calculates the
value of
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the assets of the Portfolio and generally assists the Equity 500 Index Portfolio
Board in all aspects of the administration and operation of the Portfolio. The
Administration and Services Agreement provides for the Portfolio to pay BT a
fee, computed daily and paid monthly, at the rate of 0.05% of the average daily
net assets of the Portfolio. Under the Administration and Services Agreement, BT
may delegate one or more of its responsibilities to others, including Federated
Services Company, at BT's expense.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas, 75205 serves as the principal underwriter of the
Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Portfolios of the AMR Trust and the Funds, except
for the International Equity Portfolio, and as transfer agent for the AMR Class.
THE BANK OF NEW YORK, New York, New York serves as custodian for the
International Equity Portfolio. BANKERS TRUST COMPANY, New York, New York,
serves as custodian and transfer agent for the assets of the Equity 500 Index
Portfolio.
INDEPENDENT AUDITOR -- The independent auditor for the Trust, except the S&P 500
Index Fund, and the AMR Trust is ERNST & YOUNG LLP, Dallas, Texas. The
independent auditor for the S&P 500 Index Fund and the Equity 500 Index
Portfolio is COOPERS & LYBRAND L.L.P., New York, New York.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each Fund
and its corresponding Portfolio. References to the investment advisers retained
by a Portfolio also apply to the corresponding Fund. Except for the Manager and
BT, the investment advisers do not provide any services to the Funds or the
Portfolios except for portfolio investment management and related recordkeeping
services, or have any affiliation with the Trust, the AMR Trust, the Equity 500
Index Portfolio or the Manager. BT provides investment advisory, administrative
and other services to the Equity 500 Index Portfolio. See "Bankers Trust
Company" below for a full discussion of those services.
William F. Quinn has served as President of the Manager since it was founded
in 1986 and Nancy A. Eckl serves as Vice President - Trust Investments of the
Manager. Ms. Eckl previously served as Vice President - Finance and Compliance
of the Manager from December 1990 to May 1995. In these capacities, Mr. Quinn
and Ms. Eckl have primary responsibility for the day-to-day operations of the
Balanced Fund, the Growth and Income Fund, the International Equity Fund and
their corresponding Portfolios. These responsibilities include oversight of the
investment
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advisers to these Funds, regular review of their performance and asset
allocations among them.
Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and serves as Vice
President - Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President, Institutional Fixed Income Sales at Merrill,
Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
Frank Salerno, Managing Director of BT, is responsible for the day-to-day
management of the Equity 500 Index Portfolio. Mr. Salerno has been employed by
BT since prior to 1989 and has managed the Equity 500 Index Portfolio's assets
since the Portfolio commenced operations December 31, 1992.
BANKERS TRUST COMPANY, 280 Park Avenue, New York, New York 10017, is a New
York banking corporation and is a wholly owned subsidiary of Bankers Trust New
York Corporation. BT conducts a variety of general banking and trust activities
and is a major wholesale supplier of financial services to the international and
domestic institutional market, with a global network of over 120 offices in more
than 40 countries. As of September 30, 1996, Bankers Trust New York Corporation
was the seventh largest bank holding company in the United States with total
assets of approximately $104 billion and approximately $200 billion in assets
under management globally. Of that total, approximately $84 billion are in U.S.
equity index assets alone. BT serves as investment adviser and administrator to
the Equity 500 Index Portfolio. For its services, BT receives a fee from the
Equity 500 Index Portfolio, computed daily and paid monthly, at the annual rate
of 0.08% of the average daily net assets of the Portfolio.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment advisory services since 1979. The firm is
wholly owned by United Asset Management Corporation, a Delaware corporation. As
of December 31, 1996, Barrow had discretionary investment management authority
with respect to approximately $20.5 billion of assets, including approximately
$1.5 billion of assets of AMR and its subsidiaries and affiliated entities.
Barrow serves as an investment adviser to the Balanced Portfolio, the Growth and
Income Portfolio and the Limited-Term Income Portfolio, although the Manager
does not presently intend to allocate any of the assets in the Limited-Term
Income Portfolio to Barrow. The Manager pays Barrow an annualized fee equal to
.30% on the first $200 million in
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AMR Trust assets under its discretionary management, .20% on the next $300
million, .15% on the next $500 million, and .125% on assets over $1 billion.
BRANDYWINE ASSET MANAGEMENT, INC. ("Brandywine"), 201 North Walnut Street,
Wilmington, Delaware 19801, is a privately held professional investment
counseling firm founded in 1986. As of December 31, 1996, Brandywine had assets
under management totaling approximately $6 billion, including approximately $285
million of assets of AMR and its subsidiaries and affiliated entities.
Brandywine serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. For its services to these Portfolios, the Manager
pays Brandywine an annualized fee equal to .225% of assets in the Balanced
Portfolio and .25% of assets in the Growth and Income Portfolio of the first
$500 million of assets under its discretionary management; .225% of the next
$100 million on all assets and .20% on all excess assets.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation. As of
December 31, 1996, GSB managed approximately $3.2 billion of assets, including
approximately $802 million of assets of AMR and its subsidiaries and affiliated
entities. GSB serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. The Manager pays GSB an annualized fee equal to
.30% of the first $100 million in AMR Trust assets under its discretionary
management, .25% of the next $100 million, .20% of the next $100 million, and
.15% of all excess assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley became a
division of Merrill Lynch Capital Management Group, a wholly owned subsidiary of
Merrill Lynch & Co., Inc., on November 12, 1996. Assets under management as of
December 31, 1996 were approximately $10.2 billion, which included approximately
$1.4 billion of assets of AMR and its subsidiaries and affiliated entities.
Hotchkis and Wiley serves as an investment adviser to the Balanced Portfolio,
the Growth and Income Portfolio and the International Equity Portfolio. The
advisory contract provides for the Manager to pay Hotchkis and Wiley an
annualized fee equal to .60% of the first $10 million of assets under its
discretionary management, .50% of the next $140 million of assets, .30% of the
next $50 million of assets, .20% of the next $800 million of assets and .15% of
all excess assets.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1996,
including funds managed for its parent company, were approximately $25.9
billion, which
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included approximately $981 million of assets of AMR and its subsidiaries and
affiliated entities. IIA serves as an investment adviser to the Balanced
Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets, and .20%
of all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 25 Cabot Square, London,
United Kingdom, E14 4QA, is a wholly owned subsidiary of Morgan Stanley Group
Inc. MSAM provides portfolio management and named fiduciary services to taxable
and nontaxable institutions, international organizations and individuals
investing in United States and international equity and debt securities. As of
September 30, 1996, MSAM had assets under management totaling approximately
$67.1 billion, including approximately $50.2 billion under active management and
$16.9 billion as named fiduciary or fiduciary adviser. As of September 30, 1996,
MSAM had investment authority over approximately $314 million of assets of AMR
and its subsidiaries and affiliated entities. MSAM serves as an investment
adviser to the International Equity Portfolio. For this service, the Manager
pays MSAM an annual fee equal to .80% of the first $25 million in AMR Trust
assets under its discretionary management, .60% of the next $25 million in
assets, .50% of the next $25 million in assets and .40% of all excess assets.
On February 5, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover &
Co. announced that they had entered into an Agreement and Plan of Merger to form
a new company to be named Morgan Stanley, Dean Witter, Discover & Co. Subject to
certain conditions being met, it is currently anticipated that the transaction
will close in mid-1997. Thereafter, MSAM will be a subsidiary of Morgan Stanley,
Dean Witter, Discover & Co.
ROWE PRICE-FLEMING INTERNATIONAL, INC. ("Fleming"), 100 East Pratt Street,
Baltimore, Maryland 21202, is a professional investment counseling firm founded
in 1979. Fleming is a joint venture owned entirely by its three parent
companies, T. Rowe Price, Robert Fleming and Jardine Fleming. As of December 31,
1996, Fleming had assets under management totaling approximately $29.0 billion,
including approximately $265 million of assets of AMR and its subsidiaries and
affiliated entities. Fleming serves as an investment adviser to the
International Equity Portfolio, although the Manager does not presently intend
to allocate assets to Fleming. For its services to the International Equity
Portfolio when total assets under Fleming's management are less than $200
million, the Manager will pay Fleming an annualized fee equal to 0.75% of the
first $20 million, 0.60% of the next $30 million and 0.50% on amounts over $50
million. When assets under Fleming's management exceed $200 million but are less
than $500 million, the Manager will pay Fleming an annualized fee equal to 0.50%
on all assets. When assets under Fleming's management exceed $500 million but
are less than $750 million, the Manager will pay an annualized fee equal to
0.45% on all assets, and when assets exceed $750 million, the Manager will pay
Fleming a flat fee of 0.40% on all assets. When asset levels are
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between $184 million and $200 million, Fleming will credit the Manager with an
adjustment for the difference between the two fee schedules. The credit is
determined by pro-rating the difference between the original tiered fee and the
flat fee ($80,000 per annum at all asset levels) over the difference between
$200 million and the current asset size for billing purposes.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1996, Templeton had discretionary investment management authority with respect
to approximately $21.7 billion of assets, including approximately $433.9 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. For this
service, the Manager pays Templeton an annualized fee equal to .50% of the first
$100 million in AMR Trust assets under its discretionary management, .35% of the
next $50 million in assets, .30% of the next $250 million in assets and .25% on
assets over $400 million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM and BT, there
shall be included all other assets or trust assets of American Airlines, Inc.
also under management by each respective investment adviser (except assets
managed by Barrow under the HALO Bond Program). For the purpose of determining
the applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the applicable Portfolio.
PURCHASE, REDEMPTION AND VALUATION OF SHARES
PURCHASING SHARES OF THE TRUST -- AMR Class shares are offered to tax-exempt
retirement and benefit plans of AMR Corporation and its affiliates. Shares are
sold without a sales charge at the next share price calculated after the
acceptance of a purchase order. AMR Class shares are offered and orders accepted
until 4:00 p.m. Eastern time on each day on which the Exchange is open for
trading, which excludes the following business holidays: New Year's Day,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day ("Business Day"). The Trust reserves the
right to reject any order for the purchase of shares and to limit or suspend,
without prior notice, the offering of shares.
AMR Class shares may be purchased and redeemed as follows:
BY WIRE -- Purchases may be made by wiring funds. To ensure prompt receipt of a
transmission by wire, the investor should: telephone the transfer agent at (214)
508-5038 or (800) 658-5811 and specify the Fund whose shares are to be
PROSPECTUS
33
<PAGE> 113
purchased; provide the name, address, telephone number and account number of the
investor; and identify the amount being wired and by which bank. If the investor
is opening a new account, the transfer agent will provide the investor with an
account number. The investor should instruct its bank to designate the account
number which the transfer agent has assigned to the investor and to transmit the
federal funds to: Federal Reserve Bank, Dallas, for NationsBank of Texas, N.A.
ABA Routing #111-000-025, Corporate Trust Suspense Account No. 0180019810,
reference American AAdvantage Funds, attention: Fund Account Services.
BY DEPOSITING SECURITIES -- Shares of a Fund may be purchased in exchange for an
investor's securities if the securities are acceptable to its corresponding
Portfolio and satisfy applicable investment objectives and policies. Investors
interested in exchanging securities must first contact the Manager and acquire
instructions regarding submission of a written description of the securities
which the investor wishes to exchange. The investor must represent that all such
securities offered to any Fund are not subject to any sale restrictions. Within
five business days after receipt of the written description, the Manager will
advise the investor whether the securities to be exchanged are acceptable. There
is no charge for this review by the Manager. Securities accepted by a Fund must
have a readily ascertainable value as evidenced by a listing on the Exchange,
the American Stock Exchange or Nasdaq. Securities are valued in the manner
described for valuing Portfolio assets in the section entitled "Valuation of
Shares." Acceptance of such orders may occur on any day during the five-day
period afforded the Manager to review the acceptability of the securities. Upon
notice of acceptance of such orders, the securities must be delivered in fully
negotiable form within three days. The Manager will provide delivery
instructions at the time of acceptance. A gain or loss for federal income tax
purposes may be realized by the investor upon the securities exchange, depending
upon the adjusted tax basis and value of the securities tendered. A Fund will
accept securities in this manner only for investment by its corresponding
Portfolio, and not for resale.
BY MAIL -- Share purchases of any Fund may be made by mail by sending a check or
other negotiable bank draft payable to the applicable Fund to "NationsBank of
Texas, N.A., 11th Floor, Elm Place, P.O. Box 830840, Dallas, Texas 75283-0840,
Attn.: American AAdvantage Funds -- AMR Class." An additional purchase of shares
should be accompanied by the shareholder's account number. Purchase checks are
accepted subject to collection at full face value in U.S. funds and must be
drawn in U.S. dollars on a U.S. bank.
REDEMPTION OF SHARES -- Fund shares may be redeemed on any Business Day by
writing directly to NationsBank of Texas, N.A. at the address above under
"Purchasing Shares of the Trust -- By Mail." The redemption price will be the
net asset value per share next determined after receipt by NationsBank of Texas,
N.A. of all required documents in good order. "Good order" means that the
request must include a letter of instruction or stock assignment specifying the
number of shares or dollar amount to be
PROSPECTUS
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<PAGE> 114
redeemed, signed by an authorized signatory for the owners of the shares in the
exact names in which they appear on the account, and accompanied by such other
supporting legal documents, if required, in the case of estates, trusts,
guardianships, custodians, corporations, IRAs and welfare, pension and
profit-sharing plans. In addition, any share certificates being redeemed must be
returned duly endorsed or accompanied by a stock assignment with signatures
guaranteed by a bank, trust company or member of a recognized stock exchange.
Payment for redeemed shares will be made in cash within seven days after the
receipt of a redemption request in good order. However, the Fund reserves the
right to suspend redemptions or postpone the date of payment (a) for any periods
during which the Exchange is closed (other than for customary weekend and
holiday closings), or when trading on the Exchange is restricted, (b) at such
time as an emergency exists as determined by the Securities and Exchange
Commission so that disposal of a Fund's investments or determination of its net
asset value is not reasonably practicable, or (c) for such other periods as the
Securities and Exchange Commission by order may permit for protection of the
Funds' shareholders. Shares purchased by check may not be redeemed until the
funds have cleared, which may take up to 15 days. Although each Fund intends to
redeem shares in cash, each reserves the right to pay the redemption price in
whole or in part by a distribution of readily marketable securities held by the
applicable Fund's corresponding Portfolio. See the SAI for further information
concerning redemptions in kind.
DISTRIBUTION OF TRUST SHARES -- Shares are distributed through the Funds'
principal underwriter, BTS. BTS is compensated by the Manager, and not the
Trust. The Trust does not incur any direct distribution expenses. However, the
Trust has adopted a Distribution Plan in accordance with Rule 12b-1 under the
1940 Act which authorizes the use of any fees received by the Manager in
accordance with the Administrative Services and the Management Agreements and
any fees received by the investment advisers pursuant to their Advisory
Agreements with the Manager, to be used for distribution purposes.
VALUATION OF SHARES -- The net asset value of each share (share price) of the
Funds is determined as of 4:00 p.m. Eastern time on each Business Day. The net
asset value of all outstanding shares of all classes will be determined based on
a pro rata allocation of the value of the Fund's corresponding Portfolio's
investment income, expenses and total capital gains and losses. The allocation
will be based on comparative net asset value at the beginning of the day except
for expenses related solely to one class of shares ("Class Expenses") which will
be borne only by the appropriate class of shares. Because of the Class Expenses,
the net income attributable to and the dividends payable for each class of
shares may be different. Additionally, the Funds may compute differing share
prices as a result of Class Expenses.
PROSPECTUS
35
<PAGE> 115
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events materially affect
the value of such securities during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the AMR Board. Over-the-counter equity securities are valued on the basis of the
last bid price on that date prior to the close of trading. Debt securities
(other than short-term securities) will normally be valued on the basis of
prices provided by a pricing service and may take into account appropriate
factors such as institution-size trading in similar groups of securities, yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other
market data. In some cases, the prices of debt securities may be determined
using quotes obtained from brokers. Securities for which market quotations are
not readily available are valued at fair value, as determined in good faith and
pursuant to procedures approved by the AMR Trust Board for the AMR Trust
Portfolios. Assets and liabilities denominated in foreign currencies and forward
currency contracts are translated into U.S. dollar equivalents based on
prevailing market rates. Investment grade short-term obligations with 60 days or
less to maturity held by the Portfolios are valued using the amortized cost
method as described in the SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
DIVIDENDS AND CAPITAL GAIN DISTRIBUTIONS -- Dividends and other distributions
paid on each class of a Fund's shares are calculated at the same time and in the
same manner. Dividends from the net investment income of the Balanced Fund, the
Growth and Income Fund and the International Equity Fund are normally declared
annually. Dividends consisting of substantially all of the net investment income
of the Limited-Term Income Fund, which are paid monthly, normally are declared
on each Business Day immediately prior to the determination of the net asset
value, and are payable to shareholders of record as of the close of business on
the day on which declared. The S&P 500 Index Fund distributes income dividends
on the first Business Day in April, July, October and December. A Fund's net
investment income attributable to the AMR Class consists of that class's share
of the Fund's share of dividends and interest (including discount) accrued on
its corresponding Portfolio's securities, less expenses of the Fund and the
Portfolio attributable to the AMR Class. Distributions of a Fund's share of its
corresponding Portfolio's realized net short-term capital gain, net capital gain
(the excess of net long-term capital gain over net short-term capital loss),
PROSPECTUS
36
<PAGE> 116
and net gains from foreign currency transactions, if any, normally will be made
annually.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's AMR Class shares will be
automatically declared and paid in additional AMR Class shares of that Fund.
However, a shareholder may choose to have distributions of net capital gain paid
in shares and dividends paid in cash or to have all such distributions and
dividends paid in cash. An election may be changed at any time by delivering
written notice that is received by the transfer agent at least ten days prior to
the payment date for a dividend or other distribution.
TAX INFORMATION -- Each Fund is treated as a separate corporation for federal
income tax purposes and intends to qualify or to continue to qualify for
treatment as a regulated investment company under the Internal Revenue Code of
1986, as amended. In each taxable year that a Fund so qualifies, the Fund (but
not its shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (generally, taxable net investment income plus
any net short-term capital gain and gains from certain foreign currency
transactions) and net capital gain that it distributes to its shareholders.
However, a Fund will be subject to a nondeductible 4% excise tax to the extent
that it fails to distribute by the end of any calendar year substantially all of
its ordinary income for that calendar year and its capital gain net income for
the one-year period ending on October 31 of that year, plus certain other
amounts. For these and other purposes, dividends and other distributions
declared by a Fund in October, November or December of any year and payable to
shareholders of record on a date in one of those months will be deemed to have
been paid by the Fund and received by the shareholders on December 31 of that
year if they are paid by the Fund during the following January. Each Portfolio
has received a ruling from the Internal Revenue Service that it is classified
for federal income tax purposes as a partnership; accordingly, no Portfolio is
subject to federal income tax.
The qualified retirement and benefit plans of AMR Corporation and its
affiliates ("Plans"), which are the AMR Class shareholders, pay no federal
income tax. Individual participants in the Plans should consult the Plans'
governing documents and their own tax advisers for information on the tax
consequences associated with participating in the Plans.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Trust.
For further tax information, see the SAI.
PROSPECTUS
37
<PAGE> 117
GENERAL INFORMATION
The Trust currently is comprised of nine separate investment portfolios.
Each Fund in this Prospectus, except the S&P 500 Index Fund, is comprised of
three classes of shares, which can be issued in an unlimited number. The S&P 500
Index Fund currently offers only one class of shares. Each share represents an
equal proportionate beneficial interest in that Fund and is entitled to one
vote. Only shares of a particular class may vote on matters affecting that
class. Only shares of a particular Fund may vote on matters affecting that Fund.
All shares of the Trust vote on matters affecting the Trust as a whole. Share
voting rights are not cumulative, and shares have no preemptive or conversion
rights. Shares of the Trust are nontransferable. Each series in the Trust will
not be involved in any vote involving a Portfolio in which it does not invest
its assets. Shareholders of all of the series of the Trust, however, will vote
together to elect Trustees of the Trust and for certain other matters. Under
certain circumstances, the shareholders of one or more series could control the
outcome of these votes.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on matters related to its corresponding Portfolio, the Board shall vote shares
for which they receive no voting instructions in the same proportion as the
shares for which they do receive voting instructions. Any information received
from a Portfolio in the Portfolio's report to shareholders will be provided to
the shareholders of its corresponding Fund.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
PROSPECTUS
38
<PAGE> 118
As more fully described in the SAI, the following persons may be deemed to
control certain Funds by virtue of their ownership of more than 25% of the
outstanding shares of a Fund as of January 31, 1997:
<TABLE>
<S> <C>
AMERICAN AADVANTAGE BALANCED FUND
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 66%
AMERICAN AADVANTAGE GROWTH AND INCOME FUND
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 89%
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 80%
AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
Retirement Advisors of America, Inc. 60%
AMR Corporation and subsidiary companies and Employee
Benefit Trusts thereof 28%
</TABLE>
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Funds
will be audited by independent auditors at least annually. Shareholder inquiries
and requests for information regarding the other investment companies which also
invest in the AMR Trust should be made in writing to the Funds at P.O. Box
619003, MD 5645, Dallas/Fort Worth Airport, Texas 75261-9003 or by calling (800)
388-3344. Shareholder inquiries and requests for information regarding the other
investment companies which also invest in the Equity 500 Index Portfolio should
be made by calling (800) 730-1313.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE TRUST FOR USE IN CONNECTION
WITH THE OFFER OF ANY AMR CLASS SHARES, AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY JURISDICTION
IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY BE MADE.
American AAdvantage Funds is a registered service mark of AMR Corporation.
AMR Class, American AAdvantage Balanced Fund, American AAdvantage Growth and
Income Fund, American AAdvantage International Equity Fund and American
AAdvantage Limited-Term Income Fund are service marks and PlanAhead Class is a
registered service mark of AMR Investment Services, Inc.
PROSPECTUS
39
<PAGE> 119
-- NOTES --
<PAGE> 120
-- NOTES --
<PAGE> 121
American Advantage Funds(R)
- AMR CLASS -(SM)
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- INSTITUTIONAL CLASS -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- PLANAHEAD CLASS -(R)
P.O. Box 4580
Chicago, Illinois 60680-4580
(800) 388-3344
<PAGE> 122
THIS PROSPECTUS contains important information about the Platinum Class of the
AMERICAN AADVANTAGE FUNDS ("AAdvantage Trust") and the AMERICAN AADVANTAGE
MILEAGE FUNDS ("Mileage Trust"), each an open-end management investment company
which consists of multiple investment portfolios. This prospectus pertains only
to the four funds listed on this cover page (individually referred to as a
"Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS INVESTMENT
OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A CORRESPONDING
PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND, COLLECTIVELY,
"PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST") WHICH HAS AN
INVESTMENT OBJECTIVE IDENTICAL TO THE INVESTING FUND. The investment experience
of each Fund will correspond directly with the investment experience of each
Portfolio. Each Fund consists of multiple classes of shares designed to meet
the needs of different groups of investors. Platinum Class shares are offered
exclusively to customers of certain broker-dealers. Individuals should read
this Prospectus carefully before making an investment decision and retain it
for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
for the Platinum Class dated March 1, 1997 has been filed with the Securities
and Exchange Commission and is incorporated herein by reference. The SAI
contains more detailed information about the Funds. For a free copy of the SAI,
call 800-973-7977. For further information on the Funds, refer to the address
and phone number on the back cover.
AN INVESTMENT IN THE FUNDS IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL BE ABLE TO MAINTAIN A
STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
---------------------
[AMERICAN AADVANTAGE LOGO]
[AMERICAN AADV FUNDS LOGO]
March 1, 1997
Available through
[SOUTHWEST SECURITIES LOGO]
---------------------
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MONEY MARKET MILEAGE FUND
<PAGE> 123
The AMERICAN AADVANTAGE MONEY MARKET FUNDSM ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUNDSM ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUNDSM("U.S. Government Money
Market Fund" formerly, the American AAdvantage U.S. Treasury Money Market Fund)
(collectively, "AAdvantage Funds") and the AMERICAN AADVANTAGE MONEY MARKET
MILEAGE FUNDSM ("Mileage Fund") each seeks current income, liquidity, and the
maintenance of a stable price per share of $1.00. The Money Market Fund and the
Mileage Fund seek their investment objective by investing all of their
investable assets in the Money Market Portfolio of the AMR Trust ("Money Market
Portfolio"), the Municipal Money Market Fund seeks its investment objective by
investing all of its investable assets in the Municipal Money Market Portfolio
of the AMR Trust ("Municipal Money Market Portfolio") and the U.S. Government
Money Market Fund seeks its investment objective by investing all of its
investable assets in the U.S. Government Money Market Portfolio of the AMR Trust
("U.S. Government Money Market Portfolio" formerly, the U.S. Treasury Money
Market Portfolio), (collectively, the "Portfolios"), which in turn invest in
high quality, short-term obligations. The Municipal Money Market Portfolio
invests primarily in municipal obligations and the U.S. Government Money Market
Portfolio invests exclusively in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and in repurchase agreements that
are collateralized by such obligations.
Under a Hub and Spoke(R)1 operating structure, each Fund seeks its
investment objective by investing all of its investable assets in a
corresponding Portfolio as described above. Each Portfolio's investment
objective is identical to that of its corresponding Fund. Whenever the phrase
"all of the Fund's investable assets" is used, it means that the only investment
securities that will be held by a Fund will be that Fund's interest in its
corresponding Portfolio. AMR Investment Services, Inc. ("Manager") provides
investment management and administrative services to the Portfolios and
administrative services to the Funds. This Hub and Spoke operating structure is
different from that of many other investment companies which directly acquire
and manage their own portfolios of securities. Accordingly, investors should
carefully consider this investment approach. See "Investment Objectives,
Policies and Risks -- Additional Information About the Portfolios." An
AAdvantage Fund or the Mileage Fund may withdraw its investment in a
corresponding Portfolio at any time if the applicable Trust's Board of Trustees
("Board") determines that it would be in the best interest of that Fund and its
shareholders to do so. Upon any such withdrawal, that Fund's assets would be
invested in accordance with the investment policies and restrictions described
in this Prospectus and the SAI.
<TABLE>
<S> <C>
TABLE OF FEES AND EXPENSES...................... 3
FINANCIAL HIGHLIGHTS............................ 4
INTRODUCTION.................................... 9
INVESTMENT OBJECTIVES, POLICIES AND RISKS....... 10
INVESTMENT RESTRICTIONS......................... 18
YIELDS AND TOTAL RETURNS........................ 19
MANAGEMENT AND ADMINISTRATION OF THE TRUSTS..... 19
AADVANTAGE(R) MILES............................. 22
HOW TO PURCHASE SHARES.......................... 23
HOW TO REDEEM SHARES............................ 24
VALUATION OF SHARES............................. 26
DIVIDENDS AND TAX MATTERS....................... 26
GENERAL INFORMATION............................. 28
SHAREHOLDER COMMUNICATIONS...................... 29
</TABLE>
- ---------------
1 "Hub and Spoke" is a registered service mark of Signature Financial Group,
Inc.
PROSPECTUS
2
<PAGE> 124
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
MUNICIPAL U.S. GOVERNMENT MONEY
MONEY MONEY MONEY MARKET
MARKET MARKET MARKET MILEAGE
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
Management Fees 0.15% 0.15% 0.15% 0.15%
12b-1 Fees 0.25% 0.25% 0.25% 0.10%(1)
Other Expenses 0.53% 0.65% 0.60% 0.84%
---- ------ --------- -----
Total Operating Expenses 0.93% 1.05% 1.00% 1.09%
---- ------ --------- -----
---- ------ --------- -----
</TABLE>
(1) The Mileage Trust anticipates that a portion of the "12b-1 Fees" charged for
the current fiscal year will be used to pay for AAdvantage miles. See
"AAdvantage Miles."
The above expenses reflect the expenses of each Fund and the Portfolio in
which it invests. The Board believes that the aggregate per share expenses of
each Fund and its corresponding Portfolio will be approximately equal to the
expenses that the Fund would incur if its assets were invested directly in the
type of securities held by the Portfolio.
EXAMPLES
A Platinum Class investor in each Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 3 5 10
YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C>
Money Market Fund 9 30 51 114
Municipal Money Market Fund 11 33 58 128
U.S. Government Money Market Fund 10 32 55 122
Money Market Mileage Fund 11 35 60 133
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses expected to be incurred directly or
indirectly as a Platinum Class shareholder in a Fund. Additional information may
be found under "Management and Administration of the Trusts."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
PROSPECTUS
3
<PAGE> 125
FINANCIAL HIGHLIGHTS
The financial highlights in the following tables for the AAdvantage Funds and
the Mileage Fund have been derived from financial statements of the AAdvantage
Trust and the Mileage Trust, respectively. The information has been audited by
Ernst & Young LLP, independent auditor. Such information should be read in
conjunction with the financial statements and the report of the independent
auditor appearing in the Annual Report of the AAdvantage Trust incorporated by
reference in the SAI, which contains further information about performance of
the Funds and can be obtained by investors without charge.
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET FUND
-----------------------------------------------------------------------------------
PLATINUM CLASS INSTITUTIONAL CLASS
-------------- -----------------------------------------------------------------
PERIOD ENDED YEAR ENDED OCTOBER 31,
OCTOBER 31, -----------------------------------------------------------------
1996 1996 1995 1994(2) 1993 1992
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------ ------ ------ ------ ------
Net investment income 0.05(3) 0.05(3) 0.06 0.04 0.03 0.04
Less dividends from net
investment income (0.05) (0.05) (0.06) (0.04) (0.03) (0.04)
-------- ------ ------ ------ ------ ------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------ ------ ------ ------ ------
-------- ------ ------ ------ ------ ------
Total return (annualized) 4.85%(4) 5.57% 5.96% 3.85% 3.31% 4.41%
-------- ------ ------ ------ ------ ------
-------- ------ ------ ------ ------ ------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $119,981 $1,406,939 $1,206,041 $1,893,144 $2,882,947 $2,223,829
Ratios to average net assets
(annualized)(5)(6):
Expenses 0.94%(3) 0.24%(3) 0.23% 0.21% 0.23% 0.26%
Net investment income 4.63%(3) 5.41%(3) 5.79% 3.63% 3.23% 4.06%
</TABLE>
(1) The Money Market Fund commenced active operations on September 1, 1987. The
Platinum Class commenced active operations on November 7, 1995.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Money Market Portfolio.
(4) Total return for the Platinum Class for the period ended October 31, 1996
reflects Institutional Class returns from November 1, 1995 through November
6, 1995 and returns of the Platinum Class through October 31, 1996. Due to
the different expense structures between the classes, total return would
vary from the results shown had the Platinum Class been in operation for the
entire year.
(5) The method of determining average net assets was changed from a monthly
average to a daily average starting with the year ended October 31, 1992.
(6) Effective October 1, 1990, expenses include administrative services fees
paid by the Fund to the Manager. Prior to that date, expenses exclude
shareholder services fees paid directly by shareholders to the Manager,
which amounted to less than $.01 per share in each period on an annualized
basis.
PROSPECTUS
4
<PAGE> 126
<TABLE>
<CAPTION>
MONEY MARKET FUND--INSTITUTIONAL CLASS
----------------------------------------------------------------
PERIOD
YEAR ENDED OCTOBER 31, ENDED
----------------------------------------------- OCTOBER 31,
1991 1990 1989 1988 1987(1)
----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- ----- --------
Net investment income 0.07 0.08 0.09 0.08 0.01
Less dividends from net investment
income (0.07) (0.08) (0.09) (0.08) (0.01)
----- ----- ----- ----- --------
Net asset value, end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Total return (annualized) 7.18% 8.50% 9.45% 7.54% 6.70%
----- ----- ----- ----- --------
----- ----- ----- ----- --------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $715,280 $745,405 $385,916 $330,230 $71,660
Ratios to average net assets
(annualized)(4)(5):
Expenses 0.24% 0.20% 0.22% 0.28% 0.48%
Net investment income 6.93% 8.19% 9.11% 7.54% 6.78%
</TABLE>
PROSPECTUS
5
<PAGE> 127
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
-----------------------------------------------------------------
PLATINUM CLASS INSTITUTIONAL CLASS
-------------- --------------------------------------------
PERIOD ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, OCTOBER 31, OCTOBER 31,
1995 1996 1995 1994(1)
-----------------------------------------------------------------
<S> <C> <C> <C> <C>
Net asset value, beginning of period $ 1.00 $1.00 $1.00 $ 1.00
-------- ----- ------- ---------
Net investment income 0.03(2) 0.04(2) 0.04 0.02
Less dividends from net investment
income (0.03) (0.04) (0.04) (0.02)
-------- ----- ------- ---------
Net asset value, end of period $ 1.00 $1.00 $1.00 $ 1.00
-------- ----- ------- ---------
-------- ----- ------- ---------
Total return (annualized) 2.88%(3) 3.59% 3.75% 2.44%
-------- ----- ------- ---------
-------- ----- ------- ---------
Ratios/supplemental data:
Net assets, end of period (in
thousands) $49,862 $ 6 $ 7 $9,736
Ratios to average net assets
(annualized)(4):
Expenses 0.97%(2) 0.27%(2) 0.35% 0.30%
Net investment income 2.72%(2) 3.49%(2) 3.70% 2.38%
</TABLE>
(1) The Municipal Money Market Fund commenced active operations on November 10,
1993. The Platinum Class commenced active operations on November 7, 1995.
(2) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the Municipal Money Market Portfolio.
(3) The total return for the Platinum Class for the period ended October 31,
1996 reflects Institutional Class returns from November 1, 1995 through
November 6, 1995 and returns of the Platinum Class through October 31, 1996.
Due to the different expense structures between the classes, total return
would vary from the results shown had the Platinum Class been in operation
for the entire year.
(4) Operating results exclude management and administrative services fees waived
by the Manager. Had the Fund paid such fees, the ratio of expenses and net
investment income to average net assets of the Institutional Class would
have been 0.50% and 2.18%, respectively for the period ended October 31,
1994; 0.55% and 3.50%, respectively, for the year ended October 31, 1995,
and 0.33% and 3.43%, respectively for the year ended October 31, 1996. The
ratio of expenses and net investment income to average net assets of the
Platinum Class would have been 1.02% and 2.67%, respectively for the period
ended October 31, 1996.
PROSPECTUS
6
<PAGE> 128
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
-------------------------------------------------------------------------------
PLATINUM CLASS INSTITUTIONAL CLASS
-------------- ------------------------------------------------------------
PERIOD PERIOD
ENDED YEAR ENDED OCTOBER 31, ENDED
OCTOBER 31, -------------------------------------------- OCTOBER 31,
1996 1996 1995 1994(2) 1993 1992(1)
-------------- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---- ---- ------ ----- --------
Net investment income 0.04(3) 0.05(3) 0.06 0.04 0.03 0.02
Less dividends from
net investment income (0.04) (0.05) (0.06) (0.04) (0.03) (0.02)
-------- ---- ---- ------ ----- --------
Net asset value,
end of period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---- ---- ------ ----- --------
-------- ---- ---- ------ ----- --------
Total return
(annualized) 4.58%(4) 5.29% 5.67% 3.70% 3.07% 3.61%
-------- ---- ---- ------ ----- --------
-------- ---- ---- ------ ----- --------
Ratios/supplemental data:
Net assets, end of period
(in thousands) $52,153 $25,595 $47,184 $67,607 $136,813 $91,453
Ratios to average net
assets (annualized)(5):
Expenses 1.00%(3) 0.32%(3) 0.32% 0.25% 0.23% 0.27%(6)
Net investment income 4.35%(3) 5.16%(3) 5.49% 3.44% 2.96% 3.46%(6)
</TABLE>
(1) Prior to March 1, 1997 the U.S. Government Money Market Fund was known as
the American AAdvantage U.S. Treasury Money Market Fund and operated under
different investment policies. The American AAdvantage U.S. Treasury Money
Market Fund commenced active operations on March 2, 1992. The Platinum Class
commenced active operations on November 7, 1995.
(2) Average shares outstanding for the period rather than end of period shares
were used to compute net investment income per share.
(3) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the U.S. Government Money Market Portfolio.
(4) Total return for the Platinum Class for the period ended October 31, 1996
reflects Institutional Class returns from November 1, 1995 through November
6, 1995 and returns of the Platinum Class through October 31, 1996. Due to
the different expense structures between the classes, total return would
vary from the results shown had the Platinum Class been in operation for the
entire year.
(5) The method of determining average net assets was changed from a monthly
average to a daily average starting with the period ended October 31, 1994.
(6) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
7
<PAGE> 129
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
MONEY MARKET MILEAGE FUND
--------------------------------------------
PLATINUM CLASS(1) MILEAGE CLASS
-------------------- --------------------
PERIOD ENDED YEAR ENDED
OCTOBER 31, 1996 OCTOBER 31, 1996
-------------------- --------------------
<S> <C> <C>
Net asset value, beginning of period $ 1.00 $ 1.00
------ -------
Net investment income 0.03 0.05
Less dividends from net investment income (0.03) (0.05)
------ -------
Net asset value, end of period $ 1.00 $ 1.00
====== =======
Total return (annualized) 4.78% 5.12%
====== =======
Ratios/supplemental data:
Net assets, end of period
(in thousands) $15,429 $106,709
Ratios to average net assets
(annualized)(2)(3):
Expenses 1.09% 0.67%
Net investment income 4.48% 5.02%
</TABLE>
(1) The Platinum Class of the Money Market Mileage Fund commenced active
operations on January 29, 1996, and at that time the existing shares of the
Fund were designated as Mileage Class shares.
(2) The per share amounts reflect income and expenses assuming inclusion of the
Fund's proportionate share of the income and expenses of the Money Market
Portfolio.
(3) Operating results exclude expenses reimbursed by the Manager. Had the Fund
paid such fees, the ratio of expenses and net investment income to average
net assets would have been 1.24% and 4.33%, respectively for the Platinum
Class for the period ended October 31, 1996 and 0.78% and 4.91%,
respectively for the Mileage Class for the year ended October 31, 1996.
PROSPECTUS
8
<PAGE> 130
INTRODUCTION
The AAdvantage Trust and the Mileage Trust are open-end, diversified management
investment companies, organized as Massachusetts business trusts on January 16,
1987 and February 22, 1995, respectively. The AAdvantage Funds are three of the
several investment portfolios of the AAdvantage Trust and the Mileage Fund is a
separate investment portfolio of the Mileage Trust. Each Fund has the same
investment objective but may have different investment policies. Each Fund
invests all of its investable assets in a corresponding Portfolio of the AMR
Trust with an identical investment objective. Each AAdvantage Fund has multiple
classes, including: the "Platinum Class," for customers of certain
broker-dealers; the "Institutional Class," primarily for institutional investors
investing at least $2 million in the Funds; and the "PlanAhead Class," for all
investors, including smaller institutional investors, investors using
intermediary organizations such as discount brokers or plan sponsors, individual
retirement accounts and self-employed individual retirement plans. The Money
Market Mileage Fund currently consists of two classes of shares: the "Platinum
Class," as described above; and the "Mileage Class," which is available directly
to individuals and certain grantor trusts. Qualified retirement plans are not
eligible investors in the Money Market Mileage Fund. This Prospectus relates
only to the Platinum Class. For further information about the other classes, or
to obtain a prospectus free of charge, call (800) 967-9009 or write to P.O. Box
619003, MD 5645, Dallas/Ft. Worth Airport, Texas 75261.
Although each class of shares is designed to meet the needs of different
categories of investors, all classes of each Fund share the same portfolio of
investments and a common investment objective. See "Investment Objectives,
Policies and Risks." There is no guarantee that a Fund will achieve its
investment objective. Based on its value, a share of a Fund, regardless of
class, will receive a proportionate share of the investment income and the gains
(or losses) earned (or incurred) by the Fund. It also will bear its
proportionate share of expenses that are allocated to the Fund as a whole.
However, certain expenses are allocated separately to each class of shares.
The Manager provides the Funds and their corresponding Portfolios with
investment advisory and administrative services. Investment decisions for the
Portfolios are made by the Manager in accordance with the investment objectives,
policies and restrictions described in this Prospectus and in the SAI.
Platinum Class shares are sold without any sales charges at the next share
price calculated after an investment is received and accepted. Shares will be
redeemed at the next share price calculated after receipt of a redemption order.
See "How to Purchase Shares" and "How to Redeem Shares."
PROSPECTUS
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<PAGE> 131
Each shareholder in the Mileage Fund will receive American Airlines(R)
AAdvantage(R) travel awards program ("AAdvantage") miles.((2)) AAdvantage miles
will be posted monthly to each shareholder's AAdvantage account at an annual
rate of one mile for every $10 invested in the Fund. See "AAdvantage Miles."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the applicable Board to the
extent that such changes are consistent with the investment objective of the
applicable Fund. However, each Fund's investment objective may not be changed
without a majority vote of that Fund's outstanding shares, which is defined as
the lesser of (a) 67% of the shares of the applicable Fund present or
represented if the holders of more than 50% of the shares are present or
represented at the shareholders' meeting, or (b) more than 50% of the shares of
the applicable Fund (hereinafter, "majority vote"). A Portfolio's investment
objective may not be changed without a majority vote of that Portfolio's
interest holders.
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the applicable
Board.
INVESTMENT OBJECTIVE OF THE FUNDS -- The investment objective of each of the
Funds is to seek current income, liquidity and the maintenance of a stable $1.00
price per share. The Funds seek to achieve this objective by investing all of
their investable assets in their corresponding Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of amortized cost. Obligations in which
the Portfolios invest generally have remaining maturities of 397 days or less,
although instruments subject to repurchase agreements and certain variable and
floating rate obligations may bear longer final maturities. The average
dollar-weighted portfolio maturity of each Portfolio will not exceed 90 days.
- ---------------
(2) American Airlines and AAdvantage are registered trademarks of American
Airlines, Inc.
PROSPECTUS
10
<PAGE> 132
AMERICAN AADVANTAGE MONEY MARKET FUND AND AMERICAN AADVANTAGE MONEY MARKET
MILEAGE FUND -- The Funds' corresponding Portfolio may invest in obligations
permitted to be purchased under Rule 2a-7 of the 1940 Act including, but not
limited to, (1) obligations of the U.S. Government or its agencies or
instrumentalities; (2) loan participation interests, medium-term notes, funding
agreements and asset-backed securities; (3) domestic, Yankeedollar and
Eurodollar certificates of deposit, time deposits, bankers' acceptances,
commercial paper, bank deposit notes and other promissory notes including
floating or variable rate obligations issued by U.S. or foreign bank holding
companies and their bank subsidiaries, branches and agencies; and (4) repurchase
agreements involving the obligations listed above. The Money Market Portfolio
will invest only in issuers or instruments that at the time of purchase (1) have
received the highest short-term rating by two nationally recognized statistical
rating organizations ("Rating Organizations") such as "A-1" by Standard & Poor's
and "P-1" by Moody's Investor Services, Inc.; (2) are single rated and have
received the highest short-term rating by a Rating Organization; or (3) are
unrated, but are determined to be of comparable quality by the Manager pursuant
to guidelines approved by the AMR Trust Board and subject to the ratification of
the AMR Trust Board. See the SAI for definitions of the foregoing instruments
and rating systems.
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interests of shareholders, the Portfolio will not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally traded. There is no secondary market for the notes; however,
the period of time remaining until payment of principal and accrued interest can
be recovered under a variable amount master demand note generally shall not
exceed seven days. To the extent this period is exceeded, the note in question
would be considered illiquid. Issuers of variable amount master demand notes
must satisfy the same criteria as set
PROSPECTUS
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<PAGE> 133
forth for other promissory notes (e.g. commercial paper). The Portfolio will
invest in variable amount master demand notes only when such notes are
determined by the Manager, pursuant to guidelines established by the AMR Trust
Board, to be of comparable quality to rated issuers or instruments eligible for
investment by the Portfolio. In determining average dollar-weighted portfolio
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the longer of the period of time remaining until the next readjustment
of the interest rate or the period of time remaining until the principal amount
can be recovered from the issuer on demand.
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" and on a "forward commitment" basis. The purchase or sale of
when-issued securities enables an investor to hedge against anticipated changes
in interest rates and prices by locking in an attractive price or yield. The
price of when-issued securities is fixed at the time the commitment to purchase
or sell is made, but delivery and payment for the when-issued securities take
place at a later date, normally one to two months after the date of purchase.
During the period between purchase and settlement, no payment is made by the
purchaser to the issuer and no interest accrues to the purchaser. Such
transactions therefore involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date or if the value of the security
to be sold increases prior to the settlement date. A sale of a when-issued
security also involves the risk that the other party will be unable to settle
the transaction. Dollar rolls are a type of forward commitment transaction.
Purchases and sales of securities on a forward commitment basis involve a
commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a when-issued or forward
commitment basis, a segregated account of liquid assets at least equal to the
value of purchase commitments for such securities will be maintained until the
settlement date.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND -- The Fund's corresponding
Portfolio may invest in municipal obligations issued by or on behalf of the
governments of states, territories, or possessions of the United States; the
District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Fund"); (3) are guaranteed by one or more municipal bond insurance policies that
cannot be canceled and issued by third-party guarantors possessing the
PROSPECTUS
12
<PAGE> 134
highest claims-paying rating from a Rating Organization; (4) have received one
of the two highest short-term ratings from at least two Rating Organizations;
(5) are single rated and have received one of the two highest short-term ratings
from that Rating Organization; (6) have no short-term rating but the instrument
is comparable to the issuer's rated short-term debt; (7) have no short-term
rating (or comparable rating) but have received one of the top two long-term
ratings from all Rating Organizations rating the issuer or instrument; or (8)
are unrated, but are determined to be of comparable quality by the Manager
pursuant to guidelines approved by, and subject to the oversight of, the AMR
Trust Board. The Portfolio may also invest in other investment companies.
Ordinarily at least 80% of the Portfolio's net assets will be invested in
municipal obligations the interest from which is exempt from federal income tax.
However, should market conditions warrant, the Portfolio may invest up to 20%
(or for temporary defensive purposes, up to 100%) of its assets in obligations
subject to federal income tax which are eligible investments for the Money
Market Portfolio.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; and tax-exempt commercial paper. See the
SAI for a further discussion of the foregoing obligations. In addition, the
Portfolio may purchase or sell securities on a when-issued and on a forward
commitment basis as described under "American AAdvantage Money Market Fund" and
"American AAdvantage Money Market Mileage Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result,
PROSPECTUS
13
<PAGE> 135
the Portfolio may be subject to greater risk compared to a fund that does not
follow this practice. However, this risk is mitigated because it is anticipated
that most of the Portfolio's assets will be insured or backed by bank letters of
credit. Additionally, the Portfolio may invest more than 25% of the value of its
total assets in industrial development bonds which, although issued by
industrial development authorities, may be backed only by the assets and
revenues of the non-governmental users.
The Portfolio may also invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in private
activity obligations without limitation and it is anticipated that a substantial
portion of the Portfolio's assets will be invested in these obligations. As a
result, a substantial portion of the Fund's distributions may be a tax
preference item, which will reduce the net return from the Fund for taxpayers
subject to the AMT. Interest on "qualified" private activity obligations is
exempt from federal income tax.
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND -- The Fund's
corresponding Portfolio will invest exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements which are collateralized by such obligations. U.S.
Government securities include direct obligations of the U.S. Treasury (such as
Treasury bills, Treasury notes and Treasury bonds). The Fund may invest in
securities issued by the Agency for International Development, Farmers Home
Administration, Farm Credit Banks, Federal Home Loan Bank, Federal Intermediate
Credit Bank, Federal Financing Bank, Federal Land Bank, FNMA, GNMA, General
Services Administration, Rural Electrification Administration, Small Business
Administration, Tennessee Valley Authority, and others. Some of these
obligations, such as those issued by the Federal Home Loan Bank and FHLMC, are
supported only by the credit of the agency or instrumentality issuing the
obligation and the discretionary authority of the U.S. Government to purchase
the agency's obligations. See the SAI for a further discussion of the foregoing
obligations. Counterparties for repurchase agreements must be approved by the
AMR Trust Board. The Portfolio may purchase or sell securities on a
"when-issued" or a "forward commitment" basis as described under "American
AAdvantage Money Market Fund" and "American AAdvantage Money Market Mileage
Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio may also lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
PROSPECTUS
14
<PAGE> 136
SECURITIES LENDING. Each Portfolio may lend securities to broker-dealers or
other institutional investors pursuant to agreements requiring that the loans be
continuously secured by any combination of cash, securities of the U.S.
Government and its agencies and instrumentalities and approved bank letters of
credit that at all times equal at least 100% of the market value of the loaned
securities. Such loans will not be made if, as a result, the aggregate amount of
all outstanding securities loans by any Portfolio would exceed 33 1/3% of its
total assets. A Portfolio continues to receive interest on the securities loaned
and simultaneously earns either interest on the investment of the cash
collateral or fee income if the loan is otherwise collateralized. Should the
borrower of the securities fail financially, there is a risk of delay in
recovery of the securities loaned or loss of rights in the collateral. However,
the Portfolios seek to minimize this risk by making loans only to borrowers
which are deemed by the Manager to be of good financial standing and which have
been approved by the AMR Trust Board. For purposes of complying with each
Portfolio's investment policies and restrictions, collateral received in
connection with securities loans will be deemed an asset of a Portfolio to the
extent required by law. The Manager will receive compensation for administrative
and oversight functions with respect to securities lending. The amount of such
compensation will depend on the income generated by the loan of each Portfolio's
securities. The SEC has granted exemptive relief that permits the Portfolios to
invest cash collateral received from securities lending transactions in shares
of one or more private investment companies managed by the Manager. See the SAI
for further information regarding loan transactions.
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement under which
securities are acquired by a Portfolio from a securities dealer or bank subject
to resale at an agreed upon price on a later date. The acquiring Portfolio bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, the
Manager attempts to minimize this risk by entering into repurchase agreements
only with financial institutions which are deemed to be of good financial
standing and which have been approved by the AMR Trust Board. See the SAI for
more information regarding repurchase agreements.
PRIVATE PLACEMENT OFFERINGS. Investments in private placement offerings are made
in reliance on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors such
as the Portfolios, that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be pursuant to an exempt transaction and may be accomplished in
accordance with Rule 144A. Section 4(2) securities normally are resold to other
institutional investors such as the Portfolios through or with the assistance of
the issuer or dealers that make a market in the Section 4(2) securities,
PROSPECTUS
15
<PAGE> 137
thus providing liquidity. The Portfolios will not invest more than 10% of their
respective net assets in Section 4(2) securities and other illiquid securities
unless the Manager determines, by continuous reference to the appropriate
trading markets and pursuant to guidelines approved by the AMR Trust Board, that
any Section 4(2) securities held by such Portfolio in excess of this level are
at all times liquid.
The AMR Trust Board and the Manager, pursuant to the guidelines approved by
the AMR Trust Board, will carefully monitor the Portfolios' investments in
Section 4(2) securities offered and sold under Rule 144A, focusing on such
important factors, among others, as: valuation, liquidity, and availability of
information. Investments in Section 4(2) securities could have the effect of
reducing a Portfolio's liquidity to the extent that qualified institutional
buyers no longer wish to purchase these restricted securities.
BROKERAGE PRACTICES -- The Portfolios normally will not incur any brokerage
commissions on their transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
without a stated commission. The price of the obligation, however, usually
includes a profit to the dealer. Obligations purchased in underwritten offerings
include a fixed amount of compensation to the underwriter, generally referred to
as the underwriter's concession or discount. No commissions or discounts are
paid when securities are purchased directly from an issuer.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds that directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio.
The Manager expects, although it cannot guarantee, that the AAdvantage Trust
and the Mileage Trust will achieve economies of scale by investing in the AMR
Trust. In addition to selling their interests to the Funds, the Portfolios may
sell their interests to other non-affiliated investment companies and/or other
institutional investors. All institutional investors in a Portfolio will pay a
proportionate share of the Portfolio's expenses and will invest in that
Portfolio on the same terms and conditions. However, if another investment
company invests all of its assets in a Portfolio, it would not be required to
sell its shares at the same public offering price as a Fund and would be allowed
to charge different sales commissions. Therefore, investors in a Fund may
experience different returns from investors in another investment company that
invests exclusively in that Fund's corresponding Portfolio.
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The Fund's investment in a Portfolio may be materially affected by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A material change in a Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such securities to cash. In
addition, a distribution in kind could result in a less diversified portfolio of
investments for that Fund and could affect adversely its liquidity.
The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager would actively manage the Fund.
See "Management and Administration of the Trusts" for a complete description
of the investment management fee and other expenses associated with a Fund's
investment in its corresponding Portfolio. This Prospectus and the SAI contain
more detailed information about each Fund and its corresponding Portfolio,
including information related to (1) the investment objective, policies and
restrictions of each Fund and its corresponding Portfolio, (2) the Board of
Trustees and officers of the AAdvantage Trust, the MileageTrust and the AMR
Trust, (3) brokerage practices, (4) the Funds' shares, including the rights and
liabilities of its shareholders, (5) additional performance information,
including the method used to calculate yield and total return, and (6) the
determination of the value of each Fund's shares.
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INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restriction are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and its respective Board. The following fundamental investment
restrictions may be changed with respect to a particular Fund by the majority
vote of that Fund's outstanding shares or with respect to a Portfolio by the
majority vote of that Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Money Market Portfolio and the U.S. Treasury Money Market
Portfolio apply this restriction with respect to 100% of their assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities or, with respect to the Money Market
Portfolio, the banking industry. Municipal governments and their agencies
and authorities are not deemed to be industries. Finance companies as a
group are not considered a single industry for purposes of this policy.
Further, wholly owned subsidiaries of finance companies will be considered
to be in the industries of their parent companies if their activities are
primarily related to financing the activities of their parent companies.
The following non-fundamental investment restriction may be changed with respect
to a particular Fund by a vote of a majority of its respective Board or with
respect to a Portfolio by a vote of a majority of the AMR Trust Board: no
Portfolio may invest more than 10% of its net assets in illiquid securities,
including time deposits and repurchase agreements that mature in more than seven
days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
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YIELDS AND TOTAL RETURNS
From time to time each class of the Funds may advertise its "current yield" and
"effective yield." Both yield figures are based on historical earnings and are
not intended to indicate future performance. The current yield refers to the
income generated by an investment over a seven calendar-day period (which period
will be stated in the advertisement). This income is then annualized by assuming
the amount of income generated by the investment during that week is earned each
week over a one-year period, and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by the investment is assumed to be reinvested. The effective yield will be
slightly higher than the current yield because of the compounding effect of this
assumed reinvestment. The Municipal Money Market Fund may also quote "tax
equivalent yields," which show the taxable yields a shareholder would have to
earn before federal income taxes to equal this Fund's tax-exempt yields. The tax
equivalent yield is calculated by dividing the Fund's tax-exempt yield by the
result of one minus a stated federal income tax rate. If only a portion of the
Fund's income was tax-exempt, only that portion is adjusted in the calculation.
As stated earlier, the Fund considers interest on private activity obligations
to be exempt from federal income tax. Total return quotations advertised by the
Funds may reflect the average annual compounded (or aggregate compounded) rate
of return during the designated time period based on a hypothetical initial
investment and the redeemable value of that investment at the end of the period.
The Funds will at times compare their performance to applicable published
indices, and may also disclose their performance as ranked by certain ranking
entities. Each class of a Fund has different expenses which will impact its
performance. See the SAI for more information about the calculation of yields
and total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUSTS
FUND MANAGEMENT AGREEMENT -- The AAdvantage Trust's Board and the Mileage
Trust's Board have general supervisory responsibility over their respective
Trust's affairs. The Manager provides or oversees all administrative, investment
advisory and portfolio management services for the AAdvantage Trust pursuant to
a Management Agreement, dated April 3, 1987, as amended on December 17, 1996,
together with the Administrative Services Agreement described below. The Manager
provides or oversees all administrative, investment advisory and portfolio
management services for the Mileage Trust pursuant to a Management Agreement,
dated October 1, 1995. The AMR Trust and the Manager also entered into a
Management Agreement dated, October 1, 1995, which obligates the Manager to
provide or oversee all administrative, investment advisory and portfolio
management services for the AMR Trust. The
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Manager, located at 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas
76155, is a wholly owned subsidiary of AMR Corporation ("AMR"), the parent
company of American Airlines, Inc., and was organized in 1986 to provide
investment management, advisory, administrative and asset management consulting
services. The Manager serves as the sole investment adviser to the Portfolios.
As of December 31, 1996, the Manager had assets under management totaling
approximately $16.0 billion, including approximately $5.7 billion under active
management and $10.3 billion as named fiduciary or fiduciary adviser. Of the
total, approximately $11.9 billion of assets are related to AMR. American
Airlines, Inc. is not responsible for investments made in the American
AAdvantage Funds or the American AAdvantage Mileage Funds.
The Manager provides the Trust and the AMR Trust with office space, office
equipment and personnel necessary to manage and administer the Trusts'
operations. This includes complying with reporting requirements; corresponding
with shareholders; maintaining internal bookkeeping, accounting and auditing
services and records; and supervising the provision of services to the Trusts by
third parties. The Manager also oversees each Portfolio's participation in
securities lending activities and any actions taken by a securities lending
agent in connection with those activities to ensure compliance with all
applicable regulatory and investment guidelines. The Manager also develops the
investment programs for each Portfolio.
The Manager bears the expense of providing the above services. As
compensation for providing the Portfolios with advisory services, the Manager
receives from the AMR Trust an annualized advisory fee that is calculated and
accrued daily, equal to 0.15% of the net assets of the Portfolios. To the extent
that a Fund invests all of its investable assets in its corresponding Portfolio,
the Manager receives no advisory fee from the AAdvantage Trust or the Mileage
Trust. The Manager receives compensation in connection with securities lending
activities. If a Portfolio lends its portfolio securities and receives cash
collateral from the borrower, the Manager will receive up to 25% of the net
annual interest income (the gross interest earned by the investment less the
amount paid to the borrower as well as related expenses) received from the
investment of such cash. If a borrower posts collateral other than cash, the
borrower will pay to the lender a loan fee. The Manager will receive up to 25%
of the loan fees posted by borrowers. The fees received by the Manager from the
AMR Trust are payable quarterly in arrears.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the applicable Board
including the affirmative votes of a majority of the Trustees of each Board who
are not parties to the Management Agreement or "interested persons" as defined
in the 1940 Act of any such party ("Independent Trustees"), cast in person at a
meeting called for the purpose of considering such approval, or by the vote of a
Fund's shareholders or a Portfolio's interest holders. A Management Agreement
may be terminated with respect to a Fund or a Portfolio at any time, without
penalty, by a majority vote of outstanding Fund
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shares or Portfolio interests on sixty (60) days' written notice to the Manager,
or by the Manager, on sixty (60) days' written notice to the AAdvantage Trust,
the Mileage Trust or the AMR Trust. A Management Agreement will automatically
terminate in the event of its "assignment" as defined in the 1940 Act.
The AAdvantage Trust and the Mileage Trust are each responsible for the
following expenses: audits by independent auditors; transfer agency, custodian,
dividend disbursing agent and shareholder recordkeeping services; taxes, if any,
and the preparation of each Fund's tax returns; interest; costs of Trustee and
shareholder meetings; printing and mailing prospectuses and reports to existing
shareholders; fees for filing reports with regulatory bodies and the maintenance
of the Funds' existence; legal fees; fees to federal and state authorities for
the registration of shares; fees and expenses of Independent Trustees; insurance
and fidelity bond premiums; and any extraordinary expenses of a nonrecurring
nature.
A majority of the Independent Trustees of each Board has adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the AAdvantage Trust or the Mileage Trust and the AMR Trust, including
creating a separate Board of Trustees of the AMR Trust.
ADMINISTRATIVE SERVICES PLAN -- The Manager has entered into separate
Administrative Services Plans with the AAdvantage Trust and the Mileage Trust
which obligate the Manager to provide the Platinum Class with administrative
services either directly or through the various broker-dealers that offer
Platinum Class shares. These services include, but are not limited to, the
payment of fees for record maintenance, forwarding shareholder communications to
the shareholders and aggregating and processing orders for the purchase and
redemption of Platinum Class shares. As compensation for these services, the
Manager receives an annualized fee of up to 0.50% and 0.55% of the net assets of
the Platinum Class of the AAdvantage Funds and the Mileage Fund, respectively.
The fee is payable quarterly in arrears.
DISTRIBUTION PLAN -- The AAdvantage Trust and the Mileage Trust have each
adopted a Platinum Class distribution plan (the "Plans") pursuant to Rule 12b-1
under the 1940 Act which will continue in effect so long as approved at least
annually by a majority of the applicable Board's Trustees, including the
affirmative votes of a majority of the Independent Trustees of the applicable
Board, cast in person at a meeting called for the purpose of considering such
approval, or by the vote of shareholders of the Platinum Class. The Plans may be
terminated with respect to a particular Platinum Class at any time, without
payment of any penalty, by a vote of a majority of the Independent Trustees of
the applicable Board or by a vote of a majority of the outstanding voting
securities of that class.
The Plans provide that each Platinum Class will pay 0.25% per annum of its
average daily net assets to the Manager (or another entity approved by the
applicable
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Board) for distribution-related services. The fee will be payable quarterly in
arrears without regard to whether the amount of the fee is more or less than the
actual expenses incurred in a particular quarter by the entity for the services
provided pursuant to the Plans. The Plans authorize AMR, or any other entity
approved by the applicable Board, to spend Rule 12b-1 fees on any activities or
expenses intended to result in the sale or servicing of Platinum Class shares
including but not limited to, advertising, expenses of various broker-dealers
relating to selling efforts, transfer agency fees and the preparation and
distribution of advertising material and sales literature. In addition, the
Mileage Fund's Plan authorizes expenses incurred in connection with
participation in the AAdvantage program.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the applicable Board will be allocated solely to the class
to which they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas, 75205 serves as the principal underwriter of the
AAdvantage Trust and the Mileage Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Portfolios and the Funds and as transfer agent for
the Platinum Class.
INDEPENDENT AUDITOR -- The independent auditor for the Funds and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
AADVANTAGE(R) MILES
The AAdvantage program offers the opportunity to obtain free upgrades and travel
awards on American Airlines and AAdvantage airline participants, as well as
upgrades and discounts on car rentals and hotel accommodations. For more
information about the AAdvantage program, call American Airlines at (800)
433-7300.
AAdvantage miles will be posted monthly in arrears to each shareholder's
AAdvantage account based on the shareholder's average daily account balance
during the previous month. Miles are posted at an annual rate of one mile per
$10 maintained in the Mileage Fund. Mileage is calculated on the average daily
balance and posted monthly. The average daily balance is calculated by adding
each day's balance and dividing by the number of days in the month. For example,
the average daily balance on a $50,000 account funded on the 16th day of a month
having 30 days (and maintained at that balance through the end of the month)
would be $25,000. Mileage received for that month would be 208 miles. If the
same balance were maintained through the next month, the average daily balance
would be $50,000, and the mileage
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would be 417 miles that month and every month the $50,000 investment was
maintained in the Mileage Fund. These miles appear on subsequent AAdvantage
program statements.
In the case of Trust Accounts, AAdvantage miles will be posted only in a
trustee's individual name, and not in the name of the Trust Account. Before
investing in a Fund, trustees of the Trust Accounts should consult their own
legal and tax advisers as to the tax effect of this arrangement and whether this
arrangement is consistent with their legal duties as trustees. American Airlines
has informed the Funds that in administering an AAdvantage member's AAdvantage
account, it shall not be required to distinguish between AAdvantage miles
accumulated by the individual in his/her capacity as trustee to a Trust Account
from AAdvantage miles accumulated in an individual capacity or from other
sources.
The Manager reserves the right to discontinue the posting of AAdvantage
miles or to change the mileage calculation at any time upon notice to
shareholders. See also "Dividends and Tax Matters."
American Airlines may find it necessary to change AAdvantage program rules,
regulations, travel awards and special offers at any time. This means that
American Airlines may initiate changes impacting, for example, participant
affiliations, rules for earning mileage credit, mileage levels and rules for the
use of travel awards, continued availability of travel awards, blackout dates
and limited seating for travel awards, and the features of special offers.
American Airlines reserves the right to end the AAdvantage program with six
months' notice. AAdvantage travel awards, mileage accrual and special offers are
subject to governmental regulations.
HOW TO PURCHASE SHARES
Platinum Class shares are sold on a continuous basis at net asset value through
selected financial services firms. The Platinum Class has established a minimum
initial investment of $1,000 and $100 minimum for subsequent investments, but
these minimums may be changed at any time at the AAdvantage Trust's or the
Mileage Trust's discretion.
Orders for purchase of Platinum Class shares received by wire transfer in
the form of federal funds will be effected at the next determined net asset
value. Shares are offered and orders are accepted for the Money Market Fund, and
the Mileage Fund until 3:00 p.m. Eastern time Monday through Friday, excluding
the following business holidays: New Year's Day, Martin Luther King's Birthday,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day and Christmas Day ("Business Day").
Shares are offered and orders are accepted for the U.S. Government Money Market
Fund until 2:00 p.m. Eastern time on each Business Day and for the Municipal
Money Market Fund until 12:00
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p.m. Eastern time on each Business Day. These purchases will receive that day's
dividend. Orders for purchase accompanied by a check or other negotiable bank
draft will be accepted and effected as of 3:00 p.m. Eastern time on the next
Business Day following receipt and such shares will receive the dividend for the
Business Day following the day the purchase is effected. If an order is
accompanied by a check drawn on a foreign bank, funds must normally be collected
from such check before shares will be purchased. The AAdvantage Trust and the
Mileage Trust reserve the right to reject any order for the purchase of shares
and to limit or suspend, without prior notice, the offering of shares.
Firms provide varying arrangements for their clients with respect to the
purchase and redemption of Platinum Class shares and the confirmation thereof
and may arrange with their clients for other investment or administrative
services. Such firms are responsible for the prompt transmission of purchase and
redemption orders. Some firms may establish higher or lower minimum investment
requirements than set forth above. Such firms may independently establish and
charge additional amounts to their clients for their services, which charges
would reduce their clients' yield or return. Firms also may hold Platinum Class
shares in nominee or street name as agent for and on behalf of their clients. In
such instances, the transfer agent will have no information with respect to or
control over the accounts of specific shareholders. Such shareholders may obtain
access to their accounts and information about their accounts only from their
firm. Certain of these firms may receive compensation from the Manager for
recordkeeping and other expenses relating to these nominee accounts. In
addition, certain privileges with respect to the purchase and redemption of
shares (such as check writing or a debit card) may not be available through such
firms or may only be available subject to certain conditions or limitations.
Some firms may participate in a program allowing them access to their clients'
accounts for servicing, including, without limitation, transfers of registration
and dividend payee changes, and may perform functions such as generation of
confirmation statements and disbursements of cash dividends.
HOW TO REDEEM SHARES
Shareholders should contact the firm through which their shares were purchased
for redemption instructions. Shares of a Fund may be redeemed by telephone, by
writing a check, by pre-authorized automatic redemption or by mail on any
Business Day. Shares will be redeemed at the net asset value next calculated
after the applicable Fund has received and accepted the redemption request.
Proceeds from a redemption of shares purchased by check or pre-authorized
automatic purchase may be withheld until the funds have cleared, which may take
up to 15 days. Although the Funds intend to redeem shares in cash, each Fund
reserves the right to pay the redemption price in whole or in part by a
distribution of readily marketable securities held by the
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applicable Fund's corresponding Portfolio. See the SAI for further information
concerning redemptions in kind.
Firms may charge a fee for wire redemptions to cover transaction costs.
Redemption proceeds will generally be sent within one Business Day, as
applicable. However, if making immediate payment could affect a Fund adversely,
it may take up to seven days to send payment.
To ensure acceptance of a redemption request, be sure to adhere to the
following procedures.
REDEEMING BY CHECK -- Upon request, shareholders will be provided with drafts to
be drawn on a Fund ("Redemption Checks"). Redemption Checks may be made payable
to the order of any person for an amount not less than $250 and not more than $5
million. When a Redemption Check is presented for payment, a sufficient number
of full and fractional shares in the shareholder's account will be redeemed at
the next determined net asset value to cover the amount of the Redemption Check.
This will enable the shareholder to continue earning dividends until the Fund
receives the Redemption Check. A shareholder wishing to use this method of
redemption must complete and file an account application which is available from
the Funds or firm through which shares were purchased. Redemption Checks should
not be used to close an account since the account normally includes accrued but
unpaid dividends. The Funds reserve the right to terminate or modify this
privilege at any time. This privilege may not be available through some firms
that distribute shares of the Funds. In addition, firms may impose minimum
balance requirements in order to obtain this feature. Firms also may impose fees
on investors for this privilege or, if approved by the Funds, establish
variations on minimum check amounts.
Unless one signer is authorized on the account application, Redemption
Checks must be signed by all shareholders. Any change in the signature
authorization must be made by written notice to the firm. Shares purchased by
check or through an Automated Clearing House ("ACH") transaction may not be
redeemed by Redemption Check until the shares have been on the Fund's books for
at least 15 days. The Funds reserve the right to terminate or modify this
privilege at any time.
The Funds may refuse to honor Redemption Checks whenever the right of
redemption has been suspended or postponed, or whenever the account is otherwise
impaired. A $15 service fee will be charged when a Redemption Check is presented
to redeem Fund shares in excess of the value of that Fund account or for an
amount less than $250 or when a Redemption Check is presented that would require
redemption of shares that were purchased by check or ACH transaction within 15
days. A fee of $12 will be charged when "stop payment" of a Redemption Check is
requested. Firms may charge different service fees.
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PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- Shareholders purchasing through some
firms can arrange to have a pre-authorized amount ($100 or more) redeemed from
their shareholder account and automatically deposited into a bank account on one
or more specified day(s) of each month. For more information regarding
pre-authorized automatic redemptions, contact your firm.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Fund generally will be paid at the time of
redemption.
VALUATION OF SHARES
The net asset value of each share (share price) of the Funds is determined as of
4:00 p.m. Eastern time on each Business Day. The net asset value of Platinum
Class Shares of the Funds will be determined based on a pro rata allocation of
the Fund's corresponding Portfolio's investment income, expenses and total
capital gains and losses. The allocation will be based on comparative net asset
value at the beginning of the day except for expenses related solely to one
class of shares ("Class Expenses") which will be borne only by the appropriate
class of shares. Because of Class Expenses, the net income attributable to and
the dividends payable may be different for each class of shares.
Obligations held by the Portfolios are valued in accordance with the
amortized cost method, which is designed to enable those Portfolios and their
corresponding Funds to maintain a consistent $1.00 per share net asset value.
The amortized cost method is described in the SAI.
DIVIDENDS AND TAX MATTERS
Dividends paid on each class of a Fund's shares are calculated at the same time
and in the same manner. All of each Fund's net investment income and net
short-term capital gain, if any, generally will be declared as dividends on each
Business Day immediately prior to the determination of the net asset value.
Dividends generally are paid on the first day of the following month. A Fund's
net investment income attributable to the Platinum Class consists of that class'
pro rata share of the Fund's share of interest accrued and discount earned on
its corresponding Portfolio's securities, less amortization of premium, and the
estimated expenses of both the Portfolio and the Fund attributable to the
Platinum Class. The Portfolios do not expect to realize net capital gain,
therefore the Funds do not foresee paying any capital gain distributions. If any
Fund (either directly or indirectly through its corresponding Portfolio)
incurred or anticipated any unusual expenses, loss or depreciation that would
adversely affect its net asset value or income for a particular period, the
Board would at that time consider
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whether to adhere to the dividend policy described above or to revise it in the
light of the then prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends on a Fund's Platinum Class shares will be automatically declared and
paid in additional Platinum Class shares of that Fund. However, a shareholder
may choose to have dividends paid in cash. An election may be changed at any
time by delivering written notice to your firm at least ten days prior to the
payment date for a dividend.
Each Fund is treated as a separate corporation for federal income tax
purposes and intends to continue to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended. In each
taxable year that a Fund so qualifies, the Fund (but not its shareholders) will
be relieved of federal income tax on that part of its investment company taxable
income (generally, taxable net investment income plus any net short-term capital
gain) that it distributed to its shareholders. However, a Fund will be subject
to a nondeductible 4% excise tax to the extent that it fails to distribute by
the end of any calendar year substantially all of its ordinary income for that
calendar year and its net capital gain for the one-year period ending on October
31 of that year, plus certain other amounts. For these and other purposes,
dividends declared by a Fund in December of any year and payable to shareholders
of record on a date in that month will be deemed to have been paid by the Fund
and received by the shareholders on December 31 of that year if they are paid by
the Fund during the following January. Each Portfolio has received a ruling from
the Internal Revenue Service that it is classified for federal income tax
purposes as a partnership; accordingly, no Portfolio is subject to federal
income tax.
Dividends from a Fund's investment company taxable income will be taxable to
its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Platinum Class shares.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns taxable income from
any of its investments, the Municipal Money Market Fund's share of that income
will be distributed to its shareholders as a taxable dividend. To the extent
that Portfolio invests in certain private activity obligations, that Fund's
shareholders will be required to treat a portion of its dividends as a "tax
preference item" in determining their liability for the AMT. Exempt-interest
dividends also may be subject to tax under state and local tax laws. Because
some states exempt from tax the interest on their own obligations and
obligations of governmental agencies of and municipalities in the state,
shareholders will receive tax information each year regarding the Municipal
Money Market Fund's exempt-interest income by state. Interest on indebtedness
incurred or continued by a shareholder to purchase or carry shares of that Fund
is not deductible.
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Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends paid (or deemed paid) that year. The notice sent by
the Municipal Money Market Fund specifies the amounts of exempt-interest
dividends (and the portion thereof, if any, that is a tax preference item for
purposes of the AMT) and any taxable dividends. The Mileage Fund's notice also
might include in taxable dividends a nominal amount reflecting the value of
AAdvantage Miles credited to the shareholders' accounts, which are deemed by the
Internal Revenue Service to constitute taxable distributions by the Fund. Each
Fund is required to withhold 31% of all taxable dividends payable to any
individuals and certain other non-corporate shareholders who do not provide the
Fund with a correct taxpayer identification number or who otherwise are subject
to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the
AAdvantage Trust or the Mileage Trust or any tax consequences as a result of the
receipt of AAdvantage miles. For further tax information, see the SAI.
GENERAL INFORMATION
The AAdvantage Trust currently is comprised of nine separate investment
portfolios and the Mileage Trust currently is comprised of seven separate
investment portfolios. Each AAdvantage Fund included in this Prospectus is
comprised of three classes of shares. The Mileage Fund is comprised of two
classes of shares. Shares of each AAdvantage Fund and each Mileage Fund can be
issued in an unlimited number. Each AAdvantage Fund and Mileage Fund share
represents an equal proportionate beneficial interest in that Fund and is
entitled to one vote. Only shares of a particular class may vote on matters
affecting that class. Only shares of a particular Fund may vote on matters
affecting that Fund. All shares of a Trust vote on matters affecting that Trust
as a whole. Share voting rights are not cumulative, and shares have no
preemptive or conversion rights. Shares of the AAdvantage Trust and the Mileage
Trust are nontransferable.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by the Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's
PROSPECTUS
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<PAGE> 150
redeeming its investment in its corresponding Portfolio, which could result in
increased expenses for that Fund. Whenever the shareholders of a Fund are called
to vote on matters related to its corresponding Portfolio, the Board shall vote
shares for which they receive no voting instructions in the same proportion as
the shares for which they do receive voting instructions. Any information
received from a Portfolio in the Portfolio's report to shareholders will be
provided to the shareholders of its corresponding Fund.
As Massachusetts business trusts, the AAdvantage Trust and the Mileage Trust
are not obligated to conduct annual shareholder meetings. However, the Trusts
will hold special shareholder meetings whenever required to do so under the
federal securities laws or their Declarations of Trust or By-Laws. Trustees of
either Trust can be removed by a shareholder vote at special shareholder
meetings.
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Funds
and the AMR Trust will be audited by Ernst & Young LLP, independent auditor, at
least annually. Shareholder inquiries and requests for information regarding the
other investment companies which also invest in the AMR Trust should be made by
contacting your firm or by calling (800) 388-3344 or by writing to the Funds at
P.O. Box 619003, MD 5645, Dallas/Fort Worth Airport, Texas 75261-9003.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE AADVANTAGE TRUST AND THE
MILEAGE TRUST FOR USE IN CONNECTION WITH THE OFFER OF ANY FUND'S SHARES, AND, IF
GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
American AAdvantage Funds is a registered service mark and American
AAdvantage Mileage Funds is a service mark of AMR Corporation. Mileage Class,
American AAdvantage Money Market Fund and PlanAhead Class are registered service
marks and Platinum Class, American AAdvantage Money Market Mileage Fund,
American AAdvantage Municipal Money Market Fund and American AAdvantage U.S.
Government Money Market Fund are service marks of AMR Investment Services, Inc.
PROSPECTUS
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[AMR AADV FUNDS LOGO]
P.O. BOX 619003
DALLAS/FORT WORTH AIRPORT, TEXAS
75261-9003
Available through
[SOUTHWEST SECURITIES LOGO]
1201 Elm Street, Suite 3500
Dallas, Texas
75270
(800) 973-7977
PROSPECTUS
<PAGE> 152
AMERICAN AADVANTAGE SHORT-TERM INCOME FUND
Prospectus
March 1, 1997
This Prospectus contains important information about the American
AAdvantage Short-Term Income Fund (the "Fund"), a portfolio of the American
AAdvantage Funds(R) (the "Trust"). The Trust is a no-load, open-end management
investment company organized as a Massachusetts business trust on January 16,
1987, consisting of nine separate investment portfolios. The Fund is a
non-diversified portfolio which seeks current income and relative principal
stability through investments in high quality money market obligations and
variable rate obligations. There is no guarantee that the Fund will achieve its
investment objective. Prospective investors considering the purchase of the
Fund should read this Prospectus carefully before making an investment decision
and retain it for future reference.
In addition to this Prospectus, a Statement of Additional Information
("SAI") dated March 1, 1997 has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The SAI contains more
detailed information about the Fund. For a free copy of the SAI, call AMR
Investment Services, Inc. (the "Manager") at (817) 967-3509.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
----------------------------------------------------------
Table of Fees and Expenses 2
Investment Objective, Policies and Risks 2
Investment Restrictions 8
Yields and Total Returns 8
Management and Administration of the Trust 9
Purchase, Redemption and Valuation of shares 10
Information Concerning Shares of the Fund 12
General Information 13
----------------------------------------------------------
<PAGE> 153
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
Management Fees 0.10%
Other Expenses (1) 0.05%
Total Fund Operating Expenses 0.15%
(1) Due to the Fund's lack of an operating history, other expenses have been
estimated.
<TABLE>
<CAPTION>
Examples 1 yr. 3 yrs.
<S> <C> <C>
An investor in the Fund would pay on a cumulative basis the following $ 1 $ 5
expenses on a $1,000 investment assuming a 5% annual return:
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses to be incurred directly or
indirectly as a shareholder in the Fund. Additional information may be found
under "Management and Administration of the Trust" .
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective and the policies of the Fund are described below.
The investment policies may be changed at any time by the Trust's Board of
Trustees ("Board"). However, the Fund's investment objective may not be changed
without a majority vote of the Fund's outstanding shares, which is defined as
the lesser of (a) 67% of the shares of the Fund present or represented if the
holders of more than 50% of the shares are present or represented at a
shareholders meeting, or (b) more than 50% of the shares of the Fund
(hereinafter "majority vote").
The Fund's investment objective is to seek current income and relative
principal stability. The Fund seeks its investment objective by investing
primarily in high quality money market obligations and variable rate long-term
obligations.
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<PAGE> 154
Portfolio Maturity
The maximum permissible maturity of any fixed rate obligation in which the
Fund may invest is 397 days, except that fixed rate obligations with maturities
greater than 397 days may be purchased if the Fund simultaneously enters into
an interest rate swap transaction in order for the obligation to have the same
characteristics as a variable rate obligation. The maximum permissible final
maturity or "expected life" (i.e. anticipated maturity of obligations which
reduce principal) of any variable rate obligation is five years and the maximum
permissible dollar-weighted average maturity of the Fund is 90 days. For
purposes of determining dollar-weighted average maturity, the maturity of any
obligation is deemed to be the shortest of the following: (1) the stated
maturity date or "expected life" of the obligation; (2) the next interest reset
for variable rate obligations which will have a rate of interest based on a
leading money market index of not greater than three months.; or (3) the next
put exercise date (for obligations with put features). For purposes of
determining maturity of repurchase agreements, the end date of the agreement,
and not the maturity of the underlying obligations, will be used.
Money Market Obligations
Money market obligations are debt securities with maturities of 397 days
or less. The Fund may invest in high quality, U.S. dollar-denominated money
market obligations, which include, but are not limited to: (1) obligations of
the U.S. Government and its agencies and instrumentalities; (2) loan
participation interests, and structured notes (3) domestic, Yankeedollar and
Eurodollar certificates of deposit, time deposits, bankers' acceptances,
commercial paper, bearer deposit notes and other promissory notes, including
floating or variable rate obligations issued by U.S. or foreign bank holding
companies and their bank subsidiaries, branches and agencies; and (4)
repurchase agreements involving the obligations listed above. These issuers or
instruments at the time of purchase will: (1) have received one of the two
highest short-term ratings by at least two nationally recognized statistical
rating organizations ("NRSROs"), such as A-1 or A-2 by Standard & Poor's or P-1
or P-2 by Moody's Investors Service, Inc.; (2) be single rated and have
received one of the two highest short-term ratings by that NRSRO; or (3) be
unrated, but are determined to be of comparable quality by the Manager. See the
SAI for definitions of certain of the foregoing securities and a description of
debt ratings. All money market obligations which do not possess the highest
short-term rating by at least two NRSROs will be limited to a maturity of 91
days or less.
Long-Term Obligations
Long-term obligations are obligations deemed to have maturities greater
than 397 days. The Fund may invest in long-term obligations which include, but
are not limited to: (1) obligations of the U.S. Government and its agencies and
instrumentalities; (2) municipal, corporate, trust or bank obligations; (3)
mortgage-backed securities, asset-backed securities, medium-term notes, master
notes, and other promissory notes (including structured notes); and (4) funding
agreements and interest rate swap
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<PAGE> 155
agreements. Such obligations may have a fixed or variable rate of interest and:
(1) will be rated "A" or better by at least two NRSROs at the time of purchase;
(2) will be single rated and have received a rating of "A" or better by that
NRSRO; or (3) if unrated, will be deemed to be of comparable quality by the
Manager. See the SAI for definitions of certain of the foregoing securities and
for a description of debt ratings. Principal and/or interest payments for
obligations of U.S. Government agencies or instrumentalities may or may not be
backed by the full faith and credit of the U.S. Government.
Other Investment Companies
The Fund may invest in the securities of other investment companies to the
extent permitted by law.
Non-Diversification
The Fund is "non-diversified" as defined in the Investment Company Act of
1940 (the "1940 Act"), but intends to qualify as a "regulated investment
company" ("RIC") for federal income tax purposes. This means, in general, that
more than 5% of the Fund's total assets may be invested in the securities of a
single issuer, but only if, at the close of each quarter of the Fund's taxable
year, the aggregate amount of such holdings does not exceed 50% of the value of
its total assets and no more than 25% of the value of its total assets is
invested in the securities of a single issuer. Although "non-diversified", the
Fund will not invest more than 10% of its total assets (taken at market value)
in obligations of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities. However, up to 25% of the
Fund's total assets may be invested in issuers holding over 10% of the Fund's
total assets. To the extent that it holds the securities of fewer issuers than
if it were "diversified", the Fund will be subject to greater risk than a fund
that invests in a broader range of securities because changes in the financial
condition or market valuation of a single issuer may cause greater fluctuations
in the Fund's total return and the net asset value of its shares.
Foreign Investments
The Fund may invest in U.S. dollar-denominated obligations of foreign
issuers. The Fund may also invest up to 25% of its total assets at the time of
purchase in obligations denominated in foreign currencies. The Fund typically
will hedge its foreign currency exposure. See "Strategic Transactions" below
for a further description of foreign currency hedging instruments. Investing in
foreign issuers carries potential risks not associated with domestic
investments. Such risks include but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or
expropriation of assets and the risk of war; (2) less liquidity and greater
volatility of foreign investments; (3) less public information regarding
foreign issuers; (4) lack of uniform accounting, auditing and financial
reporting standards; (5) delays in transaction
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<PAGE> 156
settlement in some foreign markets; (6) possible imposition of confiscatory
foreign taxes; (7) possible limitation on the removal of securities or other
assets of the Fund; (8) restrictions on foreign investments and repatriation of
capital; (9) currency fluctuations; (10) costs and possible restrictions of
currency conversion; and (11) withholding taxes on interest in foreign
countries. These risks are often greater for investments in emerging or
developing countries.
Funding Agreements
The Fund may enter into funding agreements which are contracts with
insurance companies that return principal and interest at a guaranteed rate or
fixed spread to an index. Generally, funding agreements pay interest at set
intervals and mature on specified dates. Funding agreements generally allow for
certain withdrawals to be made without penalty and are otherwise
non-surrenderable. Funding agreements are considered to be illiquid securities
and accordingly will be subject to the Fund's limitation on investing in
illiquid securities.
Strategic Transactions
The Fund may implement strategies using instruments described below as
hedging instruments to reduce various market risks of its investments, to alter
their duration, or to enhance specific return characteristics. The Fund's
ability to use these instruments may be limited by market conditions,
regulatory limits and tax considerations.
In pursuing these strategies, the Fund may: purchase and sell financial
futures contracts and options thereon; purchase and sell forward contracts;
enter into swap agreements, including interest rate swaps and caps, collars and
floors; and enter into various currency transactions, including currency
futures contracts, options on currency futures, currency options, currency
forward contracts and currency swaps, caps, collars and floors (collectively,
"Strategic Transactions"). Strategic transactions may be used without limit in
altering the exposure of a particular investment or portion of the Fund's
portfolio to fluctuations in interest rates or currency exchange rates, to
preserve a return or spread, to lock in unrealized market value gains or
losses, to facilitate the sale or purchase of securities, to manage the
duration of securities, to uncap a capped security, or to convert a fixed rate
security to a variable rate security.
Any, all or none of these strategies may be used at any time and in any
combination, and no assurance can be given that any strategy used will succeed.
If the Manager incorrectly forecasts interest rates, currency exchange rates,
market values or other economic factors, the use of strategic transactions
might have more adverse results than if the Fund had not used such
transactions. The Fund will enter into swaps, caps, collars and floors only
with banks and recognized securities dealers believed by the Manager to present
minimal credit risks in accordance with guidelines established by the Board. If
there is a default by the other party, the
5
<PAGE> 157
Fund will have to rely on its contractual remedies (which may be limited by
bankruptcy, insolvency or similar laws) pursuant to the agreement relating to
the transaction. See the SAI for a further discussion of Strategic
Transactions. Strategic Instruments may be referred to as "derivative
instruments".
The Fund will comply with SEC guidelines regarding cover for Strategic
Instruments and will, if the guidelines so require, set aside cash, U.S.
Government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount. Assets used as
cover or held in a segregated account cannot be sold while the position in the
corresponding Strategic Instrument is open, unless they are replaced with other
appropriate assets. As a result, the commitment of a large portion of the
Fund's assets to cover or segregated accounts could impede portfolio management
or the Fund's ability to meet redemption requests or other current obligations.
Mortgage-related Securities
The Fund is permitted to invest in mortgage-related securities, subject to
the quality requirements specified above. Mortgage pass-through securities are
securities representing interests in "pools" of mortgages in which payments of
both interest and principal on the securities are made monthly, in effect,
"passing through" monthly payments made by the individual borrowers on the
mortgage loans which underlie the securities (net of fees paid to the issuer or
guarantor of the securities). Early repayment of principal on mortgage
pass-through securities (arising from prepayments of principal due to sale of
the underlying property, refinancing or foreclosure, net of fees and costs
which may be incurred) may expose the Fund to a lower rate of return upon
reinvestment of principal. Also, if a security subject to prepayment has been
purchased at a premium, the value of the premium would be lost in the event of
prepayment. Like other fixed-income securities, when interest rates rise, the
value of mortgage-related securities generally will decline; however, when
interest rates decline, the value of the mortgage-related securities with
prepayment features may not increase as much as other fixed-income securities.
In recognition of this prepayment risk to investors, the Public Securities
Association (the "PSA") has standardized the method of measuring the rate of
mortgage loan principal prepayments. The PSA formula, the Constant Prepayment
Rate and other similar models that are standard in the industry will be used by
the Fund in calculating maturity for purposes of investment in mortgage-related
securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by
the full faith and credit of the U.S. Government (in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (in the case
of securities guaranteed by the Federal National
6
<PAGE> 158
Mortgage Association ("FNMA") or the Federal Home Loan Mortgage Corporation
("FHLMC"), which are supported only by the discretionary authority of the U.S.
Government to purchase the agency's obligations). Mortgage pass-through
securities created by non-governmental issuers (such as commercial banks,
savings institutions, private mortgage insurance companies, mortgage bankers
and other secondary market issuers) may be supported by various credit
enhancements such as pool insurance, a guarantee issued by a governmental
entity, or a letter of credit from a bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to mortgage pass-through securities, interest and prepaid
principal on a CMO are paid, in most cases, monthly. CMOs may be collateralized
by whole mortgage loans, but are more typically collateralized by portfolios of
mortgage pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are
structured in multiple classes, with each class bearing a different stated
maturity or interest rate.
Asset-backed Securities
The Fund is permitted to invest in asset-backed securities, subject to its
rating and quality requirements. Through the use of trusts and special purpose
subsidiaries, various types of assets, primarily home equity loans, automobile
and credit card receivables, and other types of receivables or other assets as
well as purchase contracts, financing leases and sales agreements entered into
by municipalities, are being securitized in pass-through structures similar to
the mortgage pass-through structures described above.
Asset-backed securities involve certain risks that are not posed by
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest
in the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to
obtain full payment. In the case of automobile receivables, due to various
legal and economic factors, proceeds from repossessed collateral may not always
be sufficient to support payments on the securities. The risks associated with
asset-based securities are often reduced by the addition of credit enhancements
such as a letter of credit from a bank, excess collateral or a third-party
guarantee.
Master Notes
Master notes in which the Fund may invest are unsecured notes that permit
the indebtedness thereunder to vary, and provide for periodic adjustments in
the interest rate. Because master notes are direct lending arrangements between
the Fund and the issuer, there is no secondary market for the notes. However,
generally either the maturity of a master note shall not exceed
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<PAGE> 159
seven days or the master note will have a put feature which will permit payment
of principal and accrued interest within seven days. To the extent this period
is exceeded, the note in question would be considered illiquid and will be
subject to the Fund's limitation on illiquid investments. Issuers of master
notes must satisfy the same creditworthiness criteria as set forth for other
promissory notes (e.g., commercial paper). The Fund will invest in master notes
only when such notes are determined by the Manager to be of comparable quality
to rated issuers or instruments eligible for investment by the Fund.
Structured Notes
Structured notes are debt instruments for which the interest rate and/or
the principal are indexed to an unrelated indicator. The Fund will only utilize
structured notes that have the characteristics of permissible variable rate
notes and that have a rate of interest based on a leading money market index
not greater than three months. Structured notes are often issued by high-grade
corporate issuers. An underlying swap is often entered into in connection with
a structured note pursuant to which the issuer will receive payments that match
its obligations under the structured note (usually from an investment bank that
puts the transaction together) and, in turn, makes more "traditional" payments
to the investment bank (e.g., fixed-rate or ordinary floating rate payments).
In such cases the Fund would not be involved in the swap and the issuer of the
note would remain obligated even if its counterparty defaulted. Structured
notes are considered a type of derivative investment.
Trust Obligations
Trust obligations are debt instruments issued by a trust established
solely for the purpose of owning the underlying assets purchased from the
selling company ("originator"). The trust is structured to ensure assets sold
to the trust are not subject to bankruptcy proceedings against the originators.
The debt instruments issued by the trust represent a pro rata undivided
interest in the trust assets.
When-Issued Securities and Forward Commitment Transactions
The Fund may purchase or sell securities on a "when-issued" basis or
"forward commitment" basis. The purchase or sale of when-issued securities
enables an investor to hedge against anticipated changes in interest rates and
prices by locking in a favorable price or yield. The price of when-issued
securities is fixed at the time the commitment to purchase or sell is made, but
delivery and payment for the when-issued securities take place at a later date,
normally one to two months after the date of purchase. During the period
between purchase and settlement, no payment is made by the purchaser to the
issuer and no interest accrues to the purchaser. Such transactions therefore
involve a risk of loss if the value of the security to be purchased declines
prior to the settlement date or if the value of the security to be sold
increases prior to the settlement date. A sale of a
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<PAGE> 160
when-issued security also involves the risk that the other party will be unable
to settle the transaction.
Purchase and sale of securities on a "forward commitment" basis involve
a commitment to purchase or sell securities with payment and delivery to take
place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. When purchasing securities on a when-issued or
forward commitment basis, a segregated account of liquid assets at least equal
to the value of purchase commitments for such securities will be maintained
until the settlement date.
Securities Lending
The Fund may lend securities to broker-dealers or other institutional
investors pursuant to agreements requiring that the loans be continuously
secured by any combination of cash, securities of the U.S. Government and its
agencies and approved bank letters of credit that at all times equals at least
100% of the market value of the loaned securities. Such loans will not be made
if, as a result, the aggregate amount of all outstanding securities loans by
the Fund would exceed 33 1/3% of its total assets. The Fund normally pays
lending fees and related expenses from the interest earned on invested
collateral, but continues to receive interest on the securities loaned and
simultaneously earns either interest on the investment of the cash collateral
or fee income if the loan is otherwise collateralized. Should the borrower of
the securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. However, loans are made only to
borrowers which are deemed by the Manager to be of good financial standing. For
purposes of complying with the Fund's investment policies and restrictions,
collateral received in connection with securities loans will be deemed an asset
of the Fund to the extent required by law. See the SAI for further information
regarding loan transactions.
Repurchase Agreements
A repurchase agreement is an agreement under which securities are acquired
by the Fund from financial institutions such as banks and broker/dealers
subject to resale at an agreed upon date and price. The Fund bears the risk of
loss in the event that the other party to a repurchase agreement defaults on
its obligations and the Fund is delayed or prevented from exercising its rights
to dispose of the collateral securities. However, the Manager will enter into
repurchase agreements only with financial institutions that are deemed to be of
good financial standing and that have been approved by the Board. See the SAI
for more information regarding repurchase agreements.
Reverse Repurchase Agreements
The Fund may borrow funds for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, the Fund would sell
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<PAGE> 161
portfolio securities to financial institutions such as banks and broker/dealers
and agree to repurchase them at a mutually agreed-upon date and price. At the
time the Fund 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 the Fund may decline below the
price at which the Fund is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by an investment company
under the 1940 Act.
Portfolio Transactions
The Manager will place its own orders to execute securities transactions
of the Fund. In placing such orders, the Manager will seek the best available
price and most favorable execution. The full range and quality of services
offered by the executing broker or dealer is considered when making these
determinations. High portfolio activity increases the Fund's transaction costs.
The Fund normally will not incur any brokerage commissions on its transactions
because debt instruments are generally traded on a "net" basis with dealers
acting as principal for their own accounts without a stated commission. The
price of the obligation, however, usually includes a profit to the dealer.
Obligations purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No commissions or discounts are paid when securities
are purchased directly from an issuer.
INVESTMENT RESTRICTIONS
The following investment restrictions of the Fund may be changed only by
the majority vote of the Fund's outstanding shares. The Fund may not:
o Invest more than 25% of its total assets in the obligations of companies
primarily engaged in any one industry other than the U.S. Government,
its agencies and instrumentalities. Finance companies as a group are not
considered a single industry for purposes of this policy.
o 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.
As a non-fundamental investment restriction which may be changed only by a
vote of the Board, the Fund may not invest more than 15% of its net assets in
illiquid securities, including master notes, time deposits and repurchase
agreements which mature in more than seven days.
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The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the SAI for other
investment limitations.
YIELDS AND TOTAL RETURNS
Advertised yield for the Fund will be computed by dividing the net
investment income per share earned during the relevant time period by the
offering price per share on the last day of the period. Total return quotations
advertised by the Fund may reflect the average annual compounded (or aggregate
compounded) rate of return during the designated time period based on a
hypothetical initial investment and the redeemable value of that investment at
the end of the period. Additionally, the Fund may advertise a "monthly
distribution rate". This rate is based on an annualized monthly dividend
accrual rate per share compared with the Fund's month-end net asset value per
share. The Fund may at times compare its performance to applicable published
indices, and may also disclose its performance as ranked by certain ranking
entities. See the SAI for more information about the calculation of yields and
total returns.
MANAGEMENT AND ADMINISTRATION OF THE TRUST
Management Agreement
The Trust is governed by its Board which provides broad supervision over
the Trust's affairs. The Trust and the Manager entered into a Management
Agreement (the "Agreement") which obligates the Manager to provide or oversee
all administrative, investment advisory and portfolio management services for
the Fund. The Agreement was approved with respect to the Fund by the Fund's
sole initial shareholder on November 28, 1995. The Manager provides the Trust
with office space, office equipment and personnel necessary to manage and
administer Trust operations. This includes complying with reporting
requirements; corresponding with shareholders; maintaining internal
bookkeeping, accounting and auditing services and records; and supervising the
provision of services to the Trust by third parties. The Manager also develops
and implements the investment program for the Fund. The Manager, located at
4333 Amon Carter Boulevard, MD5645, Fort Worth, Texas 76155, is a wholly-owned
subsidiary of AMR Corporation ("AMR"), the parent company of American Airlines,
Inc., and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services to the American
AAdvantage Funds and other investors. As of December 31, 1996, the Manager had
assets under management of approximately $16.0 billion including approximately
$5.7 billion under active management and $9.3 billion as named fiduciary or
fiduciary adviser.
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Of the total, approximately $11.9 billion of assets are related to AMR and its
primary subsidiary, American Airlines, Inc.
As compensation for providing these services to the Fund, the Manager
receives from the Trust an annualized fee ("Management Fee"), which is
calculated and accrued daily, equal to .10% of the net assets of the Fund. Such
fees are payable quarterly in arrears.
The Agreement will continue in effect provided that annually such
continuance is specifically approved by a vote of the Board, 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. The Agreement may be terminated at
any time, without penalty, by a majority vote of outstanding Fund shares on
sixty (60) days' written notice to the Manager, or by the Manager, on sixty
(60) days' written notice to the Trust. The Agreement will automatically
terminate in the event of its "assignment" as defined in the 1940 Act.
Portfolio Managers
Michael W. Fields is responsible for the portfolio management oversight of
the Fund. Mr. Fields has been with AMR Investment Services, Inc. since it was
founded in 1986 and currently serves as Vice President-Fixed Income
Investments. Benjamin L. Mayer is responsible for the day-to-day portfolio
management of the Fund. Mr. Mayer has served as Senior Portfolio Manager of AMR
Investment Services since May 1995. Prior to that time, he was a Vice President
of Institutional Fixed Income Sales at Merrill Lynch, Pierce, Fenner & Smith
from January 1994 to April 1995 and Vice President, Regional Senior Strategist
from April 1989 to January 1994.
Fund Expenses
Expenses paid by the Fund may include, but are not limited to audits by
independent auditors; transfer agent, custodian, dividend disbursing agent and
shareholder recordkeeping services; obtaining quotations for calculating the
value of the Fund's net assets; taxes, if any, and the preparation of the
Fund's tax returns; brokerage fees and commissions; interest; costs of Trustee
and shareholder meetings; printing and mailing prospectuses and reports to
existing shareholders; fees for filing reports with regulatory bodies and the
maintenance of the Trust's existence; legal fees; fees to federal and state
authorities for the registration of Fund shares; fees and expenses of Trustees
who are not directors, officers, employees or stockholders of the Manager or
its affiliates; insurance and fidelity bond premiums; and any extraordinary
expenses of a non-recurring nature.
Custodian and Transfer Agent
NationsBank of Texas, N.A., Dallas, Texas serves as custodian for the
Trust and transfer agent for the Fund.
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Independent Auditor
The independent auditor for the Fund is Ernst & Young LLP, Dallas, Texas.
Principal Underwriter
Brokers Transaction Services, Inc. ("BTS"), 7001 Preston Road, Dallas,
Texas 75205, serves as principal underwriter of the Trust.
PURCHASE, REDEMPTION AND VALUATION OF SHARES
Purchasing Shares of the Fund
Shares of the Fund are offered without a sales charge and are sold on a
continuous basis. Shares are sold at the net asset value next determined after
acceptance by the transfer agent of a purchase order. Shares are offered and
purchase orders are accepted for the Fund on each day the Federal Reserve
System and the custodian/transfer agent are open for business ("Business Day").
The Trust reserves the right to reject any order for the purchase of shares and
to limit or suspend, without prior notice, the offering of shares. The minimum
investment required to open an account is generally $50 million.
Payment for the purchase of shares must be in the form of federal funds.
Purchase orders are only accepted on a Business Day by 3:00 p.m. Eastern time
and will be executed on that same day if accompanied by payment. Certificates
representing shares ordinarily will not be issued.
Fund shares may be purchased and redeemed as follows:
By Wire--Purchases may be made by wiring federal funds. To ensure prompt
receipt of a transmission by wire, the investor should: telephone the transfer
agent at (214) 508-5038 and specify that it will be purchasing shares of the
Short-Term Income Fund; provide the name, address, telephone number, and
account number of the investor; and identify the amount being wired and by
which bank. If the investor is opening a new account, the transfer agent will
then provide the investor with an account number. The investor should instruct
its bank to designate the account number that the transfer agent has assigned
to the investor and to transmit the federal funds to: Federal Reserve Bank,
Dallas for NationsBank of Texas, N.A., ABA #111-000-025, Corporate Trust
Suspense No. 0180019810, reference American AAdvantage Short-Term Income Fund,
Attention: Fund Account Services.
By Depositing Securities--Shares of the Fund may be purchased in exchange
for an investor's securities if the Manager determines that the securities are
acceptable and satisfy the Fund's investment objective and policies. Investors
interested in exchanging securities must first contact the Manager and obtain
instructions regarding submission of a written description of the securities
that the investor wishes to exchange. The investor must
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represent that all such securities offered to the Fund are not subject to any
sale restrictions. Within five business days after receipt of the written
description, the Manager will advise the investor whether the securities to be
exchanged are acceptable. There is no charge for this review by the Manager.
Securities accepted by the Fund must have a readily ascertainable value.
Securities are valued in the manner described for valuing Fund assets in the
section entitled "Valuation of Shares". Acceptance of such orders may occur on
any day during the five-day period afforded the Manager to review the
acceptability of the securities. Upon acceptance of such orders, the securities
must be delivered in fully negotiable form within five days. The Manager will
provide delivery instructions at the time of acceptance. A gain or loss for
federal income tax purposes may be realized by the investor upon the securities
exchange, depending upon the adjusted tax basis and value of the securities
tendered. The Fund will accept securities in this manner only for investment
purposes, and not for resale.
By Mail--Share purchases of the Fund may be made by mail by sending a
check or other negotiable bank draft payable to the Fund to "NationsBank of
Texas, N.A., 11th Floor, Elm Place, P.O. Box 830840, Dallas, Texas 75283-0840,
Attention: American AAdvantage Short-Term Income Fund". Subsequent purchases of
shares should be accompanied by the shareholder's account number. Purchase
checks are accepted subject to collection at full face value in U.S. funds and
must be drawn in U.S. dollars on a U.S. bank.
Redemption of Shares
Fund shares may be redeemed on any Business Day by writing directly to
NationsBank of Texas, N.A. at the address above under "Purchase of Shares--By
Mail". The redemption price will be the net asset value per share next
determined after receipt by NationsBank of Texas, N.A. of all required
documents in good order. "Good order" means that the request must include a
letter of instruction or stock assignment specifying the number of shares or
dollar amount to be redeemed, signed by an authorized signatory for the owner
of the shares, and accompanied by such other supporting legal documents which
may be required by the Trust.
Payment for redeemed shares will be made in cash within seven days after
the receipt of a redemption request in good order. The Fund's yield will less
likely by adversely affected if the Fund receives redemption notification seven
days prior to the redemption. However, the Fund reserves the right to suspend
redemptions or postpone the date of payment (a) for any periods during which
the Federal Reserve System or the transfer agent are closed (other than for
customary weekend and holiday closings), (b) at such time as an emergency
exists as determined by the Securities and Exchange Commission so that disposal
of the Fund's investments or determination of its net asset value is not
reasonably practicable, or (c) for such other periods as the Securities and
Exchange Commission by order may permit for protection of the Fund's
shareholders. Shares purchased by check may not be
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redeemed until the funds have cleared, which may take up to 15 days. During
periods when there are substantial redemption requests, the Fund will generally
take the full seven days to make payment.
Redemption in Kind
Although the Fund intends to redeem shares in cash, it reserves the right
to pay the redemption price in whole or in part by a distribution of readily
marketable securities from the Fund's portfolio. However, shareholders always
will be entitled to redeem shares for cash up to the lesser of $250,000 or 1%
of the 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 transaction costs.
Valuation of Shares
The net asset value of the Fund's shares is determined as of 4:00 p.m.
Eastern time on each Business Day. Debt securities (other than short-term
securities) are normally valued on the basis of prices provided by a pricing
service and may take into account appropriate factors such as institution-size
trading in similar groups of securities, yield, quality, coupon rate, maturity,
type of issue, trading characteristics and other market data. In some cases,
the prices of debt securities may be determined using quotes obtained from
brokers. Securities and other assets for which market quotations are not
readily available are valued at fair value, as determined in good faith and
pursuant to procedures approved by the Board. Obligations with 60 days or less
to maturity held by the Fund are valued using the amortized cost method as
described in the SAI.
INFORMATION CONCERNING SHARES OF THE FUND
Dividends and Capital Gain Distributions
Dividends, consisting of substantially all of the Fund's net investment
income, are normally declared on each Business Day immediately prior to the
determination of net asset value. Any net short-term capital gain may be
distributed over a period of time, as determined by the Manager. Dividends
generally are paid monthly, in cash or in Fund shares, on the first day of the
following month. Any net capital gain (the excess of net long-term capital gain
over net short-term capital loss) that may be realized will be distributed once
every year. Should the Fund anticipate or incur any unusual expenses, loss or
depreciation that would adversely affect the net asset value per share or
income for a particular period, the Board may at that time consider whether to
adhere to the dividend policy described above or to revise it in the light of
the prevailing circumstances.
Unless a shareholder otherwise elects on the account application, all
dividends and other distributions are automatically declared and paid in
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additional Fund shares based on the net asset value per share next determined
on the payment date. However, a shareholder may choose to have distributions of
net capital gain paid in shares and dividends paid in cash, or to have all such
distributions and dividends paid in cash. An election may be changed at any
time by delivering written notice which is received by the transfer agent at
least ten days prior to the payment date for a dividend or other distribution.
Tax Information
The Fund is treated as a separate corporation for federal income tax
purposes and intends to qualify for treatment as a RIC under the Internal
Revenue Code of 1986, as amended. In each taxable year that the Fund so
qualifies, the Fund (but not its shareholders) will be relieved of federal
income tax on that part of its investment company taxable income (generally,
net investment income plus any net short-term capital gain and gain from
certain foreign currency transactions) and net capital gain that it distributes
to its shareholders. However, the Fund will be subject to a nondeductible 4%
excise tax to the extent that it fails to distribute by the end of any calendar
year substantially all of its ordinary income for that calendar year and
capital gain net income for the one-year period ending on October 31 of that
year, plus certain other amounts. For these and other purposes, dividends and
other distributions declared by the Fund in October, November or December of
any year and payable to shareholders of record on a date in one of those months
will be deemed to have been paid by the Fund and received by the shareholders
on December 31 of that year if they are paid by the Fund during the following
January. The Fund intends to satisfy the above described distribution
requirements.
Dividends from the Fund's investment company taxable income will be
taxable to its shareholders as ordinary income to the extent of the Fund's
earnings and profits, whether received in cash or paid in additional Fund
shares. Distributions of the Fund's net capital gain (whether received in cash
or paid in additional Fund shares), when designated as such, generally will be
taxable to those shareholders as long-term capital gain, regardless of how long
they have held their Fund shares. A capital gain distribution from the Fund may
also be offset by capital losses from other sources. If shares are purchased
shortly before the record date for a dividend or other distribution, the
investor will pay full price for the shares and receive some portion of the
price back as a taxable distribution. The Fund will notify its shareholders
following the end of each calendar year of the amount of dividends and other
distributions paid (or deemed paid) during that year.
Redemption of Fund shares may result in taxable gain or loss to the
redeeming shareholder, depending upon whether the fair market value of the
redemption proceeds exceeds or is less than the shareholder's adjusted basis
for the redeemed shares. If shares of the Fund are redeemed at a loss after
being held for six months or less, the loss will be treated as long-term,
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instead of short-term, capital loss to the extent of any capital gain
distributions received on those shares.
The Fund is required to withhold 31% of all dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
non-corporate shareholders who do not provide the Fund with a correct taxpayer
identification number or (except with respect to redemption proceeds) who
otherwise are subject to back-up withholding.
The foregoing is only a summary of some of the important tax
considerations generally affecting the Fund and its shareholders. Prospective
investors are urged to consult their own tax advisers regarding specific
questions as to the effect of federal, state or local income taxes on any
investment in the Fund. For further tax information, see the SAI.
GENERAL INFORMATION
The Fund is comprised of one class of shares that may be issued in an
unlimited number. Each share represents an equal proportionate beneficial
interest in the Fund and each is entitled to one vote. Shares of the Fund may
vote on matters affecting the Fund. All shares of the Trust vote on matters
affecting the Trust as a whole. Share voting rights are not cumulative, and
shares have no preemptive or conversion rights. Shares of the Trust are
non-transferable.
Shares are distributed through the Trust's principal underwriter, BTS. BTS
is compensated by the Manager and not the Trust. Any distribution expenses
incurred by the Manager related to the Fund are borne by the Manager. The Trust
does not intend to compensate the Manager or any other party, either directly
or indirectly, for the distribution of Fund shares.
As a Massachusetts business trust, the Trust is not obligated to conduct
annual shareholder meetings. However, the Trust will hold special shareholder
meetings whenever required to do so under the federal securities laws or the
Trust's Declaration of Trust or By-Laws. Trustees can be removed by a
shareholder vote at special shareholder meetings.
Shareholders will receive periodic reports, including annual and
semi-annual reports, which will include financial statements showing the
results of the Fund's operations and other information. The financial
statements relating to the Fund will be audited by Ernst & Young LLP,
independent auditor, at least annually. Shareholder inquiries should be made by
writing to the Fund at P.O. Box 619003, DFW Airport, TX 75261-9003, or by
calling (817) 967-3509.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in sales
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literature specifically approved by officers of the Trust for use in connection
with the offer of any Fund shares, and, if given or made, such other
information or representations must not be relied upon as having been
authorized by the Fund. This Prospectus does not constitute an offer in any
jurisdiction in which, or to any person to whom, such offering may not lawfully
be made.
American AAdvantage Funds is a registered service mark of AMR Corporation.
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STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE FUNDS(R)
AMR CLASS(SM)
INSTITUTIONAL CLASS
PLANAHEAD CLASS(R)
DATED MARCH 1, 1997
The American AAdvantage Balanced Fundsm (the "Balanced Fund"), American
AAdvantage Growth and Income Fundsm, formerly the American AAdvantage Equity
Fund (the "Growth and Income Fund"), American AAdvantage International Equity
Fundsm (the "International Equity Fund"), American AAdvantage Limited-Term
Income Fundsm, formerly the American AAdvantage Fixed Income Fund (the
"Limited-Term Income Fund"), American AAdvantage Money Market Fundsm (the
"Money Market Fund"), American AAdvantage Municipal Money Market Fundsm (the
"Municipal Money Market Fund"), American AAdvantage S&P 500 Index Fund (the
"S&P 500 Index Fund") and American AAdvantage U.S. Government Money Market
Fundsm (the "U.S. Government Money Market Fund", formerly the American
AAdvantage U.S. Treasury Money Market Fund), (individually, a "Fund" and
collectively, the "Funds") are eight 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, except the S&P 500 Index Fund, consists of multiple
classes of shares designed to meet the needs of different groups of investors.
The S&P 500 Index Fund currently offers only the AMR Class of shares. This
Statement of Additional Information relates to the AMR, Institutional and
PlanAhead Classes of the Trust.
Each Fund, except the S&P 500 Index Fund, seeks its investment objective
by investing all of its investable assets in a corresponding portfolio of the
AMR Investment Services Trust ("AMR Trust"). The S&P 500 Index Fund invests all
of its investable assets in the Equity 500 Index Portfolio. (The Equity 500
Index Portfolio and the portfolios of the AMR Trust are referred to herein
individually as a "Portfolio" and, collectively, the "Portfolios".) Each
Portfolio has an investment objective identical to the investing Fund. Each
corresponding Portfolio of the AMR Trust has a similar name to the investing
Fund. The AMR Trust is a separate investment company managed by AMR Investment
Services, Inc. (the "Manager"). The Equity 500 Index Portfolio is a separate
investment company managed by Bankers Trust Company ("BT").
This Statement of Additional Information should be read in conjunction
with an AMR Class, an Institutional Class or a PlanAhead Class prospectus dated
March 1, 1997, (individually, a "Prospectus"), copies of which may be obtained
without charge by calling (800) 388-3344 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
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Each Fund has the following fundamental investment policy that enables
it to invest in its corresponding Portfolio:
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, the
AMR Trust's Board of Trustees ("AMR Trust Board") and the Equity 500 Index
Portfolio's Board of Trustees ("Equity 500 Index Portfolio Board"), it applies
equally to each Fund and the Trust's Board of Trustees ("Board").
PORTFOLIOS OF THE AMR TRUST
In addition to the investment limitations noted in the Prospectus, the
following seven restrictions have been adopted by each Portfolio of the AMR
Trust, and may be changed with respect to any such Portfolio only by the
majority vote of that Portfolio's outstanding interests. "Majority of the
outstanding voting securities" under the Investment Company Act of 1940, as
amended (the "1940 Act"), and as used herein means, with respect to the
Portfolio, 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. The percentage of a Fund's votes representing that Fund's
shareholders not voting will be voted by the Board in the same proportion as
those Fund shareholders who do, in fact, vote.
No Portfolio of the AMR Trust 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.
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.
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5. Purchase from or sell portfolio securities to its officers, Trustees
or other "interested persons" of the Trust, as defined in the 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 following non-fundamental investment restriction applies to each
Portfolio of the AMR Trust and may be changed with respect to a
Portfolio by a majority vote of the AMR Trust Board. No Portfolio of the
AMR Trust may 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.
All Portfolios of the AMR Trust, may invest up to 10% of their total
assets in the securities of other investment companies to the extent permitted
by law. A Portfolio of the AMR Trust may incur duplicate advisory or management
fees when investing in another mutual fund.
In addition, no Portfolio of the AMR Trust 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 of cost or market, in warrants or more than 2% of its net
assets in warrants which are not listed on the New York Stock Exchange ("NYSE")
or American Stock Exchanges ("AMEX").
EQUITY 500 INDEX PORTFOLIO
The following investment restrictions are "fundamental policies" of the
Equity 500 Index Portfolio and may be changed with respect to the Portfolio
only by the majority vote of the Portfolio's outstanding interests, as defined
above. Whenever the S&P 500 Index Fund is requested to vote on a change in the
fundamental policy of the Portfolio, the Fund will hold a meeting of its
shareholders and will cast its votes as instructed by its shareholders. The
percentage of the Fund's votes representing Fund shareholders not voting will
be voted by the Board in the same proportion as the Fund shareholders who do,
in fact, vote.
The Equity 500 Index Portfolio may not:
1. Borrow money or mortgage or hypothecate assets of the Portfolio,
except that in an amount not to exceed 1/3 of the current value of the
Portfolio's net assets, it may borrow money as a temporary measure for
extraordinary or emergency purposes and enter into reverse repurchase
agreements or dollar roll transactions, and except that it may pledge,
mortgage or hypothecate not more than 1/3 of such assets to secure such
borrowings (it is intended that money would be borrowed only from banks
and only either to accommodate requests for the withdrawal of beneficial
interests (redemption of shares) while effecting an orderly liquidation
of portfolio securities or to maintain liquidity in the
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event of an unanticipated failure to complete a portfolio security
transaction or other similar situations) or reverse repurchase
agreements, provided that collateral arrangements with respect to options
and futures, including deposits of initial deposit and variation margin,
are not considered a pledge of assets for purposes of this restriction
and except that assets may be pledged to secure letters of credit solely
for the purpose of participating in a captive insurance company sponsored
by the Investment Company Institute; for additional related restrictions,
see clause (1) below. (As an operating policy, the Portfolio may not
engage in dollar roll transactions).
2. Underwrite securities issued by other persons except insofar as the
Portfolio may technically be deemed an underwriter under the Securities
Act of 1933 (the "1933 Act") in selling a portfolio security.
3. Make loans to other persons except: (a) through the use of repurchase
agreements or the purchase of short-term obligations; or (b) by
purchasing a portion of an issue of debt securities of types distributed
publicly or privately.
4. Purchase or sell real estate (including limited partnership interests
but excluding securities secured by real estate or interests therein),
interests in oil, gas or mineral leases, commodities or commodity
contracts (except futures and option contracts) in the ordinary course
of business (except that the Portfolio may hold and sell, for the
Portfolio's portfolio, real estate acquired as a result of the
Portfolio's ownership of securities).
5. Concentrate its investments in any particular industry (excluding
U.S. Government securities), but if it is deemed appropriate for the
achievement of the Portfolio's investment objective, up to 25% of its
total assets may be invested in any one industry.
6. Issue any senior security (as that term is defined in the 1940 Act)
if such issuance is specifically prohibited by the 1940 Act or the rules
and regulations promulgated thereunder, provided that collateral
arrangements with respect to options and futures, including deposits of
initial deposit and variation margin, are not considered to be the
issuance of a senior security for purposes of this restriction.
In order to comply with certain statutes and policies the Equity 500
Index Portfolio will not as a matter of operating policy:
1. Borrow money (including through dollar roll transactions) for any
purpose in excess of 10% of the Portfolio's total assets (taken at cost)
except that the Portfolio may borrow for temporary or emergency purposes
up to 1/3 of its total assets.
2. Pledge, mortgage or hypothecate for any purpose in excess of 10% of
the Portfolio's total assets (taken at market value), provided that
collateral arrangements with respect to options and futures, including
deposits of initial deposit and variation margin, are not considered a
pledge of assets for purposes of this restriction.
3. Purchase any security or evidence of interest therein on margin,
except that such short-term credit as may be necessary for the clearance
of purchases and sales of securities may be obtained and except that
deposits of initial deposit and variation margin may be made in
connection with the purchase, ownership, holding or sale of futures.
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4. Sell any security that it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right to
obtain securities, without payment of further consideration, equivalent
in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions.
5. Invest for the purpose of exercising control or management.
6. Purchase securities issued by any investment company except by
purchase in the open market where no commission or profit to a sponsor
or dealer results from such purchase other than the customary broker's
commission, or except when such purchase, though not made in the open
market, is part of a plan of merger or consolidation; provided, however,
that securities of any investment company will not be purchased for the
Portfolio if such purchase at the time thereof would cause: (a) more
than 10% of the Portfolio's total assets (taken at the greater of cost
or market value) to be invested in the securities of such issuers; (b)
more than 5% of the Portfolio's total assets (taken at the greater of
cost or market value) to be invested in any one investment company; or
(c) more than 3% of the outstanding voting securities of any such issuer
to be held for the Portfolio; and, provided further that, except in the
case of merger or consolidation, the Portfolio shall not invest in any
other open-end investment company unless the Portfolio (1) waives the
investment advisory fee with respect to assets invested in other
open-end investment companies and (2) incurs no sales charge in
connection with the investment (as an operating policy, the Portfolio
will not invest in another open-end registered investment company).
7. Invest more than 15% of the Portfolio's net assets (taken at the
greater of cost or market value) in securities that are illiquid or not
readily marketable not including (a) Rule 144A securities that have been
determined to be liquid by the Equity 500 Index Portfolio Board; and (b)
commercial paper that is sold under section 4(2) of the 1933 Act which:
(i) is not traded flat or in default as to interest or principal; and
(ii) is rated in one of the two highest categories by at least two
nationally recognized statistical rating organizations and the Equity
500 Index Portfolio Board has determined the commercial paper to be
liquid; or (iii) is rated in one of the two highest categories by one
nationally recognized statistical rating agency and the Equity 500 Index
Portfolio Board have determined that the commercial paper is equivalent
quality and is liquid.
8. Invest more than 10% of the Portfolio's total assets (taken at the
greater of cost or market value) in securities that are restricted as to
resale under the 1933 Act (other than Rule 144A securities deemed liquid
by the Equity 500 Index Portfolio Board).
9. No more than 5% of the Portfolio's total assets are invested in
securities issued by issuers which (including predecessors) have been in
operation less than three years.
10. With respect to 75% of the Portfolio's total assets, purchase
securities of any issuer if such purchase at the time thereof would
cause the Portfolio to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be
deemed a single class and all preferred stock of an issuer shall be
deemed a single class, except that futures or option contracts shall not
be subject to this restriction.
11. If the Portfolio is a "diversified" fund with respect to 75% of
its assets, invest more than 5% of its total assets in the securities
(excluding U.S. Government securities) of any one issuer.
5
<PAGE> 175
12. Purchase or retain in the Portfolio's portfolio any securities
issued by an issuer any of whose officers, directors, trustees or
security holders is an officer or Trustee of the Equity 500 Index
Portfolio, or is an officer or partner of BT, if after the purchase of
the securities of such issuer for the Portfolio one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together
own beneficially more than 5% of such shares or securities, or both, all
taken at market value.
13. Invest more than 5% of the Portfolio's net assets in warrants
(valued at the lower of cost or market) (other than warrants acquired by
the Portfolio as part of a unit or attached to securities at the time of
purchase), but not more than 2% of the Portfolio's net assets may be
invested in warrants not listed on the NYSE or the AMEX.
14. Make short sales of securities or maintain a short position, unless
at all times when a short position is open it owns an equal amount of
such securities or securities convertible into or exchangeable, without
payment of any further consideration, for securities of the same issue
and equal in amount to, the securities sold short, and unless not more
than 10% of the Portfolio's net assets (taken at market value) is
represented by such securities, or securities convertible into or
exchangeable for such securities, at any one time (the Portfolio has no
current intention to engage in short selling).
15. Write puts and calls on securities unless each of the following
conditions are met: (a) the security underlying the put or call is
within the investment policies of the Portfolio and the option is issued
by the Options Clearing Corporation, except for put and call options
issued by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate value of the obligations
underlying the puts determined as of the date the options are sold shall
not exceed 5% of the Portfolio's net assets; (c) the securities subject
to the exercise of the call written by the Portfolio must be owned by
the Portfolio at the time the call is sold and must continue to be owned
by the Portfolio until the call has been exercised, has lapsed, or the
Portfolio has purchased a closing call, and such purchase has been
confirmed, thereby extinguishing the Portfolio's obligation to deliver
securities pursuant to the call it has sold; and (d) at the time a put
is written, the Portfolio establishes a segregated account with its
custodian consisting of cash or short-term U.S. Government securities
equal in value to the amount the Portfolio will be obligated to pay upon
exercise of the put (this account must be maintained until the put is
exercised, has expired, or the Portfolio has purchased a closing put,
which is a put of the same series as the one previously written).
16. Buy and sell puts and calls on securities, stock index futures or
options on stock index futures, or, financial futures or options on
financial futures unless such options are written by other persons and:
(a) the options or futures are offered through the facilities of a
national securities association or are listed on a national securities
or commodities exchange, except for put and call options issued by
non-U.S. entities or listed on non-U.S. securities or commodities
exchanges; (b) the aggregate premiums paid on all such options which are
held at any time do not exceed 20% of the Portfolio's total net assets;
and (c) the aggregate margin deposits required on all such futures or
options thereon held at any time do not exceed 5% of the Portfolio's
total assets.
6
<PAGE> 176
TRUSTEES AND OFFICERS OF THE TRUST AND THE AMR TRUST
The Board provides broad supervision over the Trust's affairs. 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.
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ------------------------------------------------------------------
<S> <C> <C>
William F. Quinn* (49) Trustee and President President, AMR Investment Services, Inc. (1986-Present);
Chairman, American Airlines Employees Federal Credit Union
(1989-Present); Trustee, American Performance Funds (1990-1994);
Director, Crescent Real Estate Equities, Inc. (1994-Present);
Trustee, American AAdvantage Mileage Funds (1995-Present).
Alan D. Feld (59) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present)#;
1700 Pacific Avenue Director, Clear Channel Communications (1984-Present); Director,
Suite 4100 CenterPoint Properties, Inc. (1994-Present); Trustee,
Dallas, Texas 75201 American AAdvantage Mileage Funds (1996-Present).
Ben J. Fortson (64) Trustee President and CEO, Fortson Oil Company (1958-Present);
301 Commerce Street Director, Kimbell Art Foundation (1964-Present); Director,
Suite 3301 Burnett Foundation (1987-Present); Honorary Trustee, Texas
Fort Worth, Texas 76102 Christian University (1986-Present); Trustee, American
AAdvantage Mileage Funds (1996-Present).
John S. Justin (80) 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 (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).
</TABLE>
7
<PAGE> 177
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------- ------------------------------------------------------------------
<S> <C> <C> <C>
Stephen D. O'Sullivan* (61) Trustee Consultant (1994-Present); Vice President and Controller
(1985-1994), American Airlines, Inc.; Trustee, American
AAdvantage Mileage Funds (1995-Present).
Roger T. Staubach (55) Trustee Chairman of the Board and Chief Executive Officer
6750 LBJ Freeway (1982-Present) and President (1983-1991) of The Staubach
Dallas, Texas 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; 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).
Kneeland Youngblood, M.D.(40) Trustee Physician (1982-Present); President (1983-Present),
2305 Cedar Springs Road Youngblood Enterprises, Inc. (a health care investment and
Suite 401 management firm); Trustee, Teachers Retirement System of
Dallas, Texas 75201 Texas (1993-Present); Director, United States Enrichment
Corporation (1993-Present), Director, Just For the Kids
(1995-Present); Member, Council on Foreign Relations
(1995-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present).
Nancy A. Eckl (34) Vice President Vice President, AMR Investment Services, Inc. (1990-Present).
Michael W. Fields (43) Vice President Vice President, AMR Investment Services, Inc. (1988-Present).
Barry Y. Greenberg (33) Vice President and Director, Legal and Compliance, AMR Investment Services,
Assistant Secretary Inc. (1995-Present); Branch Chief (1992-1995) and Staff
Attorney (1988-1992), Securities and Exchange Commission.
Rebecca L. Harris (30) Treasurer Director of Finance (1995-Present), Controller (1991-1995),
AMR Investment Services, Inc.
John B. Roberson (38) Vice President Vice President, AMR Investment Services, Inc. (1991-Present).
</TABLE>
8
<PAGE> 178
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
Janice B. Schwarz (37) Assistant Secretary Senior Business Systems Coordinator, (1996-Present),
Senior Compliance Analyst (1990-1996), AMR Investment
Services, Inc.
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
Robert J. Zutz (44) Assistant Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
</TABLE>
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump")
provides legal services to American Airlines, Inc., an affiliate of the
Manager. Mr. Feld has advised the Trusts that he has had no material
involvement in the services provided by Akin, Gump to American Airlines,
Inc. and that he has received no material benefit in connection with
these services. Akin, Gump does not provide legal services to the
Manager or AMR Corporation.
* Messrs. Quinn and O'Sullivan, by virtue of their current or former
positions, are deemed to be "interested persons" of the Trust and 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.
As compensation for their service to the Trust and the AMR Trust, the
Independent Trustees and their spouses receive free air travel from American
Airlines, Inc., an affiliate of the Manager. The Trust and the AMR Trust 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. Mr. O'Sullivan, who as a retiree of American
Airlines, Inc. already receives free airline travel, receives compensation
annually of up to three round trip airline tickets for each of his three adult
children. Trustees are also reimbursed for any expenses incurred in attending
Board meetings. These amounts are reflected in the following table for the
fiscal year ended October 31, 1996.1
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Benefits Accrued as Part Estimated Annual From American
Compensation of the Benefits Upon AAdvantage Funds
From the Trust's Expenses Retirement Complex
Name of Trustee Trust
- --------------- -----
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $0
John S. Justin $373 $0 $0 $1,492
Stephen D. O'Sullivan $458 $0 $0 $1,832
Roger T. Staubach $2,832 $0 $0 $11,330
</TABLE>
TRUSTEES AND OFFICERS OF THE EQUITY 500 INDEX PORTFOLIO
The Equity 500 Index Portfolio Board oversees the activities of the
Equity 500 Index Portfolio and reviews contractual arrangements with companies
that provide services to the Portfolio. The Trustees and officers of the Equity
500 Index Portfolio and their principal occupations during the past five years
are set
- ------------------
(1) Messrs. Feld and Fortson and Dr. Youngblood did not serve as Trustees during
this period.
9
<PAGE> 179
forth below. Their titles may have varied during that period. Unless
otherwise indicated, the address of each Trustee and officer is c/o Edgewood
Services, Inc., Clearing Operations, P.O. Box 897, Pittsburgh, PA 15230-0897.
<TABLE>
<CAPTION>
POSITION WITH
EQUITY 500 INDEX
NAME, AGE AND ADDRESS PORTFOLIO PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ------------------- --------------------------------------------------------------------
<S> <C> <C>
Charles P. Biggar (65) Trustee Retired; Director of Chase/NBW Bank Advisory Board;
12 Hitching Post Lane Director, Batemen, Eichler, Hill Richards Inc.; formerly
Chappaqua, NY 10514 Vice President of International Business Machines and
President of the National Services and the Field Engineering
Divisions of IBM.
Philip W. Coolidge* (44) Trustee Chairman, Chief Executive Officer and President, Signature
Financial Group (December 1988-Present) and Signature
Broker-Dealer Services, Inc. (April 1989-Present).
S. Leland Dill (65) Trustee Retired; Director, Coutts & Company Group and Coutts & Co.
5070 North Ocean Drive (U.S.A.) International; Director, Zweig Series Trust;
Singer Island, FL 33404 formerly Partner of KPMG Peat Marwick; Director, Vinters
International Company Inc.; General Partner of Pemco (an
investment company registered under the 1940 Act).
Philip Saunders, Jr. (60) Trustee Principal, Philip Saunders Associates (Consulting); former
445 Glen Road Director of Financial Industry Consulting, Wolf & Company;
Weston, MA 02193 President, John Hancock Home Mortgage Corporation; and
Senior Vice President of Treasury and Financial Services, John
Hancock Mutual Life Insurance Company, Inc.
Ronald M. Petnuch (36) President and Treasurer Senior Vice President, Federated Services Company ("FSC");
formerly Director of Proprietary Client Services, Federated
Administrative Services ("FAS") and formerly Associate
Corporate Counsel, Federated Investors ("FI").
Charles L. Davis, Jr. (36) Vice President and Vice President, FAS.
Assistant Treasurer
Jay S. Neuman (46) Secretary Corporate Counsel, FI.
</TABLE>
* Mr. Coolidge, by virtue of his current or former positions, is deemed to
be an "interested person" of the Equity 500 Index Portfolio as defined
by the 1940 Act.
10
<PAGE> 180
No person who is an officer or director of BT is an officer or Trustee
of the Equity 500 Index Portfolio. No director, officer or employee of Edgewood
Services, Inc. ("Edgewood") or any of its affiliates will receive any
compensation from the Equity 500 Index Portfolio for serving as an officer or
Trustee of the Equity 500 Index Portfolio. The Portfolio and certain other
investment companies advised by BT (the "BT Funds Complex") collectively pay
each Trustee who is not a director, officer or employee of BT, Edgewood, or any
of their affiliates an annual fee of $10,000, respectively, per annum plus
$1,250, respectively, per meeting attended and reimburses them for travel and
out-of-pocket expenses. For the year ended December 31, 1996, the Equity 500
Index Portfolio incurred Trustees fees equal to $9,865.
The following table reflects fees paid to the Trustees of the Equity 500
Index Portfolio for the year ended December 31, 1996.
<TABLE>
<CAPTION>
AGGREGATE COMPENSATION TOTAL COMPENSATION FROM
FROM THE EQUITY BT FUNDS COMPLEX
NAME OF TRUSTEE 500 INDEX PORTFOLIO PAID TO TRUSTEES
- --------------- ------------------- ----------------
<S> <C> <C>
Philip W. Coolidge $ 0 $ 0
Charles P. Biggar $ 3,204 $26,000
S. Leland Dill $ 3,204 $26,000
Philip Saunders, Jr $ 3,204 $26,000
</TABLE>
BT reimbursed the Equity 500 Index Portfolio for a portion of its Trustees
fees for the period above. See "Management, Administrative Services and
Distribution Fees" and "Investment Advisory Agreements" below.
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: 1994, $6,950,000 of which approximately $2,965,000
was paid by the Manager to the other investment advisers; 1995 $7,603,000 of
which approximately $3,985,000 was paid by the Manager to the other investment
advisers; and 1996, $10,403,000 of which approximately $5,161,000 was paid by
the Manager to the other investment advisers. Management fees in the amount of
approximately $214,000, $29,000 and $44,000 were waived by the Manager during
the fiscal years ended October 31, 1994, 1995 and 1996.
Under the Management Agreement, the Manager presently monitors the
services provided by BT to the Equity 500 Index Portfolio. The Manager receives
no fee for providing these monitoring services. In the event that the Board
determines that it is in the best interests of the S&P 500 Index Fund's
shareholders to withdraw its investment from the Equity 500 Index Portfolio,
the Manager would become responsible for directly managing the assets of the
S&P 500 Index Fund. In such event, the Fund would pay the Manager an annual fee
of up to 0.10% of the Fund's average net assets, accrued daily and paid
monthly.
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 a
shareholder's account certain administrative and management services (other
than investment advisory services). Effective August 1, 1994, shareholder
services agreements were
11
<PAGE> 181
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: 1994,
$1,473,000; 1995, $2,731,000; and 1996, $2,893,400. 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.
BT provides administrative services to the Equity 500 Index Portfolio.
Under the administration and services agreement between the Equity 500 Index
Portfolio and BT, BT is obligated on a continuous basis to provide such
administrative services as the Equity 500 Index Portfolio Board reasonably
deems necessary for the proper administration of the Portfolio. BT generally
will assist in all aspects of the Portfolio's operations; supply and maintain
office facilities (which may be in BT's own offices), statistical and research
data, data processing services, clerical, accounting, bookkeeping and
recordkeeping services (including without limitation the maintenance of such
books and records as are required under the 1940 Act and the rules thereunder,
except as maintained by other agents), internal auditing, executive and
administrative services, and stationary and office supplies; prepare reports to
investors; prepare and file tax returns; supply financial information and
supporting data for reports to and filing with the SEC and various state Blue
Sky authorities; supply supporting documentation for meetings of the Equity 500
Index Portfolio Board; provide monitoring reports and assistance regarding
compliance with its Declaration of Trust, By-Laws, investment objectives and
policies and with Federal and state securities laws; arrange for appropriate
insurance coverage; calculate net asset values, net income and realized capital
gains or losses; and negotiate arrangements with, and supervise and coordinate
the activities of, agents and others to supply services.
Pursuant to a sub-administration agreement between BT and Federated
Services Company ("Federated") (the "Sub-Administration Contract"), Federated
performs such sub-administration duties for the Equity 500 Index Portfolio as
from time to time may be agreed upon by BT and Federated. The
Sub-Administration Contract provides that Federated will receive such
compensation as from time to time may be agreed upon by Federated and BT.
All such compensation will be paid by BT.
For the years ended December 31, 1994, 1995 and 1996 BT earned $214,173,
$385,265 and $752,981, respectively, as compensation for administrative and
other services provided to the Equity 500 Index Portfolio.
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
12
<PAGE> 182
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.
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.
INVESTMENT ADVISORY AGREEMENTS
With the exception of Investment Advisory Agreements ("Advisory
Agreements") with Brandywine Asset Management, Inc. ("Brandywine") and Rowe
Price-Fleming International, Inc. ("Fleming"), separate Advisory Agreements
between the investment advisers of the Balanced, Growth and Income,
International Equity and Limited-Term Income Funds and their corresponding
Portfolios, as described in the Prospectus, were approved and became effective
as of October 1, 1995. Prior to that date, these Funds had entered into
Advisory Agreements with the same investment advisers. On October 1, 1995, each
Fund 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 Advisory Agreement.
Brandywine was approved as an investment adviser of the corresponding
Portfolios of the Balanced and Growth and Income Funds and the AMR Trust,
effective as of April 1, 1996. Fleming was approved as an investment adviser to
the corresponding Portfolio of the International Equity Fund and the AMR Trust,
effective as of April 1, 1996. Following the acquisition of Hotchkis and Wiley
("Hotchkis") by Merrill Lynch, Pierce, Fenner & Smith, Inc., a new Advisory
Agreement with Hotchkis was approved, effective as of November 12, 1996.
Under the terms of the Equity 500 Index Portfolio's Investment Advisory
Agreement with BT, BT manages the Equity 500 Index Portfolio subject to the
supervision and direction of the Equity 500 Index Portfolio Board. BT has
agreed to: (1) act in strict conformity with the Equity 500 Index Portfolio's
Declaration of Trust and the 1940 Act, as the same may from time to time be
amended; (2) manage the Equity 500 Index Portfolio in accordance with the
Portfolio's investment objective, restrictions and policies; (3) make
investment decisions for the Equity 500 Index Portfolio; and (4) place purchase
and sale orders for securities and other financial institutions on behalf of
the Equity 500 Index Portfolio.
BT bears all expenses in connection with the performance of services
under the Agreement. The S&P 500 Index Fund and the Equity 500 Index Portfolio
each bear certain other expenses incurred in their operation, including: taxes,
interest, brokerage fees and commissions, if any; fees of Trustees of the
Portfolio or Trustees of the Trust who are not officers, directors or employees
of BT, Edgewood, the Manager or any of their affiliates; SEC fees and state
Blue Sky qualification fees; charges of custodians and transfer and dividend
disbursing agents; certain insurance premiums; outside auditing and legal
expenses; costs attributable to investor services, including telephone and
personnel expenses; costs of preparing and printing prospectuses and statements
of additional information for regulatory purposes and for distribution to
existing shareholders; costs of shareholders'
13
<PAGE> 183
reports and meetings of shareholders, officers and Trustees of the Equity 500
Index Portfolio or Trustees of the Trust, and any extraordinary expenses.
For the years ended December 31, 1994, 1995 and 1996 BT earned $428,346,
$770,530 and $1,505,963, respectively, as compensation for investment advisory
services provided to the Equity 500 Index Portfolio. During the same periods,
BT reimbursed $249,230, $418,814 and $870,024, respectively, to the Equity 500
Index Portfolio to cover expenses.
BT may have deposit, loan and other commercial banking relationships
with the issuers of obligations that may be purchased on behalf of the Equity
500 Index Portfolio, including outstanding loans to such issuers that could be
repaid in whole or in part with the proceeds of securities so purchased. Such
affiliates deal, trade and invest for their own accounts in such obligations
and are among the leading dealers of various types of such obligations. BT has
informed the Equity 500 Index Portfolio that, in making its investment
decisions, it does not obtain or use material inside information in its
possession or in the possession of any of its affiliates. In making investment
recommendations for the Equity 500 Index Portfolio, BT will not inquire or take
into consideration whether an issuer of securities proposed for purchase or
sale by the Equity 500 Index Portfolio is a customer of BT, its parent or its
subsidiaries or affiliates and, in dealing with its customers, BT, its parent,
subsidiaries and affiliates will not inquire or take into consideration whether
securities of such customers are held by any fund managed by BT or any such
affiliate.
Each Investment Advisory 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.
BT may utilize the expertise of any of its worldwide subsidiaries and
affiliates to assist in its role as investment adviser. All orders for
investment transactions on behalf of the Equity 500 Index Portfolio are placed
by BT with broker-dealers and other financial intermediaries that it selects,
including those affiliated with BT. A BT affiliate will be used in connection
with a purchase or sale of an investment for the Equity 500 Index Portfolio
only if BT believes that the affiliate's charge for the transaction does not
exceed usual and customary levels. The Equity 500 Index Portfolio will not
invest in obligations for which BT
14
<PAGE> 184
or any of its affiliates is the ultimate obligor or accepting bank. The
Portfolio may, however, invest in the obligations of correspondents and
customers of BT.
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, BT and/or to the investment advisers (or their affiliates),
provided, however, that the investment adviser determines that it has 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, 1994 and 1995 the following
brokerage commissions were paid by the Funds, and for 1996, by their
corresponding Portfolios. The S&P 500 Index Fund was not operational during
these periods.
<TABLE>
<CAPTION>
Fund/Portfolio 1994 1995 1996
- -------------- ---- ---- ----
<S> <C> <C> <C>
Balanced $228,250 $388,253 $503,947
Growth and Income $300,096 $590,364 $956,767
International Equity $391,301 $422,670 $544,844
Limited-Term Income $ 0 $ 0 $ 0
Money Market Funds $ 0 $ 0 $ 0
</TABLE>
For the years ended December 31, 1994, 1995 and 1996 the Equity 500
Index Portfolio paid the following brokerage commissions: $97,069, $172,924 and
$______.
The commissions listed above were paid directly by the Funds for the
fiscal years ended October 31, 1994 and 1995. For the fiscal year ended October
31, 1996 the commissions were paid by the corresponding Portfolios of the AMR
Trust, and shareholders of the Funds bear only the pro-rata portion of the
brokerage commissions.
Following is the portfolio turnover rate for the Funds for the fiscal
year ended October 31, 1995 and portfolio turnover rate for the corresponding
Portfolios of the Funds for the fiscal year ended October 31, 1996. The
portfolio turnover rate for the Equity 500 Index Portfolio is for its fiscal
years ended December 31, 1995 and December 31, 1996.
<TABLE>
<CAPTION>
Fund/Portfolio 1995 1996
- -------------- ---- ----
<S> <C> <C>
Balanced 73% 76%
Growth and Income 26% 40%
International Equity 21% 19%
Limited-Term Income 183% 304%
Equity 500 Index Portfolio % %
</TABLE>
High portfolio turnover can increase a Fund's transaction costs and
generate additional capital gains or losses. The increase in portfolio turnover
for the
15
<PAGE> 185
Limited-Term Income Portfolio was due to repositioning the portfolio to a
different internal benchmark.
The fees of the investment advisers are not reduced by reason of receipt
of such brokerage and research services. However, with disclosure to and
pursuant to written guidelines approved by the Board or the Equity 500 Index
Portfolio Board, as appropriate, 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. 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, an affiliate of Independence
Investment Associates, an investment adviser to the Balanced and Growth and
Income Funds. 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.
During the fiscal year ended October 31, 1996, the Balanced Portfolio and the
Growth and Income Portfolio paid $125 and $2,750, respectively, in brokerage
commissions to Sutro & Company. The percentages of total commissions of the
Balanced Portfolio and the Growth and Income Portfolio paid to Sutro & Company
in 1996 were 0.02% and 0.29%, respectively. The transactions represented 0.03%
of the Balanced Portfolio and 0.25% of the Growth and Income Portfolio's total
dollar value of portfolio transactions for the fiscal year ended October 31,
1996. During the fiscal year ended October 31, 1996, the International Equity
Portfolio paid $2,142, $1,002, $2,051 and $20,129, to Fleming Martin, Jardine
Fleming, Ord Minnett and Robert Fleming & Co., respectively, affiliates of Rowe
Price-Fleming International, Inc., an adviser to the International Equity
Portfolio, and $3,892 to Morgan Stanley International, an affiliate of Morgan
Stanley Asset Management also an investment adviser to the International Equity
Portfolio. The percentage of total commissions paid to affiliated brokers of
the International Equity Portfolio in 1996 was 2.68%. The transactions
represented 2.2% of the International Equity Portfolio's total dollar value of
portfolio transactions for the fiscal year ending October 31, 1996.
In certain instances there may be securities that are suitable for the
Equity 500 Index Portfolio as well as for one or more of BT's other clients.
Investment decisions for the Equity 500 Index Portfolio and for BT's other
clients are made with a view to achieving their respective investment
objectives. It may develop that a particular security is bought or sold for
only one client even though it might be held by, or bought or sold for, other
clients. Likewise, a particular security may be bought for one or more clients
when one or more clients are selling that same security. Some simultaneous
transactions are inevitable when several clients receive investment advice from
the same investment adviser, particularly when the same security is suitable
for the investment objectives of more than one client. When two or more clients
are simultaneously engaged in the purchase or sale of the same security, the
securities are allocated among clients in a manner believed to be equitable to
each. It is recognized that in some cases this system could have a detrimental
effect on the price or volume of the security as far as the Equity 500 Index
Portfolio is concerned. However, it is believed that the ability of the Equity
500 Index Portfolio to participate in volume transactions will produce better
executions for the Portfolio.
16
<PAGE> 186
NET ASSET VALUE
It is the policy of the Money Market Fund, Municipal Money Market Fund
and U.S. Government 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 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. The
corresponding portfolios of the Money Market Funds may invest in issuers or
instruments that at the time of purchase have received the highest short-term
rating by two Rating Organizations, such as "D-1" by Duff & Phelps and "F-1" by
Fitch Investors Service, Inc., and have received the next highest short-term
rating by other Rating Organizations, such as "A-2" by Standard & Poors and
"P-2" by Moody's Investors Service, Inc. See "Ratings of Municipal Obligations"
and "Ratings of Short-Term Obligations" for further information concerning
ratings.
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 options, 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 non-foreign currency
options or futures, 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").
Each Fund has received either a ruling from the Internal Revenue Service
("IRS") or an opinion of counsel that the Fund, as an investor in its
corresponding
17
<PAGE> 187
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.
See the next section for a discussion of the tax consequences to the
Funds of certain investments by the Portfolios.
TAXATION OF THE PORTFOLIOS
The Portfolios have received rulings 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, as noted above, 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 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
18
<PAGE> 188
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 the Balanced, the Growth and Income or the International Equity
Portfolio acquires stock in a foreign corporation that is a "passive foreign
investment company" ("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. These Portfolios
currently do not intend to acquire securities that are considered PFICs.
Hedging strategies, such as entering into forward contracts and selling
and purchasing options and 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 and the
Equity 500 Index Portfolio realize in connection therewith. The International
Equity Fund's share of the International Equity 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 that Fund under the Income
Requirement. Similarly, the S&P 500 Index Fund's share of the Equity 500 Index
Portfolio's income from options and futures derived with respect to its
business of investing securities will so qualify for the Fund; however, income
from the disposition of such options and futures will be subject to the
Short-Short Limitation for that Fund if they are held for less than three
months. Income from the International Equity 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 International Equity Fund if they are held for less than
three months.
For purposes of determining whether the International Equity Fund or the
S&P 500 Index Fund satisfies the Short-Short Limitation, if its corresponding
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 such Funds'
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.
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
19
<PAGE> 189
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.
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.
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
IRS 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.
20
<PAGE> 190
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 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>
Effective yield for
Current daily yield Current yield for the the 7 day period
as of 7 day period ended ended
October 31, 1996 October 31, 1996 October 31, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Institutional Class
Money Market Fund 5.43% 5.42% 5.57%
Municipal Money Market Fund 3.45% 3.45% 3.51%
U.S. Government Money Market Fund 5.32% 5.02% 5.15%
PlanAhead Class
Money Market Fund 5.10% 5.09% 5.22%
</TABLE>
21
<PAGE> 191
<TABLE>
<CAPTION>
Current daily yield Current yield for the the 7 day period
as of 7 day period ended ended
October 31, 1996 October 31, 1996 October 31, 1996
---------------- ---------------- ----------------
<S> <C> <C> <C>
Municipal Money Market Fund 3.14% 3.14% 3.19%
U.S. Government Money Market Fund 4.96% 4.66% 4.77%
</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,
1996 were:
<TABLE>
<CAPTION>
Current Effective
Class Tax Equivalent Yield Tax Equivalent Yield
<S> <C> <C> <C>
Institutional (based on a 35.0% corporate tax rate) 5.31% 5.40%
PlanAhead (based on a 39.6% personal tax rate) 5.20% 5.28%
</TABLE>
The advertised yields for each class of the Variable NAV Funds and the
S&P 500 Index Fund 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:
YIELD = 2{(A-B/CD +1)6- 1}
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, 1996 for the Limited-Term Income
Fund was 7.40%, 6.82% and 6.26%, 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 1996 was 7.13%, 6.79% and
6.61%, respectively. The "monthly dividend rate" is a non-standardized
performance calculation and when used
22
<PAGE> 192
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
For the one-year For the five-year period commencement of active
period ended ended operations through
October 31, 1996(1) October 31, 1996(1)(2) October 31, 1996(1)(3)
------------------- ---------------------- ----------------------
<S> <C> <C> <C>
AMR Class
Balanced Fund 16.77% 12.62% 10.76%
Growth and Income Fund 23.66% 15.65% 12.30%
International Equity Fund 17.72% 11.32% 11.06%
Limited-Term Income Fund 5.38% 5.83% 7.04%
S&P 500 Index Fund(4) N/A N/A N/A
Institutional Class
Balanced Fund 16.46% 12.49% 10.69%
Growth and Income Fund 23.37% 15.51% 12.23%
International Equity Fund 17.27% 11.17% 10.93%
Limited-Term Income Fund 5.10% 5.73% 6.98%
Money Market Fund 5.57% 4.61% 6.19%
Municipal Money Market Fund (5) 3.59% N/A 3.26%
U.S. Government Money Market Fund(7) 5.29% N/A 4.31%
PlanAhead Class
Balanced Fund (6) 16.01% 12.32% 10.61%
Growth and Income Fund 22.98% 15.30% 12.12%
International Equity Fund 16.95% 10.97% 10.73%
Limited-Term Income Fund (6) 4.83% 5.61% 6.91%
Money Market Fund 5.21% 4.45% 6.10%
Municipal Money Market Fund (5) 3.27% N/A 3.01%
U.S. Government Money Market Fund(7) 4.94% N/A 4.11%
</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 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, 1996. 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. The S&P 500 Index Fund
was not operational during this period.
(2) The Municipal Money Market Fund and U.S. Government Money Market
Fund had not commenced active operations as of November 1, 1991.
(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. Government 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.
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<PAGE> 193
(4) The S&P 500 Index Fund had not commenced active operations as of
October 31,1996. See Appendix A for historical performance of the S&P 500
Composite Stock Price Index.
(5) A portion of the Management and Administrative Services fees have
been waived for the Municipal Money Market Fund since its inception.
(6) A portion of the Service Plan Fees of the PlanAhead Class have been
waived for the Balanced, Growth and Income and Limited-Term Income Funds
since August 1, 1994.
(7) Prior to March 1, 1997, the U.S. Government Money Market Fund was
known as the U.S. Treasury Money Market Fund and operated under different
investment policies.
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 Financial Data, 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 or to unmanaged indices that may assume reinvestment
of dividends but generally do not reflect deductions for administrative and
management costs.
Each Fund may advertise the standard deviation of its returns for
various time periods and compare its standard deviation to that of various
indices. Standard deviation of performance over time is a measure of
volatility. It indicates the spread of performance as compared to the Fund's
central tendency or mean. In theory, a Fund that is more volatile should
receive a higher return in exchange for taking extra risk. Standard deviation
is a well-accepted statistic to gauge the riskiness of an investment strategy
and measure its historical volatility as a predictor of risk, although the
measure is subject to time selection bias.
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. Advertisements for the International Equity Fund may
compare the differences between domestic and foreign 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.
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."
24
<PAGE> 194
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
AMR Class is offered to tax-exempt retirement and benefit plans of AMR
Corporation and its affiliates. The following individuals are eligible for
purchasing shares of the Institutional Class with an initial investment of less
than $2 million: (i) employees of the Manager, (ii) officers and directors of
AMR and (iii) members of the Trust's Board of Trustees. 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, the Growth and Income and
the 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, 1997:
<TABLE>
<CAPTION>
<S> <C>
American AAdvantage Balanced Fund
AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof.....66%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
American AAdvantage Growth and Income Fund
AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof.....89%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
American AAdvantage International Equity Fund
AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof.....80%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
American AAdvantage Limited-Term Income Fund
Retirement Advisors of America...................................................60%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244
AMR Corporation and subsidiary companies and Employee Benefit Trusts thereof.....28%
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
</TABLE>
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<PAGE> 195
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.
In addition, the following persons own 5% or more of the outstanding
shares of a Fund or Class as of January 31, 1997:
<TABLE>
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Balanced Fund Fund Class Class
- --------------------------------- ---- ----- -----
<S> <C> <C>
Retirement Advisors of America 17% 55%
5005 LBJ Freeway, Suite 1350
Dallas, TX 75244
Sky Chefs Master Trust 10% 33%
601 Ryan Plaza Drive
Arlington, Texas 76011
NA Bank & Co. 1% 40%
P.O. Box 2180
Tulsa, Oklahoma 74101
Berg Electronics Inc. Savings Plan 0% 11%
4 New York Plaza - EBS 4th. Floor
New York, New York 10004-2413
International Wire Retirement Savings Plan 0% 7%
770 Broadway, 10th Floor
New York, New York 10003-9522
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Growth and Income Fund Fund Class Class
- ------------------------------------------ ---- ----- -----
<S> <C> <C> <C>
Retirement Advisors of America 2% 45%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244
Coca-Cola Retirement Plan 1% 17%
Hamill and Company (Trust Operations)
P.O. Box 6558
Houston, TX 77252-2558
Wachovia Bank of North Carolina 0% 7%
P.O. Box 3002
Winston-Salem, North Carolina 27102
Clarence Arthur & Co. 1% 10%
AmeriTrust, Texas N.A.
P.O. Box 951405
Dallas, TX 75395-1405
Calhoun & Co. 0% 7%
Comerica Bank
P.O. Box 7500
Detroit, Michigan 48275-3454
Berg Electronics Inc. Savings Plan 0% 27%
4 New York Plaza - EBS 4th. Floor
New York, New York 10004-2413
Crowe & Dunlevy Profit Sharing and Thrift Plan 0% 6%
20 N. Broadway, Suite 1800
Oklahoma City, Oklahoma 73102-8203
Technical Products Group Inc. Retirement & Savings Plan 0% 9%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
<CAPTION>
Total Instit. PlanAhead
American AAdvantage International Equity Fund Fund Class Class
- --------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
NA Bank & Co. 4% 22%
P.O. Box 2180
</TABLE>
26
<PAGE> 196
<TABLE>
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Growth and Income Fund Fund Class Class
- ------------------------------------------ ---- ----- -----
<S> <C> <C> <C>
Tulsa, Oklahoma 74101
Retirement Advisors of America 5% 25%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244
Wachovia Bank of North Carolina 1% 6%
P.O. Box 3002
Winston-Salem, North Carolina 27102
Clarence Arthur & Co. 2% 8%
AmeriTrust, Texas N.A.
P.O. Box 951405
Dallas, TX 75395-1405
York Health System 1% 8%
1001 S. George St.
York, PA 17405
IBJ Distributors Inc. 0% 12%
237 Park Ave. Suite 910
New York, NY 10017-3140
DLJ Securities Corp. 0% 9%
P.O. Box 2052
Jersey City, NJ 07303-2052
Patricia G. Burke Charitable Unitrust 0% 9%
650 Smithfield St., Suite 250
Pittsburgh, PA 15222-3907
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Limited-Term Income Fund Fund Class Class
- -------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Retirement Advisors of America 60% 85%
5005 LBJ Freeway, Suite 1350
Dallas, Texas 75244
Wachovia Bank of North Carolina 7% 10%
P.O. Box 3002
Winston-Salem, North Carolina 27102
Technical Products Group Inc. Retirement and Savings Plan 0% 19%
2929 Allen Parkway, Suite 2500
Houston, Texas 77019
Crowe & Dunlevy Profit Sharing and Thrift Plan 0% 16%
20 N. Broadway, Suite 1800
Oklahoma City, Oklahoma 73102-8203
RIW Limited Partnership 0% 10%
13155 Noel Rd., 24th. Floor
Dallas, TX 75240-5090
Berg Electronics Inc. Savings Plan 0% 9%
4 New York Plaza - EBS 4th. Floor
New York, New York 10004-2413
Chancellor Limited Partnership 0% 8%
13155 Noel Rd., 24th. Floor
Dallas, TX 75240-5090
EPR Limited Partnership 0% 9%
13155 Noel Rd., 24th. Floor
Dallas, TX 75240-5090
Gale Force Limited Partnership 0% 6%
13155 Noel Rd., 24th. Floor
Dallas, TX 75240-5090
</TABLE>
27
<PAGE> 197
<TABLE>
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Limited-Term Income Fund Fund Class Class
- -------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
William N. Hoffman 0% 5%
3515 Davis Rd.
Granbury, TX 76049-5469
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Money Market Fund Fund Class Class
- ------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Seagate Technology Inc. 7% 9%
920 Disk Dr.
Scotts Valley, CA 95066
City of Chicago International Airport Revenue Bonds 6% 8%
Harris Trust and Savings Bank(Indenture Trust Division)
P.O. Box 755
Chicago, Illinois 60690
Alliance Airport Authority 5% 6%
Bank One, Texas, NA (Corporate Trust Department)
500 Throckmorton
Fort Worth, Texas 76113-2604
Shell Oil Company 5% 6%
Two Shell Plaza
P.O. Box 2099
Houston, TX 77252
Hewlett Packard Finance Co. 5% 6%
3000 Hanover St.
Palo Alto, CA 94304-1185
<CAPTION>
Total Instit. PlanAhead
American AAdvantage Municipal Money Market Fund Fund Class Class
- ----------------------------------------------- ---- ----- -----
<S> <C> <C>
Merit Energy Co. 3% 99%
12222 Merit Dr., Suite 1500
Dallas, TX 75251
Goddess Agency Inc. 2% 17%
P.O. Box 9141
Seattle, WA 98109-0141
Itech Systems, LP 2% 13%
1013 Centre Rd.
Wilmington, DE 19805-1265
Roger A. & Joann Wallis 1% 11%
194 Olentangy Rd.
Powell, OH 43065-9694
Jerome Reed Schusterman Irrevocable Trust 1% 10%
P.O. Box 699
Tulsa, OK 74101-0699
Crowe & Dunlevy Profit Sharing and Thrift Plan 1% 8%
20 N. Broadway, Suite 1800
Oklahoma City, Oklahoma 73102-8203
Brenda J. Pyle 1% 5%
59 Crystal Court
Bel Air, MD 21014-5608
Crisostomo B. Garcia Trust 1% 5%
P.O. Box 9248
Rancho Santa Fe, CA 92067-4248
Jean-Marie & Marie Nadia Girardot 1% 5%
5328 N. Peachtree Rd.
Dunwoody, GA 30338-3102
</TABLE>
28
<PAGE> 198
<TABLE>
<CAPTION>
Total Instit. PlanAhead
American AAdvantage U.S. Government Money Market Fund Fund Class Class
- ----------------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Hare & Co. 22% 41% 64%
Bank of New York
One Wall Street
New York, NY 10286
Lone Star Airport Improvement Authority 9% 27%
First National Bank of Chicago
One First National Place
Chicago, Illinois 60670
Grapevine Industrial Development Corp. 8% 22%
First National Bank of Chicago
One First National Place
Chicago, Illinois 60670
British American Insurance Company 3% 9%
P.O. Box 1590
Dallas, Texas 75221-1590
Family Orthopedic Association Profit Sharing Plan 1% 8%
8953 Bath Road
Byron, MI 48418-9785
Leone C. Campbell Intervivo Trust 1% 9%
4000 N. Federal Highway, Suite 206
Boca Raton, FL 33431-45865
</TABLE>
OTHER INFORMATION
American Depositary Receipts (ADRs), European Depositary Receipts
(EDRs)-ADRs are depositary 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 immediately into U.S.
currency proceeds realized upon the sale of portfolio securities of the
affected foreign companies.
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 designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
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<PAGE> 199
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.
Cover-Transactions using forward contracts, future contracts, options on
futures contracts and options on indices ("Financial Instruments"), other than
purchased options, expose a Portfolio to an obligation to another party. A
Portfolio will not enter into any such transactions unless it owns either (1)
an offsetting ("covered") position in securities, currencies, or other forward
contracts, options or futures contracts, or (2) cash, receivables and liquid
assets, with a value, marked-to-market daily, sufficient to cover its potential
obligations to the extent not covered as provided in (1) above. Each Portfolio
will comply with SEC guidelines regarding cover for these instruments and will,
if the guidelines so require, set aside cash, receivables, or liquid assets in
a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Financial Instrument is open, unless
they are replaced with other appropriate assets. As a result, the commitment of
a large portion of a Portfolio's assets to cover or to segregated accounts
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
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. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
Debentures-Debentures are unsecured debt securities. The holder of a
debenture is protected only by the general creditworthiness of the issuer.
Derivatives-Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset or
market index. Some "derivatives" such as mortgage-related and other
asset-backed securities are in many respects like any other investment,
although they may be more volatile or less liquid than more traditional debt
securities. There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated with those
uses.
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
30
<PAGE> 200
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.
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.
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.
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 against receipt of the specified price. 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 use of futures contracts by the Equity 500 Index Portfolio is
explained further under "Index Futures Contracts and Options on Index Futures
Contracts."
The purchase of futures can serve as a long hedge, and the sale of
futures can serve as a short hedge.
31
<PAGE> 201
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract a Portfolio is required to deposit "initial
deposit" 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, a Portfolio may be required
by a futures exchange to increase the level of its initial margin payment, and
initial margin requirements might be increased generally in the future by
regulatory action.
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 a 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 a 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 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 Portfolios intend 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.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities or currency, in most cases the contractual
obligation is fulfilled before the date of the contract without having to make
or take delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as appropriate) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
contracts are traded, a Portfolio will incur brokerage fees when it purchases
or sells futures contracts.
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 a 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
32
<PAGE> 202
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 a Portfolio enters into futures contracts, in each
case other than for bona fide hedging purposes (as defined by the Commodities
Futures Trading Commission ("CFTC"), the aggregate initial margin will not
exceed 5% of the liquidation value of a 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.
Futures contracts require the deposit 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.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit
and variation margin requirements. Rather than meeting additional variation
margin deposit requirements, investors may close futures contracts through
offsetting transactions which could distort the normal relationship between the
cash and futures markets. Second, the liquidity of the futures market depends
on participants entering into offsetting transactions rather than making or
taking delivery. To the extent participants decide to make or take delivery,
liquidity in the futures market could be reduced, thus producing distortion.
Third, from the point of view of speculators, the margin deposit requirements
in the futures market are less onerous than margin requirements in the
securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of securities price or currency exchange rate
trends by the investment adviser may still not result in a successful
transaction.
In addition, futures contracts entail risks. Although an investment
adviser believes that use of such contracts will benefit a particular
Portfolio, if that investment adviser's investment judgment about the general
direction of, for example, an index is incorrect, a Portfolio's overall
performance would be poorer than if it had not entered into any such contract.
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.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, securities that are otherwise not
readily marketable and repurchase agreements having a remaining maturity of
longer than seven calendar days. Securities that have not been registered under
the 1933 Act are referred to as private placements or restricted securities and
are purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven calendar days. A mutual fund also might have to register such restricted
securities in order to dispose of
33
<PAGE> 203
them resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
However, the fact that there are contractual or legal restrictions on resale of
such investments to the general public or to certain institutions may not be
indicative of their liquidity.
Index Futures Contracts and Options on Index Futures Contracts-The
Equity 500 Index Portfolio may invest in index futures contracts, options on
index futures contracts and options on securities indices.
Index Futures Contracts-U.S. futures contracts have been designed by
exchanges which have been designated "contracts markets" by the CFTC and must
be executed through a futures commission merchant, or brokerage firm, which is
a member of the relevant contract market. Futures contracts trade on a number
of exchange markets, and through their clearing corporations.
At the same time a futures contract on the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500" or the "Index") is purchased or
sold, the Portfolio must allocate cash or securities as a deposit payment
("initial deposit"). It is expected that the initial deposit would be
approximately 1-1/2% to 5% of a contract's face value. Daily thereafter, the
futures contract is valued and the payment of "variation margin" may be
required.
Options on Index Futures Contracts-The purchase of a call option on
an index futures contract is similar in some respects to the purchase of a call
option on such an index.
The writing of a call option on a futures contract with respect to
the Index constitutes a partial hedge against declining prices of the
underlying securities that are deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is below the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any decline that may have occurred in
the Portfolio's holdings. The writing of a put option on an index futures
contract constitutes a partial hedge against increasing prices of the
underlying securities that are deliverable upon exercise of the futures
contract. If the futures price at expiration of the option is higher than the
exercise price, the Portfolio will retain the full amount of the option premium
which provides a partial hedge against any increase in the price of securities
that the Portfolio intends to purchase. If a put or call option the Portfolio
has written is exercised, the Portfolio will incur a loss that will be reduced
by the amount of the premium it receives. Depending on the degree of
correlation between changes in the value of its portfolio securities and
changes in the value of its futures positions, the Portfolio's losses from
existing options on futures may to some extent be reduced or increased by
changes in the value of portfolio securities.
The purchase of a put option on a futures contract with respect to
the Index is similar in some respects to the purchase of protective put options
on the Index. For example, the Portfolio may purchase a put option on an index
futures contract to hedge against the risk of lowering securities values.
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The amount of risk the Portfolio assumes when it purchases an option
on a futures contract with respect to the Index is the premium paid for the
option plus related transaction costs. In addition to the correlation risks
discussed above, the purchase of such an option also entails the risk that
changes in the value of the underlying futures contract will not be fully
reflected in the value of the option purchased.
The Equity 500 Index Portfolio Board has adopted the requirement
that index futures contracts and options on index futures contracts be used as
a hedge. Stock index futures may be used on a continual basis to equitize cash
so that the Portfolio may maintain maximum equity exposure. The Portfolio will
not enter into any futures contracts or options on futures contracts if
immediately thereafter the amount of margin deposits on all the futures
contracts of the Portfolio and premiums paid on outstanding options on futures
contracts owned by the Portfolio would exceed 5% of the market value of the
total assets of the Portfolio.
Futures Contracts on Stock Indices-The Portfolio may enter into
contracts providing for the making and acceptance of a cash settlement based
upon changes in the value of an index of securities ("Futures Contracts"). This
investment technique is designed only to hedge against anticipated future
change in general market prices which otherwise might either adversely affect
the value of securities held by the Portfolio or adversely affect the prices of
securities which are intended to be purchased at a later date for the
Portfolio.
In general, each transaction in Futures Contracts involves the
establishment of a position which will move in a direction opposite to that of
the investment being hedged. If these hedging transactions are successful, the
futures positions taken for the Portfolio will rise in value by an amount that
approximately offsets the decline in value of the portion of the Portfolio's
investments that are being hedged. Should general market prices move in an
unexpected manner, the full anticipated benefits of Futures Contracts may not
be achieved or a loss may be realized.
Although Futures Contracts would be entered into for cash management
purposes only, such transactions do involve certain risks. These risks could
include a lack of correlation between the Futures Contract and the equity
market, a potential lack of liquidity in the secondary market and incorrect
assessments of market trends which may result in worse overall performance than
if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be
posted and maintained as a good-faith deposit against performance of
obligations under Futures Contracts written into by the Portfolio. The
Portfolio may not purchase or sell a Futures Contract (or options thereon) if
immediately thereafter its margin deposits on its outstanding Futures Contracts
(and its premium paid on outstanding options thereon) would exceed 5% of the
market value of the Portfolio's total assets.
Options on Securities Indices-The Portfolio may write (sell) covered
call and put options to a limited extent on the Index ("covered options") in an
attempt to increase income. Such options give the holder the right to receive a
cash settlement during the term of the option based upon the difference between
the exercise price and the value of the Index. The Portfolio may forgo the
benefits of appreciation on the Index or may pay more than the market price or
the Index pursuant to call and put options written by the Portfolio.
By writing a covered call option, the Portfolio forgoes, in exchange
for the premium less the commission ("net premium"), the opportunity to profit
during the option period from an increase in the market value of the Index
above the
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exercise price. By writing a covered put option, the Portfolio, in exchange for
the net premium received, accepts the risk of a decline in the market value of
the Index below the exercise price.
The Portfolio may terminate its obligation as the writer of a call
or put option by purchasing an option with the same exercise price and
expiration date as the option previously written.
When the Portfolio writes an option, an amount equal to the net
premium received by the Portfolio is included in the liability section of the
Portfolio's Statement of Assets and Liabilities as a deferred credit. The
amount of the deferred credit will be subsequently marked to market to reflect
the current market value of the option written. The current market value of a
traded option is the last sale price or, in the absence of a sale, the mean
between the closing bid and asked price. If an option expires on its stipulated
expiration date or if the Portfolio enters into a closing purchase transaction,
the Portfolio will realize a gain (or loss if the cost of a closing purchase
transaction exceeds the premium received when the option was sold), and the
deferred credit related to such option will be eliminated.
The Portfolio has adopted certain other nonfundamental policies
concerning index option transactions that are discussed above. The Portfolio's
activities in index options also may be restricted by the requirements of the
Code, for qualification as a RIC.
The hours of trading for options on the Index may not conform to the
hours during which the underlying securities are traded. To the extent that the
option markets close before the markets for the underlying securities,
significant price and rate movements can take place in the underlying
securities markets that cannot be reflected in the option markets. It is
impossible to predict the volume of trading that may exist in such options, and
there can be no assurance that viable exchange markets will develop or
continue.
Because options on securities indices require settlement in cash, BT
may be forced to liquidate portfolio securities to meet settlement obligations.
Options on Stock Indices-The Portfolio may purchase and write put
and call options on stock indices listed on stock exchanges. A stock index
fluctuates with changes in the market values of the stocks included in the
index. Options on stock indices generally are similar to options on stock
except that the delivery requirements are different. Instead of giving the
right to take or make delivery of stock at a specified price, an option on a
stock index gives the holder the right to receive a cash "exercise settlement
amount" equal to (a) the amount, if any, by which the fixed exercise price of
the option exceeds (in the case of a put) or is less than (in the case of a
call) the closing value of the underlying index on the date of exercise,
multiplied by (b) a fixed "index multiplier." The writer of the option is
obligated, in return for the premium received, to make delivery of this amount.
The writer may offset its position in stock index options prior to expiration
by entering into a closing transaction on an exchange or the option may expire
unexercised.
Because the value of an index option depends upon movements in the
level of the index rather than the price of a particular stock, whether the
Portfolio will realize a gain or loss from the purchase or writing of options
on an index depends upon movements in the level of stock prices in the stock
market generally or, in the case of certain indices, in an industry or market
segment, rather than movements in the price of a particular stock.
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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.
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 or the Equity 500 Index Portfolio Board,
as appropriate, 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
or the Equity 500 Index Portfolio Board, as appropriate, 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 or the Equity
500 Index Portfolio Board, as appropriate, 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 or the Equity 500 Index Portfolio
Board, as appropriate.
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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.
(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 States or of any Federal Home Loan Bank. The secondary market for
Freddie Macs is highly
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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 ("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 Portfolio 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, 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.
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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 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
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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 risk than
for obligations in other categories.
Standard & Poor's, Duff & Phelps and Fitch apply indicators, such as
"+","-," or 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.
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)
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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, A-2, or A-3.
IBCA's short-term rating of A-1 indicates obligations supported by the
highest capacity for timely repayment. Where issues possess particularly strong
credit features, a rating of A-1+ is assigned. Obligations rated A-2 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
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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 or the
Equity 500 Index Portfolio Board, as appropriate, presents a minimum risk of
bankruptcy during the term of the agreement based upon guidelines that
periodically are reviewed by the AMR Trust Board and the Equity 500 Index
Portfolio 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 or the
Equity 500 Index Portfolio Board, as appropriate, 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.
43
<PAGE> 213
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 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.
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
44
<PAGE> 214
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.
When-Issued and Delayed Delivery Securities-Delivery of and payment for
securities on a when-issued or delayed delivery basis may take place as long as
a month or more after the date of the purchase commitment. The value of these
securities is subject to market fluctuation during this period and no income
accrues to a Portfolio until settlement takes place. A Portfolio maintains with
the Custodian a segregated account containing high grade liquid securities in
an amount at least equal to these commitments. When entering into a when-issued
or delayed delivery transaction, the Portfolio will rely on the other party to
consummate the transaction; if the other party fails to do so, the Portfolio
may be disadvantaged.
FINANCIAL STATEMENTS
The American AAdvantage Funds' Annual Report to Shareholders for the
period ended October 31, 1996 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.
45
<PAGE> 215
APPENDIX A
The following table shows the performance of the S&P 500 Composite Stock
Price Index for the periods indicated. Stock prices fluctuated widely during
the periods but were higher at the end than at the beginning. The results shown
should not be considered as a representation of the income or capital gain or
loss that may be generated by the Index in the future or should this be
considered a representation of the past or future performance of the S&P 500
Index Fund.
<TABLE>
<CAPTION>
YEAR TOTAL RETURN YEAR TOTAL RETURN
---- ------------ ---- ------------
<S> <C> <C> <C>
1996 %
1995 37.49% 1960 0.47%
1994 1.32% 1959 11.96%
1993 9.99% 1958 43.36%
1992 7.67% 1957 -10.78%
1991 30.55% 1956 6.56%
1990 -3.17% 1955 31.56%
1989 31.49% 1954 52.62%
1988 16.81% 1953 -0.99%
1987 5.23% 1952 18.73%
1986 18.47% 1951 24.02%
1985 32.16% 1950 31.71%
1984 6.27% 1949 18.79%
1983 22.51% 1948 5.50%
1982 21.41% 1947 5.71%
1981 -4.91% 1946 -8.07%
1980 32.42% 1945 36.44%
1979 18.44% 1944 19.75%
1978 6.56% 1943 25.90%
1977 -7.18% 1942 20.34%
1976 23.84% 1941 -11.59%
1975 37.20% 1940 -9.78%
1974 -26.47% 1939 -0.41%
1973 -14.66% 1938 31.12%
1972 18.98% 1937 -35.03%
1971 14.31% 1936 33.92%
1970 4.01% 1935 47.67%
1969 -8.51% 1934 -1.44%
1968 11.06% 1933 53.99%
1967 23.98% 1932 -8.19%
1966 -10.06% 1931 -43.34%
1965 12.45% 1930 -24.90%
1964 16.48% 1929 -8.42%
1963 22.08% 1928 43.61%
1962 -8.73% 1927 37.49%
1961 26.89% 1926 11.62%
</TABLE>
<PAGE> 216
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Investment Restrictions.......................................................1
Trustees and Officers of the Trust and the AMR Trust..........................6
Trustees and Officers of the Equity 500 Index Portfolio.......................9
Management, Administrative Services and Distribution Fees....................11
Approach to Stock Selection..................................................12
Redemptions in Kind..........................................................13
Investment Advisory Agreements...............................................13
Portfolio Securities Transactions............................................14
Net Asset Value..............................................................16
Tax Information..............................................................16
Yield and Total Return Quotations............................................20
Description of the Trust.....................................................23
Control Persons and 5% Shareholders..........................................24
Other Information............................................................28
Financial Statements.........................................................43
Appendix A..................................................................A-1
</TABLE>
<PAGE> 217
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE FUNDS
AMERICAN AADVANTAGE MILEAGE FUNDS
-- PLATINUM CLASS(SM) --
MARCH 1, 1997
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. Government Money Market Fund(sm)
(the "U.S. Government Money Market Fund", formerly the American AAdvantage U.S.
Treasury Money Market Fund) are three separate investment portfolios of the
American AAdvantage Funds (the "AAdvantage Trust"). The American AAdvantage
Money Market Mileage Fund (the "Mileage Fund") is a separate investment
portfolio of the American AAdvantage Mileage Funds (the "Mileage Trust")
(individually, a "Fund" and, collectively, the "Funds"). The AAdvantage Trust
and the Mileage Trust (collectively the "Trusts") are open-end, diversified
management investment companies. Each Fund consists of multiple classes of
shares designed to meet the needs of different groups of investors. This
Statement of Additional Information ("SAI") 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 SAI should be read in conjunction with the Platinum Class
prospectus dated March 1, 1997 ("Prospectus"), a copy of which may be obtained
without charge by calling (800) 388-3344.
This SAI 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 AAdvantage Trust's Board of Trustees ("AAdvantage Board") and
the Mileage Trust's Board of Trustees ("Mileage Trust Board"), as applicable.
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. "Majority of the outstanding voting
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"), and as used herein means, with respect to the Portfolio, 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. The
percentage of a Fund's votes representing that Fund's shareholders not voting
will be voted by the AAdvantage Board and the Mileage Trust Board in the same
proportion as those Fund shareholders who do, in fact, vote.
<PAGE> 218
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.
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 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 following non-fundamental investment restriction applies to each
Portfolio and may be changed with respect to a Portfolio by a majority vote of
the AMR Trust Board. No Portfolio may 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.
All Portfolios 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 OF THE TRUSTS AND THE AMR TRUST
The AAdvantage Board, the Mileage Trust Board and the AMR Trust Board
provide broad supervision over each Trust's affairs. AMR Investment Services,
Inc. (the "Manager") is responsible for the management and the administration
of each Trust's assets, and each Trust's officers are responsible for the
respective Trust's operations. The Trustees and officers of the Trusts and the
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.
2
<PAGE> 219
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ---------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (49) Trustee and President, AMR Investment Services, Inc.
President (1986-Present); Chairman, American Airlines
Employees Federal Credit Union (October 1989-Present);
Trustee, American Performance Funds (1990-1994); Director,
Crescent Real Estate Equities, Inc. (1994-Present);
Trustee, American AAdvantage Funds (1987-Present); Trustee,
American AAdvantage Mileage Funds (1995-Present).
Alan D. Feld (59) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue (1960-Present)#; Director, Clear Channel
Suite 4100 Communications (1984-Present); Director,
Dallas, Texas 75201 CenterPoint Properties, Inc. (1994-Present);
Trustee, American AAdvantage Funds (1993-Present);
Trustee, American AAdvantage Funds(1996-Present);
Trustee American AAdvantage Mileage Funds
(1996-Present).
Ben J. Fortson (64) Trustee President and CEO, Fortson Oil Company
301 Commerce Street (1958-Present); Director, Kimbell Art Foundation
Suite 3301 (1964-Present); Director, Burnett Foundation
Fort Worth, Texas 76102 (1987-Present); Honorary Trustee, Texas Christian
University (1986-Present); Trustee, American AAdvantage Funds
(1996-Present); Trustee, American AAdvantage Mileage
Funds (1996-Present).
John S. Justin (80) Trustee Chairman and Chief Executive Officer, Justin
2821 West Seventh Street Industries, Inc. (a diversified holding company)
Fort Worth, Texas 76107 (1969-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 Funds
(1989-Present); Trustee, American Funds (1995-Present).
Stephen D. O'Sullivan* (61) Trustee Consultant (1994-Present); Vice President and
Controller (1985-1994), American Airlines, Inc.;
Trustee, American AAdvantage Funds (1987-Present);
Trustee, American AAdvantage Mileage Funds
(1995-Present).
</TABLE>
3
<PAGE> 220
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ---------- ----------------------------------------
<S> <C> <C>
Roger T. Staubach (55) 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; Trustee, Institute for
Aerobics Research; Member of Executive Council, Daytop/Dallas; former
quarterback of the Dallas Cowboys professional football team; Trustee,
American AAdvantage Funds (1995-Present); Trustee, American AAdvantage
Mileage Funds (1995-Present).
Kneeland Youngblood, M.D. Trustee Physician (1982-Present); President
(40) (1983-Present), Youngblood Enterprises, Inc. (a
2305 Cedar Springs Road health care investment and management firm);
Suite Trustee, Teachers Retirement System of Texas
401 (1993-Present); Director, United States Enrichment
Dallas, Texas 75201 Corporation (1993-Present), Director, Just For the
Kids (1995-Present); Member, Council on Foreign Relations
(1995-Present; Trustee, American AAdvantage Funds (1996-Present);
Trustee, American AAdvantage Mileage Funds (1996-Present).
Nancy A. Eckl (34) Vice President Vice President, AMR Investment Services, Inc.
(December 1990-Present).
Michael W. Fields (43) Vice President Vice President, AMR Investment Services, Inc.
(August 1988-Present).
Barry Y. Greenberg (33) Vice President and Director, Legal and Compliance, AMR Investment
Assistant Secretary Services, Inc. (1995-Present); Branch Chief
(1992-1995) and Staff Attorney (1988-1992),
Securities and Exchange Commission.
Rebecca L. Harris (30) Treasurer Director of Finance (1995-Present), Controller
(1991-1995), AMR Investment Services, Inc.
John B. Roberson (38) Vice President Vice President, AMR Investments Services, Inc.
(1991-Present).
Janice B. Schwarz (37) Assistant Secretary Senior Business Systems Coordinator,
(1996-Present), Senior Compliance Analyst
(1990-1996), AMR Investment Services, Inc.
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
Robert J. Zutz (44) Assistant Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
</TABLE>
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump")
provides legal services to American Airlines, Inc., an affiliate of the
Manager. Mr. Feld has advised the Trusts that he has had no material
involvement in the services provided by Akin, Gump to American
4
<PAGE> 221
Airlines,Inc. and that he has received no material benefit in connection
with these services. Akin, Gump does not provide legal services to the
Manager or AMR Corporation.
* Messrs. Quinn and O'Sullivan, by virtue of their current or former
positions, are deemed to be "interested persons" of each 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.
As compensation for their service to the Trusts and the AMR Trust, the
Independent Trustees and their spouses receive free air travel from American
Airlines, Inc., an affiliate of the Manager. The Trusts and the AMR Trust do
not pay for these travel arrangements. However, the Trusts and the AMR Trust
compensate each Trustee with payments in an amount equal to the Trustees'
income tax on the value of this free airline travel. Mr. O'Sullivan, whom as a
retiree of American Airlines, Inc. already receives free airline travel,
receives compensation annually of up to three round trip airline tickets for
each of his three adult children. Trustees are also reimbursed for any expenses
incurred in attending Board meetings. These amounts are reflected in the
following table for the fiscal year ended October 31, 1996.(1)
<TABLE>
<CAPTION>
Pension or
Retirement
Aggregate Aggregate Benefits Estimated Total
Compensation Compensation Accrued as Part Annual Compensation
Name of Trustee From the From the of the Benefits From AAdvantage
- --------------- AAdvantage Mileage Trusts' Upon Funds
Trust Trust Expenses Retirement Complex
----- ----- -------- ---------- -------
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $ 0
John S. Justin $ $0 $0 $14,475
Stephen D. O'Sullivan $ $0 $0 $ 1,832
Roger T. Staubach $ $0 $0 $11,330
</TABLE>
MANAGEMENT, ADMINISTRATIVE SERVICES AND DISTRIBUTION FEES
As described more fully in the Prospectus, the Manager is paid a
management fee as compensation for its administrative services, for paying
investment advisory fees and for providing the Portfolios with advisory and
asset allocation services. Management fees for the AAdvantage Trust for the
fiscal years ended October 31 were approximately as follows: 1994, $6,950,000
of which approximately $2,965,000 was paid by the Manager to the other
investment advisers; 1995, $7,603,000 of which approximately $3,985,000 was
paid by the Manager to the other investment advisers; and 1996, $10,403,000 of
which approximately $5,161,000 was paid by the Manager to the other investment
advisers. Management fees in the amount of approximately $214,000, $29,000 and
$44,000 were waived by the Manager during the fiscal years ended October 31,
1994, 1995 and 1996, respectively. These amounts include payments by Portfolios
in the AAdvantage 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 Funds. Administrative services fees for
the AAdvantage Trust for the fiscal years ended October 31 were approximately
as follows: 1994, $1,473,000; 1995, $2,731,000; and 1996, $2,893,400.
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 by Portfolios in the
AAdvantage Trust other than the Funds.
Brokers Transaction Services, Inc. ("BTS"), is the distributor of the
Funds' shares. BTS receives an annualized fee of $50,000 from the Manager for
distributing the shares of the Trusts. Prior to September 1, 1995, the
AAdvantage Trust was self-distributed.
- ---------------
(1) Messrs. Feld and Fortson and Dr. Youngblood did not serve as Trustees during
the period.
5
<PAGE> 222
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.
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. The portfolio instruments held by each Fund's
corresponding Portfolio 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 Funds' corresponding 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. The corresponding portfolios of the Money Market Funds may invest in
issuers or instruments that at the time of purchase have received the highest
short-term rating by two Rating Organizations, such as "D-1" by Duff & Phelps
and "F-1" by Fitch Investors Service, Inc., and have received the next highest
short-term rating by other Rating Organizations, such as "A-2" by Standard &
Poors and "P-2" by Moody's Investors Service, Inc. See "Ratings of Municipal
Obligations" and "Ratings of Short-Term Obligations" for further information
concerning ratings.
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").
Each Fund has received either a ruling from the Internal Revenue Service
("IRS") or an opinion of counsel that the 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.
See the next section for a discussion of the tax consequences to the
Funds of certain investments by the Portfolios.
6
<PAGE> 223
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, as noted above, 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 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 Municipal
Money Market 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 Municipal Money Market Fund intends to continue
to satisfy this requirement. The aggregate dividends excludable from
shareholders' gross income may not exceed the Municipal Money Market Fund's net
tax-exempt income. The shareholders' treatment of dividends from the Municipal
Money Market 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
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"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 Municipal Money Market 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.
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
The Platinum Class of the AAdvantage Trust commenced operations on
November 7, 1995 and the Platinum Class of the Mileage Trust commenced
operations on January 29, 1996. For purposes of advertising performance, and in
accordance with Securities and Exchange Commission staff interpretations, the
Funds in the AAdvantage Trust have adopted the performance of the Institutional
Class of the Funds in the AAdvantage Trust for periods prior to the inception
date. The Mileage Fund has adopted the performance of the American AAdvantage
Money Market Mileage Fund-Mileage Class for periods prior to its inception
date. The performance results for the Platinum Class will be lower, because the
figures for the other classes (except for the Mileage Fund) 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:
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1)365/7 ] - 1
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The current and effective yields for 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
1996 October 31, 1996 October 31, 1996
---- ---------------- ----------------
<S> <C> <C> <C>
Platinum Class
Money Market Fund 4.73% 4.73% 4.84%
Municipal Money Market Fund 2.75% 2.75% 2.79%
U.S. Government Money Market Fund 4.63% 4.33% 4.42%
Mileage Fund 4.59% 4.58% 4.68%
</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
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 period ending October 31,
1996 were 4.55% and 4.62%, 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:
P(1 + T)N= 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 were as follows for the
periods indicated:
<TABLE>
<CAPTION>
For the period from
For the one-year For the five-year commencement of
period ended period ended operations through
October31, October 31, October 31,
1996(1) 1996(1)(2) 1996(1)
-------- ---------- ------
<S> <C> <C> <C>
Platinum Class
Money Market Fund 4.85% 4.47% 6.11%
Municipal Money Market Fund 2.88% N/A 3.03%
U. S. Government Money Mkt. Fund (3) 4.58% N/A 4.16%
Mileage Fund 4.78% 4.23% 5.97%
</TABLE>
(1) Performance of the Funds of the AAdvantage Trust represents total returns
achieved by the Institutional Class from the inception date of each Fund up to
the inception date of the Platinum Class on 11/7/95. Performance of the Mileage
Fund represents total return of the Money Market Fund-Institutional Class
(9/1/87-10/31/91); the Money Market Fund-Mileage Class (11/1/91-10/31/95); the
Money Market Mileage Fund-Mileage Class (11/1/95-1/28/96) and the Money Market
Mileage Fund-Platinum Class since its 1/29/96 inception. Total returns have not
been adjusted for any difference between the fees and expenses of each Fund and
the historical fees and expenses of the predecessor Funds. Inception dates are:
Money Market Fund-Institutional Class, 9/1/87; Municipal Money Market
Fund-Institutional Class, 11/10/93; U.S. Government Money Market
Fund-Institutional Class, 3/1/92.
(2) The Municipal Money Market Fund and the U.S. Government Money Market Fund
had not commenced active operations as of 11/1/91.
(3) Prior to March 1, 1997, the U.S. Government Money Market Fund was known as
the U.S. Treasury Money Market Fund and operated under different investment
policies.
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.
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<PAGE> 226
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 Financial Data, 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 Fund may also compare its performance with various indices
prepared by independent services such as Standard & Poor's, Morgan Stanley or
Lehman Brothers or to unmanaged indices that may assume reinvestment of
dividends but generally do not reflect deductions for administrative and
management costs.
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.
From time to time, the Manager may use contests as a means of promoting
the American AAdvantage Funds and the American AAdvantage Mileage 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.
Each Fund may advertise the standard deviation of its returns for
various time periods and compare its standard deviation to that of various
indices. Standard deviation of performance over time is a measure of
volatility. It indicates the spread of performance as compared to the Fund's
central tendency or mean. In theory, a Fund that is more volatile should
receive a higher return in exchange for taking extra risk. Standard deviation
is a well-accepted statistic to gauge the riskiness of an investment strategy
and measure its historical volatility as a predictor of risk, although the
measure is subject to time selection bias.
DESCRIPTION OF THE TRUST
The AAdvantage Trust organized on January 16, 1987 and the Mileage
Trust, organized on February 22, 1995, (originally named American AAdvantage
Funds II) are entities 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,
each 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 Trusts 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 Platinum Class was created as an
investment vehicle for cash balances of customers of certain broker-dealers.
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, 1997:
American AAdvantage Money Market Fund Total Fund
- ------------------------------------- ----------
American AAdvantage Municipal Money Market Fund
- -----------------------------------------------
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American AAdvantage U.S. Government Money Market Fund
- -----------------------------------------------------
American AAdvantage Money Market Mileage Fund
- ---------------------------------------------
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 designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
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. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
Derivatives-Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset or
market index. Some "derivatives" such as mortgage-related and other
asset-backed securities are in many respects like any other investment,
although they may be more volatile or less liquid than more traditional debt
securities. There are, in fact, many different types of derivatives and many
different ways to use them. There are a range of risks associated with those
uses.
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.
Illiquid Securities. Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, securities that are otherwise not
readily marketable and repurchase agreements having a remaining maturity of
longer than seven calendar days. Securities that have not been registered under
the 1933 Act are referred to as private placements or restricted securities and
are purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty
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<PAGE> 228
satisfying redemptions within seven calendar days. A mutual fund also might
have to register such restricted securities in order to dispose of them
resulting in additional expense and delay. Adverse market conditions could
impede such a public offering of securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
However, the fact that there are contractual or legal restrictions on resale of
such investments to the general public or to certain institutions may not be
indicative of their liquidity.
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.
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
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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.
(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 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.
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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 Portfolio 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, 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 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.
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 two highest ratings for long-term
obligations are AAA and AA. 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.
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
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<PAGE> 231
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.
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, such as
"+","-," or 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.
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, A-2, or A-3.
IBCA's short-term rating of A-1 indicates obligations supported by the
highest capacity for timely repayment. Where issues possess particularly strong
credit features, a rating of A-1+ is assigned. Obligations rated A-2 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
15
<PAGE> 232
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.
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.
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.
16
<PAGE> 233
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.
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:
(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.
17
<PAGE> 234
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 Money Market Funds' and the American AAdvantage
Mileage Funds' Annual Reports to Shareholders for the fiscal year ended October
31, 1996, as audited by Ernst & Young, LLP, are supplied with the SAI, and the
financial statements and accompanying notes appearing therein are incorporated
by reference in this SAI.
18
<PAGE> 235
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions......................................................1
Trustees and Officers of the Trust and the AMR Trust.........................6
Management, Administrative Services and Distribution Fees...................11
Redemptions in Kind.........................................................13
Net Asset Value.............................................................13
Tax Information.............................................................13
Yield and Total Return Quotations...........................................16
Description of the Trust....................................................23
Control Persons and 5% Shareholders.........................................24
Other Information...........................................................28
Financial Statements........................................................43
</TABLE>
19
<PAGE> 236
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE SHORT-TERM INCOME FUND
MARCH 1, 1997
The American AAdvantage Short-Term Income Fund (the "Fund") is a
no-load, non-diversified portfolio of the American AAdvantage Funds (the
"Trust"). The Fund consists of one class of shares. The Trust currently
consists of nine separate investment portfolios, each with distinct investment
objectives, purposes and strategies. This Statement of Additional Information
("SAI") pertains solely to the Fund and is authorized for distribution to
prospective investors only if preceded or accompanied by a current Prospectus
("Prospectus") dated March 1, 1997. This SAI should be read in conjunction with
the Prospectus of the Fund . A Prospectus may be obtained without charge by
calling AMR Investment Services, Inc. (the "Manager") at (817) 967-3509.
INVESTMENT RESTRICTIONS
In addition to the investment limitations noted in the Prospectus, the
following restrictions have been adopted by the Fund and may be changed only by
the majority vote of the Fund's outstanding shares, which as used herein means
the lesser of (a) 67% of the shares of the Fund present at the shareholders'
meeting if the holders of more than 50% of the shares are present and
represented at the meeting or (b) more than 50% of the shares of the Fund. The
Fund may not:
1. Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Fund 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.
2. Purchase or sell commodities (including direct interests and/or
leases in oil, gas or minerals) or commodities contracts, except that
the Fund may purchase and sell financial futures contracts (such as
interest rate, bond index and foreign currency futures contracts),
options (such as options on securities, indices, foreign currencies and
futures contracts), forward currency contracts, swaps, caps, collars and
floors, and may engage in transactions in foreign currencies and
"when-issued" securities.
3. Engage in the business of underwriting securities issued by others
except to the extent that, in connection with disposition of securities,
the Fund may be deemed an underwriter under federal securities laws.
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 the Fund may lend its portfolio securities to
broker-dealers or other institutional investors in accordance with the
guidelines stated in the Prospectus and SAI.
5. Issue senior securities, except that the Fund may purchase and sell
financial futures contracts (such as interest rate, bond index and
foreign currency futures contracts), options (such as options on
securities, indices, foreign currencies and futures contracts), forward
currency contracts, swaps, caps, collars and floors, and engage in
when-issued securities and forward commitment transactions.
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<PAGE> 237
The following non-fundamental investment restrictions apply to the Fund
and may be changed with respect to the Fund only by a majority vote of the
Board of Trustees of the Trust ("Board"). Accordingly, the Fund may not:
1. Purchase securities on margin or effect short sales (except that the
Fund may (i) obtain such short-term credits as may be necessary for the
clearance of purchases or sales of securities) and (ii) make margin
deposits and short sales and maintain short positions in connection with
its use of options, futures contracts, forward currency contracts,
swaps, caps, collars and floors and options on futures contracts.
2. Invest more than 10% of its total assets in the securities of other
investment companies.
TRUSTEES AND OFFICERS
The Board provides broad supervision over the Trust's affairs. 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
are listed below together with their principal occupations during the past five
years. All Trustees are also Trustees of the AMR Investment Services Trust and
the American AAdvantage Mileage Funds. All officers of the Trust are also
officers of the AMR Investment Services Trust and the American AAdvantage
Mileage Funds. Unless otherwise indicated, the address of each person listed
below is 4333 Amon Carter Boulevard, MD 5645, Fort Worth, Texas 76155.
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------- ----------------------------------------
<S> <C> <C>
William F. Quinn*(49) 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).
Alan D. Feld (59) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue (1960-Present)#; Director, Clear Channel
Suite 4100 Communications (1984-Present); Director,
Dallas, Texas 75201 CenterPoint Properties, Inc. (1994-Present);
Trustee, American AAdvantage Mileage Funds
(1996-Present).
Ben J. Fortson (64) Trustee President and CEO, Fortson Oil Company
301 Commerce Street (1958-Present); Director, Kimbell Art Foundation
Suite 3301 (1964-Present); Director, Burnett Foundation
Fort Worth, Texas 76102 (1987-Present); Honorary Trustee, Texas Christian
University (1986-Present); Trustee, American
AAdvantage Mileage Funds (1996-Present).
</TABLE>
2
<PAGE> 238
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------- ----------------------------------------
<S> <C> <C>
John S. Justin (80) Trustee Chairman and Chief Executive Officer, Justin
2821 West Seventh Street Industries, Inc. (a diversified holding company)
Fort Worth, Texas 76107 (1969-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* (61) Trustee Consultant (July 1994-Present); Vice President and
5730 E 105th Street Controller (April 1985-June 1994), American
Tulsa, Oklahoma 74137 Airlines, Inc.; Trustee, American AAdvantage
Mileage Funds (1995-Present).
Roger T. Staubach (55) Trustee Chairman of the Board and Chief Executive Officer,
6750 LBJ Freeway (1983-present) and President (1983-1991) of The
Dallas, Texas 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; Trustee, Institute for Aerobic
Research; Member of Executive Council,
Daytop/Dallas; former quarterback of the Dallas
Cowboys professional football team; Trustee,
American AAdvantage Mileage Funds (1995-Present).
Kneeland Youngblood, M.D.(40) Trustee Physician (1982-Present); President (1983-Present),
2305 Cedar Springs Road Youngblood Enterprises, Inc. (a health care
Suite 401 investment and management firm); Trustee, Teachers
Dallas, Texas 75201 Retirement System of Texas (1993-Present);
Director, United States Enrichment Corporation
(1993-Present), Director, Just For the Kids
(1995-Present); Member, Council on Foreign
Relations (1995-Present); Trustee, American
AAdvantage Mileage Funds (1996-Present).
Nancy A. Eckl (34) Vice President Vice President AMR Investment Services, Inc.(
1990-Present),
</TABLE>
3
<PAGE> 239
<TABLE>
<CAPTION>
POSITION WITH
NAME, ADDRESS AND AGE THE TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- --------- ----------------------------------------
<S> <C> <C>
Michael W. Fields (43) Vice President Vice President, AMR Investment Services, Inc.
(1988-Present).
Barry Y. Greenberg (33) Vice President Director - Legal and Compliance, AMR Investment
and Assistant Services, Inc. (1995-Present); Branch Chief ( 1992-
Secretary 1995) and Staff Attorney (1988- 1992), Securities
and Exchange Commission.
Rebecca L. Harris (30) Treasurer Director of Finance, 1995-Present), Controller,
(1991- 1995), AMR Investment Services, Inc.
John B. Roberson (38) Vice President Vice President (1991-Present), AMR Investment
Services, Inc.
Janice B. Schwarz (37) Assistant Senior Business Systems Coordinator (1996 to
Secretary Present); Senior Compliance Analyst (1990-1996),
AMR Investment Services, Inc.
Clifford J. Alexander (53) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
Robert J. Zutz (44) Assistant Partner, Kirkpatrick & Lockhart LLP (law firm)
Secretary
</TABLE>
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump")
provides legal services to American Airlines, Inc., an affiliate of the
Manager. Mr. Feld has advised the Trusts that he has had no material
involvement in the services provided by Akin, Gump to American Airlines,
Inc. and that he has received no material benefit in connection with
these services. Akin, Gump does not provide legal services to the
Manager or AMR Corporation.
* Messrs. Quinn and O'Sullivan, by virtue of their current or former
positions, are deemed to be "interested persons" of the Trust and AMR
Trust as defined by the 1940 Act.
All Trustees and Officers as a group own less than 1% of the outstanding
shares of the Fund.
As compensation for their service to the Trust and the AMR Trust, the
Independent Trustees and their spouses receive free air travel from American
Airlines, Inc., an affiliate of the Manager. The Trust and the AMR Trust 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. Mr. O'Sullivan, who as a retiree of American
Airlines, Inc. already receives free airline travel, receives compensation
annually of up to three round trip airline tickets for each of his three adult
children. Trustees are also reimbursed for any expenses incurred in attending
Board meetings. These amounts are reflected in the following table for the
fiscal year ended October 31, 1996.(1)
- -------------------
(1) Messrs. Feld and Fortson and Dr. Youngblood did not serve as Trustees
during this period.
4
<PAGE> 240
<TABLE>
<CAPTION>
Pension or
Retirement Benefits Estimated Total
Aggregate Accrued as Part of Annual Compensation
Compensation the Benefits Upon From AAdvantage
Name of Trustee From the Trust Trust's Expenses Retirement Fund Complex
--------------- -------------- ---------------- ---------- ------------
<S> <C> <C> <C> <C>
John S. Justin $373 $0 $0 $1,492
William F. Quinn $0 $0 $0 $0
Stephen D. O'Sullivan $458 $0 $0 $1,832
Roger T. Staubach $2,832 $0 $0 $11,330
</TABLE>
DISTRIBUTION FEES
On September 1, 1995, Brokers Transaction Services, Inc. ("BTS"), as
distributor of the Trust's Shares, 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-distributing.
PORTFOLIO SECURITIES TRANSACTIONS
The Manager provides, in substance, that in executing portfolio
transactions and selecting brokers or dealers, the principal objective of the
Manager 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, the Manager shall
consider all factors it deems relevant, including the breadth of the market in
the security, the price of the security and the financial condition and
execution capability of the broker or dealer, for the specific transaction and
on a continuing basis.
In selecting brokers or dealers to execute particular transactions, the
Manager is authorized to consider "brokerage and research services" (as those
terms are defined in Section 28(e) of the Securities Exchange Act of 1934), the
provision of statistical quotations (including the quotations necessary to
determine the Fund's net asset value), the sale of Trust shares by such broker
or the servicing of Trust shareholders by such broker, and other information
provided to the Fund and to the Manager, provided, however, that the Manager
determines that it has received the best net price and execution available.
NET ASSET VALUE
The net asset value of the Fund is computed by dividing the value of the
Fund's assets, less its liabilities, by the number of shares outstanding. The
net asset value is computed each day on which shares are offered and purchase
or redemption orders are accepted in accordance with procedures outlined in the
Prospectus.
The Fund's investment grade short-term obligations with 60 days or less
to maturity are valued based on the amortized cost valuation technique. 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.
TAX INFORMATION
To qualify for treatment as a regulated investment company under the
Internal Revenue Code of 1986, as amended (the "Code"), the Fund (which is
treated as a separate corporation for these purposes) must, among other
requirements:
5
<PAGE> 241
* 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 foreign
currencies or certain other income, including gains from options,
futures and forward contracts ("Income Requirement");
* Derive less than 30% of its gross income each taxable year from
the sale or other disposition of securities, or any of the
following, that were held for less than three months; options,
futures or forward contracts (other than those on foreign
currencies), or foreign currencies (or options, futures or forward
contracts thereon) that are not directly related to the Fund's
principal business of investing in securities (or options and
futures with respect to securities) (the "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 income (generally, net investment income plus net
short-term capital gain and gains from certain foreign currency
transactions).
Hedging strategies, such as entering into forward contracts, swap
transactions and purchasing and selling options and futures contracts, involve
complex rules that determine for income tax purposes the character and timing
of recognition of gains and losses the Fund realizes in connection therewith.
Income from foreign currencies (with the exception of certain gains that may be
excluded by future regulations), and income from options, futures and forward
contracts derived with respect to the Fund's business of investing in
securities or foreign currencies, qualify as allowable income under the Income
Requirement. However, income from the disposition of options or futures (other
than those on foreign currencies) will be subject to the Short-Short Limitation
if they are held for less than three months. Income from the disposition of
foreign currencies, (and options, futures and forward contracts on foreign
currencies), that are not directly related to the Fund's principal business of
investing in securities (or options and futures with respect to securities)
also will be subject to the Short-Short Limitation if held for less than three
months.
For purposes of determining whether the Fund satisfies the Short-Short
Limitation, if the Fund 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. For further detail, see "Other
Information" under Strategic Transactions.
Interest received by the Fund 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.
The foregoing is only a summary of some of the important federal tax
considerations affecting the Fund and its 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 and local
taxes.
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YIELD AND TOTAL RETURN QUOTATIONS
A quotation of yield of the Fund 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 Fund, and the 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 advertised yield for the Fund is computed by dividing the net
investment income earned during a 30-day (or one month) period less 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 Fund by the maximum offering price per share on the last day of the period,
according to the following formula:
6
YIELD = 2{(A-B)/(C*D) +1) -1}
where, with respect to the 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; "c" is the average daily number of shares
outstanding during the period that were entitled to receive dividends; and "d"
is the maximum offering price per share on the last day of the period.
The Fund may also advertise a monthly distribution rate. The
distribution rate gives the return of the Fund based solely on the dividend
payout 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, "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. 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 the Fund would be calculated by equating
an initial amount invested in the 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.
The Fund may also use "aggregate" total return figures for various
periods which represent the cumulative change in value of an investment in the
Fund for the specific period. Such total returns reflect changes in share
prices of the Fund and assume reinvestment of dividends and distributions.
In reports or other communications to shareholders or in advertising
material, the Fund may from time to time compare its performance with that of
other mutual funds in rankings prepared by IBC Financial Data, Inc., Lipper
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Analytical Services, Inc., Morningstar, 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". The Fund may also compare
its performance with various indices prepared by reporting services such as
those of Morgan Stanley or Lehman Brothers.
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.
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 bank 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.
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 unsecured debt of a corporation or finance company with a fixed
maturity of no more than 270 days.
Eurodollar and Yankeedollar Obligations-Eurodollar obligations are
U.S. dollar obligations issued outside the United States by domestic or
foreign branches of U.S. banks. Yankeedollar obligations are U.S. dollar
obligations issued inside the United States by foreign entities.
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
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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.
Securities loans will be made in accordance with the following
conditions: (1) the Fund must receive at least 100% collateral in the form of
cash or cash equivalents, securities of the U.S. Government, its agencies or
instrumentalities, and 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 Fund must be able to
terminate the loan after notice, at any time; (4) the Fund 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 Fund 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 Board must be able to terminate the loan and vote proxies or enter into an
alternative arrangement with the borrower to enable the 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 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
SAI 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 Board.
Mortgage-backed Securities-Mortgage-backed securities consist of both
collateralized mortgage obligations and mortgage pass-through certificates.
Collateralized Mortgage Obligations ("CMOs")-CMOs and 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") and
Federal Home Loan Mortgage Corporation ("FHLMC"). 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. REMICs are a mortgage securities vehicle, authorized by the Tax
Reform Act of 1986, that holds residential or commercial mortgages and issues
securities representing interests in those mortgages. A REMIC may be formed as
a
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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, 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.
(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 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
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individual loan, title, pool and hazard insurance. The insurance and guarantees
are issued by government entities, private insurers and the mortgage poolers.
Although the market for such securities is becoming increasingly liquid,
securities issued by certain private organizations may not be readily
marketable.
Ratings of Long-term Obligations-The Fund utilizes ratings provided by
the following nationally recognized statistical rating organizations in order
to determine eligibility of long-term obligations.
The three highest Moody's Investors Service, Inc. ("Moody's") ratings
for long-term obligations (or issuers thereof) are Aaa, Aa and A. 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".
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 three highest Standard & Poor's ("Standard & Poor's") ratings for
long-term obligations are AAA, AA and A. 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.
Duff & Phelps' three highest ratings for long-term obligations are AAA,
AA and A. 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 protections factors. However, risk factors are more variable and
greater in periods of economic stress.
Thomson 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 three highest ratings for long-term obligations
are AAA, AA and A. 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.
Fitch Investors Service, Inc. 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.
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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.
IBCA's three highest long term obligation ratings are AAA, AA and A.
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.
Standard & Poor's, Duff & Phelps and Fitch apply indicators "+","-," and
no character to indicate relative standing within the major rating categories.
Ratings of Short-term Obligations-The ratings P-1 and P-2 by Moody's are
judged by Moody's to be of the "highest" quality and "higher" quality
respectively on the basis of relative repayment capacity. 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, A-2, or A-3.
IBCA's short-term rating of A1 indicates obligations supported by the
highest capacity for timely repayment. Where issues possess a 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 Rating's 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.
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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 indicated 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-1 indicated 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 (i.e., the Fund) 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.
The Fund may enter into repurchase agreements with any bank or
registered broker-dealer who, in the opinion of the Board, presents a minimum
risk of bankruptcy during the term of the agreement based upon guidelines which
periodically are reviewed by the Board. The Fund 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 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 Fund 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, the Fund 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 the
Fund may incur a loss if the proceeds to the Fund from the sale of the
securities to a third party are less than the repurchase price.
Strategic Transactions-As discussed in the Prospectus, the Fund may use
financial instruments ("Strategic Instruments"), such as financial futures
contracts (such as interest rate, bond index and foreign currency futures
contracts), options (such as options on securities, indices, foreign currencies
and futures contracts), forward currency contracts and interest rate and
currency swaps, caps, collars and floors. Such Strategic Instruments may be
used without limit in altering the exposure of a particular investment or
portion of the Fund's portfolio to fluctuations in interest rates or currency
rates, to preserve a return or spread, to lock in unrealized market value gains
or losses, to facilitate the sale or purchase of securities, to manage the
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duration of securities, to uncap a capped security or to convert a fixed rate
security into a variable rate security.
Strategic Instruments on securities generally are used to hedge against
price movements in one or more particular securities positions that the Fund
owns or intends to acquire. Strategic Instruments on debt securities may be
used to hedge either individual securities or broad fixed-income market
sectors.
The use of these strategies involves certain risks, including (1) the
fact that skills used are different from those needed to select securities, (2)
possible imperfect correlation between price movements of the investments being
hedged, (3) the fact that, while hedging strategies can reduce the risk of
loss, they can also reduce the opportunity for gain, or even result in losses,
by offsetting favorable price movements in hedged investments, and (4) the
possible inability of the Fund to purchase or sell a security at a time when it
would be advantageous to do so, or the possible need for the Fund to sell a
security due to the need for the Fund to "cover" or segregate securities in
connection with those transactions and the possible inability of the Fund to
close out or liquidate its position.
The use of Strategic Instruments is subject to applicable regulations
of the SEC, the several options and futures exchanges upon which they are
traded, the (CFTC) and various state regulatory authorities. In addition, the
Fund's ability to use Strategic Instruments will be limited by tax
considerations. See "Tax Information."
In addition to the products, strategies and risks described below and in
the Prospectus, the Manager expects to discover additional opportunities in
connection with other Strategic Instruments. These new opportunities may become
available as the Manager develops new techniques, as regulatory authorities
broaden the range of permitted transactions and as new techniques are
developed. The Manager may utilize these opportunities to the extent that they
are consistent with the Fund's investment objective and permitted by the Fund's
investment limitations and applicable regulatory authorities. The Fund's
Prospectus or SAI will be supplemented to the extent that new products or
techniques involve materially different risks than those described below or in
the Prospectus.
Cover for Strategic Instruments-Transactions using Strategic Instruments
may expose the Fund to an obligation to another party. The Fund will not enter
into any such transactions unless it owns either (1) an offsetting ("covered")
position in securities, futures, options, currencies or forward contracts or
(2) cash and short-term liquid debt securities with a value sufficient at all
times to cover its potential obligations to the extent not covered as provided
in (1) above.
Futures Contracts and Options on 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.
The purchase of futures or call options on futures can serve as a long
hedge, and the sale of futures or the purchase of put options on futures can
serve as a short hedge. Writing call options on futures contracts can serve as
a limited short hedge, using a strategy similar to that used for writing call
options on securities or indices. Similarly, writing put options on futures
contracts can serve as a limited long hedge.
Futures strategies also can be used to manage the average duration of
the Fund's fixed-income portfolio. If the Manager wishes to shorten the average
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duration of the Fund's fixed-income portfolio, the Fund may sell a futures
contract or a call option thereon, or purchase a put option on that futures
contract. If the Manager wishes to lengthen the average duration of the Fund's
fixed-income portfolio, the Fund may buy a futures contract or a call option
thereon, or sell a put option thereon.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Fund 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
Fund at the termination of the transaction if all contractual obligations have
been satisfied. Under certain circumstances, such as periods of high
volatility, the Fund may be required by an 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 Fund's obligations to or from a futures
broker. When the Fund purchases an option on a futures contract, the premium
paid plus transaction costs is all that is at risk. In contrast, when the Fund
purchases or sells a futures contract or writes a call or put option thereon,
it is subject to daily variation margin calls that could be substantial in the
event of adverse price movements. If the Fund 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 and options thereon can
enter into offsetting closing transactions, similar to closing transactions on
options, by selling or purchasing, respectively, an instrument identical to the
instrument purchased or sold. Positions in futures contracts and options
thereon may be closed only on an exchange or board of trade that provides a
secondary market. The Fund intends to enter into futures contracts and options
on futures 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 or options position.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract or option thereon 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 Fund were unable to liquidate a futures contract or options
thereon due to the absence of a liquid secondary market or the imposition of
price limits, it could incur substantial losses. The Fund would continue to be
subject to market risk with respect to the position. In addition, except in the
case of purchased options on futures , the Fund 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 Fund enters into futures contracts, options on
futures contracts, or options on foreign currencies 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
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<PAGE> 251
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 Fund's portfolio,
after taking into account unrealized profits and unrealized losses on any
contracts that the Fund has entered into. This policy does not limit to 5% the
percentage of the Fund's assets that are at risk in futures contracts and
options on futures contracts.
Foreign Currency Strategies - Special Considerations-The Fund may use
Strategic Instruments on foreign currencies, to hedge against movements in the
values of the foreign currencies in which the Fund's securities are
denominated. Such currency hedges can protect against price movements in a
security that the Fund owns or intends to acquire that are attributable to
changes in the value of the currency in which it is denominated. Such hedges do
not, however, protect against price movements in the securities that are
attributable to other causes.
The Fund might seek to hedge against changes in the value of particular
currency when no Strategic Instruments on that currency are available or such
Strategic Instruments are more expensive than certain other Strategic
Instruments. In such cases, the Fund may hedge against price movements in that
currency by entering into transactions using Strategic Instruments on another
currency or a basket of currencies, the values of which the Manager believes
will have a high degree of positive correlation to the value of the currency
being hedged. The risk that movements in the price of the Strategic Instrument
will not correlate perfectly with movements in the price of the currency being
hedged is magnified when this strategy is used.
There is no systematic reporting of last sale information for foreign
currencies or any regulatory requirement that quotations available through
dealers or other market sources be firm or revised on a timely basis. Quotation
information generally is representative of very large transactions in the
interbank market and thus might not reflect odd-lot transactions where rates
might be less favorable. The interbank market in foreign currencies is a
global, round-the-clock market.
Settlement of transactions involving foreign currencies might be
required to take place within the country issuing the underlying currency.
Thus, the Fund might be required to accept or make delivery of the underlying
foreign currency in accordance with any U.S. or foreign regulations regarding
the maintenance of foreign banking arrangements by U.S. residents and might be
required to pay any fees, taxes and charges associated with such delivery
assessed in the issuing country.
Forward 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 future movements in foreign exchange
rates. The 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 Fund may
purchase a forward contract to lock in the U.S. dollar price of a security
denominated in a foreign currency that the Fund intends to acquire. Forward
contracts may also serve as short hedges -- for example, the Fund 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
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.
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<PAGE> 252
The cost to the Fund 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 a principal basis, no fees or commissions are involved. When the
Fund 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.
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 Fund 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 Fund might be
unable to close out a forward contract at any time prior to maturity. In either
event, the Fund 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 Fund 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.
Swaps, Caps, Collars and Floors-Swap agreements, including interest rate
and currency swaps, caps, collars and floors, may be individually negotiated
and structured to include exposure to a variety of different types of
investments or market factors. Swaps involve two parties exchanging a series of
cash flows at specified intervals. In the case of an interest rate swap, the
parties exchange interest payments based on an agreed upon principal amount
(referred to as the "notional principal amount"). Under the most basic
scenario, Party A would pay a fixed rate on the notional principal amount to
Party B, which would pay a floating rate on the same notional principal amount
to Party A. Depending on their structure, swap agreements may increase or
decrease the Fund's exposure to long or short-term interest rates (in the U.S.
or abroad), foreign currency values, mortgage securities, corporate borrowing
rates, or other factors. Swap agreements can take many different forms and are
known by a variety of names.
In a typical cap or floor agreement, one party agrees to make payments
only under specified circumstances, usually in return for payment of a fee by
the other party. For example, the buyer of an interest rate cap obtains the
right to receive payments to the extent that a specified interest rate exceeds
an agreed-upon level, while the seller of an interest rate floor is obligated
to make payments to the extent that a specified interest rate falls below an
agreed-upon level. An interest rate collar combines elements of buying a cap
and selling a floor.
The Fund will set aside cash or appropriate liquid assets to cover its
current obligations under swap transactions. If the Fund enters into a swap
agreement on a net basis (that is, the two payment streams are netted out, with
the Fund receiving or paying, as the case may be, only the net amount of the
two payments), the Fund will maintain cash or liquid assets with a daily value
at least equal to the excess, if any, of the Fund's accrued obligations under
the swap agreement over the accrued amount the Fund is entitled to receive
17
<PAGE> 253
under the agreement. If the Fund enters into a swap agreement on other than a
net basis or writes a cap, collar or floor, it will maintain cash or liquid
assets with a value equal to the full amount of the Fund's accrued obligations
under the agreement.
The most important factor in the performance of swap agreements is the
change in the specific interest rate, currency exchange rate or other factor(s)
that determine the amounts of payments due to and from the Fund. If a swap
agreement calls for payments by the Fund, the Fund must be prepared to make
such payments when due. In addition, if the contra party's creditworthiness
declines, the value of a swap agreement would likely decline, potentially
resulting in losses.
The Fund will enter into swaps, caps, collars and floors only with banks
and recognized securities dealers believed by the Manager to present minimal
credit risks in accordance with guidelines established by the Board. If there
is a default by the other party to such a transaction, the Fund will have to
rely on its contractual remedies (which may be limited by bankruptcy,
insolvency or similar laws) pursuant to the agreement relating to the
transaction.
The swap market has grown substantially in recent years with a large
number of banks and investment banking firms acting both as principals and as
agents utilizing standardized swap documentation. Caps, collars and floors are
more recent innovations for which documentation is less standardized and,
accordingly, they are less liquid than swaps.
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.
U. S. Government agencies or instrumentalities which 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, Government National Mortgage
Association, General Services Administration, Central Bank for Cooperatives,
Federal Home Loan Banks, Federal Home Loan Mortgage Corporation, 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 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 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. A
floating rate obligation is one whose terms provide for the adjustment of its
interest rate whenever a specified interest rate changes.
18
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TABLE OF CONTENTS
- -----------------
<TABLE>
<S> <C>
Investment Restrictions Page
Trustees and Officers Page
Distribution Fees Page
Portfolio Securities Transactions Page
Net Asset Value Page
Tax Information Page
Yield and Total Return Quotations Page
Description of the Trust Page
Other Information Page
</TABLE>
- --------
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<PAGE> 255
AMERICAN AADVANTAGE FUNDS
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements included as a part of this
Registration Statement:
Included in Part A:
Financial Highlights - American AAdvantage Funds - for
each year from commencement of operations up to fiscal
year ending October 31, 1996.
Financial Highlights - American AAdvantage Money Market
Mileage Fund (Platinum Class) - for the period January 29,
1996, (commencement of operations) to October 31, 1996.
Included in Part B:
American AAdvantage Funds - Statements of Assets and
Liabilities - October 31, 1996; Statements of Changes in Net Assets for the
years ended October 31, 1995 and October 31, 1996; Statements of Operations -
for the year ended October 31, 1996; Notes to Financial Statements; Report of
Ernst & Young LLP, Independent Auditors, dated December 20, 1996.
American AAdvantage Money Market Mileage Fund -Platinum
Class - Statements of Assets and Liabilities - October 31, 1996; Statements of
Operations for the year ended October 31, 1996; Statements of Changes in Net
Assets for the year ended October 31, 1996; Notes to Financial Statements;
Report of Ernst & Young LLP, Independent Auditors, dated December 20, 1996.
AMR Investment Services Trust - Schedules of Investments -
October 31, 1996; Statements of Assets and Liabilities - October 31, 1996;
Statements of Operations for the year ended October 31, 1996; Statements of
Changes in Net Assets for the year ended October 31, 1996; Notes to Financial
Statements; Report of Ernst & Young LLP, Independent Auditors dated December
20, 1996.
(b) Exhibits:
(1) Declaration of Trust(i)
(2) Bylaws(i)
(3) Voting trust agreement -- none
(4) Specimen security -- none
(5) (a) Fund Management Agreement(iv), (ix), (x),
(xii) & (filed herewith)
(b) Fund Advisory Agreements(iii), (iv), (v),
(ix), (xiii) & (filed herewith)
(c) Administrative Services Agreement for the
PlanAhead, AMR and Institutional
Classes(iv), (ix) & (x)
(d) Administrative Services Plan for the
Platinum Class(x)
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<PAGE> 256
(6) Distribution Agreement(x)
(7) Bonus, profit sharing or pension plans -- none
(8) Custodian Agreement(ii) & (xii)
(9) (a) Transfer Agency and Service Agreement with
NationsBank Texas, N.A.(ii), (xii) and
(xiii)
(b) Transfer Agency and Registrar Agreement with
Goldman, Sachs & Co.(vi) (ix) & (xii)
(c) Service Plan Agreement for the PlanAhead
Class(ix)
(10) Opinion and consent of counsel - (xv)
(11) Consent of Independent Auditors - (filed herewith)
(12) Financial statements omitted from prospectus - none
(13) Letter of investment intent(ii)
(14) Prototype retirement plan -- none
(15) (a) Plan pursuant to Rule 12b-1 for the
Institutional, PlanAhead and AMR Classes(ii)
(b) Plan pursuant to Rule 12b-1 for the Platinum
Class(x)
(16) Schedule for Computation of Performance Quotations
- (filed herewith)
(17) Financial Data Schedules (filed herewith as Exhibit
27)
(18) Amended and Restated Plan pursuant to Rule 18f-
3(xi)
Other Exhibits - Powers of Attorney for Trustees.
(i) Incorporated by reference to the initial registration statement
of the American AAdvantage Funds ("Trust") on Form N-1A as filed
with the Securities and Exchange Commission ("SEC") on January
16, 1987.
(ii) Incorporated by reference to Pre-Effective Amendment No. 2 to the
registration statement of the Trust on Form N-1A as filed with
the SEC on April 1, 1987.
(iii) Incorporated by reference to Post-Effective Amendment ("PEA") No.
1 to the registration statement of the Trust on Form N-1A as
filed with the SEC on December 30, 1987.
(iv) Incorporated by reference to PEA No. 4 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
December 31, 1990.
(v) Incorporated by reference to PEA No. 5 to the registration
statement of the Trust on Form N-1A as filed with the SEC on July
29, 1991.
(vi) Incorporated by reference to PEA No. 8 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
August 30, 1993.
(vii) Incorporated by reference to PEA No. 9 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
December 23, 1993.
(viii) Incorporated by reference to PEA No. 10 to the registration
statement of the Trust on Form N-1A as filed with the SEC on June
1, 1994.
(ix) Incorporated by reference to PEA No. 11 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
December 28, 1994.
(x) Incorporated by reference to PEA No. 13 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
August 22, 1995.
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<PAGE> 257
(xi) Incorporated by reference to PEA No. 14 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
September 11, 1995.
(xii) Incorporated by reference to PEA No. 15 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
December 22, 1995.
(xiii) Incorporated by reference to PEA No. 16 to the registration
statement of the Trust on Form N-1A as filed with the SEC on May
1, 1996.
(xiv) Incorporated by reference to PEA No. 17 to the registration
statement of the Trust on Form N-1A as filed with the SEC on
August 16, 1996.
(xv) Incorporated by reference to the legal opinion contained in the
Trust's Rule 24f-2 Notice as filed with the SEC on December 20,
1996.
Item 25. Persons Controlled by or under Common Control with Registrant
See "Control Persons and 5% Shareholders" in the Statement of
Additional Information dated January 1, 1997.
Item 26. Number of Holders of Securities
<TABLE>
<CAPTION>
Number of Record Holders as of December 31, 1996
------------------------------------------------
Inst'l PlanAhead AMR Platinum
Fund Class Class Class Class
---- ------ --------- ----- -----
<S> <C> <C> <C> <C>
Balanced Fund 28 262 4 -
Growth and Income Fund 23 433 2 -
International Equity 32 209 4 -
Fund
Limited-Term Income 18 37 1 -
Fund
Money Market Fund 168 1,491 - 2
Municipal Money Market 3 44 - 2
Fund
Short-Term Income Fund - - - -
S&P 500 Index Fund - - 1 -
U.S. Treasury Money 9 46 - 2
Market Fund
</TABLE>
Item 27. Indemnification
Article XI, Section 2 of the Declaration of Trust of the Trust provides
that:
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as "Covered Person") shall be indemnified by
the appropriate portfolios to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by virtue of his being or having been a
Trustee or officer and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals),
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<PAGE> 258
actual or threatened while in office or thereafter, and the words "liability"
and "expenses" shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, shall continue as to a person who has ceased to be such
Trustee or officer and shall inure to the benefit of the heirs, executors and
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Trust personnel, other than Trustees and
officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the applicable Portfolio from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by
him to the Trust if it is ultimately determined that he is not entitled to
indemnification under this Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate
security for such undertaking;
(ii) the Trust is insured against losses arising out of any
such advance payments; or
(iii) either a majority of the Trustees who are neither
interested persons of the Trust nor parties to the matter, or independent legal
counsel in a written opinion, shall have determined, based upon a review of
readily available facts (as opposed to a trial-type inquiry or full
investigation), that there is reason to believe that such Covered Person will
be found entitled to indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the
Trust is a trust, not a partnership. Trustees are not liable personally to any
person extending credit to, contracting with or having any claim against the
Trust, a particular Portfolio or the Trustees. A Trustee, however, is not
protected from liability due to willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
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<PAGE> 259
Article XII, Section 2 provides that, subject to the provisions of
Section 1 of Article XII and to Article XI, the Trustees are not liable for
errors of judgment or mistakes of fact or law, or for any act or omission in
accordance with advice of counsel or other experts or for failing to follow
such advice.
Item 28. I. Business and Other Connections of Investment Manager
AMR Investment Services, Inc. (the "Manager"), 4333 Amon Carter
Boulevard, MD 5645, Fort Worth, Texas 76155, offers investment management and
administrative services. Information as to the officers and directors of the
Manager is included in its current Form ADV filed with the SEC and is
incorporated by reference herein.
II. Business and Other Connections of Investment Advisers
The investment advisers listed below provide investment advisory
services to the Trust.
Barrow, Hanley, Mewhinney & Strauss, 3232 McKinney Avenue, 15th Floor,
Dallas, Texas 75204.
Brandywine Asset Management, Inc., 201 North Walnut Street, Wilmington,
Delaware 19801.
GSB Investment Management, Inc., 301 Commerce Street, Suite 1501, Fort
Worth, Texas 76102.
Hotchkis and Wiley, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017.
Independence Investment Associates, Inc., 53 State Street, Boston,
Massachusetts 02109.
Morgan Stanley Asset Management Inc., 1221 Avenue of the Americas, 21st
Floor, New York, New York 10020.
Rowe Price-Fleming International, Inc., 100 East Pratt Street,
Baltimore, Maryland 21202.
Templeton Investment Counsel, Inc. 500 East Broward Blvd., Ft.
Lauderdale, Florida 33394.
Information as to the officers and directors of each of the above
investment advisers is included in that adviser's current Form ADV filed with
the SEC and is incorporated by reference herein.
Item 29. Principal Underwriter
(a) Brokers Transaction Services, Inc., 7001 Preston Road,
Dallas, TX 75205 is the principal underwriter for the Trust and the American
AAdvantage Mileage Funds.
(b) The directors and officers of the Trust's principal
underwriter are:
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<PAGE> 260
<TABLE>
<CAPTION>
Positions & Offices Position
Name with Underwriter with Registrant
- ---- ------------------- ---------------
<S> <C> <C>
Don A. Buckholz Chairman, Director None
Raymond E. Wooldridge Chief Executive Officer, None
Director
William D. Felder Executive Vice None
President, Director
Sue H. Peden President None
</TABLE>
Item 30. Location of Accounts and Records
The books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940 are maintained as follows:
31a-1(b)(1) - Journals - in the physical possession of the Trust's custodian
(NationsBank of Texas, NA);
31a-1(b)(2)(i),(ii)&(iii) - in the physical possession of the Trust's custodian
31a-1(b)(2)(iv) - in the physical possession of the Trust's transfer agents
(NationsBank NA and Goldman Sachs)
31a-1(b)(4) - in the physical possession of the Trust's Manager
31a-1(b)(5) - in the physical possession of the Trust's investment advisers
31a-1(b)(6) - A record of other purchases or sales etc. - in the physical
possession of the Trust's Manager, investment advisers and custodian
31a-1(b)(7) - in the physical possession of the Trust's custodian
31a-1(b)(8) - in the physical possession of the Trust's custodian
31a-1(b)(9) - in the physical possession of the Trust's investment advisers.
31a-1(b)(10) - in the physical possession of the Trust's Manager
31a-1(b)(11) - in the physical possession of the Trust's Manager
31a-1(b)(12) - in the physical possession of the Trust's Manager, investment
advisers and custodian
Item 31. Management Services
All substantive provisions of any management-related service
contract are discussed in Part A or Part B.
Item 32. Undertakings
Registrant hereby undertakes, if requested by the holders of at least
10% of the Registrant's outstanding shares, to call a meeting of shareholders
for the purpose of voting upon the question of removal of a trustee or trustees
and to assist in communications with other shareholders in accordance with
Section 16(c) of the 1940 Act, as though Section 16(c) applied.
Registrant hereby undertakes to furnish each person to whom a prospectus
is delivered with a copy of its latest annual report to Shareholders, upon
request and without charge.
Registrant hereby undertakes to carry out all indemnification provisions
of its Declaration of Trust in accordance with Investment Company Act Release
No. 11330 (September 4, 1980) and successor releases.
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<PAGE> 261
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended ("1933 Act"), may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the provisions under Item
27 herein, or otherwise, the Registrant has been advised that in the opinion of
the SEC such indemnification is against public policy as expressed in the 1933
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication.
7
<PAGE> 262
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 19 to its Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth and the State of Texas on February 13,
1997.
AMERICAN AADVANTAGE FUNDS
By: /s/ William F. Quinn
---------------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
- -----------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 19 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and February 13, 1997
- ------------------------------ Trustee
William F. Quinn
Alan D. Feld* Trustee February 13, 1997
- ------------------------------
Alan D. Feld
Ben J. Fortsen* Trustee February 13, 1997
- ------------------------------
Ben J. Fortsen
John S. Justin* Trustee February 13, 1997
- ------------------------------
John S. Justin
Stephen D. O'Sullivan* Trustee February 13, 1997
- ------------------------------
Stephen D. O'Sullivan
Roger T. Staubach* Trustee February 13, 1997
- ------------------------------
Roger T. Staubach
Dr. Kneeland Youngblood * Trustee February 13, 1997
- ------------------------------
Dr. Kneeland Youngblood
*By /s/ William F. Quinn
----------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
8
<PAGE> 263
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, AMR Investment Services
Trust has duly caused this Post-Effective Amendment No. 19 to the Registration
Statement for the American AAdvantage Funds on Form N-1A to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Fort Worth
and the State of Texas on February 13, 1997.
AMR Investment Services Trust
By: /s/ William F. Quinn
---------------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
- -----------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 19 to the Registration Statement for the
American AAdvantage Funds has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and February 13, 1997
- ------------------------------ Trustee
William F. Quinn
Alan D. Feld* Trustee February 13, 1997
- ------------------------------
Alan D. Feld
Ben J. Fortsen* Trustee February 13, 1997
- ------------------------------
Ben J. Fortsen
John S. Justin* Trustee February 13, 1997
- ------------------------------
John S. Justin
Stephen D. O'Sullivan* Trustee February 13, 1997
- ------------------------------
Stephen D. O'Sullivan
Roger T. Staubach* Trustee February 13, 1997
- ------------------------------
Roger T. Staubach
Dr. Kneeland Youngblood * Trustee February 13, 1997
- ------------------------------
Dr. Kneeland Youngblood
*By /s/ William F. Quinn
----------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
9
<PAGE> 264
SIGNATURES
Equity 500 Index Portfolio has duly caused this Post-Effective
Amendment No. 19 to the Registration Statement for the American AAdvantage
Funds to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Pittsburgh and the Commonwealth of Pennsylvania on February 13,
1997.
EQUITY 500 INDEX PORTFOLIO
By: Ronald M. Petnuch*
---------------------------------
Ronald M. Petnuch
President
This Post-Effective Amendment No. 19 to the Registration Statement on
Form N-1A of the American AAdvantage Funds has been signed below by the
following persons in the capacities indicated with respect to Equity 500 Index
Portfolio on February 13, 1997.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
Philip W. Coolidge* Trustee
- -------------------------
Philip W. Coolidge
Charles P. Biggar* Trustee
- -------------------------
Charles P. Biggar
Philip Saunders, Jr.* Trustee
- -------------------------
Philip Saunders, Jr.
S. Leland Dill* Trustee
- -------------------------
S. Leland Dill
Ronald M. Petnuch* President and Treasurer (Chief
- ------------------------- Executive Officer, Principal
Ronald M. Petnuch Financial and Accounting Officer)
*By: /s/ Jay S. Neuman
---------------------
Jay S. Neuman, Secretary of Equity 500 Index Portfolio as Attorney-in-Fact.
</TABLE>
10
<PAGE> 265
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------ ----------- ----
<S> <C> <C>
1 Declaration of Trust(i)
2 Bylaws(i)
3 Voting trust agreement -- none
4 Specimen security -- none
5 (a) Fund Management Agreement(iv), (ix), (x), (xii) & (filed
herewith)
(b) Fund Advisory Agreements(iii), (iv), (v), (viii), (ix), (xiii) &
(filed herewith)
(c) Administrative Services Agreement for the AMR, Institutional and
PlanAhead Classes (iv), (ix) & (x)
(d) Administrative Services Plan for the Platinum Class(x)
6 Distribution Agreement(x)
7 Bonus, profit sharing or pension plans -- none
8 Custodian Agreement(ii) & (xii)
9 (a) Transfer Agency and Service Agreement with NationsBank Texas,
N.A.(ii), (xii) & (xiii)
(b) Transfer Agency and Registrar Agreement with Goldman, Sachs &
Co.(vi), (ix) & (xii)
(c) Service Plan Agreement for the PlanAhead Class(ix)
10 Opinion and consent of counsel (xv)
11 Consent of Independent Auditors (filed herewith)
12 Financial statements omitted from prospectus - none
13 Letter of investment intent(ii)
14 Prototype retirement plan -- none
15 (a) Plan pursuant to Rule 12b-1 for the Institutional, PlanAhead and
AMR Classes(ii)
(b) Plan pursuant to Rule 12b-1 for the Platinum Class (x)
16 Schedule for Computation of Performance Quotations(filed herewith)
17 Electronic Filers -- (filed herewith as Exhibit 27)
18 Amended and Restated Plan pursuant to Rule 18f-3(xi)
Other Exhibits - Power of Attorney for Trustees
</TABLE>
11
<PAGE> 266
(i) Incorporated by reference to the initial registration statement of the
American AAdvantage Funds ("Trust") on Form N-1A as filed with the
Securities and Exchange Commission ("SEC") on January 16, 1987.
(ii) Incorporated by reference to Pre-Effective Amendment No. 2 to the
registration statement of the Trust on Form N-1A as filed with the SEC
on April 1, 1987.
(iii) Incorporated by reference to Post-Effective Amendment ("PEA") No. 1 to
the registration statement of the Trust on Form N-1A as filed with the
SEC on December 30, 1987.
(iv) Incorporated by reference to PEA No. 4 to the registration statement of
the Trust on Form N-1A as filed with the SEC on December 31, 1990.
(v) Incorporated by reference to PEA No. 5 to the registration statement of
the Trust on Form N-1A as filed with the SEC on July 29, 1991.
(vi) Incorporated by reference to PEA No. 8 to the registration statement of
the Trust on Form N-1A as filed with the SEC on August 30, 1993.
(vii) Incorporated by reference to PEA No. 9 to the registration statement of
the Trust on Form N-1A as filed with the SEC on December 23, 1993.
(viii) Incorporated by reference to PEA No. 10 to the registration statement of
the Trust on Form N-1A as filed with the SEC on June 1, 1994.
(ix) Incorporated by reference to PEA No. 11 to the registration statement of
the Trust on Form N-1A as filed with the SEC on December 28, 1994.
(x) Incorporated by reference to PEA No. 13 to the registration statement of
the Trust on Form N-1A as filed with the SEC on August 22, 1995.
(xi) Incorporated by reference to PEA No. 14 to the registration statement of
the Trust on Form N-1A as filed with the SEC on September 11, 1995.
(xii) Incorporated by reference to PEA No. 15 to the registration statement of
the Trust on Form N-1A as filed with the SEC on December 22, 1995.
(xiii) Incorporated by reference to PEA No. 16 to the registration statement of
the Trust on Form N-1A as filed with the SEC on May 1, 1996.
(xiv) Incorporated by reference to PEA No. 17 to the registration statement of
the Trust on Form N-1A as filed with the SEC on August 16, 1996.
(xv) Incorporated by reference to the legal opinion contained in the Trust's
Rule 24f-2 Notice as filed with the SEC on December 20, 1996.
12
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH ANNUAL REPORT DATED OCTOBER 31, 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE GROWTH AND INCOME FD INSTITUTIONAL CLASS
<SERIES>
<NUMBER> 011
<NAME> AMERICAN AADVANTAGE GROWTH AND INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1105921
<RECEIVABLES> 2
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1105923
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138
<TOTAL-LIABILITIES> 138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 774199
<SHARES-COMMON-STOCK> 4388<F1>
<SHARES-COMMON-PRIOR> 4500
<ACCUMULATED-NII-CURRENT> 21170
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77394
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 233022
<NET-ASSETS> 1105785
<DIVIDEND-INCOME> 27898
<INTEREST-INCOME> 2565
<OTHER-INCOME> 60
<EXPENSES-NET> 3723
<NET-INVESTMENT-INCOME> 26800
<REALIZED-GAINS-CURRENT> 77475
<APPREC-INCREASE-CURRENT> 93955
<NET-CHANGE-FROM-OPS> 198230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1936
<DISTRIBUTIONS-OF-GAINS> 2653
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1665
<NUMBER-OF-SHARES-REDEEMED> 2043
<SHARES-REINVESTED> 266
<NET-CHANGE-IN-ASSETS> 320271
<ACCUMULATED-NII-PRIOR> 16460
<ACCUMULATED-GAINS-PRIOR> 28468
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 357
<AVERAGE-NET-ASSETS> 964762
<PER-SHARE-NAV-BEGIN> 15.91
<PER-SHARE-NII> .42
<PER-SHARE-GAIN-APPREC> 3.15
<PER-SHARE-DIVIDEND> .41
<PER-SHARE-DISTRIBUTIONS> .57
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.50
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL CLASS - PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809593
<NAME> AMER AADVANT GROWTH AND INCOME FD PLANAHEAD CLASS
<SERIES>
<NUMBER> 012
<NAME> AMERICAN AADVANTAGE GROWTH AND INCOME FUND PLANAHEAD CLASS
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1105921
<RECEIVABLES> 2
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1105923
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138
<TOTAL-LIABILITIES> 138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 774199
<SHARES-COMMON-STOCK> 877<F1>
<SHARES-COMMON-PRIOR> 305
<ACCUMULATED-NII-CURRENT> 21170
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77394
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 233022
<NET-ASSETS> 1105785
<DIVIDEND-INCOME> 27898
<INTEREST-INCOME> 2565
<OTHER-INCOME> 60
<EXPENSES-NET> 3723
<NET-INVESTMENT-INCOME> 26800
<REALIZED-GAINS-CURRENT> 77475
<APPREC-INCREASE-CURRENT> 93955
<NET-CHANGE-FROM-OPS> 198230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 143
<DISTRIBUTIONS-OF-GAINS> 202
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 724
<NUMBER-OF-SHARES-REDEEMED> 160
<SHARES-REINVESTED> 9
<NET-CHANGE-IN-ASSETS> 320271
<ACCUMULATED-NII-PRIOR> 16460
<ACCUMULATED-GAINS-PRIOR> 28468
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 357
<AVERAGE-NET-ASSETS> 964762
<PER-SHARE-NAV-BEGIN> 15.81
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 3.10
<PER-SHARE-DIVIDEND> 0.40
<PER-SHARE-DISTRIBUTIONS> 0.57
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.33
<EXPENSE-RATIO> 0.94
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>PLANAHEAD CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE GROWTH & INCOME FD - AMR CLASS
<SERIES>
<NUMBER> 013
<NAME> AMERICAN AADVANTAGE GROWTH AND INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 1105921
<RECEIVABLES> 2
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1105923
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 138
<TOTAL-LIABILITIES> 138
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 774199
<SHARES-COMMON-STOCK> 54324<F1>
<SHARES-COMMON-PRIOR> 44325
<ACCUMULATED-NII-CURRENT> 21170
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 77394
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 233022
<NET-ASSETS> 1105785
<DIVIDEND-INCOME> 27898
<INTEREST-INCOME> 2565
<OTHER-INCOME> 60
<EXPENSES-NET> 3723
<NET-INVESTMENT-INCOME> 26800
<REALIZED-GAINS-CURRENT> 77475
<APPREC-INCREASE-CURRENT> 93955
<NET-CHANGE-FROM-OPS> 198230
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 20011
<DISTRIBUTIONS-OF-GAINS> 25694
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9838
<NUMBER-OF-SHARES-REDEEMED> 2673
<SHARES-REINVESTED> 2834
<NET-CHANGE-IN-ASSETS> 320271
<ACCUMULATED-NII-PRIOR> 16460
<ACCUMULATED-GAINS-PRIOR> 28468
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 357
<AVERAGE-NET-ASSETS> 964762
<PER-SHARE-NAV-BEGIN> 15.95
<PER-SHARE-NII> .47
<PER-SHARE-GAIN-APPREC> 3.15
<PER-SHARE-DIVIDEND> .44
<PER-SHARE-DISTRIBUTIONS> .57
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 18.56
<EXPENSE-RATIO> .36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>AMR CLASS - PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH ANNUAL REPORT DATED OCTOBER 31, 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE BALANCED FD - INSTITUTIONAL CLASS
<SERIES>
<NUMBER> 021
<NAME> AMERICAN AADVANTAGE BALANCED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 892993
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 892993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 311
<TOTAL-LIABILITIES> 311
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 659891
<SHARES-COMMON-STOCK> 19683<F1>
<SHARES-COMMON-PRIOR> 17916
<ACCUMULATED-NII-CURRENT> 28578
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 68021
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136192
<NET-ASSETS> 892682
<DIVIDEND-INCOME> 15563
<INTEREST-INCOME> 24130
<OTHER-INCOME> 89
<EXPENSES-NET> 3938
<NET-INVESTMENT-INCOME> 36684
<REALIZED-GAINS-CURRENT> 67577
<APPREC-INCREASE-CURRENT> 27642
<NET-CHANGE-FROM-OPS> 131063
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 10135
<DISTRIBUTIONS-OF-GAINS> 7867
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3818
<NUMBER-OF-SHARES-REDEEMED> 3337
<SHARES-REINVESTED> 1286
<NET-CHANGE-IN-ASSETS> 93669
<ACCUMULATED-NII-PRIOR> 26077
<ACCUMULATED-GAINS-PRIOR> 25312
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 840
<AVERAGE-NET-ASSETS> 853432
<PER-SHARE-NAV-BEGIN> 13.95
<PER-SHARE-NII> .59
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> .57
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.14
<EXPENSE-RATIO> .62
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL CLASS - PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE BALANCE FD - PLANAHEAD CLASS
<SERIES>
<NUMBER> 022
<NAME> AMERICAN AADVANTAGE BALANCED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 892993
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 892993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 311
<TOTAL-LIABILITIES> 311
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 659891
<SHARES-COMMON-STOCK> 1197<F1>
<SHARES-COMMON-PRIOR> 392
<ACCUMULATED-NII-CURRENT> 28578
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 68021
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136192
<NET-ASSETS> 892682
<DIVIDEND-INCOME> 15563
<INTEREST-INCOME> 24130
<OTHER-INCOME> 89
<EXPENSES-NET> 3938
<NET-INVESTMENT-INCOME> 36684
<REALIZED-GAINS-CURRENT> 67577
<APPREC-INCREASE-CURRENT> 27642
<NET-CHANGE-FROM-OPS> 131063
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 238
<DISTRIBUTIONS-OF-GAINS> 187
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 937
<NUMBER-OF-SHARES-REDEEMED> 149
<SHARES-REINVESTED> 17
<NET-CHANGE-IN-ASSETS> 93669
<ACCUMULATED-NII-PRIOR> 26077
<ACCUMULATED-GAINS-PRIOR> 25312
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 840
<AVERAGE-NET-ASSETS> 853432
<PER-SHARE-NAV-BEGIN> 13.90
<PER-SHARE-NII> .57
<PER-SHARE-GAIN-APPREC> 1.56
<PER-SHARE-DIVIDEND> .56
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.03
<EXPENSE-RATIO> .97
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>PLANAHEAD CLASS - PER SHARE AMOUNTS ARE BY CLASS.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE BALANCED FUND-AMR CLASS
<SERIES>
<NUMBER> 023
<NAME> AMERICAN AADVANTAGE BALANCED FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 892993
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 892993
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 311
<TOTAL-LIABILITIES> 311
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 659891
<SHARES-COMMON-STOCK> 37994<F1>
<SHARES-COMMON-PRIOR> 38819
<ACCUMULATED-NII-CURRENT> 28578
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 68021
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 136192
<NET-ASSETS> 892682
<DIVIDEND-INCOME> 15563
<INTEREST-INCOME> 24130
<OTHER-INCOME> 89
<EXPENSES-NET> 3938
<NET-INVESTMENT-INCOME> 36684
<REALIZED-GAINS-CURRENT> 67577
<APPREC-INCREASE-CURRENT> 27642
<NET-CHANGE-FROM-OPS> 131063
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 22970
<DISTRIBUTIONS-OF-GAINS> 16814
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 7142
<NUMBER-OF-SHARES-REDEEMED> 10857
<SHARES-REINVESTED> 2889
<NET-CHANGE-IN-ASSETS> 93669
<ACCUMULATED-NII-PRIOR> 26077
<ACCUMULATED-GAINS-PRIOR> 25312
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 840
<AVERAGE-NET-ASSETS> 853432
<PER-SHARE-NAV-BEGIN> 13.96
<PER-SHARE-NII> .63
<PER-SHARE-GAIN-APPREC> 1.61
<PER-SHARE-DIVIDEND> .60
<PER-SHARE-DISTRIBUTIONS> .44
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 15.18
<EXPENSE-RATIO> .37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>AMR CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH ANNUAL REPORT DATED OCTOBER 31, 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE MONEY MKT FD-INSTITUTIONAL CLASS
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<NUMBER> 031
<NAME> AMERICAN AADVANTAGE MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL CLASS - PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE MNY MKT FD-PLANAHEAD CLASS
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<NAME> AMERICAN AADVANTAGE MONEY MARKET FUND
<MULTIPLIER> 1000
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<NET-INVESTMENT-INCOME> 79370
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>PLANAHEAD CLASS - PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE MNY MKT FUND-PLATINUM CLASS
<SERIES>
<NUMBER> 034
<NAME> AMERICAN AADVANTAGE MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
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<INVESTMENTS-AT-VALUE> 1642180
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>PLATINUM CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH ANNUAL REPORT DATED OCT 31 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMER AADVANTAGE LTD-TERM INCOME FD-INSTITUTIONAL CLASS
<SERIES>
<NUMBER> 041
<NAME> AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
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<ACCUMULATED-GAINS-PRIOR> (5002)
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<GROSS-EXPENSE> 359
<AVERAGE-NET-ASSETS> 179328
<PER-SHARE-NAV-BEGIN> 9.82
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<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL CLASS- ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND - PLANAHEAD CLA
<SERIES>
<NUMBER> 042
<NAME> AMERICAN AADVANTAGE LIMITED TERM INCOME FUND
<MULITPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
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<FN>
<F1>PLANAHEAD CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND - AMR CLASS
<SERIES>
<NUMBER> 043
<NAME> AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>PLANAHEAD CLASS-ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH SEMIANNUAL REPORT DATED OCTOBER 31, 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE INTERNTL EQTY FD-INSTITUTIONAL CLASS
<SERIES>
<NUMBER> 051
<NAME> AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
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<S> <C>
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<FN>
<F1>INSTITUTIONAL CLASS-ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE INTL EQUITY FD-PLANAHEAD CLASS
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<NAME> AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
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<FN>
<F1>PLANAHEAD CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE INTL EQUITY FUND-AMR CLASS
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<NAME> AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>AMR CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH ANNUAL REPORT DATED OCTOBER 31, 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE US TSY MNY MKT FD-INSTITUTIONAL CLASS
<SERIES>
<NUMBER> 071
<NAME> AMERICAN AADVANTAGE US TREASURY MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
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<AVG-DEBT-OUTSTANDING> 0
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<FN>
<F1>INSTITUTIONAL CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE US TREASURY MMF-PLANAHEAD CLASS
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<NUMBER> 073
<NAME> AMERICAN AADVANTAGE US TREASURY MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
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<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> .67
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<FN>
<F1>PLANAHEAD CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE US TSY MNY MKT FD-PLATINUM CLASS
<SERIES>
<NUMBER> 074
<NAME> AMERICAN AADVANTAGE US TREASURY MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
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<SHARES-REINVESTED> 1992
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<PER-SHARE-NAV-BEGIN> 1.00
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>PLATINUM CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM AMERICAN
AADVANTAGE FUNDS STATEMENTS OF OPERATION, STATEMENTS OF ASSETS AND LIABILITIES,
FINANCIAL HIGHLIGHTS AND CHANGES IN NET ASSETS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH ANNUAL REPORT DATED OCT 31, 1996.
</LEGEND>
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE MUNIC MNY MKT FD-INSTITUTIONAL CLASS
<SERIES>
<NUMBER> 081
<NAME> AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
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<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> .04
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<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
<FN>
<F1>INSTITUTIONAL CLASS - PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE MUNICIPAL MNY MKT FD-PLANAHEAD CLASS
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<NUMBER> 082
<NAME> AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET MILEAGE FUND
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<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
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<FN>
<F1>PLANAHEAD CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
</FN>
</TABLE>
<TABLE> <S> <C>
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<CIK> 0000809593
<NAME> AMERICAN AADVANTAGE MUNI MNY MKT FD-PLATINUM CLASS
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<NUMBER> 084
<NAME> AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
<MULTIPLIER> 1000
<S> <C>
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<FN>
<F1>PLATINUM CLASS - PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
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<NUMBER> 134
<NAME> AMERICAN AADVANTAGE MONEY MARKET MILEAGE FUND-PLATINUM CLASS
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<S> <C>
<PERIOD-TYPE> YEAR
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<FN>
<F1>PLATINUM CLASS - ALL PER SHARE AMOUNTS ARE BY CLASS
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</TABLE>
<TABLE> <S> <C>
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<NAME> AMR INVESTMENT SERVICES GROWTH AND INCOME PORTFOLIO
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<EXPENSE-RATIO> .35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 220
<NAME> AMR INVESTMENT SERVICES BALANCED PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 764769
<INVESTMENTS-AT-VALUE> 900785
<RECEIVABLES> 6706
<ASSETS-OTHER> 35
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 907526
<PAYABLE-FOR-SECURITIES> 10606
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1438
<TOTAL-LIABILITIES> 12044
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 895482
<DIVIDEND-INCOME> 15597
<INTEREST-INCOME> 24184
<OTHER-INCOME> 89
<EXPENSES-NET> 3105
<NET-INVESTMENT-INCOME> 36765
<REALIZED-GAINS-CURRENT> 67731
<APPREC-INCREASE-CURRENT> 27670
<NET-CHANGE-FROM-OPS> 132166
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 895482
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2005
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3105
<AVERAGE-NET-ASSETS> 862172
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
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<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 230
<NAME> AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 1755588
<INVESTMENTS-AT-VALUE> 1755588
<RECEIVABLES> 9671
<ASSETS-OTHER> 34
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1765293
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 371
<TOTAL-LIABILITIES> 371
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 1765293
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 89923
<OTHER-INCOME> 0
<EXPENSES-NET> 2785
<NET-INVESTMENT-INCOME> 87138
<REALIZED-GAINS-CURRENT> 73
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 87211
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 1764922
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2393
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 2785
<AVERAGE-NET-ASSETS> 1597543
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .17
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 240
<NAME> AMR INVESTMENT SERVICES LIMITED-TERM INCOME PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 171449
<INVESTMENTS-AT-VALUE> 174479
<RECEIVABLES> 1278
<ASSETS-OTHER> 34
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 175791
<PAYABLE-FOR-SECURITIES> 2508
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 106
<TOTAL-LIABILITIES> 2614
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 173177
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 12656
<OTHER-INCOME> 7
<EXPENSES-NET> 561
<NET-INVESTMENT-INCOME> 12102
<REALIZED-GAINS-CURRENT> (3216)
<APPREC-INCREASE-CURRENT> 458
<NET-CHANGE-FROM-OPS> 9344
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 173177
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 404
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 561
<AVERAGE-NET-ASSETS> 181350
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .31
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 250
<NAME> AMR INVESTMENT SERVICES INTERNATIONAL EQUITY PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 335924
<INVESTMENTS-AT-VALUE> 389195
<RECEIVABLES> 1794
<ASSETS-OTHER> 15169
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 406158
<PAYABLE-FOR-SECURITIES> 678
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 984
<TOTAL-LIABILITIES> 1662
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 404496
<DIVIDEND-INCOME> 8527
<INTEREST-INCOME> 1389
<OTHER-INCOME> 54
<EXPENSES-NET> 1835
<NET-INVESTMENT-INCOME> 8135
<REALIZED-GAINS-CURRENT> 11172
<APPREC-INCREASE-CURRENT> 30752
<NET-CHANGE-FROM-OPS> 50059
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 404496
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 1132
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1835
<AVERAGE-NET-ASSETS> 325410
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .56
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 27
<NAME> AMR INVESTMENT SERVICES US TREASURY MNY MKT PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 90714
<INVESTMENTS-AT-VALUE> 90714
<RECEIVABLES> 14
<ASSETS-OTHER> 51
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 90779
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 87
<TOTAL-LIABILITIES> 87
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 90692
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4915
<OTHER-INCOME> 0
<EXPENSES-NET> 181
<NET-INVESTMENT-INCOME> 4734
<REALIZED-GAINS-CURRENT> 39
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4773
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 90692
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 137
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 181
<AVERAGE-NET-ASSETS> 91344
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .19
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<SERIES>
<NUMBER> 28
<NAME> AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1996
<PERIOD-END> OCT-31-1996
<INVESTMENTS-AT-COST> 81035
<INVESTMENTS-AT-VALUE> 81035
<RECEIVABLES> 274
<ASSETS-OTHER> 34
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 81343
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 85
<TOTAL-LIABILITIES> 85
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 0
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 81258
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2275
<OTHER-INCOME> 0
<EXPENSES-NET> 79
<NET-INVESTMENT-INCOME> 2196
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 2196
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 81258
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 92
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 126
<AVERAGE-NET-ASSETS> 61253
<PER-SHARE-NAV-BEGIN> 0
<PER-SHARE-NII> 0
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0
<EXPENSE-RATIO> .13
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<PAGE> 1
EXHIBIT 99.B5(a)
SUPPLEMENTAL TERMS AND CONDITIONS TO
THE MANAGEMENT AGREEMENT BETWEEN
THE AMERICAN AADVANTAGE FUNDS
AND
AMR INVESTMENT SERVICES, INC.
The attached amended Schedule A is hereby incorporated into the
Management Agreement dated October 1, 1995 (the "Agreement") between the
American AAdvantage Funds (the "Trust") and AMR Investment Services, Inc. (the
"Manager"). To the extent that there is any conflict between the terms of the
Agreement and these Supplemental Terms and Conditions ("Supplement"), this
Supplement shall govern.
Dated: December 17, 1996
American AAdvantage Funds
By: /s/ William F. Quinn
--------------------------------
Title: President
AMR Investment Services, Inc.
By: /s/ William F. Quinn
--------------------------------
Title: President
<PAGE> 2
AMENDED
SCHEDULE A
TO THE
MANAGEMENT AGREEMENT
BETWEEN
AMR INVESTMENT SERVICES, INC.
AND THE
AMERICAN AADVANTAGE FUNDS
I. BASE FEE
As compensation pursuant to section 7 of the Management Agreement
between AMR Investment Services, Inc. (the "Manager") and the American
AAdvantage Funds (the "AAdvantage Trust"), the AAdvantage Trust shall pay to
the Manager a fee, computed daily and paid monthly, at the following annual
rates as percentages of each Portfolio's average daily net assets:
(1) 0.15% of the net assets of the Money Market Portfolio, the
Municipal Money Market Portfolio and the U.S. Treasury Money Market
Portfolio;
(2) 0.25% of the net assets of the Limited-Term Income Portfolio;
(3) 0.10% of the net assets of the Balanced Portfolio, the Growth and
Income Portfolio and the International Equity Portfolio;
(4) plus all fees payable by the Manager with respect to such
Portfolios pursuant to any Investment Advisory Agreement entered into
pursuant to Paragraph 2(d) of said Management Agreement.
II. SECURITIES LENDING DUTIES AND FEES
A. Manager Duties
The Manager agrees to provide the following services in connection with
the investment of cash collateral received from the securities lending
activities of each Portfolio of the AAdvantage Trust: (a) assist the
securities lending agent (the "Agent") in determining which specific securities
are available for loan, (b) monitor the Agent to ensure that securities loans
are effected in accordance with its instructions and within the procedures
adopted by the Board of Trustees of the AAdvantage Trust, (c) prepare
appropriate periodic reports for, and seek appropriate approvals from, the
Board of Trustees of the AAdvantage Trust with respect to securities lending
activities, (d) respond to Agent inquiries concerning Agent's compliance with
applicable guidelines, and (e) perform such other duties as necessary.
<PAGE> 3
B. Securities Lending Fees
As compensation for services provided by the Manager in connection with
securities lending activities of each Portfolio of the AAdvantage Trust, a
lending Portfolio shall pay to the Manager, with respect to cash collateral
posted by borrowers, a fee equal to 25% of the net monthly interest income (the
gross interest income earned by the investment of cash collateral, less the
amount paid to borrowers as well as related expenses) from such activities and,
with respect to loan fees paid by borrowers when a borrower posts collateral
other than cash, a fee equal to 25% of such loan fees.
DATED: December 17, 1996
<PAGE> 1
EXHIBIT 99.B5(b)
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made this 12th day of November, 1996 by and between AMR
Investment Services, Inc., a Delaware Corporation, (the "Manager") and Hotchkis
and Wiley, a division of the Capital Management Group of Merrill Lynch Asset
Management, L.P. (the "Adviser");
WHEREAS, American AAdvantage Funds (the "Trust"), a Massachusetts
Business Trust, is an open-end, diversified management investment company
registered under the Investment Company Act of 1940, as amended, consisting of
several series (portfolios) of shares, each having its own investment policies;
and
WHEREAS, the Trust has retained the Manager to provide the Trust with
business and asset management services, subject to the control of the Board of
Trustees;
WHEREAS, the Trust's agreement with the Manager permits the Manager to
delegate to other parties certain of its asset management responsibilities; and
WHEREAS, the Manager desires to retain the Adviser to render
investment management services to the Trust with respect to certain of its
investment portfolios and such other investment portfolios as the Trust and the
Adviser may agree upon and so specify in the Schedule(s) attached hereto
(collectively the "Portfolios") and as described in the Trust's registration
statement on Form N-1A as amended from time to time, and the Adviser is willing
to render such services;
NOW, THEREFORE, in consideration of mutual covenants herein contained,
the parties hereto agree as follows:
1. DUTIES OF THE ADVISER. The Manager employs the Adviser to manage
the investment and reinvestment of such portion, if any, of the Portfolios'
assets as is designated by the Manager from time to time, and with respect to
such assets, to continuously review, supervise and administer the investment
program of the Portfolios, to determine in the Advisers discretion the
securities to be purchased or sold, to provide the Manager and the Trust with
records concerning the Adviser's activities which the Trust is required to
maintain, and to render regular reports to the Manager and to the Trust's
officers and Trustees concerning the Adviser's discharge of the foregoing
responsibilities. The Adviser shall discharge the foregoing responsibilities
subject to the Manager's oversight and the control of the officers and the
Trustees of the Trust and in
<PAGE> 2
compliance with such policies as the Trustees may from time to time establish,
and in compliance with the objectives, policies, and limitations for each such
Portfolio set forth in the Trust's current registration statement as amended
from time to time and applicable laws and regulations. The Adviser accepts such
employment and agrees to render the services for the compensation specified
herein and to provide at its own expense the office space, furnishings and
equipment and the personnel required by it to perform the services on the terms
and for the compensation provided herein. (With respect to any of the Portfolio
assets allocated for management by the Adviser, the Adviser can request that
the Manager make the investment decisions with respect to that portion of
assets which the Adviser deems should be invested in short-term money market
instruments. The Manager agrees to provide this service.) The Manager will
instruct the Trust's Custodian(s) to hold and/or transfer the Portfolios'
assets in accordance with Proper Instructions received from the Adviser. (For
this purpose the term "Proper Instructions" shall have the meaning(s) specified
in the applicable agreements(s) between the Trust and its Custodian(s).) The
Adviser will not be responsible for the cost of securities or brokerage
commissions or any other Trust expenses except as specified in this Agreement.
2. PORTFOLIO TRANSACTIONS. The Adviser is authorized to select the
brokers or dealers (including, to the extent permitted by law and applicable
Trust guidelines, the Adviser or any of its affiliates) that will execute the
purchases and sales of portfolio securities for the Portfolios and is directed
to use its best efforts to obtain the best net results with respect to brokers'
commissions and discounts as described in the Trust's current registration
statement as amended from time to time. In selecting brokers or dealers, the
Adviser may give consideration to factors other than price, including, but not
limited to, research services and market information. Any such services or
information which the Adviser receives in connection with activities for the
Trust may also be used for the benefit of other clients and customers of the
Adviser or any of its affiliates. The Adviser will promptly communicate to the
Manager and to the officers and the Trustees of the Trust such information
relating to portfolio transactions as they may reasonably request.
3. COMPENSATION OF THE ADVISER. For the services to be rendered by the
Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall
pay to the Adviser compensation at the rate specified in Schedule(s) attached
hereto and made a part of this Agreement. Such compensation shall be paid to
the Adviser quarterly in arrears, and shall be calculated by applying the
annual percentage rate(s) as specified in the attached Schedule(s) to the
average month-end assets of the specified portfolios during the relevant
quarter. Solely for the purpose
<PAGE> 3
of calculating the applicable annual percentage rates specified in the attached
Schedule(s), there shall be included such other assets as are specified in said
Schedule(s).
The Adviser agrees that the fee charged to the Manager will be no more
than that charged for any other client of similar type. Furthermore, the
Adviser agrees to notify the Manager on a timely basis of any fee schedule it
enters into with any other client of similar type which is lower than the fee
paid by the Manager.
4. OTHER SERVICES. At the request of the Trust or the Manager, the
Adviser in its discretion may make available to the Trust office facilities,
equipment, personnel, and other services. Such office facilities, equipment,
personnel and services shall be provided for or rendered by the Adviser and
billed to the Trust or the Manager at a price to be agreed upon by the Adviser
and the Trust or the Manager.
5. REPORTS. The Manager (on behalf of the Trust) and the Adviser agree
to furnish to each other, if applicable, current prospectuses, proxy
statements, reports to shareholders, certified copies of their financial
statements, and such other information with regard to their affairs as each may
reasonably request.
6. STATUS OF ADVISER. The services of the Adviser to the Trust are not
to be deemed exclusive, and the Adviser and its directors, officers, employees
and affiliates shall be free to render similar services to others so long as
its services to the Trust are not impaired thereby. The Adviser shall be deemed
to be an independent contractor and shall, unless otherwise expressly provided
or authorized, have no authority to act for or represent the Manager or the
Trust in any way or otherwise be deemed an agent to the Manager or the Trust.
7. CERTAIN RECORDS. Any records required to be maintained and
preserved pursuant to the provisions of Rule 31a-1 and Rule 31a-2 promulgated
under the Investment Company Act of 1940 which are prepared or maintained by
the Adviser on behalf of the Manager or the Trust are the property of the
Manager or the Trust and will be surrendered promptly to the Manager or Trust
on request.
8. LIABILITY OF ADVISER. No provision of this Agreement shall be
deemed to protect the Adviser against any liability to the Trust or its
shareholders to which it might otherwise be subject by reason of any willful
misfeasance, bad faith, or gross negligence in the performance of its duties or
the reckless disregard of its obligations under this Agreement.
<PAGE> 4
9. PERMISSIBLE INTERESTS. To the extent permitted by law, Trustees,
agents, and shareholders of the Trust are or may be interested in the Adviser
(or any successor thereof) as directors, partners, officers, or shareholders,
or otherwise; directors, partners, officers, agents, and shareholders of the
Adviser are or may be interested in the Trust as Trustees, shareholders or
otherwise; and the Adviser (or any successor thereof) is or may be interested
in the Trust as a shareholder or otherwise; provided that all such interests
shall be fully disclosed between the parties on an ongoing basis and in the
Trust's registration statement as required by law.
10. DURATION AND TERMINATION. This Agreement, unless sooner terminated
as provided herein, shall continue for two years after its initial approval as
to each Portfolio and thereafter for periods of one year for so long as such
continuance thereafter is specifically approved at least annually (a) by the
vote of a majority of those Trustees of the Trust who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval, and (b) by the Trustees of
the Trust or by vote of a majority of the outstanding voting securities of each
Portfolio; provided, however, that if the shareholders of any Portfolio fail to
approve the Agreement as provided herein, the Adviser may continue to serve
hereunder in the manner and to the extent permitted by the Investment Company
Act of 1940 and rules thereunder. The foregoing requirement that continuance of
this Agreement be "specifically approved at least annually" shall be construed
in a manner consistent with the Investment Company Act of 1940 and the rules
and regulations thereunder. This Agreement may be terminated as to any
Portfolio at any time, without the payment of any penalty, by the Manager, by
vote of a majority of the Trustees of the Trust or by vote of a majority of the
outstanding voting securities of the Portfolio on not less than 30 days nor
more than 60 days written notice to the Adviser, or by the Adviser at any time
without the payment of any penalty, on 60 days written notice to the Trust.
This Agreement will automatically and immediately terminate in the event of its
assignment. Any notice under this Agreement shall be given in writing,
addressed and delivered, or mailed postpaid, to the other party at the primary
office of such party, unless such party has previously designated another
address.
As used in this Section 10, the terms "assignment", "interested
persons", and a "vote of a majority of the outstanding voting securities" shall
have the respective meanings set forth in the Investment company Act of 1940
and the rules and regulations thereunder, subject to such exemptions as may be
granted by the Securities and Exchange Commission under said Act.
<PAGE> 5
11. SEVERABILITY. If any provision of this Agreement shall be
held or made invalid by a court decision,statute, rule or otherwise, the
remainder of this Agreement shall not be affected thereby.
A copy of the Declaration of Trust of the Trust is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is not binding upon any of the Trustees, officers, or
shareholders of the Trust individually.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the day and year first written above.
HOTCHKIS AND WILEY AMR INVESTMENT SERVICES INC.
By /s/ Nancy D. Celek By /s/ William F. Quinn
--------------------------- ---------------------------
Its Chief Financial Officer Its President
--------------------------- ---------------------------
<PAGE> 6
Schedule A
to the
American AAdvantage Funds
Investment Advisory Agreement
between
AMR Investment Services, Inc.
and
Hotchhkis and Wiley
AMR Investment Services, Inc. shall pay compensation to Hotchkis &
Wiley pursuant to section 3 of the Investment Advisory Agreement between said
parties in accordance with the following annual percentage rates:
0.60% per annum of the first $10 million
0.50% per annum of the next $140 million
0.30% per annum of the next $50 million
0.20% per annum of the next $800 million
0.15% per annum of all excess assets
In calculating the amount of assets under management solely for the
purpose of determining the applicable percentage rate, there shall be included
all other assets or trust assets of American Airlines, Inc. also under
management by the Adviser.
To the extent that a Fund invests all of its investable assets (i.e.,
securities and cash) in another investment company, however, no portion of the
advisory fee attributable to that Fund as specified above shall be paid for the
period that such Fund's assets are so invested.
Funds:
American AAdvantage Balanced Fund
American AAdvantage Growth and Income Fund
American AAdvantage International Equity Fund
DATED: November 12, 1996
<PAGE> 1
EXHIBIT 99.B11
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Financial
Highlights", "Management and Administration of the Trust-Independent Auditor"
and "Shareholder Communications" and to the use of our reports dated December
20, 1996, in the Registration Statement (Form N-1A) and its corporation by
reference in the related Prospectus of American AAdvantage Funds, filed with
the Securities and Exchange Commission in this Post-Effective Amendment No. 19
to the Registration Statement under the Securities Act of 1933 (File No.
33-11387) and in this Amendment No. 20 to the Registration Statement under the
Investment Company Act of 1940 (File No. 811-4984).
/s/ Ernst & Young LLP
----------------------
ERNST & YOUNG LLP
Dallas, Texas
February 12, 1997
<PAGE> 1
Exhibit 99.B16
SCHEDULE OF COMPUTATION OF PERFORMANCE
QUOTATIONS
n
P (1+T) = ERV
Where: P = Hypothetical Initial Payment of $1000
T = Average Annual Total Return
n = Number of Years
ERV = Ending Redeemable Value of Hypothetical $1000
Investment Made at the Beginning of the Year
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD
AMR CLASS (11/1/95 - 10/31/96) (11/1/91 - 10/31/96) SINCE INCEPTION TO 10/31/96
- --------- ------------------------------- --------------------------------- ---------------------------
<S> <C> <C> <C>
BALANCED FUND (9.2909)
Inception date (7/1/87) 1000 (1+ .167727)= 1677.270 1000 (1+ .126171)5= 1811.431 1000 (1+ .107638) = 2585.211
(16.77%) (12.62%) (10.76%)
GROWTH AND INCOME FUND (9.2909)
Inception date (7/1/87) 1000 (1+ .236600)= 1236.600 1000 (1+ .156483)5= 2068.694 1000 (1+ .122971) = 2937.440
(23.66%) (15.65%) (12.30%)
INTERNATIONAL EQUITY FUND (5.2333)
Inception date (8/7/91) 1000 (1+ .177200)= 1177.200 1000 (1+ .113166)5= 1709.227 1000 (1+ .110645) = 1731.845
(17.72%) (11.32%) (11.06%)
LIMITED-TERM INCOME FUND (8.91279)
Inception date (12/3/87) 1000 (1+ .030539)= 1030.539 1000 (1+ .058282)5= 1327.416 1000 (1+ .070359) = 1833.116
(3.05%) (5.83%) (7.04%)
INSTITUTIONAL CLASS
BALANCED FUND (9.2909)
Inception date (7/1/87) 1000 (1- .164600)= 1164.600 1000 (1+ .124862)5= 1800.927 1000 (1+ .106945) = 2570.222
(16.46%) (12.49%) (10.69%)
GROWTH AND INCOME FUND (9.2909)
Inception date (7/1/87) 1000 (1+ .233700)= 1233.700 1000 (1+ .155135)5= 2056.666 1000 (1+ .122267) = 2920.376
(23.37%) (15.51%) (12.23%)
INTERNATIONAL EQUITY FUND (5.21333)
Inception date (8/7/91) 1000 (1+ .172700)= 1172.700 1000 (1+ .111740)5= 1698.307 1000 (1+ .109286) = 1720.784
(17.27%) (11.17%) (10.93%)
LIMITED-TERM INCOME FUND (8.91279)
Inception date (12/3/87) 1000 (1+ .050964)= 1050.964 1000 (1+ .057272)5= 1321.094 1000 (1+ .069767) = 1824.099
(5.10%) (5.73%) (6.98%)
</TABLE>
<PAGE> 2
SCHEDULE OF COMPUTATION OF PERFORMANCE
QUOTATIONS
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD
(11/1/95 - 10/31/96) (11/1/91 - 10/31/96) SINCE INCEPTION TO 10/31/96
------------------------------- --------------------------------- ---------------------------
<S> <C> <C> <C>
(9.1676)
MONEY MARKET FUND 1000 (1+ .055655)= 1055.655 1000 (1+ .046148)5= 1253.042 1000 (1+ .061893)= 1734.195
Inception date (9/1/87) (5.57%) (4.61%) (6.19%)
MUNICIPAL MONEY MARKET (2.9758)
FUND 1000 (1+ .035910)= 1035.910 N/A 1000 (1+ .032638)= 1100.289
Inception date (11/10/93) (3.59%) (3.26%)
U.S. GOVERNMENT MONEY (4.6689)
MARKET FUND 1000 (1+.052921)= 1052.921 N/A 1000 (1+ .043132)= 1217.935
Inception date (3/2/92) (5.29%) (4.67%)
PLANAHEAD CLASS
BALANCED FUND (9.2909)
Inception date (8/1/94) 1000 (1+ .160100)= 1160.100 1000 (1+ .123191)5= 1787.591 1000 (1+ .106060) = 2551.193
(16.01%) (12.32%) (10.61%)
GROWTH AND INCOME FUND (902909)
Inception date (8/1/94) 1000 (1+ .229800)= 1229.800 1000 (1+ .153019)5= 2037.897 1000 (1+ .121160) = 2893.721
(22.98%) (15.30%) (12.12%)
INTERNATIONAL EQUITY FUND (5.2333)
Inception date (8/194) 1000 (1+ .169500)= 1169.500 1000 (1+ .109683)5= 1682.653 1000 (1+.107325) = 1704.924
(16.95%) (10.97%) (10.73%)
LIMITED-TERM INCOME FUND (8.91279)
Inception date (8/1/94) 1000 (1+ .048299)= 1048.299 1000 (1+ .056114)5= 1313.875 1000 (1+ .069128) = 1814.411
(4.83%) (5.61%) (6.91%)
(9.1676)
MONEY MARKET FUND 1000 (1+ .052086)= 1052.086 1000 (1+ .044477)5= 1243.067 1000 (1+ .060967)= 1720.381
Inception date (8/1/94) (5.21%) (4.45%) (6.10%)
MUNICIPAL MONEY MARKET (2.9758)
FUND 1000 (1+ .032714)= 1032.714 N/A 1000 (1+ .030096)= 1092.249
Inception date (8/1/94) (3.27%) (3.01%)
U.S. GOVERNMENT MONEY (4.6689)
MARKET FUND 1000 (1+.049351)= 1049.351 N/A 1000 (1+ .041094)= 1150.110
Inception date (8/1/94) (4.94%) (4.11%)
</TABLE>
<PAGE> 3
SCHEDULE FOR COMPUTATION OF PERFORMANCE
QUOTATIONS
MONEY MARKET FUNDS - FOR THE 7 DAY PERIOD ENDED 10/31/96
<TABLE>
<CAPTION>
INSTITUTIONAL CLASS CURRENT YIELD EFFECTIVE YIELD
- ------------------- ------------- ---------------
<S> <C> <C>
MONEY MARKET FUND (.001040313210 x (365/7)) = 5.42% ((.001040313210 + 1)(365/7) -1) = 5.57%
MUNICIPAL MONEY MARKET FUND (.000661791700 x (365/7)) = 3.45% ((.000661791700 + 1)(365/7) -1) = 3.51%
U.S GOVERNMENT MONEY MARKET FUND (.000963127500 x (365/7)) = 5.02% ((.000963127500 + 1)(365/7) -1) = 5.15%
PLANAHEAD CLASS
MONEY MARKET FUND (.000976592600 x (365/7)) = 5.09% ((.000976592600 + 1)(365/7) -1) = 5.22%
MUNICIPAL MONEY MARKET FUND (.000602194600 x (365/7)) = 3.14% ((.000602194600 + 1)(365/7) -1) = 3.19%
U.S GOVERNMENT MONEY MARKET FUND (.000893739900 x (365/7)) = 4.66% ((.000893739900 + 1)(365/7) -1) = 4.77%
MUNICIPAL MONEY MARKET FUND - FOR THE 7 DAY PERIOD ENDED 10/31/96
CURRENT TAX EQUIVALENT YIELD EFFECTIVE TAX EQUIVALENT YIELD
---------------------------- ------------------------------
<S> <C> <C>
INSTITUTIONAL CLASS (.000661791700 x (365/7))/(1-.35) = 5.31% ((.000661791700 + 1)(365/7) -1)/(1-.35) = 5.40%
PLANAHEAD CLASS (.000602194600 x (365/7))/(1-.396) = 5.20% ((.000602194600 + 1)(365/7) -1)/(1-.396) = 5.28%
</TABLE>
LIMITED - TERM INCOME FUND - 30 DAY S.E.C. YIELD FOR THE PERIOD ENDING 10/31/96
6
30 day yield = 2 x { ((a-b) + 1) - 1}
---
cd
Where: a = Dividends and interest earned during the period.
b = Expenses accrued for the period (net of reimbursements)
c = The average daily number of shares outstanding during
the period that entitled to receive dividends
d = The maximum offering price per share on the last day of
the period.
<TABLE>
<S> <C> <C>
6
AMR CLASS 2 x { (( 375,408.280 - 16,717.090 ) + 1 ) - 1 } = 7.400%
------------------------
6,111,083.520 x 9.67
6
INSTITUTIONAL CLASS 2 x { (( 666,291.570 - 55,503.330 ) + 1 ) - 1 } = 6.820%
------------------------
11,262,711.120 x 9.68
6
PLANAHEAD CLASS 2 x { (( 19,441.810 - 2371.920 ) + 1 ) - 1 } = 6.260%
---------------------
342,251.970 x 9.68
</TABLE>
SCHEDULE FOR COMPUTATION OF PERFORMANCE
QUOTATIONS
LIMITED - TERM INCOME FUND MONTHLY DISTRIBUTION RATE FROM 10/1/96 TO 10/31/96
Monthly Dividend Rate = A/P*(365/n)
Where: A = Dividend accrual per share during the month
(income distributions)
P = Share price at the end of month
<TABLE>
<S> <C> <C> <C> <C> <C>
AMR CLASS .0585241926 / 9.67 x ( 365 / 31) = 7.13%
INSTITUTIONAL CLASS .0563622913 / 9.68 x ( 365 / 31) = 6.86%
PLANAHEAD CLASS .0543304425 / 9.68 x ( 365 / 31) = 6.61%
</TABLE>
LIMITED TERM INCOME FUND DISTRIBUTION RATE (INCLUDING CAPITAL GAINS)
FROM 11/1/95 TO 10/31/96
Distribution Rate = D/P
Where: D = Distributions per share over a 12 month period
(income and capital gain distributions)
P = Share price at the end of 12 month period
<TABLE>
<S> <C> <C> <C>
AMR CLASS .645447 / 9.67 = 6.67%
INSTITUTIONAL CLASS .619739 / 9.68 = 6.40%
PLANAHEAD CLASS .595090 / 9.68 = 6.15%
</TABLE>
<PAGE> 4
SCHEDULE OF COMPUTATION OF PERFORMANCE
QUOTATIONS
n
P (1+T) = ERV
Where: P = Hypothetical Initial Payment of $1000
T = Average Annual Total Return
n = Number of Years
ERV = Ending Redeemable Value of Hypothetical $1000 Investment
Made at the Beginning of the Year
<TABLE>
<CAPTION>
ONE YEAR PERIOD FIVE YEAR PERIOD
PLATINUM CLASS (11/1/95 - 10/31/96) (11/1/91 - 10/31/96) SINCE INCEPTION TO 10/31/96
- -------------- ------------------------------- --------------------------------- ---------------------------
(9.1676)
<S> <C> <C> <C> <C> <C> <C>
MONEY MARKET FUND 1000 (1+ .048481)= 1048.481 1000 (1+ .044722)5= 1244.525 1000 (1+ .061103)= 1722.403
Inception date (9/1/87) (4.85%) (4.47%) (6.11%)
MONEY MARKET MILEAGE FUND (9.1676)
Inception date (9/1/87) 1000 (1+ .047817)= 1047.817 1000 (1+ .042270)5= 1229.989 1000 (1+ .059744)= 1702.285
(4.78%) (4.23%) (5.97%)
MUNICIPAL MONEY MARKET (2.9758)
FUND 1000 (1+ .028827)= 1028.827 N/A 1000 (1+ .030260)= 1092.766
Inception date (11/10/93) (2.88%) (3.03%)
U.S. GOVERNMENT MONEY (4.6689)
MARKET FUND 1000 (1+.045835)= 1045.835 N/A 1000 (1+ .041624)= 1209.737
Inception date (3/2/92) (4.58%) (4.16%)
</TABLE>
MONEY MARKET FUNDS - FOR THE 7 DAY PERIOD ENDED 10/31/96
<TABLE>
<CAPTION>
PLATINUM CLASS CURRENT YIELD EFFECTIVE YIELD
- -------------- ------------- ---------------
<S> <C> <C>
MONEY MARKET FUND (.0009063637 x (365/7)) = 4.73% ((.0009063637 + 1)(365/7) -1) = 4.84%
MONEY MARKET MILEAGE FUND (.0008776068 x (365/7)) = 4.58% ((.0008776068 + 1)(365/7) -1) = 4.68%
MUNICIPAL MONEY MARKET FUND (.0005272725 x (365/7)) = 2.75% ((.0005272725 + 1)(365/7) -1) = 2.79%
U.S GOVERNMENT MONEY MARKET FUND (.0008297088 x (365/7)) = 4.33% ((.0008297088 + 1)(365/7) -1) = 4.42%
</TABLE>
MUNICIPAL MONEY MARKET FUND - PLATINUM CLASS-
FOR THE 7 DAY PERIOD ENDED 10/31/96
<TABLE>
<CAPTION>
CURRENT TAX EQUIVALENT YIELD EFFECTIVE TAX EQUIVALENT YIELD
---------------------------- ------------------------------
<S> <C>
(.0005272725x (365/7))/(1-.396) = 4.55% ((.0005272725 + 1)(365/7) -1)/(1-.396) = 4.61%
</TABLE>
<PAGE> 1
Exhibit 99.B17
POWER OF ATTORNEY
I, Alan D. Feld, Trustee of AMR Investment Services Trust ("AMR
Trust"), American AAdvantage Funds ("AAdvantage Trust") and American AAdvantage
Mileage Funds ("Mileage Trust") (collectively, the "Trusts"), hereby constitute
and appoint William F. Quinn and Barry Y. Greenberg my true and lawful attorney
with full power to sign for me in my capacity as Trustee for the Trusts any
registration statement on Form N-1A under the Securities Act of 1933 and/or the
Investment Company Act of 1940 and any amendments thereto of the AMR Trust,
AAdvantage Trust or Mileage Trust, and all instruments necessary or desirable
in connection therewith, hereby ratifying and confirming my signature as it may
be signed by said attorney to any and all amendments to said registration
statements.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this instrument has been signed below by the following in my capacity
and on the 13th day of January, 1997.
Signature Title
--------- -----
/s/Alan D. Feld
---------------
Alan D. Feld Trustee
<PAGE> 2
POWER OF ATTORNEY
I, Ben J. Fortson, Trustee of AMR Investment Services Trust ("AMR
Trust"), American AAdvantage Funds ("AAdvantage Trust") and American AAdvantage
Mileage Funds ("Mileage Trust") (collectively, the "Trusts"), hereby constitute
and appoint William F. Quinn and Barry Y. Greenberg my true and lawful attorney
with full power to sign for me in my capacity as Trustee for the Trusts any
registration statement on Form N-1A under the Securities Act of 1933 and/or the
Investment Company Act of 1940 and any amendments thereto of the AMR Trust,
AAdvantage Trust or Mileage Trust, and all instruments necessary or desirable
in connection therewith, hereby ratifying and confirming my signature as it may
be signed by said attorney to any and all amendments to said registration
statements.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this instrument has been signed below by the following in my capacity
and on the 13th day of January, 1997.
Signature Title
--------- -----
/s/Ben J. Fortson
-----------------
Ben J. Fortson Trustee
<PAGE> 3
POWER OF ATTORNEY
I, Kneeland Youngblood, M.D., Trustee of AMR Investment Services Trust
("AMR Trust"), American AAdvantage Funds ("AAdvantage Trust") and American
AAdvantage Mileage Funds ("Mileage Trust") (collectively, the "Trusts"), hereby
constitute and appoint William F. Quinn and Barry Y. Greenberg my true and
lawful attorney with full power to sign for me in my capacity as Trustee for
the Trusts any registration statement on Form N-1A under the Securities Act of
1933 and/or the Investment Company Act of 1940 and any amendments thereto of
the AMR Trust, AAdvantage Trust or Mileage Trust, and all instruments necessary
or desirable in connection therewith, hereby ratifying and confirming my
signature as it may be signed by said attorney to any and all amendments to
said registration statements.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this instrument has been signed below by the following in my capacity
and on the 14th day of January, 1997.
Signature Title
--------- -----
/s/ Kneeland Youngblood
-------------------------
Kneeland Youngblood, M.D. Trustee
<PAGE> 4
Power of Attorney
The person signing below makes, constitutes and appoints William F.
Quinn, Clifford J. Alexander and Robert J. Zutz, and each of them, his true and
lawful attorney-in-fact, with full power of substitution and resubstitution, in
his name, place and stead to execute and cause to be files with the Securities
and Exchange Commission on behalf of American AAdvantage Funds and any or all
amendments to this Registration Statement.
Signature Title Date
--------- ----- ----
/s/ Roger T. Staubach
---------------------
Roger T. Staubach Trustee March 23, 1995
<PAGE> 5
Power of Attorney
The person signing below makes, constitutes and appoints William F.
Quinn, Clifford J. Alexander and Robert J. Zutz, and each of them, his true and
lawful attorney-in-fact, with full power of substitution and resubstitution, in
his name, place and stead to execute and cause to be files with the Securities
and Exchange Commission and State administrators any or all amendments to the
Form N-1A registration statement of the American AAdvantage Funds.
Signature Title Date
--------- ----- ----
/s/ John S. Justin
------------------
John S. Justin Trustee December 13, 1989
<PAGE> 6
POWER OF ATTORNEY
I, Roger T. Staubach, Trustee of AMR Investment Services Trust ("AMR
Trust") hereby constitute and appoint William F. Quinn and Barry Y. Greenberg
my true and lawful attorney with full power to sign for me in my capacity as
Trustee for the AMR Trust any registration statement on Form N-1A under the
Securities Act of 1933 and/or the Investment Company Act of 1940 and any
amendments thereto of the AMR Trust, the American AAdvantage Funds or American
AAdvantage Mileage Funds and all instruments necessary or desirable in
connection therewith, hereby ratifying and confirming my signature as it may be
signed by said attorney to any and all amendments to said registration
statements.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this instrument has been signed below by the following in my capacity
and on the 13th day of February, 1997.
Signature Title
--------- -----
/s/ Roger T. Staubach
---------------------
Roger T. Staubach Trustee
<PAGE> 7
POWER OF ATTORNEY
I, Stephen D. O'Sullivan, Trustee of AMR Investment Services Trust
("AMR Trust") and the American AAdvantage Funds ("AAdvantage Trust")
(collectively, the "Trusts"), hereby constitute and appoint William F. Quinn
and Barry Y. Greenberg my true and lawful attorney with full power to sign for
me in my capacity as Trustee for the Trusts any registration statement on Form
N-1A under the Securities Act of 1933 and/or the Investment Company Act of 1940
and any amendments thereto of the AMR Trust, the AAdvantage Trust or American
AAdvantage Mileage Funds and all instruments necessary or desirable in
connection therewith, hereby ratifying and confirming my signature as it may be
signed by said attorney to any and all amendments to said registration
statements.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this instrument has been signed below by the following in my capacity
and on the 13th day of February, 1997.
Signature Title
--------- -----
/s/ Stephen D. O'Sullivan
-------------------------
Stephen D. O'Sullivan Trustee
<PAGE> 8
POWER OF ATTORNEY
I, John S. Justin, Trustee of AMR Investment Services Trust ("AMR
Trust") hereby constitute and appoint William F. Quinn and Barry Y. Greenberg
my true and lawful attorney with full power to sign for me in my capacity as
Trustee for the AMR Trust any registration statement on Form N-1A under the
Securities Act of 1933 and/or the Investment Company Act of 1940 and any
amendments thereto of the AMR Trust, the American AAdvantage Funds or American
AAdvantage Mileage Funds and all instruments necessary or desirable in
connection therewith, hereby ratifying and confirming my signature as it may be
signed by said attorney to any and all amendments to said registration
statements.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this instrument has been signed below by the following in my capacity
and on the 13th day of February, 1997.
Signature Title
--------- -----
/s/ John S. Justin
------------------
John S. Justin Trustee
