<PAGE> 1
THIS PROSPECTUS contains important information about the INSTITUTIONAL CLASS OF
THE AMERICAN AADVANTAGE FUNDS ("Trust"), an open-end management investment
company which consists of multiple investment portfolios. This prospectus
pertains only to the seven funds listed on this cover page (individually
referred to as a "Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A
CORRESPONDING PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND,
COLLECTIVELY, "PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST")
WHICH HAS AN INVESTMENT OBJECTIVE IDENTICAL TO 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. Prospective Institutional Class 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]
PROSPECTUS
dated
March 1, 1997,
As Supplemented
January 1, 1998
[AMERICAN AADVANTAGE LOGO]
American
AAdvantage Funds (R)
-INSTITUTIONAL CLASS-
BALANCED FUND
GROWTH AND INCOME FUND
INTERNATIONAL EQUITY FUND
LIMITED-TERM INCOME FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MANAGED BY
AMR INVESTMENT SERVICES, INC.
<PAGE> 2
The AMERICAN AADVANTAGE BALANCED FUND(SM) ("Balanced Fund") seeks income and
capital appreciation by investing all of its investable assets in the Balanced
Portfolio of the AMR Trust ("Balanced Portfolio") which in turn primarily
invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME FUND(SM) ("Growth and Income Fund")
seeks long-term capital appreciation and current income by investing all of its
investable assets in the Growth and Income Portfolio of the AMR Trust ("Growth
and Income Portfolio") which in turn primarily invests in equity securities
(such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) ("International Equity
Fund") seeks long-term capital appreciation by investing all of its investable
assets in the International Equity Portfolio of the AMR Trust ("International
Equity Portfolio") which in turn primarily invests in equity securities of
issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME FUND(SM) ("Limited-Term Income
Fund") seeks income and capital appreciation by investing all of its investable
assets in the Limited-Term Income Portfolio of the AMR Trust ("Limited-Term
Income Portfolio") which in turn primarily invests in debt obligations.
The AMERICAN AADVANTAGE MONEY MARKET FUND(SM) ("Money Market Fund"), AMERICAN
AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) ("Municipal Money Market Fund") and
AMERICAN AADVANTAGE U.S. 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 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 and administrative services to the
Funds. This master-feeder 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>
- --------------------------------------------------------------------------------
PROSPECTUS
2
<PAGE> 3
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> 4
(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> 5
(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> 6
(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> 7
(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> 8
(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> 9
(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> 10
("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 offered without a sales charge at the 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> 11
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" 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 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 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
PROSPECTUS
11
<PAGE> 12
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 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" or "forward commitment" basis. See "American
AAdvantage Balanced Fund" for a description of these transactions.
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) possible 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)
possible higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
PROSPECTUS
12
<PAGE> 13
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, Portugal, 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. 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 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.
PROSPECTUS
13
<PAGE> 14
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 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
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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 ratification by 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 may 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.
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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 publicly 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
will 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 are 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 also may 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 eligible
investments for the Money Market Portfolio which are subject to federal income
tax.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; tax-exempt commercial paper; and purchase
obligations that are subject to restrictions on resale. See the SAI for a
further discussion of the foregoing obligations. The Portfolio may purchase or
sell obligations on a "when-issued" or "forward commitment" basis, as described
under "American AAdvantage Balanced Fund."
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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 "forward commitment" basis, as described under "American
AAdvantage Balanced Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio also may 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
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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 will be 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 and 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%. 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
PROSPECTUS
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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 sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio pay a proportionate share of the
Portfolio's expenses and invest in that Portfolio on the same terms and
conditions. However, other investment companies investing all of their assets in
a Portfolio are not required to sell their shares at the same public offering
price as a Fund and are 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 affected materially 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 its liquidity adversely.
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 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
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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. Government 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, provided that: (i) this limitation
does not apply to obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities; (ii) municipalities and their agencies
and authorities are not deemed to be industries; and (iii) financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified
finance will be considered separate industries). With respect to the Money
Market Portfolio, this restriction does not apply to the banking industry.
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 month-end share price
of each class of this Fund. The Funds will at times compare their performance to
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applicable published indices, and also may 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 July 25, 1997, together
with the Administrative Services Agreement described below. The AMR Trust and
the Manager also entered into a Management Agreement dated October 1, 1995, as
amended July 25, 1997, 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.
Except as otherwise provided below, 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. Currently, the Manager receives 10% of the net annual interest income
from the investment of cash collateral or 10% of the
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loan fees posted by borrowers. In addition, 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 expenses not otherwise assumed by the Manager,
including the following: 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; fees paid to
consultants providing reports regarding adherence by investment advisers to the
investment style of a Portfolio; 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
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compensation for its services, each investment adviser is paid a fee by the
Manager out of the proceeds of the management fee received by the Manager from
the AMR Trust.
ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Funds those administrative and management services (other than investment
advisory services) described in the Management Agreement. As compensation for
these services, the Manager receives an annualized fee of 0.25% of the net
assets of the Institutional Class of the Variable NAV Funds and 0.05% of the net
assets of the Institutional Class of the Money Market Funds. The fee is payable
quarterly in arrears.
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.
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 -- STATE STREET BANK & TRUST COMPANY ("State Street"), Boston,
Massachusetts, serves as custodian for the Portfolios and the Funds.
TRANSFER AGENT -- State Street serves as transfer agent and provides transfer
agency services for Fund shareholders through its affiliate NATIONAL FINANCIAL
DATA SERVICES, ("NFDS"), Kansas City, Missouri.
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
PROSPECTUS
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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 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. 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 AMR Trust assets under its discretionary
management, .225% of the next $100 million on all assets and .20% on all excess
assets.
On December 9, 1997, Brandywine and Legg Mason, Inc. announced the signing
of a definitive agreement to merge Brandywine into Legg Mason, Inc. in an
exchange of stock. Subject to various conditions being satisfied, it is
anticipated that the transaction will close in late January 1998. Thereafter,
Brandywine will become a wholly owned subsidiary of Legg Mason, Inc. but will
continue to be managed by its current senior management.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation. 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 is a division
of the Capital Management Group of Merrill Lynch Asset Management, L.P., a
wholly owned indirect subsidiary of Merrill Lynch & Co., Inc. 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 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
PROSPECTUS
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$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, Dean
Witter, Discover & Co. 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. The Manager pays MSAM
an annual fee equal to .80% of the first $25 million of 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.
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. 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. Shares purchased through
financial intermediaries may be subject to transaction fees.
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 the close of the New York
Stock Exchange (the "Exchange"), generally 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, Martin Luther King's Birthday, 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
PROSPECTUS
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3:00 p.m. Eastern time, or the close of the Exchange (whichever comes first) on
each day on which the Exchange is open for business except for 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 11:45 a.m. Eastern time, or the close of the
Exchange (whichever comes first) and for the U.S. Government Money Market Fund
until 2:00 p.m. Eastern time, or the close of the Exchange (whichever comes
first) 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: (i) telephone NFDS at (800) 658-5811 and specify the Fund in which
shares are to be purchased; (ii) provide a name, address, telephone number and
account number; and (iii) identify the source bank and amount being wired. NFDS
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:
"State Street Bank & Trust Co., ABA Routing #0110-0002-8, AC-9905-342-3; Attn:
American AAdvantage Funds -- Institutional Class," and reference the specific
Fund.
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 American AAdvantage Funds to: "American
AAdvantage Funds, P.O. Box 419643, Kansas City, MO, 64141-6643." 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 -- Shares of the Funds may be redeemed by telephone or by
mail on any Business Day for the Variable NAV Funds and on any Money Market
Business Day for the Money Market Funds.
BY TELEPHONE -- Shares may be redeemed by telephone. Proceeds from redemption
orders placed by the following deadlines generally will be transmitted to
shareholders on the same day: 2:00 p.m. Eastern time for the Money Market Fund
and the U.S. Government Money Market Fund, and 11:45 a.m. Eastern time for the
Municipal Money Market Fund. Proceeds from redemption orders received by 4:00
p.m. Eastern time for the Variable NAV Funds generally will be transmitted to
shareholders the next Business Day.
BY MAIL -- Variable NAV Fund shares may be redeemed on any Business Day by
writing directly to the Funds at the address above under "Purchasing Shares of
the Trust -- By Mail." Shares of the Money Market Funds may be
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<PAGE> 27
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 the transfer agent of all required documents in good order. "Good
order" means that the request must include a letter of instruction or stock
assignment specifying (1) the account number and Fund name; (2) the number of
shares or dollar amount to be redeemed; (3) signature of an authorized signatory
for the owners of the shares in the exact names in which they appear on the
account; (4) other supporting legal documents, if required, in the case of
estates, trusts, guardianships, custodians, corporations, IRAs and welfare,
pension and profit-sharing plans; and (5) 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. Shares redeemed through financial intermediaries may be subject to
transaction fees.
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.
VALUATION OF SHARES -- The net asset value of each share (share price) of the
Variable NAV Funds is determined as of the close of the Exchange, generally 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 the close of the Exchange, generally
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
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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
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
28
<PAGE> 29
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> 30
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 ten 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> 31
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> 32
American Advantage Funds(R) Logo
- INSTITUTIONAL CLASS -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- PLANAHEAD CLASS(R) -
P.O. Box 419643
Kansas City, MO 64141-6643
(800) 388-3344
- PLATINUM CLASS(SM) -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
<PAGE> 33
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. Prospective PlanAhead Class 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 800-388-3344. 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.
PROSPECTUS
dated
March 1, 1997,
As Supplemented
January 1, 1998
[AMERICAN AADVANTAGE LOGO]
American
AAdvantage Funds (R)
-PLANAHEAD CLASS (R)-
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
MANAGED BY
AMR INVESTMENT SERVICES, INC.
<PAGE> 34
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 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 and administrative services to the
Funds. This master-feeder 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.
PROSPECTUS
2
<PAGE> 35
- --------------------------------------------------------------------------------
<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.................... 28
RETIREMENT ACCOUNTS..................... 30
EXCHANGE PRIVILEGE...................... 30
DISTRIBUTION OF TRUST SHARES............ 30
VALUATION OF SHARES..................... 30
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> 36
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> 37
(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> 38
(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> 39
(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> 40
(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> 41
(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> 42
(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> 43
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 offered without a sales charge at the 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 "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
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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" 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 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
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The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts 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 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" or "forward commitment" basis. See "American
AAdvantage Balanced Fund" for a description of these transactions.
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
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<PAGE> 46
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) possible 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)
possible 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, Portugal, 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. See "Investment Advisers."
PROSPECTUS
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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 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, 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
PROSPECTUS
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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 ratification by 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 may 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 publicly 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
will 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 are 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 also may invest in other investment companies.
Ordinarily at least 80% of the Portfolio's net assets will be invested in
PROSPECTUS
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<PAGE> 50
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 eligible
investments for the Money Market Portfolio which are subject to federal income
tax.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon and asset-backed
obligations; variable rate auction and residual interest obligations; tax,
revenue, or bond anticipation notes; tax-exempt commercial paper; and purchase
obligations that are subject to restrictions on resale. See the SAI for a
further discussion of the foregoing obligations. The Portfolio may purchase or
sell obligations on a "when-issued" or "forward commitment" basis, as described
under "American AAdvantage Balanced Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, the Manager
believes this risk is mitigated because it is 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
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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 "forward commitment" basis, as
described under "American AAdvantage Balanced Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio also may 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, 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 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 will be 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 and 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 sell their interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in a Portfolio pay a proportionate share of the
Portfolio's expenses and invest in that Portfolio on the same terms and
conditions. However, other investment companies investing all of their assets in
a Portfolio are not required to sell their shares at the same public offering
price as a Fund and are 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 affected materially 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 its liquidity adversely.
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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. Government 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, provided that: (i) this limitation
does not apply to obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities; (ii) municipalities and their agencies
and authorities are not deemed to be industries; and (iii) financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified
finance will be considered separate industries). With respect to the Money
Market Portfolio, this restriction does not apply to the banking industry.
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 also may 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 July 25, 1997, together
with the Administrative Services Agreement described below. The AMR Trust and
the Manager also entered into a Management Agreement dated October 1, 1995, as
amended July 25, 1997, 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.
Except as otherwise provided below, 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. Currently, the Manager receives 10% of the net annual interest income
from the investment of cash collateral or 10% of the loan fees posted by
borrowers. In addition, 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 expenses not otherwise assumed by the Manager,
including the following: 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; fees paid to
consultants providing reports regarding adherence by investment advisers to the
investment style of a Portfolio; 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.
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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 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
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the Service Plan or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of considering
such approval, or by the vote of shareholders. The Service Plan may be
terminated with respect to a particular PlanAhead Class at any time, without the
payment of any penalty, by a vote of a majority of the Independent Trustees or
by a vote of a majority of the outstanding voting securities of the applicable
Fund's PlanAhead Class.
ALLOCATION OF FUND EXPENSES -- Expenses of each Fund generally are allocated
equally among the shares of that Fund, regardless of class. However, certain
expenses approved by the Board will be allocated solely to the class to which
they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC. ("BTS"), 7001
Preston Road, Dallas, Texas 75205, serves as the principal underwriter of the
Trust.
CUSTODIAN -- STATE STREET BANK & TRUST COMPANY ("State Street"), Boston,
Massachusetts, serves as custodian for the Portfolios and the Funds.
TRANSFER AGENT -- State Street serves as transfer agent and provides transfer
agency services for Fund shareholders through its affiliate NATIONAL FINANCIAL
DATA SERVICES, ("NFDS"), Kansas City, Missouri.
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
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$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
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. 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 AMR Trust assets under its discretionary
management, .225% of the next $100 million on all assets and .20% on all excess
assets.
On December 9, 1997, Brandywine and Legg Mason, Inc. announced the signing
of a definitive agreement to merge Brandywine into Legg Mason, Inc. in an
exchange of stock. Subject to various conditions being satisfied, it is
anticipated that the transaction will close in late January 1998. Thereafter,
Brandywine will become a wholly owned subsidiary of Legg Mason, Inc. but will
continue to be managed by its current senior management.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation. 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 is a division
of the Capital Management Group of Merrill Lynch Asset Management, L.P., a
wholly owned indirect subsidiary of Merrill Lynch & Co., Inc. 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, Dean
Witter, Discover & Co. MSAM provides portfolio
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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. The Manager pays MSAM an annual fee equal to .80% of the first $25
million of 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.
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. 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
NFDS either by mail, by pre-authorized investment or by wire as described below.
The minimum initial purchase for each Fund is $2,500, except for IRA accounts
for which a $2,000 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 $50, except
for wire purchases for which a $500 minimum applies. Shares purchased through
financial intermediaries may be subject to transaction fees. The management of
the Fund reserves the right to waive or change the minimum investment
requirements and to charge an annual fee of $12 (to offset the costs of
servicing accounts with low balances) if an account balance falls below certain
asset levels.
An order to purchase shares of a Variable NAV Fund will be executed at the
next share price calculated Monday through Friday on each day on which the New
York Stock Exchange (the "Exchange") is open for trading, which excludes the
following business holidays: New Year's Day, Martin Luther King's Birthday,
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 the close of the
Exchange, generally 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 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 11:45
a.m. Eastern time, or the close of the Exchange (whichever comes first) and for
the U.S. Government Money Market Fund until 2:00 p.m. Eastern time, or the close
of the Exchange (whichever comes first) and for the Money Market Fund until 3:00
p.m. Eastern time, or the close of the Exchange (whichever comes first), 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
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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.
PURCHASING BY MAIL -- To open an account by mail, complete the application form,
include a check payable to the American AAdvantage Funds ($2,500 minimum) and
mail both to:
American AAdvantage Funds
c/o NFDS
P.O. Box 419643
Kansas City, MO 64141-6643
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. For subsequent
purchases by mail make your check payable to the American AAdvantage Funds ($50
minimum) and include your account number on your check. Mail to the address
printed above. Include either the detachable form from your account statement,
the deposit slips from your checkbook (if you have a Money Market account and
opted for checking) or a letter with the account name and number.
SUBSEQUENT PURCHASES BY PRE-AUTHORIZED AUTOMATIC INVESTMENT -- Pre-Authorized
Automatic Investment allows you to make regular, automatic transfers ($50
minimum) from your bank account to purchase shares in the Fund of your choice
after an account has been open. To establish this option, provide the
appropriate information on the application form and attach a voided check from
your bank account. Funds will be transferred automatically from your bank
account via Automated Clearing House ("ACH") on the 5th day of each month.
PURCHASES BY WIRE -- A completed application form must precede an initial
purchase by wire. Call (800) 388-3344 to wire funds. Federal funds ($2,500 for
initial purchases and $500 for subsequent purchases) should be wired to:
State Street Bank & Trust Co.
ABA Routing #0110-0002-8, AC-9905-342-3
Attention: American AAdvantage Funds-PlanAhead Class, and specify the
Fund to be purchased.
You will be responsible for any charges assessed by your bank to handle
wire transfers.
HOW TO REDEEM SHARES
Shares of the Variable NAV Funds may be redeemed by telephone, by
pre-authorized automatic redemption or by mail on any Business Day. Shares of
the Money Market Funds may be redeemed by telephone, by writing a check, by
pre-authorized automatic redemption or by mail on any Money Market Business Day.
Shares will be redeemed at the net asset value next calculated after the
applicable Fund has received and accepted the redemption request. Proceeds from
a redemption of shares purchased by check or pre-authorized automatic purchase
may be withheld until the funds have cleared, which may take up to 15 days.
Although the Funds intend to 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.
Redemption proceeds generally will 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.
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A minimum balance of $2,500 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 the imposition of an account fee
or account closure. If a shareholder does not increase the account balance to
$2,500 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 your account
application reflects that option. 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, you should call NFDS at (800) 388-3344. Redemption
proceeds will be mailed only 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, you 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, NFDS 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 be sent only to the address or account
designated in the application. Neither the Funds, the Trusts, the Manager, State
Street, NFDS, or their trustees, directors or officers will be liable for any
unauthorized or fraudulent redemption instructions received by telephone. 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 you elect so 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 you. If copies of drafts are required, a service charge of $2 per
check will be assessed to you.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- You can arrange to have a pre-authorized
amount ($100 or more) redeemed from your account and automatically deposited
into a bank account, via ACH, on the 15th day of each month. For more
information regarding pre-authorized automatic redemptions, contact NFDS at
(800) 388-3344.
REDEEMING BY MAIL -- Except for certain intermediary accounts, a letter of
instruction may be mailed to American AAdvantage Funds -- PlanAhead Class, c/o
NFDS, P.O. Box 419643, Kansas City, MO 64141-6643 to redeem shares. The letter
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 must be signed by all persons
required to sign for the account, exactly as it is registered. For redemption
requests (i) over $25,000, (ii) for redemption proceeds to be sent to an address
other than the address of record or to a commercial bank account other than the
account designated on the application, or (iii) for 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 NFDS.
REDEEMING BY WIRE -- Shares may be redeemed by wire if your account application
reflects that option. Redemption proceeds will be transmitted directly to your
predesignated account at a domestic bank upon request, for amounts of at least
$500. In order to redeem by wire, call (800) 388-3344. Your account will be
charged $10 for wire redemptions to cover transaction costs.
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.
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RETIREMENT ACCOUNTS
Individual retirement accounts, including SEPs and Keoghs, are eligible
investors in the PlanAhead Class. State Street 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 NFDS
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 $50 is required into existing accounts. If a
shareholder wishes to establish a new account in the PlanAhead Class of another
Fund by making an exchange, a $2,500 minimum investment is required.
Except for certain intermediary accounts, shareholders may exchange shares
by sending the Funds a written request or by calling NFDS 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). NFDS 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, State Street, NFDS, nor their trustees,
directors or officers will be liable for any unauthorized or fraudulent
instructions.
The general redemption policies apply to redemptions by telephone exchange.
The exchange privilege may be modified or terminated at any time by the Funds.
The Funds reserve the right to limit the number of exchanges an investor may
exercise.
DISTRIBUTION OF TRUST SHARES
Shares are distributed through the Funds' principal underwriter, BTS. BTS is
compensated by the Manager, and not the Trust. The Trust does not incur any
direct distribution expenses other than those relating to the Platinum Class.
However, the Trust has adopted a Distribution Plan in accordance with Rule 12b-1
under the 1940 Act which authorizes the use of any fees received by the Manager
in accordance with the Administrative Services and the Management Agreements and
any fees received by the investment advisers pursuant to their Advisory
Agreements with the Manager, to be used for distribution purposes.
VALUATION OF SHARES
The net asset value of each share (share price) of the Variable NAV Funds is
determined as of the close of the Exchange, generally 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 the close of the Exchange, generally 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.
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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 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 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
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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 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
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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 ten 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.
PROSPECTUS
33
<PAGE> 66
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> 67
-- NOTES --
<PAGE> 68
American Advantage Funds(R) Logo
- PLANAHEAD CLASS(R) -
P.O. Box 419643
Kansas City, MO 64141-6643
(800) 388-3344
- PLATINUM CLASS(SM) -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
- INSTITUTIONAL CLASS -
P.O. Box 619003
Dallas/Fort Worth Airport, Texas
75261-9003
(800) 967-9009
<PAGE> 69
THIS PROSPECTUS contains important information about the PLANAHEAD CLASS OF THE
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM) ("Fund"), an open-end
management investment company. THE FUND SEEKS CURRENT INCOME, LIQUIDITY AND THE
MAINTENANCE OF A STABLE $1.00 PRICE PER SHARE BY INVESTING ALL OF ITS
INVESTABLE ASSETS IN THE U.S. GOVERNMENT MONEY MARKET PORTFOLIO ("PORTFOLIO")
OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST") WHICH 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. The investment experience of the Fund will correspond directly
with the investment experience of the Portfolio. Under a master-feeder
operating structure, the Fund seeks its investment objective by investing all
of its investable assets in the Portfolio as described above. The Portfolio's
investment objective is identical to that of the 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 the Fund will be the Fund's interest in the
Portfolio. AMR Investment Services, Inc. ("Manager") provides investment
management and administrative services to the Portfolio and administrative
services to the Fund. This master-feeder 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 Objective, Policies and
Risks -- Additional Information About the Portfolio." The Fund may withdraw its
investment in the Portfolio at any time if the Trust's Board of Trustees
("Board") determines that it would be in the best interest of the Fund and its
shareholders to do so. Upon any such withdrawal, the Fund's assets would be
invested in accordance with the investment policies and restrictions described
in this Prospectus and the SAI.
The 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.
Prospective PlanAhead Class 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 Fund. For a free copy of the SAI, call 800-388-3344.
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 Fund and the Portfolio.
AN INVESTMENT IN A MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT IT 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.
[INTRUST LOGO]
PROSPECTUS
dated
March 1, 1997
as supplemented
January 1, 1998
American AAdvantage
US Government Money
Market Fund
-PlanAhead Class-
<PAGE> 70
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
TABLE OF FEES AND EXPENSES.............. 2
FINANCIAL HIGHLIGHTS.................... 3
INTRODUCTION............................ 5
INVESTMENT OBJECTIVE, POLICIES AND
RISKS................................... 5
INVESTMENT RESTRICTIONS................. 8
YIELDS AND TOTAL RETURNS................ 9
MANAGEMENT AND ADMINISTRATION OF THE
TRUST................................... 9
HOW TO PURCHASE SHARES.................. 11
HOW TO REDEEM SHARES.................... 12
RETIREMENT ACCOUNTS..................... 13
VALUATION OF SHARES..................... 14
DIVIDENDS AND TAX MATTERS............... 14
GENERAL INFORMATION..................... 15
SHAREHOLDER COMMUNICATIONS.............. 15
</TABLE>
- --------------------------------------------------------------------------------
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
U.S.
GOVERNMENT
MONEY
MARKET
FUND
<S> <C>
Management Fees 0.15%
12b-1 Fees 0.00
Other Expenses 0.52
-----
Total Operating Expenses 0.67%
=====
</TABLE>
The above expenses reflect the expenses of the Fund and the Portfolio. The
Board believes that the aggregate per share expenses of the Fund and the
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
2
<PAGE> 71
EXAMPLE
A PlanAhead Class investor in the Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<S> <C>
1 Year $ 7
3 Years $21
5 Years $37
10 Years $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 the Fund. Additional
information may be found under "Management and Administration of the Trust."
THE FOREGOING EXAMPLE 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 EXAMPLE.
FINANCIAL HIGHLIGHTS
The financial highlights in the following table 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 Fund and can be obtained
by investors without charge.
PROSPECTUS
3
<PAGE> 72
(FOR A SHARE OUTSTANDING THROUGHOUT THE
PERIOD)
<TABLE>
<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):
Expenses 0.67%(3) 0.76% 0.75% 0.25% 0.23% 0.27%(7)
Net investment income 4.74%(3) 5.19% 3.94% 3.44% 2.96% 3.46%(7)
</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.
(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) Estimated based on expected annual expenses and actual average net assets.
PROSPECTUS
4
<PAGE> 73
INTRODUCTION
The American AAdvantage Funds ("Trust") is an open-end, diversified
management investment company organized as a Massachusetts business trust on
January 16, 1987. The Fund is a separate investment portfolio of the Trust. The
Fund invests all of its investable assets in the Portfolio, which has an
identical investment objective. The Manager provides the Portfolio with business
and asset management services and it provides the Fund with administrative
services. The Fund consists 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"). For
further information about the Fund's other classes, 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 the Fund share the same portfolio of
investments and share a common investment objective. See "Investment Objective,
Policies and Risks." There is no guarantee that the Fund will achieve its
investment objective. Based on its value, a share of the 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, thereby affecting the
relative performance of each class.
PlanAhead Class shares are offered without a sales charge at the 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 "How to Purchase Shares" and "How to Redeem Shares."
INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective and policies of the Fund and the Portfolio are
described below. Except as otherwise indicated, the investment policies of the
Fund may be changed at any time by the Board to the extent that such changes are
consistent with its investment objective. 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 the shareholders' meeting, or (b) more than 50% of the shares
of the Fund (hereinafter, "majority vote"). The Portfolio's investment objective
may not be changed without a majority vote of the Portfolio's interest holders.
The Fund has a fundamental investment policy which allows it to invest all
of its investable assets in the Portfolio. All other fundamental investment
policies and the non-fundamental investment policies of the Fund and the
Portfolio are identical. Therefore, although the following discusses the
investment policies of the Portfolio and the AMR Trust's Board of Trustees ("AMR
Trust Board"), it applies equally to the Fund and the Board.
The Fund's investment objective is to seek current income, liquidity and the
maintenance of a stable $1.00 price per share. The Fund seeks to achieve these
objectives by investing all of its investable assets in the Portfolio, which
invests 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, Federal National Mortgage Association ("FNMA"),
Government National Mortgage Association ("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 Federal Home
Loan Mortgage Corporation ("FHLMC"), are supported only by the credit of the
agency or instrumentality issuing the obligation and the discretionary authority
of the
PROSPECTUS
5
<PAGE> 74
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 "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. 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
Portfolio invests generally have remaining maturities of 397 days or less,
although instruments subject to repurchase agreements may bear longer final
maturities. The average dollar-weighted portfolio maturity of the 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."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
above, the Portfolio also may lend its securities, enter into fully
collateralized repurchase agreements and invest in private placement offerings.
SECURITIES LENDING. The 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 the Portfolio would exceed 33 1/3% of its
total assets. The 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 Portfolio seeks 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 the
Portfolio's investment policies and restrictions, collateral received in
connection with securities loans will be deemed an asset of the 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 the Portfolio's
securities. The SEC has granted exemptive relief that permits the Portfolio 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 the Portfolio from a securities dealer or bank
subject to resale at an agreed upon price on a later date. The 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
PROSPECTUS
6
<PAGE> 75
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 Portfolio, 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 Portfolio through or with the assistance of
the issuer or dealers who make a market in the Section 4(2) securities, thus
providing liquidity. The Portfolio will not invest more than 10% of its
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 the 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 Portfolio's 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 the Portfolio's liquidity to the extent that qualified institutional
buyers no longer wish to purchase these restricted securities.
BROKERAGE PRACTICES -- The Portfolio normally will not incur any brokerage
commissions on its transactions because money market instruments are generally
traded on a "net" basis with dealers acting as principal for their own accounts
and 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 PORTFOLIO -- As previously described, investors
should be aware that the 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 the Portfolio, which is a
separate investment company. Since the Fund will invest only in the Portfolio,
the 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
its interests to the Fund, the Portfolio sells its interests to other
non-affiliated investment companies and/or other institutional investors. All
institutional investors in the Portfolio pay a proportionate share of the
Portfolio's expenses and invest in the Portfolio on the same terms and
conditions. However, other investment companies investing all of their assets in
the Portfolio are allowed to charge different sales commissions. Therefore,
investors in the Fund may experience different returns from investors in another
investment company that invests exclusively in the Portfolio.
The Fund's investment in the Portfolio may be affected materially by the
actions of large investors in the Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in the Portfolio, the Portfolio's remaining investors could experience higher
pro rata operating expenses, thereby producing lower returns. As a result, the
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in the Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of the Portfolio. A change in the Portfolio's
fundamental objective, policies and restrictions, that is not approved by the
shareholders of the Fund
PROSPECTUS
7
<PAGE> 76
could require the 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, the 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 the Fund and could
affect its liquidity adversely.
The Portfolio's and the Fund's investment objective and policies are
described above. See "Investment Restrictions" for a description of their
investment restrictions. The investment objective of the Fund can be changed
only with shareholder approval. The approval of the Fund and of other investors
in the Portfolio, if any, is not required to change the investment objective,
policies or limitations of the Portfolio, unless otherwise specified. Written
notice shall be provided to shareholders of the Fund within thirty days prior to
any changes in the Portfolio's investment objective. If the investment objective
of the Portfolio changes and the shareholders of the Fund do not approve a
parallel change in the Fund's investment objective, the Fund would seek an
alternative investment vehicle or the Manager would actively manage the Fund.
See "Management and Administration of the Trust" for a complete description
of the investment management fee and other expenses associated with the Fund's
investment in the Portfolio. This Prospectus and the SAI contain more detailed
information about the Fund and the Portfolio, including information related to
(1) the investment objective, policies and restrictions of the Fund and the
Portfolio, (2) the Board of Trustees and officers of the Trust and the AMR
Trust, (3) brokerage practices, (4) the Fund's 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 the Fund's shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restriction are identical for the Fund and the Portfolio. Therefore,
although the following discusses the investment restrictions of the Portfolio,
it applies equally to the Fund. The following fundamental investment
restrictions may be changed with respect to the Fund by the majority vote of the
Fund's outstanding shares or with respect to the Portfolio by the majority vote
of the Portfolio's interest holders. The Portfolio may not:
- 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 the
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Portfolio applies this restriction with respect to 100% of its
assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry, provided that this limitation does
not apply to obligations issued or guaranteed by the U.S. Government, its
agencies and instrumentalities.
The following non-fundamental investment restriction may be changed with
respect to the Fund by a vote of a majority of the Board or with respect to the
Portfolio by a vote of a majority of the AMR Trust Board: the Portfolio may not
invest more than 10% of its net assets in illiquid securities, including
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.
PROSPECTUS
8
<PAGE> 77
YIELDS AND TOTAL RETURNS
From time to time each class of the Fund 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. Each class of the Fund has different expenses which will
impact its performance.
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. The Fund will at times compare its
performance to applicable published indices, and also may 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
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 July 25, 1997, together
with the Administrative Services Agreement described below. The AMR Trust and
the Manager also entered into a Management Agreement dated October 1, 1995, as
amended July 25, 1997, 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 Manager serves as the sole investment adviser to the Portfolio. As
of October 31, 1997, the Manager had assets under management totaling
approximately $18.0 billion including approximately $6.7 billion under active
management and $11.3 billion as named fiduciary or fiduciary adviser. Of the
total, approximately $14.3 billion of assets are related to AMR. American
Airlines, Inc. is not responsible for investments made in the American
AAdvantage Funds.
The Manager provides the Trusts with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also oversees the 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 bears the expense of providing the above services. As
compensation 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 0.15% of the net assets of the
Portfolio. The advisory fee is payable quarterly in arrears. To the extent that
the Fund invests all of its investable assets in the 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 the Portfolio lends its portfolio securities and receives cash collateral
from the borrower, the Manager may 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 may receive up to 25% of the loan fees posted by
borrowers. In addition, the
PROSPECTUS
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<PAGE> 78
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 the Fund's shareholders or the Portfolio's interest holders. A
Management Agreement may be terminated with respect to the Fund or the 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, among others, the following expenses: audits
by independent auditors; transfer agency, custodian, dividend disbursing agent
and shareholder recordkeeping services; taxes, if any, and the preparation of
the 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 Fund's
existence; legal fees; fees to federal and state authorities for the
registration of shares; fees and expenses of Independent Trustees; insurance and
fidelity bond premiums; and any extraordinary expenses of a nonrecurring nature.
A majority of the Independent Trustees of the Board have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
between the Trust and the AMR Trust, including creating a separate Board of
Trustees of the AMR Trust.
ADMINISTRATIVE SERVICES AGREEMENT -- The Manager and the Trust entered into an
Administrative Services Agreement which obligates the Manager to provide the
Fund 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 0.05% of the net
assets of the PlanAhead Class of the Fund. The fee is payable quarterly in
arrears.
DISTRIBUTION OF TRUST SHARES -- Shares are distributed through the Fund's
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.
SERVICE PLAN -- The PlanAhead Class has adopted a service plan ("Service Plan")
which provides that it 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
PROSPECTUS
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<PAGE> 79
meeting called for the purpose of considering such approval, or by the vote of
shareholders. The Service Plan may be terminated with respect to the PlanAhead
Class at any time, without the payment of any penalty, by a vote of a majority
of the Independent Trustees or by a vote of a majority of the outstanding voting
securities of the Fund's PlanAhead Class.
ALLOCATION OF FUND EXPENSES -- Expenses of the Fund generally are allocated
equally among the shares of the 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 -- STATE STREET BANK & TRUST COMPANY ("State Street"), Boston,
Massachusetts, serves as custodian for the Portfolio and the Fund.
TRANSFER AGENT -- State Street serves as transfer agent and provides transfer
agency services for Fund shareholders through its affiliate NATIONAL FINANCIAL
DATA SERVICES, ("NFDS"), Kansas City, Missouri.
INDEPENDENT AUDITOR -- The independent auditor for the Funds and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
HOW TO PURCHASE SHARES
Shares are sold on a continuous basis. Purchase orders should be directed to
NFDS either by mail, by pre-authorized investment or by wire as described below.
The minimum initial purchase for each Fund is $2,500, except for IRA accounts
for which a $2,000 minimum applies. The Fund has 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 $50, except
for wire purchases for which a $500 minimum applies. Shares purchased through
financial intermediaries may be subject to transaction fees. The management of
the Fund reserves the right to waive or change the minimum investment
requirements and to charge an annual fee of $12 (to offset the costs of
servicing accounts with low balances) if an account balance falls below certain
asset levels.
An order to purchase shares of the Fund will be executed at the Fund's next
determined net asset value per share until 2:00 p.m. (or the close of the New
York Stock exchange, which ever comes first), 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, Veteran's Day, Thanksgiving Day and Christmas Day ("Business Day")
and during which federal funds become available to the Fund. 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 the 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.
PROSPECTUS
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<PAGE> 80
PURCHASING BY MAIL -- To open an account by mail, complete the application form,
include a check payable to the American AAdvantage Funds ($2,500 minimum) and
mail both to:
American AAdvantage Funds
c/o NFDS
P.O. Box 419643
Kansas City, MO 64141-6643
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. For subsequent
purchases by mail make your check payable to the American AAdvantage Funds ($50
minimum) and include your account number on your check. Mail to the address
printed above. Include either the detachable form from your account statement,
the deposit slips from your checkbook (if you opted for checking) or a letter
with the account name and number.
SUBSEQUENT PURCHASES BY PRE-AUTHORIZED AUTOMATIC INVESTMENT -- Pre-Authorized
Automatic Investment allows you to make regular, automatic transfers ($50
minimum) from your bank account to purchase shares in the Fund after an account
has been open. To establish this option, provide the appropriate information on
the application form and attach a voided check from your bank account. Funds
will be transferred automatically from your bank account via Automated Clearing
House ("ACH") on the 5th day of each month.
PURCHASES BY WIRE -- A completed application form must precede an initial
purchase by wire. Call (800) 388-3344 to wire funds. Federal funds ($2,500 for
initial purchases and $500 for subsequent purchases) should be wired to:
State Street Bank & Trust Co.
ABA Routing #0110-0002-8, Account #9905-342-3
Attention: American AAdvantage Funds -- PlanAhead Class -- U.S.
Government Money Market Fund.
You will be responsible for any charges assessed by your bank to handle
wire transfers.
HOW TO REDEEM SHARES
Shares of the 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 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 Fund intends
to redeem shares in cash, the Fund reserves the right to pay the redemption
price in whole or in part by a distribution of readily marketable securities
held by the Portfolio. See the SAI for further information concerning
redemptions in kind.
Redemption proceeds generally will be sent within one Business Day. However,
if making immediate payment could affect the Fund adversely, it may take up to
seven days to send payment.
A minimum of $2,500 is required in order to maintain an account in the Fund.
Otherwise, the Fund may give a shareholder 60 days' notice to increase the
account balance to this level in order to avoid the imposition of an account fee
or account closure. If a shareholder does not increase the account balance to
$2,500 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 your account
application reflects that option. 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, you should call NFDS at (800) 388-3344. Redemption
proceeds will be
PROSPECTUS
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<PAGE> 81
mailed only 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, you authorize the Fund or
its 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, NFDS will employ reasonable
procedures specified by the Fund to confirm that such instructions are genuine.
For instance, all telephone redemption requests will be recorded and proceeds of
telephone redemption requests will be sent only to the address or account
designated in the application. Neither the Fund, the Trust, the Manager, State
Street NFDS, or their trustees, directors or officers will be liable for any
unauthorized or fraudulent redemption instructions received by telephone. 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 you elect so on the application, shares of the Fund 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 you. If
copies of drafts are required, a service charge of $2 per check will be assessed
to you.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- You can arrange to have a pre-authorized
amount ($100 or more) redeemed from your account and automatically deposited
into a bank account, via ACH, on the 15th day of each month. For more
information regarding pre-authorized automatic redemptions, contact NFDS at
(800) 388-3344.
REDEEMING BY MAIL -- Except for certain intermediary accounts, a letter of
instruction may be mailed to American AAdvantage Funds -- PlanAhead Class, c/o
NFDS, P.O. Box 419643, Kansas City, MO 64141-6643 to redeem shares. The letter
should specify the 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 redemption requests (i) over $25,000, (ii) redemption proceeds
in any amount sent to an address other than the address of record or to a
commercial bank account other than the account designated on the application, or
(iii) redemptions for 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
NFDS.
REDEEMING BY WIRE -- Shares may be redeemed by wire if your account application
reflects that option. Redemption proceeds will be transmitted directly to your
predesignated account at a domestic bank upon request, for amounts of at least
$500. In order to redeem by wire, call (800) 388-3344. Your account will be
charged $10 for wire redemptions to cover transaction costs.
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 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 State
Street at (800) 388-3344.
PROSPECTUS
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<PAGE> 82
VALUATION OF SHARES
The net asset value of each share of the Fund is determined as of the close
of the Exchange, generally 4:00 p.m. Eastern time, on each 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 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.
Obligations held by the Portfolio are valued in accordance with the
amortized cost method, which is designed to enable the Portfolio and the Fund to
maintain a consistent $1.00 per share net asset value.
DIVIDENDS AND TAX MATTERS
Dividends paid on each class of the Fund's shares are calculated at the same
time and in the same manner.
All of the Fund's net investment income and net short-term capital gain, if
any, generally is declared as dividends on each 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. The Fund's net investment income
attributable to the PlanAhead Class will consist of that class' pro rata share
of the Fund's share of interest accrued and discount earned on the Portfolio's
securities less amortization of premium and estimated expenses of both the
Portfolio and the Fund attributable to the PlanAhead Class. The Portfolio does
not expect to realize net capital gain, and, therefore, the Fund does not
foresee paying any capital gain distributions. If the Fund (either directly or
indirectly through the 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 the Fund's PlanAhead Class shares will be
automatically declared and paid in additional PlanAhead Class shares of the
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 NFDS at least ten days prior to the payment
date for a dividend or other distribution.
The 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 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 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 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 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 Portfolio has received a
ruling from the Internal Revenue Service that it is classified for federal
income tax purposes as a partnership; accordingly, it is not subject to federal
income tax.
Dividends from the Fund's investment company taxable income are 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),
PROSPECTUS
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<PAGE> 83
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.
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).
The 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 (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 Trust.
For further tax information, see the SAI.
GENERAL INFORMATION
The Trust currently is comprised of ten separate investment portfolios. The
Fund is comprised of three classes of shares, which can be issued in an
unlimited number. Each share represents an equal proportionate beneficial
interest in the 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
Portfolio or series may vote on matters affecting that Portfolio or series. 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 the Portfolio's interest holders, as
required by the 1940 Act, the 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 the Portfolio interest holder's votes are
proportionate to its percentage interests in the Portfolio, one or more other
Portfolio investors could, in certain instances, approve an action against which
a majority of the outstanding voting securities of the Fund had voted. This
could result in the Fund's redeeming its investment in the Portfolio, which
could result in increased expenses for the Fund. Whenever the shareholders of
the Fund are called to vote on matters related to the 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 the Portfolio in the Portfolio's report to shareholders will be
provided to the shareholders of the 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.
SHAREHOLDER COMMUNICATIONS
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 of the Fund
will be audited by Ernst & Young LLP, independent auditor, at least annually.
Shareholder inquiries and requests for information, including a Prospectus,
regarding the other investment companies which also invest
PROSPECTUS
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<PAGE> 84
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 and American
AAdvantage U.S. Government Money Market Fund are service marks of AMR Investment
Services, Inc.
PROSPECTUS
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<PAGE> 85
AMERICAN AADVANTAGE FUNDS - AMR CLASS
SUPPLEMENT DATED JANUARY 1, 1998
TO THE PROSPECTUS DATED MARCH 1, 1997
1. All references to Hub & Spoke(R) should be replaced by "master-feeder" and
footnote 2 on page 2 should be deleted.
2. Effective January 1, 1998, the International Equity Portfolio may invest in
Portugal.
3. The section titled "CUSTODIAN AND TRANSFER AGENT" on page 29 should read:
STATE STREET BANK & TRUST COMPANY, Boston, Massachusetts, serves as
custodian for the Portfolios of the AMR Trust and the Funds and as transfer
as agent for the AMR Class. BANKERS TRUST COMPANY, New York, New York,
serves as custodian and transfer agent for the assets of the Equity 500
Index Portfolio.
4. Insert the following at the end of the first whole paragraph on page 31: On
December 9, 1997, Brandywine and Legg Mason, Inc. announced the signing of
a definitive agreement to merge Brandywine into Legg Mason, Inc. in an
exchange of stock. Subject to various conditions being satisfied, it is
anticipated that the transaction will close in late January 1998.
Thereafter, Brandywine will become a wholly owned subsidiary of Legg Mason,
Inc. but will continue to be managed by its current senior management.
5. Add Martin Luther King's Birthday to the list of New York Stock Exchange
business holidays on page 33.
6. Effective January 2, 1998, the phone number for purchase and redemption of
shares is (800) 492-9063. Wire purchases should be sent to: State Street
Bank & Trust Company, ABA Routing #0110-0002-8, AC-0002-888-6, Attn:
American AAdvantage Funds-AMR Class and reference the specific Fund.
Purchases by mail should be sent to: State Street Bank & Trust Company,
P.O. Box 1978, Boston, MA 02105-1978, Attn: American AAdvantage Funds-AMR
Class.
7. On May 31, 1997, Morgan Stanley Group Inc. and Dean Witter, Discover & Co.
merged to form Morgan Stanley, Dean Witter, Discover & Co. As of that
date, Morgan Stanley Asset Management Inc., an investment adviser to the
American AAdvantage International Equity Fund, became a subsidiary of
Morgan Stanley, Dean Witter, Discover & Co.
<PAGE> 86
8. The financial highlights in the following table for the American AAdvantage
S&P 500 Index Fund have been derived from financial statements of the
American AAdvantage Funds. The information is unaudited. Such information
should be read in conjunction with the financial statements incorporated in
the statement of additional information, as supplemented July 30, 1997,
which contains further information about performance of the Funds and can
be obtained by investors without charge.
AMERICAN AADVANTAGE S&P 500 INDEX FUND - FINANCIAL HIGHLIGHTS
Contained below are selected data for a share outstanding, total investment
return, ratios to average net assets and other supplemental data for the
American AAdvantage S&P 500 Index Fund.
<TABLE>
<CAPTION>
For the
six months ended June
30, 1997(+)
---------------------
<S> <C>
PER SHARE OPERATING PERFORMANCE:
NET ASSET VALUE, BEGINNING OF PERIOD..................................... $ 10.00
----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income.................................................. 0.06
Net Realized and Unrealized Gain on Investments and Futures
Transactions........................................................ 1.99
----------
Total From Investment Operations......................................... 2.05
----------
DISTRIBUTIONS TO SHAREHOLDERS
Net Investment Income.................................................. (0.02)
Net Realized Gain on Investments and Futures
Transactions........................................................ --
----------
Total Distributions.................................................... (0.02)
==========
NET ASSET VALUE, END OF PERIOD........................................... $ 12.03
TOTAL INVESTMENT RETURN.................................................. 20.50%
SUPPLEMENTAL DATA AND RATIOS:
Net Assets, End of Period (000s
omitted)............................................................ $ 2,832
Ratios to Average Net Assets:
Net Investment Income.................................................. 1.77%(*)
Expenses, including expenses of the BT Equity 500 Index
Portfolio......................................................... 0.22%(*)
Decrease Reflected in Above Expense Ratio Due to Absorption
of Expenses by AMR Investment Services,
Inc............................................................... 1.62%(*)
</TABLE>
- ---------------
(+) Unaudited
(*) Annualized
<PAGE> 87
AMERICAN AADVANTAGE FUNDS
AMERICAN AADVANTAGE MILEAGE FUNDS
PLATINUM CLASS
SUPPLEMENT DATED JANUARY 1, 1998
TO THE PROSPECTUS DATED MARCH 1, 1997
1. All references to Hub & Spoke(R) should be replaced by "master-feeder" and
delete the footnote on page 2.
2. The section titled "CUSTODIAN AND TRANSFER AGENT" should be replaced by:
CUSTODIAN - STATE STREET BANK & TRUST COMPANY ("State Street"), Boston,
Massachusetts, serves as custodian for the Portfolios of the AMR Trust and
the Funds.
TRANSFER AGENT - State Street serves as transfer agent and provides
transfer agency services for Fund shareholders through its affiliate
NATIONAL FINANCIAL DATA SERVICES, ("NFDS"), Kansas City, Missouri.
<PAGE> 88
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
INSTITUTIONAL CLASS
SUPPLEMENT DATED JANUARY 1, 1998
TO THE PROSPECTUS DATED SEPTEMBER 15, 1997
1. All references to Hub & Spoke(R) should be replaced by "master-feeder" and
the footnote on page 2 should be deleted.
2. The section titled "CUSTODIAN AND TRANSFER AGENT" on page 15 should be
replaced by:
CUSTODIAN - STATE STREET BANK & TRUST COMPANY ("State Street"), Boston,
Massachusetts, serves as custodian for the Portfolios of the AMR Trust and
the Fund.
TRANSFER AGENT - State Street serves as transfer agent and provides
transfer agency services for Fund shareholders through its affiliate
NATIONAL FINANCIAL DATA SERVICES, ("NFDS"), Kansas City, Missouri.
3. Effective January 2, 1998, the phone number for purchase and redemption of
shares is (800) 658-5811. Wire purchases should be sent to: State Street
Bank & Trust Company, ABA Routing #0110-0002-8, AC-9905-342-3, Attn:
American AAdvantage Funds-Institutional Class and reference the specific
Fund. Purchases by mail should be sent to: American AAdvantage Funds, c/o
NFDS, P.O. Box 419643, Kansas City, MO 64141-6643.
<PAGE> 89
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
AMR CLASS
SUPPLEMENT DATED JANUARY 1, 1998
TO THE PROSPECTUS DATED SEPTEMBER 15, 1997
1. All references to Hub & Spoke(R) should be replaced by "master-feeder" and
delete footnote 2 on page 2.
2. The section titled "CUSTODIAN AND TRANSFER AGENT" on page 9 should be
replaced by:
CUSTODIAN AND TRANSFER AGENT- STATE STREET BANK & TRUST COMPANY ("State
Street"), Boston, Massachusetts, serves as custodian for the Portfolio and
the Fund, and as transfer agent for the AMR Class.
3. Effective January 2, 1998, the phone number for purchase and redemption of
shares is (800) 492-9063. Wire purchases should be sent to: State Street
Bank & Trust Company, ABA Routing #0110-0002-8, AC-0002-888-6, Attn:
American AAdvantage Funds-AMR Class-Intermediate Bond Fund. Purchases by
mail should be sent to: State Street Bank & Trust Company, P.O. Box 1978,
Boston, MA 02105-1978, Attn: American AAdvantage Funds-AMR Class.
