<PAGE> 1
As filed with the Securities and Exchange Commission on October 12, 2000
1933 Act File No. 33-11387
1940 Act File No. 811-4984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. [ ]
----
Post-Effective Amendment No. 33 [X]
----
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 34
----
(Check appropriate box or boxes.)
AMERICAN AADVANTAGE FUNDS
(Exact Name of Registrant as Specified in Charter)
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (817) 967-3509
WILLIAM F. QUINN, PRESIDENT
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
(Name and Address of Agent for Service)
Copy to:
ROBERT J. ZUTZ, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, DC 20036
Approximate Date of Proposed Public Offering December 29, 2000
-----------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on [date] pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[X] on (December 29, 2000) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
Registrant has adopted a master-feeder operating structure for each of its
series. This Post-Effective Amendment includes signature pages for the AMR
Investment Services Trust, the master trust, and the American AAdvantage Funds,
the feeder trust.
<PAGE> 2
AMERICAN AADVANTAGE FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the Institutional Class of the American AAdvantage High
Yield Bond Fund
Prospectus for the PlanAhead Class of the American AAdvantage High
Yield Bond Fund
Statement of Additional Information for the Institutional Class and
PlanAhead Class of the American AAdvantage High Yield Bond Fund
Part C
Signature Pages
Exhibits
The sole purpose of this Post-Effective Amendment to the Trust's
Registration Statement is to register the Institutional Class and PlanAhead
Class shares of the High Yield Bond Fund. This Post-Effective Amendment does not
effect the prospectuses or statements of additional information of the Trust's
other series.
<PAGE> 3
AMERICAN
AADVANTAGE FUNDS(R)
High Yield Bond Fund
- Institutional Class -
PROSPECTUS
December 29, 2000
[AMR LOGO]
Managed by AMR Investments(R)
THE SECURITIES AND EXCHANGE COMMISSION DOES NOT GUARANTEE THAT THE INFORMATION
IN THIS PROSPECTUS OR ANY OTHER MUTUAL FUND'S PROSPECTUS IS ACCURATE OR
COMPLETE, NOR DOES IT JUDGE THE INVESTMENT MERIT OF THIS FUND. TO STATE
OTHERWISE IS A CRIMINAL OFFENSE.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
ABOUT THE FUND
Investment Objectives, Strategies and Risks..........................3
The Manager..........................................................5
The Investment Adviser...............................................5
Valuation of Shares..................................................6
ABOUT YOUR INVESTMENT
Purchase and Redemption of Shares....................................6
Distributions and Taxes..............................................9
ADDITIONAL INFORMATION
Distribution of Trust Shares ........................................9
Master-Feeder Structure..............................................9
Additional Information......................................Back Cover
</TABLE>
2
<PAGE> 5
ABOUT THE FUND
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
High current income and capital appreciation.
PRINCIPAL STRATEGIES
The American AAdvantage High Yield Bond Fund (the "Fund") seeks to maximize
current income by investing in a diversified portfolio of public and private
issue debt securities that are rated below investment grade (such as BB or lower
by Standard & Poor's Corporation and/or Ba or lower by Moody's Investors
Service, Inc.) or deemed to be below investment grade by the investment adviser.
These types of securities are commonly referred to as "junk bonds." The Fund
seeks capital appreciation as a secondary objective.
The Fund seeks its investment objectives by investing, under normal
circumstances, at least 70% of its assets in a diversified portfolio of domestic
and foreign high yield bonds, preferred stocks, and convertible securities. High
yield issuers are generally those which have below investment grade ratings
because they are relatively small in size, relatively young in years, relatively
leveraged financially (perhaps borrowing heavily to finance expansion or due to
a leveraged buyout), or formerly "blue chip" companies that have encountered
some financial difficulties.
The weighted average maturity of the Fund's debt securities is generally
expected to be from six to eight years. In selecting investments, the investment
adviser relies heavily on internal research and credit analysis. The investment
adviser will adjust the Fund's overall credit rating and average maturity based
on its judgment of the economic climate, industry dynamics, and values in the
high yield market.
The investment adviser expects to make other investments, to a lesser extent,
including foreign securities, common stocks, warrants, rights, and options, in
keeping with the Fund's overall investment objective. From time to time, the
investment adviser may take short equity positions as a hedge against selected
high yield bond positions.
The Fund seeks its investment objectives by investing all of its investable
assets in the High Yield Bond Portfolio ("Portfolio") of the AMR Investment
Services Trust ("AMR Trust"). The Portfolio's investment objectives are
identical to those of the Fund. Throughout this Prospectus, statements regarding
investments by the Fund refer to investments made by the Portfolio. For easier
reading, the term "Fund" is used throughout the Prospectus to refer to either
the Fund or the Portfolio, unless stated otherwise. See "Master-Feeder
Structure".
RISK FACTORS
o Interest Rate Risk
The Fund is subject to the risk that the market value of the bonds it
holds will decline due to rising interest rates. When interest rates
rise, the price of most bonds goes down. When interest rates go down,
bond prices generally go up. The price of a bond is also affected by
its maturity. Bonds with longer maturities generally have greater
sensitivity to changes in interest rates.
o Credit Risk
The Fund is subject to the risk that the issuer of a bond will fail to
make timely payment of interest or principal. A decline in an issuer's
credit rating can cause its price to go down. Since the Fund invests
in lower-quality debt securities, this risk will be substantial.
3
<PAGE> 6
o Market Risk
Market risk involves the possibility that the value of the Fund's
investments will decline due to drops in the overall high yield bond
market. Changes in the economic climate, investor perceptions, and
stock market volatility can cause the prices of the Fund's investments
to decline, regardless of the financial conditions of the issuers held
by the Fund.
o Foreign Investing
Investing in foreign securities carries potential risks not associated
with domestic investments. Such risks include, but are not limited to:
(1) currency exchange rate fluctuations, (2) political and financial
instability, (3) less liquidity and greater volatility of foreign
investments, (4) lack of uniform accounting, auditing and financial
reporting standards, (5) less government regulation and supervision of
foreign stock exchanges, brokers and listed companies, (6) increased
price volatility, and (7) delays in transaction settlement in some
foreign markets.
o Liquidity Risk
High yield bonds tend to be less liquid than higher-rated bonds. This
means that the Fund may experience difficulty selling the Fund's
investments at favorable prices. In addition, valuation of the Fund's
investments may become more difficult if objective market prices are
unavailable.
o Additional Risk
An investment in the Fund is not a deposit of a bank and is not
insured or guaranteed by the Federal Deposit Insurance Corporation or
any other government agency. The value of an investment in the Fund
will fluctuate up and down, which means an investor could lose money.
HISTORICAL PERFORMANCE
Since this is a new Fund without a performance history, the prospectus does not
include a bar chart of annual total returns or a performance table of average
annual total returns.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.(1)
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND
ASSETS)
<TABLE>
<S> <C>
Management Fees......................................x.xx%
Other Expenses.......................................x.xx%(2)
----
Total Annual Operating Expenses......................x.xx%
====
Fee Waiver and/or Expense Reimbursement..............x.xx%(3)
Net Expenses.........................................x.xx%
</TABLE>
(1) The expense table and the Example below reflect the expenses of
both the Fund and the Portfolio.
(2) "Other Expenses" are based on estimates for the current fiscal
year.
(3) The Manager has contractually agreed to waive a portion of its
fee and to reimburse the Fund for other expenses through October
31, 2001 to the extent that Total Operating Expenses exceed
x.xx%.
EXAMPLE
This example shows the expenses you would pay over time if you invested $10,000
in the Fund. It assumes that you earn 5% total return each year that the Fund's
operating expenses remain the same and that you sell your shares at the end of
each period. The actual expenses and total return of the Fund will vary over
time and, therefore, this example is for comparison purposes only.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C>
$xxx $xxx
</TABLE>
4
<PAGE> 7
THE MANAGER
The American AAdvantage Funds ("Trust") has retained AMR Investment Services,
Inc. to serve as its Manager. The Manager, located at 4333 Amon Carter
Boulevard, Fort Worth, Texas 76155, is a wholly owned subsidiary of AMR
Corporation, the parent company of American Airlines, Inc. The Manager was
organized in 1986 to provide investment management, advisory, administrative and
asset management consulting services. As of November 30, 2000, the Manager had
approximately $xx.x billion of assets under management, including approximately
$x.x billion under active management and $xx.x billion as named fiduciary or
financial adviser. Of the total, approximately $xx.x billion of the assets are
related to AMR Corporation.
The Manager provides or oversees all administrative, investment advisory and
portfolio management services to the Fund. The Manager
o develops the investment programs for the Fund,
o selects and changes investment advisers (subject to requisite
approvals),
o monitors the investment adviser's investment programs and results,
o coordinates the investment activities of the investment adviser to
ensure compliance with regulatory restrictions, and
o oversees the Fund's securities lending activities and any actions
taken by the securities lending agent.
As compensation for providing management services, the Fund pays the Manager an
annualized advisory fee that is calculated and accrued daily, equal to the sum
of 0.10% of the net assets of the Fund, plus all fees paid to the investment
adviser. The Manager also may receive up to 25% of the net annual interest
income and up to 25% of loan fees in regards to securities lending activities.
Currently the Manager receives 10% of the net annual interest income from the
investment of cash collateral and 10% of the loan fees posted by borrowers. In
addition to management fees, the Fund pays fees to the Manager for
administrative and management services (other than investment advisory
services). As compensation for these services, the Institutional Class of the
Fund pays a quarterly fee at the annual rate of 0.25% of net assets.
William F. Quinn and Nancy A. Eckl have primary responsibility for the
day-to-day operations of the Fund. These responsibilities include oversight of
the investment adviser and regular review of its performance. Mr. Quinn has
served as President of the Manager since its inception in 1986. Ms. Eckl has
served as Vice President-Trust Investments since May 1995.
THE INVESTMENT ADVISER
The investment adviser, MW Post Advisory Group, LLC, has discretion to purchase
and sell securities for the Fund in accordance with the Fund's objectives,
policies, restrictions and more specific strategies provided by the Manager. The
investment adviser has entered into a separate investment advisory agreement
with the Manager to provide investment advisory services to the Fund and the
Portfolio. Pursuant to an exemptive order issued by the Securities and Exchange
Commission ("SEC"), the Manager is permitted to enter into new or modified
investment advisory agreements with existing or new investment advisers without
approval of Fund shareholders, but subject to approval of the Trust's Board of
Trustees ("Board") and the AMR Investment Services Trust Board ("AMR Trust
Board"). The Prospectus will be supplemented if additional investment advisers
are retained or the contract with the existing investment adviser is terminated.
5
<PAGE> 8
MW POST ADVISORY GROUP, LLC ("MW POST"), 1880 Century Park East, Suite 820, Los
Angeles, California 90067, is a professional investment management firm that has
been providing advisory services since 1992. MW Post is jointly owned by the
principals of the firm and Metropolitan West Financial, LLC. As of November 30,
2000, MW Post had assets under management totaling approximately $x.x. MW Post
will be paid an annualized fee equal to x.xx% of Portfolio assets under its
discretionary management.
VALUATION OF SHARES
The price of Fund shares is based on the Fund's net asset value ("NAV"). The NAV
per share of the Fund is computed by adding total assets, subtracting all of the
Fund's liabilities, and dividing the result by the total number of shares
outstanding. The Fund's investments are valued based on market value. 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. The NAV of Institutional Class shares will be determined based on a pro
rata allocation of investment income, expenses and total capital gains and
losses. The Fund's NAV is determined as of the close of the New York Stock
Exchange ("Exchange"), generally 4:00 p.m. Eastern time, on each day it is open
for business.
ABOUT YOUR INVESTMENT
PURCHASE AND REDEMPTION OF SHARES
ELIGIBILITY
Institutional Class shares are offered without a sales charge to investors who
make an initial investment of at least $2 million, including:
o agents or fiduciaries acting on behalf of their clients (such as
employee benefit plans, personal trusts and other accounts for which a
trust company or financial advisor acts as agent or fiduciary);
o endowment funds and charitable foundations;
o employee welfare plans which are tax-exempt under Section 501(c)(9) of
the Internal Revenue Code of 1986, as amended ("Code");
o qualified pension and profit sharing plans,
o cash and deferred arrangements under Section 401(k) of the Code;
o corporations; and
o other 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. In addition, for
investors such as 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.
PURCHASE POLICIES
Shares of the Fund are offered and purchase orders accepted until the close of
the Exchange, generally 4:00 p.m. Eastern time, on each day on which the
Exchange is open for trading. If a purchase order is received in good order
prior to the deadline, the purchase price will be the NAV per share next
determined on that day. If a purchase order is received in good order after the
applicable deadline, the purchase price will be the NAV of the following day
that the Fund is open for business. Checks to purchase shares 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. The Fund reserves the right to reject any order for the
purchase of shares and to limit or suspend, without prior
6
<PAGE> 9
notice, the offering of shares. Shares purchased through financial
intermediaries may be subject to transaction fees. No sales charges are assessed
on the purchase or sale of Fund shares.
OPENING AN ACCOUNT
A completed, signed application is required to open an account. You may request
an application form by:
o calling (800) 967-9009, or
o visiting the Funds' website at www.aafunds.com and downloading an
account application.
Complete the application, sign it and:
<TABLE>
<S> <C>
Mail to: or Fax to:
American AAdvantage Funds (817) 967-0768 or (817) 931-4331
P.O. Box 619003, MD 5645
DFW Airport, TX 75261-9003
</TABLE>
HOW TO PURCHASE SHARES
<TABLE>
<CAPTION>
TO MAKE AN INITIAL PURCHASE TO ADD TO AN EXISTING ACCOUNT
<S> <C>
BY CHECK-------------------------------------------------------------------------------------------------------------
o Make the check payable to American AAdvantage o Make the check payable to American AAdvantage
Funds Funds
o Include the Fund name, Fund number and o Include the shareholder's account number,
"Institutional Class" on the check Fund name and Fund number on the check
o Mail check to: o Mail check to:
American AAdvantage Funds American AAdvantage Funds
P.O. Box 219643 P.O. Box 219643
Kansas City, MO 64121-9643 Kansas City, MO 64121-9643
BY WIRE--------------------------------------------------------------------------------------------------------------
If your account has been established, you may call Call (800) 658-5811 to purchase shares by wire. Send a
(800) 658-5811 to purchase shares by wire. Send a bank bank wire to State Street Bank & Trust Co. with these
wire to State Street Bank & Trust Co. with these instructions:
instructions:
o ABA# 0110-0002-8; AC-9905-342-3 o ABA# 0110-0002-8; AC-9905-342-3
o Attn: American AAdvantage Funds-Institutional Class o Attn: American AAdvantage Funds-Institutional
Class
o the Fund name and Fund number o the Fund name and Fund number
o shareholder's account number and registration o shareholder's account number and registration
BY EXCHANGE----------------------------------------------------------------------------------------------------------
Shares of the Fund may be purchased by exchange from another American AAdvantage Fund if the shareholder has owned
Institutional Class shares of the other American AAdvantage Fund for at least 15 days. Send a written request to the
address above or call (800) 658-5811 to exchange shares.
</TABLE>
REDEMPTION POLICIES
Fund shares may be redeemed by telephone or mail on any day that the Fund is
open for business. The redemption price will be the NAV next determined after a
redemption order is received in good order. Proceeds from redemption orders
received by 4:00 p.m. Eastern time generally will be transmitted to shareholders
on the next day that the Fund is open for business and by no later than seven
days after the receipt of a redemption request in good order.
The Fund reserves the right to suspend redemptions or postpone the date of
payment:
o when the Exchange is closed (other than for customary weekend and
holiday closings)
o when trading on the Exchange is restricted
o when the SEC determines that an emergency exists so that disposal of
the Fund's investments or determination of its NAV is not reasonably
practicable
o by order of the SEC for protection of the Fund's shareholders.
7
<PAGE> 10
Proceeds from the sale of shares purchased by check may be withheld until the
check has cleared, which may take up to 15 days. Although the Fund intends to
redeem shares in cash, it reserves the right to pay the redemption price in
whole or in part by a distribution of readily marketable securities held by the
Portfolio.
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
METHOD ADDITIONAL INFORMATION
<S> <C>
BY MAIL----------------------------------------------------------------------------------------------------------------------------
Write a letter of instruction including:
o the Fund name and Fund number o Other supporting documents may be required for estates, trusts,
guardianships, custodians, corporations, IRAs and welfare, pension
o shareholder account number and profit-sharing plans. Call (800) 658-5811 for instructions.
o shares or dollar amount to be redeemed o Proceeds will only be mailed to the account address of record or
transmitted by wire to a commercial bank account designated on
o authorized signature(s) of all persons the account application form.
required to sign for the account
o A signature guarantee is required for redemption orders:
Mail to:
American AAdvantage Funds o in amounts of $100,000 or more,
P.O. Box 219643
Kansas City, MO 64121-9643 o with a request to send the proceeds to an address or
commercial bank account other than the address or
commercial bank account designated on the account
application, or
o for an account whose address has changed within the last 30
days.
BY TELEPHONE-----------------------------------------------------------------------------------------------------------------------
Call (800) 658-5811 to request a redemption. Proceeds from redemptions placed by telephone generally will be
transmitted by wire only, as instructed on the Fund application.
BY EXCHANGE------------------------------------------------------------------------------------------------------------------------
Shares of the Fund may be redeemed in exchange for another American AAdvantage Fund if the shareholder has owned Institutional
Class shares of the Fund for at least 15 days. Send a written request to the address above or call (800) 658-5811 to exchange
shares.
</TABLE>
GENERAL POLICIES
If a shareholder's account balance falls below $100,000, the shareholder may be
asked to increase the balance. If the account balance remains below $100,000
after 45 days, the Fund may close the account and send the shareholder the
proceeds.
The following policies apply to instructions you may provide to the Fund by
telephone:
o The Fund, its officers, trustees, directors, employees, or agents are
not responsible for the authenticity of instructions provided by
telephone, nor for any loss, liability, cost or expense incurred for
acting on them.
o The Fund employs procedures reasonably designed to confirm that
instructions communicated by telephone are genuine.
o Due to the volume of calls or other unusual circumstances, telephone
redemptions may be difficult to implement during certain time periods.
The Fund reserves the right to:
o reject any order for the purchase of shares and to limit or suspend,
without prior notice, the offering of shares,
o modify or terminate the exchange privilege at any time,
o terminate the exchange privilege of any shareholder who makes more
than one exchange in and out of the Fund during any three month
period, and
o seek reimbursement from you for any related loss incurred if your
payment for the purchase of Fund shares by check does not clear your
bank.
8
<PAGE> 11
Third parties, such as banks, broker-dealers and 401(k) plan providers who offer
Fund shares, may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares.
DISTRIBUTIONS AND TAXES
The Fund distributes most or all of its net earnings in the form of dividends
from net investment income and distributions of realized net capital gains.
Unless the account application instructs otherwise, distributions will be
reinvested in additional Fund shares. Distributions are paid monthly to
shareholders on the first business day of the following month.
Usually, distributions received from the Fund will be taxable as ordinary
income. Distributions in the form of realized net short-term capital gains are
similarly taxed. Distributions in the form of realized net long-term capital
gains are taxable to shareholders as long-term capital gains regardless of how
long an investor has been a shareholder. Shareholders may realize a taxable gain
or loss when selling or exchanging shares. That gain or loss may be treated as a
short-term or long-term gain, depending on how long the sold or exchanged shares
were held.
This is only a summary of some of the important tax considerations that may
affect Fund shareholders. Shareholders should consult their tax adviser
regarding specific questions as to the effect of federal, state or local income
taxes on an investment in the Fund.
ADDITIONAL INFORMATION
DISTRIBUTION OF TRUST SHARES
The Trust does not incur any direct distribution expenses related to
Institutional Class shares. However, the Trust has adopted a Distribution Plan
in accordance with Rule 12b-1 under the Investment Company Act of 1940, 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. In the event the Trust begins to incur
distribution expenses for the Fund, distribution fees may be paid out of Fund
assets, possibly causing the cost of your investment to increase over time.
MASTER-FEEDER STRUCTURE
The Fund operates under a master-feeder structure. This means that the Fund is a
"feeder" fund that invests all of its investable assets in a "master" fund with
the same investment objective. The "master" fund purchases securities for
investment. The master-feeder structure works as follows:
----------------------------
Investor
----------------------------
purchases shares of
----------------------------
Feeder Fund
----------------------------
which invests in
----------------------------
Master Fund
----------------------------
which buys
----------------------------
Investment Securities
----------------------------
9
<PAGE> 12
The Fund can withdraw its investment in the Portfolio at any time if the Board
determines that it is in the best interest of the Fund and its shareholders to
do so. If this happens, the Fund's assets will be invested according to the
investment policies and restrictions described in this Prospectus.
10
<PAGE> 13
ADDITIONAL INFORMATION
The Statement of Additional Information ("SAI") contains more details about the
Fund and its investment policies. The SAI is incorporated in this Prospectus by
reference (it is legally part of this Prospectus). A current SAI is on file with
the SEC.
To obtain more information about the Funds or to request a free copy of the SAI:
BY TELEPHONE:
Call (800) 658-5811
BY MAIL:
American AAdvantage Funds
P.O. Box 619003, MD5645
DFW Airport, TX 75261-9003
BY E-MAIL:
american [email protected]
ON THE INTERNET:
Visit our website at www.aafunds.com
Visit the SEC's website at www.sec.gov
Copies of the SAI may also be obtained from the SEC Public Reference Room, after
paying a duplicating fee, by electronic mail to [email protected], or by
writing to: SEC's Public Reference Section, 450 5th Street NW, Washington, D.C.
20549-0102. The Public Reference Room can be reached at (202) 942-8090.
FUND SERVICE PROVIDERS
<TABLE>
<CAPTION>
CUSTODIAN TRANSFER AGENT
--------- --------------
<S> <C>
State Street Bank and Trust Company National Financial Data Services
Boston, Massachusetts Kansas City, Missouri
INDEPENDENT AUDITORS DISTRIBUTOR
-------------------- -----------
Ernst & Young LLP SWS Financial Services, Inc.
Dallas, Texas Dallas, Texas
</TABLE>
AMERICAN
AADVANTAGE FUNDS(R)
SEC File Number 811-4984
American AAdvantage Funds is a registered service mark of AMR Corporation.
American AAdvantage High Yield Bond Fund is a service mark of AMR Investment
Services, Inc. American Airlines is not responsible for investments made in the
American AAdvantage Funds
11
<PAGE> 14
AMERICAN
AADVANT AGE FUNDS(R)
High Yield Bond Fund
- PlanAhead Class (R) -
PROSPECTUS
December 29, 2000
[AMR LOGO]
Managed by AMR INVESTMENTS(R)
THE SECURITIES AND EXCHANGE COMMISSION DOES NOT GUARANTEE THAT THE INFORMATION
IN THIS PROSPECTUS OR ANY OTHER MUTUAL FUND'S PROSPECTUS IS ACCURATE OR
COMPLETE, NOR DOES IT JUDGE THE INVESTMENT MERIT OF THIS FUND. TO STATE
OTHERWISE IS A CRIMINAL OFFENSE.
<PAGE> 15
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ABOUT THE FUND
<S> <C>
Investment Objectives, Strategies and Risks..........................3
The Manager..........................................................5
The Investment Adviser...............................................5
Valuation of Shares..................................................6
ABOUT YOUR INVESTMENT
Purchase and Redemption of Shares....................................6
Distributions and Taxes..............................................9
ADDITIONAL INFORMATION
Distribution of Trust Shares ........................................9
Master-Feeder Structure..............................................9
Additional Information......................................Back Cover
</TABLE>
2
<PAGE> 16
ABOUT THE FUND
INVESTMENT OBJECTIVES, STRATEGIES AND RISKS
INVESTMENT OBJECTIVES
High current income and capital appreciation.
PRINCIPAL STRATEGIES
The American AAdvantage High Yield Bond Fund (the "Fund") seeks to maximize
current income by investing in a diversified portfolio of public and private
issue debt securities that are rated below investment grade (such as BB or lower
by Standard & Poor's Corporation and/or Ba or lower by Moody's Investors
Service, Inc.) or deemed to be below investment grade by the investment adviser.
These types of securities are commonly referred to as "junk bonds." The Fund
seeks capital appreciation as a secondary objective.
The Fund seeks its investment objectives by investing, under normal
circumstances, at least 70% of its assets in a diversified portfolio of domestic
and foreign high yield bonds, preferred stocks, and convertible securities. High
yield issuers are generally those which have below investment grade ratings
because they are relatively small in size, relatively young in years, relatively
leveraged financially (perhaps borrowing heavily to finance expansion or due to
a leveraged buyout), or formerly "blue chip" companies that have encountered
some financial difficulties.
The weighted average maturity of the Fund's debt securities is generally
expected to be from six to eight years. In selecting investments, the investment
adviser relies heavily on internal research and credit analysis. The investment
adviser will adjust the Fund's overall credit rating and average maturity based
on its judgment of the economic climate, industry dynamics, and values in the
high yield market.
The investment adviser expects to make other investments, to a lesser extent,
including foreign securities, common stocks, warrants, rights, and options, in
keeping with the Fund's overall investment objective. From time to time, the
investment adviser may take short equity positions as a hedge against selected
high yield bond positions.
The Fund seeks its investment objectives by investing all of its investable
assets in the High Yield Bond Portfolio ("Portfolio") of the AMR Investment
Services Trust ("AMR Trust"). The Portfolio's investment objectives are
identical to those of the Fund. Throughout this Prospectus, statements regarding
investments by the Fund refer to investments made by the Portfolio. For easier
reading, the term "Fund" is used throughout the Prospectus to refer to either
the Fund or the Portfolio, unless stated otherwise. See "Master-Feeder
Structure".
RISK FACTORS
o Interest Rate Risk
The Fund is subject to the risk that the market value of the bonds it
holds will decline due to rising interest rates. When interest rates
rise, the price of most bonds goes down. When interest rates go down,
bond prices generally go up. The price of a bond is also affected by
its maturity. Bonds with longer maturities generally have greater
sensitivity to changes in interest rates.
o Credit Risk
The Fund is subject to the risk that the issuer of a bond will fail to
make timely payment of interest or principal. A decline in an issuer's
credit rating can cause its price to go down. Since the Fund invests in
lower-quality debt securities, this risk will be substantial.
3
<PAGE> 17
o Market Risk
Market risk involves the possibility that the value of the Fund's
investments will decline due to drops in the overall high yield bond
market. Changes in the economic climate, investor perceptions, and
stock market volatility can cause the prices of the Fund's investments
to decline, regardless of the financial conditions of the issuers held
by the Fund.
o Foreign Investing
Investing in foreign securities carries potential risks not associated
with domestic investments. Such risks include, but are not limited to:
(1) currency exchange rate fluctuations, (2) political and financial
instability, (3) less liquidity and greater volatility of foreign
investments, (4) lack of uniform accounting, auditing and financial
reporting standards, (5) less government regulation and supervision of
foreign stock exchanges, brokers and listed companies, (6) increased
price volatility, and (7) delays in transaction settlement in some
foreign markets.
o Liquidity Risk
High yield bonds tend to be less liquid than higher-rated bonds. This
means that the Fund may experience difficulty selling the Fund's
investments at favorable prices. In addition, valuation of the Fund's
investments may become more difficult if objective market prices are
unavailable.
o Additional Risk
An investment in the Fund is not a deposit of a bank and is not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The value of an investment in the Fund will
fluctuate up and down, which means an investor could lose money.
HISTORICAL PERFORMANCE
Since this is a new Fund without a performance history, the prospectus does not
include a bar chart of annual total returns or a performance table of average
annual total returns.
FEES AND EXPENSES
This table describes the fees and expenses that you may pay if you buy and hold
Fund shares.(1)
<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
<S> <C>
Management Fees......................................x.xx%
Other Expenses.......................................x.xx%(2)
-----
Total Annual Operating Expenses......................x.xx%
=====
Fee Waiver and/or Expense Reimbursement..............x.xx(3)
Net Expenses.........................................x.xx%
</TABLE>
(1) The expense table and the Example below reflect the expenses of
both the Fund and the Portfolio.
(2) "Other Expenses" are based on estimates for the current fiscal
year.
(3) The Manager has contractually agreed to waive a portion of its fee
and to reimburse the Fund for other expenses through October 31,
2001 to the extent that Total Operating Expenses exceed x.xx%.
EXAMPLE
This example shows the expenses you would pay over time if you invested $10,000
in the Fund. It assumes that you earn 5% total return each year that the Fund's
operating expenses remain the same and that you sell your shares at the end of
each period. The actual expenses and total return of the Fund will vary over
time and, therefore, this example is for comparison purposes only.
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
------ -------
<S> <C>
$xxx $xxx
</TABLE>
4
<PAGE> 18
THE MANAGER
The American AAdvantage Funds ("Trust") has retained AMR Investment Services,
Inc. to serve as its Manager. The Manager, located at 4333 Amon Carter
Boulevard, Fort Worth, Texas 76155, is a wholly owned subsidiary of AMR
Corporation, the parent company of American Airlines, Inc. The Manager was
organized in 1986 to provide investment management, advisory, administrative and
asset management consulting services. As of November 30, 2000, the Manager had
approximately $xx.x billion of assets under management, including approximately
$x.x billion under active management and $xx.x billion as named fiduciary or
financial adviser. Of the total, approximately $xx.x billion of the assets are
related to AMR Corporation.
The Manager provides or oversees all administrative, investment advisory and
portfolio management services to the Fund. The Manager
o develops the investment programs for the Fund,
o selects and changes investment advisers (subject to requisite approvals),
o monitors the investment adviser's investment programs and results,
o coordinates the investment activities of the investment adviser to ensure
compliance with regulatory restrictions, and
o oversees the Fund's securities lending activities and any actions taken by
the securities lending agent.
As compensation for providing management services, the Fund pays the Manager an
annualized advisory fee that is calculated and accrued daily, equal to the sum
of 0.10% of the net assets of the Fund, plus all fees paid to the investment
adviser. The Manager also may receive up to 25% of the net annual interest
income and up to 25% of loan fees in regards to securities lending activities.
Currently the Manager receives 10% of the net annual interest income from the
investment of cash collateral and 10% of the loan fees posted by borrowers. In
addition to management fees, the Fund pays fees to the Manager for
administrative and management services (other than investment advisory
services). As compensation for these services, the PlanAhead Class of the Fund
pays a quarterly fee at the annual rate of 0.25% of net assets.
William F. Quinn and Nancy A. Eckl have primary responsibility for the
day-to-day operations of the Fund. These responsibilities include oversight of
the investment adviser and regular review of its performance. Mr. Quinn has
served as President of the Manager since its inception in 1986. Ms. Eckl has
served as Vice President-Trust Investments since May 1995.
THE INVESTMENT ADVISER
The investment adviser, MW Post Advisory Group, LLC, has discretion to purchase
and sell securities for the Fund in accordance with the Fund's objectives,
policies, restrictions and more specific strategies provided by the Manager. The
investment adviser has entered into a separate investment advisory agreement
with the Manager to provide investment advisory services to the Fund and the
Portfolio. Pursuant to an exemptive order issued by the Securities and Exchange
Commission ("SEC"), the Manager is permitted to enter into new or modified
investment advisory agreements with existing or new investment advisers without
approval of Fund shareholders, but subject to approval of the Trust's Board of
Trustees ("Board") and the AMR Investment Services Trust Board ("AMR Trust
Board"). The Prospectus will be supplemented if additional investment advisers
are retained or the contract with the existing investment adviser is terminated.
MW POST ADVISORY GROUP, LLC ("MW POST"), 1880 Century Park East, Suite 820, Los
Angeles, California 90067, is a professional investment management firm that has
been providing advisory
5
<PAGE> 19
services since 1992. MW Post is jointly owned by the principals of the firm and
Metropolitan West Financial, LLC. As of November 30, 2000, MW Post had assets
under management totaling approximately $x.x. MW Post will be paid an annualized
fee equal to x.xx% of Portfolio assets under its discretionary management.
VALUATION OF SHARES
The price of Fund shares is based on the Fund's net asset value ("NAV"). The NAV
per share of the Fund is computed by adding total assets, subtracting all of the
Fund's liabilities, and dividing the result by the total number of shares
outstanding. The Fund's investments are valued based on market value. 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. The NAV of PlanAhead Class shares will be determined based on a pro rata
allocation of investment income, expenses and total capital gains and losses.
The Fund's NAV is determined as of the close of the New York Stock Exchange
("Exchange"), generally 4:00 p.m. Eastern time, on each day it is open for
business.
ABOUT YOUR INVESTMENT
PURCHASE AND REDEMPTION OF SHARES
ELIGIBILITY
PlanAhead Class shares are offered to all investors, including investors using
intermediary organizations such as discount brokers or plan sponsors and
retirement accounts.
PURCHASE POLICIES
Shares of the Fund are offered and purchase orders accepted until the close of
the Exchange, generally 4:00 p.m. Eastern time, on each day on which the
Exchange is open for trading. If a purchase order is received in good order
prior to the deadline, the purchase price will be the NAV per share next
determined on that day. If a purchase order is received in good order after the
applicable deadline, the purchase price will be the NAV of the following day
that the Fund is open for business. Checks to purchase shares 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. The Fund reserves the right to reject any order for the
purchase of shares and to limit or suspend, without prior notice, the offering
of shares. Shares purchased through financial intermediaries may be subject to
transaction fees. No sales charges are assessed on the purchase or sale of Fund
shares.
OPENING AN ACCOUNT
A completed, signed application is required to open an account. You may request
an application form by:
o calling (800) 388-3344, or
o visiting the Funds' website at www.aafunds.com and downloading an
account application.
Complete the application, sign it and:
Mail to:
American AAdvantage Funds
P.O. Box 219643
Kansas City, MO 64121-9643
6
<PAGE> 20
HOW TO PURCHASE SHARES
<TABLE>
<CAPTION>
TO MAKE AN INITIAL PURCHASE
BY CHECK
------------------------------------------------------------------------------------------------------
<S> <C>
o Make the check payable to American AAdvantage o Make the check payable to American AAdvantage Funds
Funds
o Include the shareholder's account number, Fund name
o Include the Fund name, Fund number and and Fund number on the check
"PlanAhead Class" on the check
o Mail check ($50 minimum) to:
o Mail check to:
American AAdvantage Funds
American AAdvantage Funds P.O. Box 219643
P.O. Box 219643 Kansas City, MO 64121-9643
Kansas City, MO 64121-9643
</TABLE>
<TABLE>
<CAPTION>
BY WIRE -------------------------------------------------------------------------------------------------------
<S> <C>
If your account has been established, you may call Call (800) 388-3344 to purchase shares by wire. Send
(800) 388-3344 to purchase shares by wire. Send a a bank wire ($500 minimum) to State Street Bank &
bank wire ($2,500 minimum or $2,000 for IRAs) to Trust Co. with these instructions:
State Street Bank & Trust Co. with these instructions:
o ABA# 0110-0002-8; AC-9905-342-3
o ABA# 0110-0002-8; AC-9905-342-3
o Attn: American AAdvantage Funds-PlanAhead Class
o Attn: American AAdvantage Funds-PlanAhead Class
o the Fund name and Fund number
o the Fund name and Fund number
o shareholder's account number and registration
o shareholder's account number and registration
</TABLE>
<TABLE>
<CAPTION>
BY PRE-AUTHORIZED AUTOMATIC INVESTMENT-------------------------------------------------------------------------
<S> <C>
o The minimum account size of $2,500 ($2,000 for Funds will be transferred automatically from your
IRAs) must be met before establishing an bank account via Automated Clearing House ("ACH") on
automatic investment plan. or about the 5th day of each month or quarter,
depending upon which periods you specify.
o Fill in required information on the account
application, including amount of automatic
investment ($50 minimum).
o Attach a voided check to the account
application.
</TABLE>
<TABLE>
<CAPTION>
BY EXCHANGE---------------------------------------------------------------------------------------------------
<S> <C>
o Send a written request to the address above or o You may purchase shares of the Fund by
call (800) 388-3344. exchanging shares from the PlanAhead Class of
another American AAdvantage Fund if you have
o A $2,500 minimum is required to establish a new owned shares of the other American AAdvantage
account in the PlanAhead Class of another Fund for at least 15 days.
American AAdvantage Fund by making an exchange.
o The minimum amount for each exchange is $50.
</TABLE>
REDEMPTION POLICIES
Fund shares may be redeemed by telephone, pre-authorized automatic redemption or
mail on any day that the Fund is open for business. The redemption price will be
the NAV next determined after a redemption order is received in good order.
Proceeds from redemption orders received by 4:00 p.m. Eastern time generally
will be transmitted to shareholders on the next day that the Fund is open for
business and by no later than seven days after the receipt of a redemption
request in good order.
The Fund reserves the right to suspend redemptions or postpone the date of
payment:
o when the Exchange is closed (other than for customary weekend and
holiday closings)
o when trading on the Exchange is restricted
o when the SEC determines that an emergency exists so that disposal
of the Fund's investments or determination of its NAV is not
reasonably practicable
o by order of the SEC for protection of the Fund's shareholders.
Proceeds from the sale of shares purchased by check may be withheld until the
check has cleared, which may take up to 15 days. Although the Fund intends to
redeem shares in cash, it reserves the right to pay the redemption price in
whole or in part by a distribution of readily marketable securities held by the
Portfolio.
7
<PAGE> 21
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
METHOD ADDITIONAL INFORMATION
BY MAIL--------------------------------------------------------------------------------------------------------
<S> <C>
Write a letter of instruction including: o Proceeds will only be mailed to the account
address of record or transmitted by wire to a
commercial bank account designated on the
o the Fund name and Fund number account application form.
o shareholder account number o A signature guarantee is required for
redemption orders:
o shares or dollar amount to be
redeemed o in amounts of $50,000 or more,
o authorized signature(s) of all o with a request to send the proceeds to an
persons required to sign for the address or commercial bank account other than
account the address or commercial bank account
Mail to: designated on the account application, or
American AAdvantage Funds
P.O. Box 219643 o for an account whose address has changed
Kansas City, MO 64121-9643 within the last 30 days.
</TABLE>
<TABLE>
<CAPTION>
BY TELEPHONE---------------------------------------------------------------------------------------------------
<S> <C>
Call (800) 388-3344 to request a redemption. o Telephone redemption orders are limited to
$50,000 within any 30-day period.
o Proceeds will generally be mailed only to the
account address of record or transmitted by
wire to a commercial bank designated on the
account application form.
</TABLE>
<TABLE>
<CAPTION>
BY PRE-AUTHORIZED AUTOMATIC REDEMPTION-------------------------------------------------------------------------
<S> <C>
Fill in required information on the account Proceeds will be transferred automatically
application, including amount ($100 minimum). from your Fund account to your bank account
via ACH on or about the 15th day of each
month.
</TABLE>
<TABLE>
<CAPTION>
BY EXCHANGE---------------------------------------------------------------------------------------------------
<S> <C>
Send a written request to the address above or o You may sell shares of the Fund in exchange
call (800) 388-3344 to exchange shares through the for shares of the PlanAhead Class of another
Automated Voice Response System. American AAdvantage Fund if you have owned
shares of the Fund for at least 15 days.
o The minimum amount for each exchange is $50.
</TABLE>
GENERAL POLICIES
If a shareholder's account balance falls below $2,500 ($2,000 for IRAs), the
shareholder may be asked to increase the balance. If the account balance remains
below $2,500 ($2,000 for IRAs) after 45 days, the Fund may close the account and
send the shareholder the proceeds. The Manager reserves the right to charge an
annual account fee of $12 (to offset the costs of servicing accounts with low
balances) if an account balance falls below certain asset levels.
The following policies apply to instructions you may provide to the Fund by
telephone:
o The Fund, its officers, trustees, directors, employees, or agents
are not responsible for the authenticity of instructions provided
by telephone, nor for any loss, liability, cost or expense incurred
for acting on them.
o The Fund employs procedures reasonably designed to confirm that
instructions communicated by telephone are genuine.
o Due to the volume of calls or other unusual circumstances,
telephone redemptions may be difficult to implement during certain
time periods.
The Fund reserves the right to:
o reject any order for the purchase of shares and to limit or
suspend, without prior notice, the offering of shares,
o modify or terminate the exchange privilege at any time,
o terminate the exchange privilege of any shareholder who makes more
than one exchange in and out of the Fund during any three month
period, and
o seek reimbursement from you for any related loss incurred if your
payment for the purchase of Fund shares by check does not clear
your bank.
Third parties, such as banks, broker-dealers and 401(k) plan providers who offer
Fund shares, may charge transaction fees and may set different minimum
investments or limitations on buying or selling shares.
8
<PAGE> 22
DISTRIBUTIONS AND TAXES
The Fund distributes most or all of its net earnings in the form of dividends
from net investment income and distributions of realized net capital gains.
Unless the account application instructs otherwise, distributions will be
reinvested in additional Fund shares. Distributions are paid monthly to
shareholders on the first business day of the following month.
Usually, distributions received from the Fund will be taxable as ordinary
income. Distributions in the form of realized net short-term capital gains are
similarly taxed. Distributions in the form of realized net long-term capital
gains are taxable to shareholders as long-term capital gains regardless of how
long an investor has been a shareholder. Shareholders may realize a taxable gain
or loss when selling or exchanging shares. That gain or loss may be treated as a
short-term or long-term gain, depending on how long the sold or exchanged shares
were held.
This is only a summary of some of the important tax considerations that may
affect Fund shareholders. Shareholders should consult their tax adviser
regarding specific questions as to the effect of federal, state or local income
taxes on an investment in the Fund.
ADDITIONAL INFORMATION
DISTRIBUTION OF TRUST SHARES
The Trust does not incur any direct distribution expenses related to PlanAhead
Class shares. However, the Trust has adopted a Distribution Plan in accordance
with Rule 12b-1 under the Investment Company Act of 1940, 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. In the event the Trust begins to incur distribution
expenses for the Fund, distribution fees may be paid out of Fund assets,
possibly causing the cost of your investment to increase over time.
MASTER-FEEDER STRUCTURE
The Fund operates under a master-feeder structure. This means that the Fund is a
"feeder" fund that invests all of its investable assets in a "master" fund with
the same investment objective. The "master" fund purchases securities for
investment. The master-feeder structure works as follows:
<TABLE>
<S> <C>
------------------------------------
Investor
------------------------------------
purchases shares of
------------------------------------
Feeder Fund
------------------------------------
which invests in
------------------------------------
Master Fund
------------------------------------
which buys
------------------------------------
Investment Securities
------------------------------------
</TABLE>
The Fund can withdraw its investment in the Portfolio at any time if the Board
determines that it is in the best interest of the Fund and its shareholders to
do so. If this happens, the Fund's assets will be invested according to the
investment policies and restrictions described in this Prospectus.
9
<PAGE> 23
ADDITIONAL INFORMATION
The Statement of Additional Information ("SAI") contains more details about the
Fund and its investment policies. The SAI is incorporated in this Prospectus by
reference (it is legally part of this Prospectus). A current SAI is on file with
the SEC.
To obtain more information about the Funds or to request a free copy of the SAI:
BY TELEPHONE:
Call (800) 388-3344
BY MAIL:
American AAdvantage Funds
P.O. Box 619003, MD5645
DFW Airport, TX 75261-9003
BY E-MAIL:
american [email protected]
ON THE INTERNET:
Visit our website at www.aafunds.com
Visit the SEC's website at www.sec.gov
Copies of the SAI may also be obtained from the SEC Public Reference Room, after
paying a duplicating fee, by electronic mail to [email protected], or by
writing to: SEC's Public Reference Section, 450 5th Street NW, Washington, D.C.
20549-0102. The Public Reference Room can be reached at (202) 942-8090.
FUND SERVICE PROVIDERS
<TABLE>
<CAPTION>
CUSTODIAN TRANSFER AGENT
--------- --------------
<S> <C>
State Street Bank and Trust Company National Financial Data Services
Boston, Massachusetts Kansas City, Missouri
</TABLE>
<TABLE>
<CAPTION>
INDEPENDENT AUDITORS DISTRIBUTOR
-------------------- -----------
<S> <C> <C>
Ernst & Young LLP SWS Financial Services, Inc.
Dallas, Texas Dallas, Texas
</TABLE>
AMERICAN
AADVANTAGE FUNDS(R)
SEC File Number 811-4984
American AAdvantage Funds is a registered service mark of AMR Corporation.
PlanAhead Class is a registered service mark of AMR Investment Services, Inc.
American AAdvantage High Yield Bond Fund is a service mark of AMR Investment
Services, Inc. American Airlines is not responsible for investments made in the
American AAdvantage Funds
10
<PAGE> 24
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE FUNDS(R)
AMERICAN AADVANTAGE HIGH YIELD BOND FUND(SM)
-- INSTITUTIONAL CLASS --
-- PLANAHEAD CLASS --
DECEMBER 29, 2000
The American AAdvantage High Yield Bond Fund (the "Fund") is a separate
investment portfolio of the American AAdvantage Funds (the "Trust"), a no-load,
open-end, diversified management investment company organized as a Massachusetts
business trust on January 16, 1987. The Fund constitutes a separate investment
portfolio with a distinct investment objective and distinct purpose and
strategy. The Fund offers the Institutional and PlanAhead Classes of shares,
which are designed to meet the needs of different groups of investors. This
Statement of Additional Information ("SAI") relates to the Institutional and
PlanAhead Classes of the Trust.
The Fund seeks its investment objective by investing all of its
investable assets in a corresponding portfolio of the AMR Investment Services
Trust ("AMR Trust") that has a similar name and an identical investment
objective to the Fund. The AMR Trust is a separate investment company managed by
AMR Investment Services, Inc. (the "Manager"). The portfolio of the AMR Trust is
referred to herein as the "Portfolio."
This SAI should be read in conjunction with an Institutional Class or
PlanAhead Class prospectus, dated December 29, 2000, (individually, a
"Prospectus"), copies of which may be obtained without charge by calling (800)
967-9009 for an Institutional Class Prospectus or (800) 388-3344 for a PlanAhead
Class Prospectus.
This SAI is not a prospectus and is authorized for distribution to
prospective investors only if preceded or accompanied by a current Prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Non-Principal Investment Strategies and Risks................................2
Investment Restrictions......................................................3
Temporary Defensive Position.................................................4
Trustees and Officers of the Trust and the AMR Trust.........................4
Code of Ethics...............................................................6
Control Persons and 5% Shareholders..........................................6
Investment Advisory Agreement................................................6
Management, Administrative Services and Distribution Fees....................7
Other Service Providers......................................................7
Portfolio Securities Transactions............................................7
Redemptions in Kind..........................................................8
Tax Information..............................................................8
Yield and Total Return Quotations............................................9
Description of the Trust....................................................10
Other Information...........................................................10
</TABLE>
<PAGE> 25
NON-PRINCIPAL INVESTMENT STRATEGIES AND RISKS
In addition to the investment strategies described in the Prospectuses,
the Fund may:
1. Invest in debt securities that are investment grade at the time of
purchase, including obligations of the U.S. Government, its agencies
and instrumentalities, corporate debt securities, mortgage-backed
securities, asset-backed securities, master-demand notes, Yankeedollar
and Eurodollar bank certificates of deposit, time deposits, bankers'
acceptances, commercial paper and other notes, and other debt
securities. Investment grade securities include securities issued or
guaranteed by the U.S. Government, its agencies and instrumentalities,
as well as securities rated in one of the four highest rating
categories by all rating organizations rating that security (such as
Standard & Poor's Corporation or Moody's Investors Service, Inc.).
2. 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.
3. Invest in other investment companies (including affiliated
investment companies) to the extent permitted by the Investment Company
Act of 1940 ("1940 Act") or exemptive relief granted by the Securities
and Exchange Commission ("SEC").
4. Loan securities to broker-dealers or other institutional investors.
Securities loans will not be made if, as a result, the aggregate amount
of all outstanding securities loans by the Portfolio exceeds 33 1/3% of
its total assets (including the market value of collateral received).
For purposes of complying with the Portfolio's investment policies and
restrictions, collateral received in connection with securities loans
is deemed an asset of the Portfolio to the extent required by law. The
Manager receives compensation for administrative and oversight
functions with respect to securities lending activities of the
Portfolio. The amount of such compensation depends on the income
generated by the loan of the securities. 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.
5. Enter into 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 investment adviser
attempts to minimize this risk by entering into repurchase agreements
only with financial institutions that are deemed to be of good
financial standing.
6. Purchase securities in private placement offerings made in reliance
on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 ("1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act
("Section 4(2) securities"). The Portfolio will not invest more than
15% of its respective net assets in Section 4(2) securities and
illiquid securities unless the investment adviser or the Manager
determines, by continuous reference to the appropriate trading markets
and pursuant to guidelines approved by the AMR Trust's Board of
Trustees ("AMR Trust Board"), that any Section 4(2) securities held by
the Portfolio in excess of this level are at all times liquid.
2
<PAGE> 26
INVESTMENT RESTRICTIONS
The Fund has the following fundamental investment policy that enables
it to invest in the Portfolio:
Notwithstanding any other limitation, the Fund may invest all of its
investable assets in an open-end management investment company with
substantially the same investment objectives, policies and limitations
as the Fund. For this purpose, "all of the Fund's investable assets"
means that the only investment securities that will be held by the Fund
will be the Fund's interest in the investment company.
All other fundamental investment policies and the non-fundamental
policies of the Fund and the Portfolio are identical. Therefore, although the
following discusses the investment policies of the Portfolio and the AMR Trust
Board, it applies equally to each Fund and the Trust's Board of Trustees
("Board").
In addition to the investment limitations noted in the Prospectuses,
the following nine restrictions have been adopted by the Portfolio and may be
changed only by the majority vote of the Portfolio's outstanding interests.
"Majority of the outstanding voting securities" under the 1940 Act, and as used
herein means, with respect to the Portfolio, the lesser of (a) 67% of the
interests of the Portfolio present at the meeting if the holders of more than
50% of the interests are present and represented at the interest holders'
meeting or (b) more than 50% of the interests of the Portfolio. Whenever the
Fund is requested to vote on a change in the investment restrictions of the
Portfolio, the Fund will hold a meeting of its shareholders and will cast its
votes as instructed by its shareholders. The percentage of the Fund's votes
representing the Fund's shareholders not voting will be voted by the Board in
the same proportion as those Fund shareholders who do, in fact, vote.
The Portfolio may not:
1. Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Portfolio may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein when
consistent with the other policies and limitations described in the
Prospectuses.
2. Purchase or sell commodities (including direct interests and/or
leases in oil, gas or minerals) or commodities contracts, except with
respect to when-issued securities when consistent with the other
policies and limitations described in the Prospectuses. The Portfolio
may purchase or sell futures contracts and options on futures contracts
as a method for keeping assets readily convertible to cash if needed to
meet shareholder redemptions or other needs while maintaining exposure
to the bond market.
3. Engage in the business of underwriting securities issued by others,
except to the extent that, in connection with the disposition of
securities, the Portfolio may be deemed an underwriter under federal
securities law.
4. Make loans to any person or firm, provided, however, that the making
of a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that the Portfolio may lend its portfolio securities
to broker-dealers or other institutional investors in accordance with
the guidelines stated in the SAI.
5. Purchase from or sell portfolio securities to its officers, Trustees
or other "interested persons" of the Trust, as defined in the 1940 Act,
including its investment advisers and their affiliates, except as
permitted by the 1940 Act and exemptive rules or orders thereunder.
6. Issue senior securities, except that the Portfolio may engage in
when-issued securities and forward commitment transactions.
7. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes. The Portfolio may borrow money from
the Manager or any of its affiliates for temporary purposes. The
aggregate amount of borrowing for the Portfolio is not to exceed 10% of
the value of the Portfolio's assets at the time of borrowing. Although
not a fundamental policy, the Portfolio intends to repay any money
borrowed before any additional portfolio securities are purchased. See
"Other Information" for a further description regarding reverse
repurchase agreements.
3
<PAGE> 27
8. 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; or
9. 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).
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.
The following non-fundamental investment restrictions 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:
1. Invest more than 15% of its net assets in illiquid securities,
including time deposits and repurchase agreements that mature in more
than seven days; or
2. Purchase securities on margin.
The Portfolio may invest up to 10% of its total assets in the
securities of other investment companies to the extent permitted by law;
however, pursuant to exemptive relief granted by the SEC, the Portfolio may
invest up to 25% of its total assets in the aggregate of the American AAdvantage
Money Market Portfolio, American AAdvantage Municipal Money Market Portfolio,
and American AAdvantage U.S. Government Money Market Portfolio. The Portfolio
may incur duplicate advisory or management fees when investing in another mutual
fund.
TEMPORARY DEFENSIVE POSITION
While assuming a temporary defensive position, the Fund may invest up
to 100% of its assets in cash or cash equivalent short-term investment grade
obligations, including: obligations of the U.S. Government, its agencies and
instrumentalities; corporate debt securities, such as commercial paper, master
demand notes, loan participation interests, medium-term notes and funding
agreements; Yankeedollar and Eurodollar bank certificates of deposit, time
deposits, and banker's acceptances; asset-backed securities; and repurchase
agreements involving the foregoing obligations.
TRUSTEES AND OFFICERS OF THE TRUST AND THE AMR TRUST
The Board provides broad supervision over the Trust's affairs. The
Manager is responsible for the management of Trust assets, and the Trust's
officers are responsible for the Trust's operations. The Trustees and officers
of the Trust and AMR Trust are listed below, together with their principal
occupations during the past five years. Unless otherwise indicated, the address
of each person listed below is 4333 Amon Carter Boulevard, MD 5645, Fort Worth,
Texas 76155.
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (52) Trustee and President, AMR Investment Services, Inc. (1986-Present); Chairman,
President American Airlines Employees Federal Credit Union (1989-Present);
Director, Crescent Real Estate Equities, Inc. (1994-Present); Vice
Chairman, United Way of Tarrant County, Texas (1988-Present); Director,
Southern Methodist University Cox School of Business (1999-Present);
Member, Southern Methodist University Endowment Fund Advisory Board (1996
-Present); Trustee, American AAdvantage Mileage Funds (1995-Present);
Trustee, American Select Funds (1999-Present).
</TABLE>
4
<PAGE> 28
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
Alan D. Feld (64) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (1960-Present)#;
1700 Pacific Avenue Director, Clear Channel Communications (1984-Present); Director,
Suite 4100 CenterPoint Properties, Inc. (1994-Present); Trustee, American
Dallas, Texas 75201 AAdvantage Mileage Funds (1996-Present); Trustee, American Select
Funds (1999-Present).
Ben J. Fortson (68) Trustee President and CEO, Fortson Oil Company (1958-Present); Director,
301 Commerce Street Kimbell Art Foundation (1964-Present); Director, Burnett Foundation
Suite 3301 (1987-Present); Honorary Trustee, Texas Christian University
Fort Worth, Texas 76102 (1986-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present); Trustee, American Select Funds (1999-Present).
John S. Justin (83) Trustee Chairman (1969-Present), Chief Executive Officer (1969-1999), Justin
2821 West Seventh Street Industries, Inc. (a diversified holding company); Executive Board
Fort Worth, Texas 76107 Member, Blue Cross/Blue Shield of Texas (1985-Present); Board Member,
Zale Lipshy Hospital (1993-Present); Trustee, Texas Christian University
(1980-Present); Director and Executive Board Member, Moncrief Radiation
Center (1985-Present); Trustee, American AAdvantage Mileage Funds
(1995-Present); Trustee, American Select Funds (1999-Present).
Stephen D. O'Sullivan* (65) Trustee Consultant (1994-Present); Trustee, American AAdvantage Mileage Funds
(1995-Present); Trustee, American Select Funds (1999-Present).
Roger T. Staubach (58) Trustee Chairman of the Board and Chief Executive Officer of The Staubach
15601 Dallas Parkway Company (a commercial real estate company) (1982-Present); Director,
Suite 400 Brinker International (1993-Present); Trustee, Institute for Aerobics
Dallas, Texas 75001 Research; Member, Executive Council, Daytop/Dallas; Member, National
Board of Governors, United Way of America; Board of Directors, PowerUP;
former quarterback of the Dallas Cowboys professional football team;
Trustee, American AAdvantage Mileage Funds (1995-Present); Trustee,
American Select Funds (1999-Present).
Kneeland Youngblood (45) Trustee Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court (1998-Present); Director, L&B Realty Advisors (1998-2000); Trustee,
Suite 1740 Teachers Retirement System of Texas (1993-1999); Director, United
Dallas, Texas 75201 States Enrichment Corporation (1993-1998), Director, Just For the Kids
(1995-Present); Director, Starwood Financial Trust (1998-Present); Member,
Council on Foreign Relations (1995-Present); Trustee, American AAdvantage
Mileage Funds (1996-Present); Trustee, American Select Funds (1999-
Present).
Nancy A. Eckl (38) Vice Vice President, Trust Investments, AMR Investment Services, Inc.
President (1990-Present).
Michael W. Fields (46) Vice Vice President, Fixed Income Investments, AMR Investment Services, Inc.
President (1988-Present).
Barry Y. Greenberg (37) Vice President Vice President, Legal and Compliance, AMR Investment Services, Inc.
and Assistant (1995-Present).
Secretary
Rebecca L. Harris (34) Treasurer Vice President, Finance (1995-Present), AMR Investment Services, Inc.
John B. Roberson (42) Vice Vice President, Sales and Marketing, AMR Investment Services, Inc.
President (1991-Present).
</TABLE>
5
<PAGE> 29
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ---------- ----------------------------------------
<S> <C> <C>
Robert J. Zutz (47) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave. NW
2nd Floor
Washington, D.C. 20036
</TABLE>
* Messrs. Quinn and O'Sullivan are deemed to be "interested persons" of
the Trust and AMR Trust as defined by the 1940 Act.
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump")
provides legal services to American Airlines, Inc., an affiliate of the
Manager. Mr. Feld has advised the Trusts that he has had no material
involvement in the services provided by Akin, Gump to American
Airlines, Inc. and that he has received no material benefit in
connection with these services. Akin, Gump does not provide legal
services to the Manager or AMR Corporation.
All Trustees and officers as a group own less than 1% of the
outstanding shares of the Fund.
As compensation for their service to the Trust, the American AAdvantage
Mileage Funds, the American Select Funds and the AMR Trust (collectively, the
"Trusts"), the Independent Trustees and their spouses receive free air travel
from American Airlines, Inc., an affiliate of the Manager. The Trusts pay
American Airlines the flight service charges incurred for these travel
arrangements. The Trusts compensate each Trustee with payments in an amount
equal to the Trustees' income tax on the value of this free airline travel. Mr.
O'Sullivan, as a retiree of American Airlines, Inc., already receives flight
benefits. Prior to March 1, 2000, the Trusts compensated Mr. O'Sullivan up to
$10,000 annually to cover his personal flight service charges and the charges
for his three adult children, as well as any income tax charged on the value of
these flight benefits. Beginning March 1, 2000, Mr. O'Sullivan will receive an
annual retainer of $20,000 plus $1,250 for each Board meeting attended. Trustees
are also reimbursed for any expenses incurred in attending Board meetings. These
amounts (excluding reimbursements) are reflected in the following table, as paid
by the Funds in existence during the fiscal year ended October 31, 2000. The
compensation amounts below include the flight service charges paid by the Trusts
to American Airlines.
<TABLE>
<CAPTION>
Pension or
Aggregate Retirement Benefits Total
Compensation Accrued as Part of the Estimated Annual Compensation
From the AAdvantage Trust's Benefits Upon From the
Name of Trustee AAdvantage Trust Expenses Retirement Trusts (39 Funds)
--------------- ---------------- ---------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $0
Alan D. Feld $ $0 $0 $
Ben J. Fortson $ $0 $0 $
John S. Justin $0 $0 $0 $0
Stephen D. O'Sullivan $0 $0 $0 $0
Roger T. Staubach $ $0 $0 $
Kneeland Youngblood $ $0 $0 $
</TABLE>
CODE OF ETHICS
The Trust and the investment adviser have each adopted a Code of Ethics
("Code") under Rule 17j-1 of the 1940 Act. Each Code significantly restricts the
personal trading of all employees. For example, each Code requires pre-clearance
of all personal securities trades (with limited exceptions) and prohibits
employees from purchasing or selling a security that is being purchased or sold
or being considered for purchase or sale by the Fund. Each Code is on public
file with, and may be obtained from, the SEC.
CONTROL PERSONS AND 5% SHAREHOLDERS
The Manager is deemed to control the Fund by virtue of its ownership of
more than 25% of the outstanding shares of the Fund as of December 29, 2000.
INVESTMENT ADVISORY AGREEMENT
To the extent that the Fund invests all of its investable assets in a
corresponding portfolio of the AMR Trust, the investment adviser receives a fee
on behalf of the Portfolio, and not the Fund.
The Investment Advisory Agreement between the Trust and the investment
adviser will automatically terminate if assigned, and may be terminated without
penalty at any time by the Manager, by a vote of a majority of the Board or by a
vote of a majority of the outstanding voting securities of the Fund on no less
than thirty (30)
6
<PAGE> 30
days' nor more than sixty (60) days' written notice to the investment adviser,
or by the investment adviser upon sixty (60) days' written notice to the Trust.
The Investment Advisory Agreements will continue in effect provided that
annually such continuance is specifically approved by a vote of the Trustees,
including the affirmative votes of a majority of the Trustees who are not
parties to the Agreement or "interested persons" (as defined in the 1940 Act) of
any such party, cast in person at a meeting called for the purpose of
considering such approval, or by the vote of shareholders.
MANAGEMENT, ADMINISTRATIVE SERVICES AND DISTRIBUTION FEES
The Manager is paid a management fee as compensation for paying
investment advisory fees and for providing the Trust and the AMR Trust with
advisory and asset allocation services. Pursuant to management and
administrative services agreements, 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:
o complying with reporting requirements;
o corresponding with shareholders;
o maintaining internal bookkeeping, accounting and auditing
services and records; and
o supervising the provision of services to the Trusts by third
parties.
In addition to its oversight of the investment advisers, the Manager
invests the portion of Fund assets that the investment adviser determines to be
allocated to high quality short-term debt obligations.
OTHER SERVICE PROVIDERS
SWS Financial Services, Inc. ("SWS"), located at 7001 Preston Road,
Dallas, Texas 75205, is the distributor and principal underwriter of the Fund's
shares, and, as such, receives an annualized fee of $50,000 from the Manager for
distributing the shares of the Trust, the American AAdvantage Mileage Funds and
the American Select Funds.
The transfer agent for the Trust is State Street Bank & Trust Company
("State Street"), Boston, Massachusetts, who provides transfer agency services
to Fund shareholders directly and through its affiliate, National Financial Data
Services, Kansas City, Missouri. State Street also serves as custodian for the
Portfolio and the Fund. The independent auditor for the Fund and the AMR Trust
is Ernst & Young LLP, Dallas, Texas and Boston, Massachusetts.
PORTFOLIO SECURITIES TRANSACTIONS
The investment adviser will place its own orders to execute securities
transactions that are designed to implement the Portfolio's investment objective
and policies. In placing such orders, the 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, as appropriate, the investment adviser, 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 Portfolio's turnover rate, or the frequency of portfolio
transactions, will vary from year to year depending on market conditions and the
Portfolio's cash flows. High portfolio activity increases the Portfolio's
transaction costs, including brokerage commissions, and may result in a greater
number of taxable transactions.
The Investment Advisory Agreement provides, in substance, that in
executing portfolio transactions and selecting brokers or dealers, the principal
objective of the investment adviser is to seek the best net price and execution
available. It is expected that securities ordinarily will be purchased in the
primary markets, and that in assessing the best net price and execution
available, the investment adviser shall consider all factors it deems relevant,
including the breadth of the market in the security, the price of the security,
the financial condition and execution capability of the broker or dealer and the
reasonableness of the commission, if any, for the specific transaction and on a
continuing basis. Transactions with respect to the securities of small and
emerging growth companies in which the Portfolio may invest may involve
specialized services on the part of the broker or dealer and thereby may entail
higher commissions or spreads than would be the case with transactions involving
more widely traded securities.
The Portfolio has established brokerage commission recapture
arrangements with certain brokers or dealers. If the investment adviser chooses
to execute a transaction through a participating broker, the broker
7
<PAGE> 31
rebates a portion of the commission back to the Portfolio. Any collateral
benefit received through participation in the commission recapture program is
directed exclusively to the Portfolio. Neither the Manager nor the investment
adviser receives any benefits from the commission recapture program. The
investment adviser's participation in the brokerage commission recapture program
is optional. The investment adviser retains full discretion in selecting
brokerage firms for securities transactions and is instructed to use the
commission recapture program for a transaction only if it is consistent with the
investment adviser's obligation to seek the best execution available.
REDEMPTIONS IN KIND
Although the Fund intends to redeem shares in cash, it reserves the
right to pay the redemption price in whole or in part by a distribution of
readily marketable securities held by the Portfolio. However, shareholders
always will be entitled to redeem shares for cash up to the lesser of $250,000
or 1% of the Fund's net asset value during any 90-day period. Redemption in kind
is not as liquid as a cash redemption. In addition, if redemption is made in
kind, shareholders who receive securities and sell them could receive less than
the redemption value of their securities and could incur certain transaction
costs.
TAX INFORMATION
TAXATION OF THE FUND
To qualify as a regulated investment company ("RIC") under the Code,
the Fund must, among other requirements:
o Derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans
and gains from the sale or other disposition of securities or
certain other income ("Income Requirement");
o Diversify its investments in securities within certain
statutory limits ("Diversification Requirement"); and
o Distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, taxable net
investment income plus net short-term capital gain).
The Fund, as an investor in the Portfolio, is deemed to own a
proportionate share of the Portfolio's assets and to earn the income on that
share for purposes of determining whether the Fund satisfies the Income and
Diversification Requirements. If the Fund failed to qualify as a RIC for any
taxable year, it would be taxed on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and the shareholders would treat all those distributions as
dividends (that is, ordinary income) to the extent of the Fund's earnings and
profits.
TAXATION OF THE PORTFOLIO
The Portfolio should be classified as a separate partnership for
federal income tax purposes and is not a "publicly traded partnership." As a
result, the Portfolio is or should not be subject to federal income tax;
instead, each investor in the Portfolio, such as the Fund, is required to take
into account in determining its federal income tax liability its share of the
Portfolio's income, gains, losses, deductions, credits and tax preference items,
without regard to whether it has received any cash distributions from the
Portfolio.
Because, as noted above, the Fund is deemed to own a proportionate
share of the Portfolio's assets and to earn a proportionate share of the
Portfolio's income for purposes of determining whether the Fund satisfies the
requirements to qualify as a RIC, the Portfolio intends to conduct its
operations so that the Fund will be able to satisfy all those requirements.
Distributions to the Fund from the Portfolio (whether pursuant to a
partial or complete withdrawal or otherwise) will not result in the Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio and (3) loss will be recognized
if a liquidation distribution consists solely of cash and/or unrealized
receivables. The Fund's basis for its interest in the Portfolio generally will
equal the amount of cash and the basis of any property the Fund invests in the
Portfolio, increased by the Fund's share of the Portfolio's net income and gains
and decreased by (a) the amount of cash and the basis of any property the
Portfolio distributes to the Fund and (b) the Fund's share of the Portfolio's
losses.
8
<PAGE> 32
The Portfolio may acquire zero coupon or other securities issued with
original issue discount. As an investor in the Portfolio that holds those
securities, the Fund would have to include in its income its share of the
original issue discount that accrues on the securities during the taxable year,
even if the Portfolio (and, hence, the Fund) receives no corresponding payment
on the securities during the year. Because the Fund annually must distribute
substantially all of its investment company taxable income, including any
original issue discount, to satisfy the Distribution Requirement and avoid
imposition of excise taxes, the Fund may be required in a particular year to
distribute as a dividend an amount that is greater than the total amount of cash
it actually receives. Those distributions would be made from the Fund's cash
assets, if any, or the proceeds of redemption of a portion of the Fund's
interest in the Portfolio (which redemption proceeds would be paid from the
Portfolio's cash assets or the proceeds of sales of portfolio securities, if
necessary). The Portfolio might realize capital gains or losses from any such
sales, which would increase or decrease the Fund's investment company taxable
income and/or net capital gain (the excess of net long-term capital gain over
net short-term capital loss).
If the Portfolio acquires stock in a foreign corporation that is a
"passive foreign investment company" ("PFIC") and holds the stock beyond the end
of the year of acquisition, the Fund will be subject to federal income tax on
the Fund's share of a portion of any "excess distribution" received by the
Portfolio on the stock or of any gain realized by the Portfolio from disposition
of the stock (collectively "PFIC income"), plus interest thereon, even if the
Fund distributes the PFIC income as a taxable dividend to its shareholders. The
Fund may avoid this tax and interest if the Portfolio elects to treat the PFIC
as a "qualified electing fund;" however, the requirements for that election are
difficult to satisfy. The Portfolio currently does not intend to acquire
securities that are considered PFICs.
TAXATION OF THE FUND'S SHAREHOLDERS
A portion of the dividends from the Fund's investment company taxable
income, whether received in cash or paid in additional Fund shares, may be
eligible for the dividends-received deduction allowed to corporations. The
eligible portion may not exceed the Fund's share of the aggregate dividends
received by the Portfolio from U.S. corporations. However, dividends received by
a corporate shareholder and deducted by it pursuant to the dividends-received
deduction are subject indirectly to the alternative minimum tax.
The foregoing is only a summary of some of the important federal tax
considerations affecting the Fund and its shareholders and is not intended as a
substitute for careful tax planning. Accordingly, prospective investors are
advised to consult their own tax advisers for more detailed information
regarding the above and for information regarding federal, state, local and
foreign taxes.
YIELD AND TOTAL RETURN QUOTATIONS
The advertised total return for a class of the Fund is calculated by
equating an initial amount invested in a class of the Fund to the ending
redeemable value, according to the following formula:
(n)
P(1 + T) = ERV
where "P" is a hypothetical initial payment of $1,000; "T" is the average annual
total return for the class; "n" is the number of years involved; and "ERV" is
the ending redeemable value of a hypothetical $1,000 payment made in the class
at the beginning of the investment period covered.
Each class of the Fund also may use "aggregate" total return figures
for various periods that represent the cumulative change in value of an
investment in a class of the Fund for the specific period. Such total returns
reflect changes in share prices of a class of the Fund and assume reinvestment
of dividends and distributions.
The Fund may give total returns from inception using the date when the
current managers began active management as the inception date. However, returns
using the actual inception date of the Fund also will be provided.
In reports or other communications to shareholders or in advertising
material, each class of the Fund may from time to time compare its performance
or annual operating expense ratio with those of other mutual funds in rankings
prepared by Lipper Analytical Services, Inc., Morningstar, Inc., iMoneyNet, Inc.
and other similar independent services which monitor the performance of mutual
funds or publications such as the "New York Times," "Barrons" or the "Wall
Street Journal." Each class of the Fund may also compare its performance with
various indices prepared by BARRA, Frank Russell, Standard & Poor's, Merrill
Lynch, Morgan Stanley or Lehman Brothers or to unmanaged indices that may assume
reinvestment of dividends but generally do not reflect
9
<PAGE> 33
deductions for administrative and management costs. The comparison may be
accompanied by a discussion of the tenets of value investing versus growth
investing.
The Fund may advertise the standard deviation of its returns for
various time periods and compare its standard deviation to that of various
indices. Standard deviation of returns over time is a measure of volatility. It
indicates the spread of the Fund's returns about their central tendency or mean.
In theory, a fund that is more volatile should receive a higher return in
exchange for taking extra risk. Standard deviation is a well-accepted statistic
to gauge the riskiness of an investment strategy and measure its historical
volatility as a predictor of risk, although the measure is subject to time
selection bias.
Advertisements for the Fund may compare the Fund to federally insured
investments such as bank certificates of deposit and credit union deposits,
including the long-term effects of inflation on these types of investments.
Advertisements may also compare the historical rate of return of different types
of investments. Information concerning broker-dealers who sell the Fund may also
appear in advertisements for the Fund, including their ranking as established by
various publications compared to other broker-dealers. The Fund may also publish
advertisements or shareholder communications that discuss the principles of
diversification and asset allocation. The Fund may also discuss the benefits of
diversification across investment managers, which include reduced portfolio
volatility, lower overall risk, and access to multiple leading managers within
one Fund. The Fund may suggest specific asset allocation models based on an
investor's risk tolerance and time horizon.
From time to time, the Manager may use contests as a means of promoting
the American AAdvantage Funds. Prizes may include free air travel and/or hotel
accommodations. Listings for certain of the American AAdvantage Funds may be
found in newspapers under the heading "Amer AAdvant."
DESCRIPTION OF THE TRUST
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust may,
under certain circumstances, be held personally liable for its obligations.
However, the Trust's Declaration of Trust contains an express disclaimer of
shareholder liability for acts or obligations of the Trust and provides for
indemnification and reimbursement of expenses out of Trust property for any
shareholder held personally liable for the obligations of the Trust. The
Declaration of Trust also provides that the Trust may maintain appropriate
insurance (for example, fidelity bonding) for the protection of the Trust, its
shareholders, Trustees, officers, employees and agents to cover possible tort
and other liabilities. Thus, the risk of a shareholder incurring financial loss
due to shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations. The Trust has not engaged in any other business.
The Trust was originally created to manage money for large
institutional investors, including pension and 401(k) plans for American
Airlines, Inc. The following individuals are eligible for purchasing shares of
the Institutional Class with an initial investment of less than $2 million: (i)
employees of the Manager, (ii) officers and directors of AMR and (iii) members
of the Trust's Board of Trustees.
OTHER INFORMATION
Asset-Backed Securities-Through the use of trusts and special purpose
subsidiaries, various types of assets (primarily home equity loans, automobile
and credit card receivables, other types of receivables/assets as well as
purchase contracts, financing leases and sales agreements entered into by
municipalities) are securitized in pass-through structures similar to
Mortgage-Backed Securities, as described below. The Portfolio is permitted to
invest in asset-backed securities, subject to the Portfolio's rating and quality
requirements.
Bank Deposit Notes-Bank deposit notes are obligations of a bank, rather
than bank holding company corporate debt. The only structural difference between
bank deposit notes and certificates of deposit is that interest on bank deposit
notes is calculated on a 30/360 basis, as are corporate notes/bonds. Similar to
certificates of deposit, deposit notes represent bank level investments and,
therefore, are senior to all holding company corporate debt.
Bankers' Acceptances-Bankers' acceptances are short-term credit
instruments designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in
10
<PAGE> 34
the secondary market at the going rate of discount for a specific maturity.
Although maturities for acceptances can be as long as 270 days, most acceptances
have maturities of six months or less.
Cash Equivalents-Cash equivalents include certificates of deposit,
bearer deposit notes, bankers' acceptances, government obligations, commercial
paper, short-term corporate debt securities and repurchase agreements.
Certificates of Deposit-Certificates of deposit are issued against
funds deposited in an eligible bank (including its domestic and foreign
branches, subsidiaries and agencies), are for a definite period of time, earn a
specified rate of return and are normally negotiable.
Commercial Paper-Commercial paper refers to promissory notes
representing an unsecured debt of a corporation or finance company with a fixed
maturity of no more than 270 days. A variable amount master demand note (which
is a type of commercial paper) represents a direct borrowing arrangement
involving periodically fluctuating rates of interest under a letter agreement
between a commercial paper issuer and an institutional lender pursuant to which
the lender may determine to invest varying amounts.
Cover-Transactions using futures contracts and options on futures
contracts ("Financial Instruments"), other than purchased options, expose the
Portfolio to an obligation to another party. A Portfolio will not enter into any
such transactions unless it owns either (1) an offsetting ("covered") position
in securities, currencies, or other forward contracts, options or futures
contracts, or (2) cash, receivables and liquid assets, with a value,
marked-to-market daily, sufficient to cover its potential obligations to the
extent not covered as provided in (1) above. The Portfolio will comply with SEC
guidelines regarding cover for these instruments and will, if the guidelines so
require, set aside cash, receivables, or liquid assets in a segregated account
with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold
while the position in the corresponding Financial Instrument is open, unless
they are replaced with other appropriate assets. As a result, the commitment of
a large portion of the Portfolio's assets to cover or to segregated accounts
could impede portfolio management or the Portfolio's ability to meet redemption
requests or other current obligations.
Debentures-Debentures are unsecured debt securities. The holder of a
debenture is protected only by the general creditworthiness of the issuer.
Derivatives-Generally, a derivative is a financial arrangement, the
value of which is based on, or "derived" from, a traditional security, asset or
market index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses.
Dollar Rolls-A dollar roll is a contract to sell mortgage-backed
securities as collateral against a commitment to repurchase similar, but not
identical, mortgage-backed securities on a specified future date. The other
party to the contract is entitled to all principal, interest, and prepayment
cash flows while it holds the collateral. The Portfolio maintains with the
Custodian a segregated account containing high-grade liquid securities in an
amount at least equal to the forward purchase obligation.
Eurodollar and Yankeedollar obligations-Eurodollar obligations are U.S.
dollar obligations issued outside the United States by domestic or foreign
entities, while Yankeedollar obligations are U.S. dollar obligations issued
inside the United States by foreign entities. There is generally less publicly
available information about foreign issuers and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. Foreign issuers may use different accounting and financial standards,
and the addition 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.
Full Faith and Credit Obligations of the U.S. Government-Securities
issued or guaranteed by the U.S. Treasury, backed by the full taxing power of
the U.S. Government or the right of the issuer to borrow from the U.S. Treasury.
Futures Contracts-Futures contracts obligate a purchaser to take
delivery of a specific amount of an obligation underlying the futures contract
at a specified time in the future for a specified price. Likewise, the seller
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incurs an obligation to deliver the specified amount of the underlying
obligation against receipt of the specified price. Futures are traded on both
U.S. and foreign commodities exchanges. Futures contracts will be traded for the
same purposes as entering into forward contracts.
The purchase of futures can serve as a long hedge, and the sale of
futures can serve as a short hedge.
No price is paid upon entering into a futures contract. Instead, at the
inception of a futures contract the Portfolio is required to deposit "initial
margin" consisting of cash or U.S. Government Securities in an amount generally
equal to 10% or less of the contract value. Margin must also be deposited when
writing a call or put option on a futures contract, in accordance with
applicable exchange rules. Unlike margin in securities transactions, initial
margin on futures contracts does not represent a borrowing, but rather is in the
nature of a performance bond or good-faith deposit that is returned to the
Portfolio at the termination of the transaction if all contractual obligations
have been satisfied. Under certain circumstances, such as periods of high
volatility, the Portfolio may be required by a futures exchange to increase the
level of its initial margin payment, and initial margin requirements might be
increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures
broker daily as the value of the futures position varies, a process known as
"marking-to-market." Variation margin does not involve borrowing, but rather
represents a daily settlement of the Portfolio's obligations to or from a
futures broker. When the Portfolio purchases or sells a futures contract, it is
subject to daily variation margin calls that could be substantial in the event
of adverse price movements. If the Portfolio has insufficient cash to meet daily
variation margin requirements, it might need to sell securities at a time when
such sales are disadvantageous.
Purchasers and sellers of futures contracts can enter into offsetting
closing transactions, by selling or purchasing, respectively, an instrument
identical to the instrument purchased or sold. Positions in futures contracts
may be closed only on a futures exchange or board of trade that provides a
secondary market. The Portfolio intends to enter into futures contracts only on
exchanges or boards of trade where there appears to be a liquid secondary
market. However, there can be no assurance that such a market will exist for a
particular contract at a particular time. In such event, it may not be possible
to close a futures contract.
Although futures contracts by their terms call for the actual delivery
or acquisition of securities or currency, in most cases the contractual
obligation is fulfilled before the date of the contract without having to make
or take delivery of the securities or currency. The offsetting of a contractual
obligation is accomplished by buying (or selling, as appropriate) on a
commodities exchange an identical futures contract calling for delivery in the
same month. Such a transaction, which is effected through a member of an
exchange, cancels the obligation to make or take delivery of the securities or
currency. Since all transactions in the futures market are made, offset or
fulfilled through a clearinghouse associated with the exchange on which the
contracts are traded, the Portfolio will incur brokerage fees when it purchases
or sells futures contracts.
Under certain circumstances, futures exchanges may establish daily
limits on the amount that the price of a futures contract can vary from the
previous day's settlement price; once that limit is reached, no trades may be
made that day at a price beyond the limit. Daily price limits do not limit
potential losses because prices could move to the daily limit for several
consecutive days with little or no trading, thereby preventing liquidation of
unfavorable positions.
If the Portfolio were unable to liquidate a futures contract due to the
absence of a liquid secondary market or the imposition of price limits, it could
incur substantial losses. The Portfolio would continue to be subject to market
risk with respect to the position. In addition, the Portfolio would continue to
be required to make daily variation margin payments and might be required to
maintain the position being hedged by the futures contract or option thereon or
to maintain cash or securities in a segregated account.
To the extent that the Portfolio enters into futures contracts, in each
case other than for bona fide hedging purposes (as defined by the Commodities
Futures Trading Commission ("CFTC")), the aggregate initial margin will not
exceed 5% of the liquidation value of the Portfolio's portfolio, after taking
into account unrealized profits and unrealized losses on any contracts that the
Portfolio has entered into. This policy does not limit to 5% the percentage of
the Portfolio's assets that are at risk in futures contracts.
The ordinary spreads between prices in the cash and futures market, due
to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. Rather than meeting additional variation margin
deposit requirements, investors may close futures contracts through offsetting
transactions that could distort the normal relationship
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between the cash and futures markets. Second, the liquidity of the futures
market depends on participants entering into offsetting transactions rather than
making or taking delivery. To the extent participants decide to make or take
delivery, liquidity in the futures market could be reduced, thus producing
distortion. Third, from the point of view of speculators, the margin deposit
requirements in the futures market are less onerous than margin requirements in
the securities market. Therefore, increased participation by speculators in the
futures market may cause temporary price distortions. Due to the possibility of
distortion, a correct forecast of securities price or currency exchange rate
trends by the investment adviser may still not result in a successful
transaction.
In addition, futures contracts entail additional risks. Although the
investment adviser believes that use of such contracts will benefit the
Portfolio, if that investment adviser's investment judgment about the general
direction of, for example, an index is incorrect, the Portfolio's overall
performance would be worse than if it had not entered into any such contract. In
addition, there are differences between the securities and futures markets that
could result in an imperfect correlation between the markets, causing a given
transaction not to achieve its objectives.
Illiquid Securities-Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, securities that are otherwise not
readily marketable and repurchase agreements having a remaining maturity of
longer than seven calendar days. Securities that have not been registered under
the 1933 Act are referred to as private placements or restricted securities and
are purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other illiquid
securities because of the potential for delays on resale and uncertainty in
valuation. Limitations on resale may have an adverse effect on the marketability
of portfolio securities and a mutual fund might be unable to dispose of
restricted or other illiquid securities promptly or at reasonable prices and
might thereby experience difficulty satisfying redemptions within seven calendar
days. A mutual fund also might have to register such restricted securities in
order to dispose of them resulting in additional expense and delay. Adverse
market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed
for certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be readily
resold or on an issuer's ability to honor a demand for repayment. However, the
fact that there are contractual or legal restrictions on resale of such
investments to the general public or to certain institutions may not be
indicative of their liquidity.
Loan Participation Interests-Loan participation interests represent
interests in bank loans made to corporations. The contractual arrangement with
the bank transfers the cash stream of the underlying bank loan to the
participating investor. Because the issuing bank does not guarantee the
participations, they are subject to the credit risks generally associated with
the underlying corporate borrower. In addition, because it may be necessary
under the terms of the loan participation for the investor to assert through the
issuing bank such rights as may exist against the underlying corporate borrower,
in the event the underlying corporate borrower fails to pay principal and
interest when due, the investor may be subject to delays, expenses and risks
that are greater than those that would have been involved if the investor had
purchased a direct obligation (such as commercial paper) of such borrower.
Moreover, under the terms of the loan participation, the investor may be
regarded as a creditor of the issuing bank (rather than of the underlying
corporate borrower), so that the issuer may also be subject to the risk that the
issuing bank may become insolvent. Further, in the event of the bankruptcy or
insolvency of the corporate borrower, the loan participation may be subject to
certain defenses that can be asserted by such borrower as a result of improper
conduct by the issuing bank. The secondary market, if any, for these loan
participations is extremely limited and any such participations purchased by the
investor are regarded as illiquid.
Loan Transactions-Loan transactions involve the lending of securities
to a broker-dealer or institutional investor for its use in connection with
short sales, arbitrages or other security transactions. The purpose of a
qualified loan transaction is to afford a lender the opportunity to continue to
earn income on the securities loaned and at the same time earn fee income or
income on the collateral held by it.
Securities loans will be made in accordance with the following
conditions: (1) the Portfolio must receive at least 100% collateral in the form
of cash or cash equivalents, securities of the U.S. Government and its agencies
and instrumentalities, and approved bank letters of credit; (2) the borrower
must increase the collateral whenever the market value of the loaned securities
(determined on a daily basis) rises above the level of collateral; (3) the
Portfolio must be able to terminate the loan after notice, at any time; (4) the
Portfolio must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned, and any increase in market value of the
loaned securities; (5) the
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Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) voting rights on the securities loaned may pass to the borrower,
provided, however, that if a material event affecting the investment occurs, the
AMR Trust Board must be able to terminate the loan and vote proxies or enter
into an alternative arrangement with the borrower to enable the AMR Trust Board
to vote proxies.
While there may be delays in recovery of loaned securities or even a
loss of rights in collateral supplied should the borrower fail financially,
loans will be made only to firms deemed by the AMR Trust Board to be of good
financial standing and will not be made unless the consideration to be earned
from such loans would justify the risk. If the borrower of the securities fails
financially, there is a risk of delay in recovery of the securities loaned or
loss of rights in the collateral. Such loan transactions are referred to in this
Statement of Additional Information as "qualified" loan transactions.
The cash collateral so acquired through qualified loan transactions may
be invested only in those categories of high quality liquid securities
previously authorized by the AMR Trust Board.
Mortgage-Backed Securities-Mortgage-backed securities consist of both
collateralized mortgage obligations and mortgage pass-through certificates.
Collateralized Mortgage Obligations ("CMOs")-CMOs and
interests in real estate mortgage investment conduits ("REMICs") are
debt securities collateralized by mortgages, or mortgage pass-through
securities. CMOs divide the cash flow generated from the underlying
mortgages or mortgage pass-through securities into different groups
referred to as "tranches," which are then retired sequentially over
time in order of priority. The principal governmental issuers of such
securities are the Federal National Mortgage Association ("FNMA"), a
government sponsored corporation owned entirely by private stockholders
and the Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate
instrumentality of the United States created pursuant to an act of
Congress which is owned entirely by Federal Home Loan Banks. The
issuers of CMOs are structured as trusts or corporations established
for the purpose of issuing such CMOs and often have no assets other
than those underlying the securities and any credit support provided. A
REMIC is a mortgage securities vehicle that holds residential or
commercial mortgages and issues securities representing interests in
those mortgages. A REMIC may be formed as a corporation, partnership,
or segregated pool of assets. The REMIC itself is generally exempt from
federal income tax, but the income from the mortgages is reported by
investors. For investment purposes, interests in REMIC securities are
virtually indistinguishable from CMOs.
Mortgage Pass-Through Certificates-Mortgage pass-through
certificates are issued by governmental, government-related and private
organizations which are backed by pools of mortgage loans.
(1) Government National Mortgage Association ("GNMA") Mortgage
Pass-Through Certificates ("Ginnie Maes")-GNMA is a wholly owned U.S.
Government corporation within the Department of Housing and Urban
Development. Ginnie Maes represent an undivided interest in a pool of
mortgages that are insured by the Federal Housing Administration or the
Farmers Home Administration or guaranteed by the Veterans
Administration. Ginnie Maes entitle the holder to receive all payments
(including prepayments) of principal and interest owed by the
individual mortgagors, net of fees paid to GNMA and to the issuer which
assembles the mortgage pool and passes through the monthly mortgage
payments to the certificate holders (typically, a mortgage banking
firm), regardless of whether the individual mortgagor actually makes
the payment. Because payments are made to certificate holders
regardless of whether payments are actually received on the underlying
mortgages, Ginnie Maes are of the "modified pass-through" mortgage
certificate type. The GNMA is authorized to guarantee the timely
payment of principal and interest on the Ginnie Maes. The GNMA
guarantee is backed by the full faith and credit of the United States,
and the GNMA has unlimited authority to borrow funds from the U.S.
Treasury to make payments under the guarantee. The market for Ginnie
Maes is highly liquid because of the size of the market and the active
participation in the secondary market of security dealers and a variety
of investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie
Macs")-Freddie Macs represent interests in groups of specified first
lien residential conventional mortgages underwritten and owned by the
FHLMC. Freddie Macs entitle the holder to timely payment of interest,
which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate
collection or timely payment of all principal payments on the
underlying mortgage loans. In cases where the FHLMC has not guaranteed
timely payment of principal, the FHLMC may remit the amount due because
of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year
after it becomes payable. Freddie
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Macs are not guaranteed by the United States or by any of the Federal
Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. The secondary market
for Freddie Macs is highly liquid because of the size of the market and
the active participation in the secondary market of the FHLMC, security
dealers and a variety of investors.
(3) FNMA Guaranteed Mortgage Pass-Through Certificates
("Fannie Maes")-Fannie Maes represent an undivided interest in a pool
of conventional mortgage loans secured by first mortgages or deeds of
trust, on one family or two to four family, residential properties. The
FNMA is obligated to distribute scheduled monthly installments of
principal and interest on the mortgages in the pool, whether or not
received, plus full principal of any foreclosed or otherwise liquidated
mortgages. The obligation of the FNMA under its guarantee is solely its
obligation and is not backed by, nor entitled to, the full faith and
credit of the United States.
(4) Mortgage-Related Securities Issued by Private
Organizations-Pools created by non-governmental issuers generally offer
a higher rate of interest than government and government-related pools
because there are no direct or indirect government guarantees of
payments in such pools. However, timely payment of interest and
principal of these pools is often partially supported by various
enhancements such as over-collateralization and senior/subordination
structures and by various forms of insurance or guarantees, including
individual loan, title, pool and hazard insurance. The insurance and
guarantees are issued by government entities, private insurers or the
mortgage poolers. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations
may not be readily marketable.
Ratings of Long-Term Obligations-The Portfolio utilizes ratings
provided by the following nationally recognized statistical rating organizations
("Rating Organizations") in order to determine eligibility of long-term
obligations. Credit ratings typically evaluate the safety of principal and
interest payments, not the market value risk of high yield bonds. The Rating
Organizations may fail to update a credit rating on a timely basis to reflect
changes in economic or financial conditions that may affect the market value of
the security. For these reasons, credit ratings may not be an accurate indicator
of the market value of a high yield bond. The investment adviser will monitor
the Portfolio's holdings on a continuous basis to assess those factors not
reflected in the credit rating. Therefore, the achievement of the Fund's
investment objective will be more dependent on the investment adviser's research
abilities than if the Fund invested primarily in higher-rated securities.
The four highest Moody's Investors Service, Inc. ("Moody's") ratings
for long-term obligations (or issuers thereof) are Aaa, Aa, A and Baa.
Obligations rated Aaa are judged by Moody's to be of the best quality.
Obligations rated Aa are judged to be of high quality by all standards. Together
with the Aaa group, such debt comprises what is generally known as high-grade
debt. Moody's states that debt rated Aa is rated lower than Aaa debt because
margins of protection or other elements make long-term risks appear somewhat
larger than for Aaa debt. Obligations which are rated A by Moody's possess many
favorable investment attributes and are considered "upper medium-grade
obligations." Obligations which are rated Baa by Moody's are considered to be
medium grade obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate for the
present but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. A rating of Ba by
Moody's denotes obligations judged to have speculative elements. Often the
protection of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future. Obligations
rated B by Moody's generally lack the characteristics of a desirable investment.
Assurance of interest and principal payments or of maintenance of other terms of
the contract over any long period of time may be small. Moody's assigns a rating
of Caa to those obligations considered of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest. A rating of Ca signifies obligations considered by Moody's to be
speculative to a high degree. Such issues are often in default or have other
marked shortcomings. Obligations rated C by Moody's are considered in the lowest
rated class and can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Moody's also supplies numerical
indicators 1, 2, and 3 to rating categories. The modifier 1 indicates that the
security is in the higher end of its rating category; the modifier 2 indicates a
mid-range ranking; and modifier 3 indicates a ranking toward the lower end of
the category.
The four highest Standard & Poor's ratings for long-term obligations
are AAA, AA, A and BBB. Obligations rated AAA have the highest rating assigned
by Standard & Poor's. Capacity to pay interest and repay principal is extremely
strong. Obligations rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only in a small degree.
Obligations rated A have a strong capacity to pay principal and interest,
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions. Obligations rated BBB by Standard &
Poor's are regarded as having adequate capacity
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to pay interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing circumstances are
more likely to lead to a weakened capacity to pay interest and repay principal
for debt in this category than in higher rated categories. An obligation rated
BB is less vulnerable to nonpayment than other speculative issues. However, it
faces major ongoing uncertainties or exposure to adverse business, financial, or
economic conditions that could lead to the obligor's inadequate capacity to meet
its financial commitment on the obligation. An obligation rated B is more
vulnerable to nonpayment than obligations rated BB, but the obligor currently
has the capacity to meet its financial commitment on the obligation. Adverse
business, financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the obligation. An
obligation rated CCC is currently vulnerable to nonpayment, and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitment on the obligation. In the event of adverse
business, financial, or economic conditions, the obligor is not likely to have
the capacity to meet its financial commitment on the obligation. An obligation
rated CC is currently highly vulnerable to nonpayment. A subordinated debt or
preferred stock obligation rated C is currently highly vulnerable to nonpayment.
The C rating may be used to cover a situation where a bankruptcy petition has
been filed or similar action taken, but payments on this obligation are being
continued. A C also will be assigned to a preferred stock issue in arrears on
dividends or sinking fund payments, but that is currently paying. An obligation
rated D is in payment default. The D rating category is used when payments on an
obligation are not made on the date due even if the applicable grace period has
not expired, unless Standard & Poor's believes that such payments will be made
during such grace period. The D rating also will be used upon the filing of a
bankruptcy petition or the taking of a similar action if payments on an
obligation are jeopardized.
Fitch's four highest ratings for long-term obligations are AAA, AA, A
and BBB. Obligations rated AAA have the lowest expectation of credit risk. A AAA
rating is assigned only in cases of exceptionally strong capacity for timely
payment of financial commitments. This capacity is highly unlikely to be
adversely affected by foreseeable events. Obligations rated AA have a very low
expectation of credit risk. They are deemed to have a very strong capacity for
timely payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events. Obligations rated A have a low expectation of
credit risk. Their capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to
changes in circumstances or in economic conditions than is the case for higher
ratings. Obligations rated BBB currently have a low expectation of credit risk.
Their capacity for timely payment of financial commitments is considered
adequate, but adverse changes in circumstances and in economic conditions are
more likely to impair this capacity. This is the lowest investment-grade
category. A rating of BB indicates that there is a possibility of credit risk
developing, particularly as the result of adverse economic change over time;
however, business or financial alternatives may be available to allow financial
commitments to be met. Ratings of CCC, CC, or C indicate a real possibility for
default. Capacity for meeting financial commitments is solely reliant upon
sustained, favorable business or economic developments. A CC rating indicates
that default of some kind appears probable. A C rating signals imminent default.
Ratings of DDD, DD, or D indicate obligations in default. Obligations rated DDD
have the highest prospect for resumption of performance or continued operation
with or without a formal reorganization process and are estimated to recover
around 90-100% of outstanding amounts and accrued interest. Obligations rated DD
are generally undergoing a formal reorganization or liquidation process and have
the potential for recovery in the range of 50-90%. Obligations rated D are
generally undergoing a formal reorganization or liquidation process but have
recovery potential below 50%.
Thomson BankWatch ("BankWatch") long-term debt ratings apply to specific issues
of long-term debt and preferred stock. They specifically assess the likelihood
of an untimely repayment of principal or interest over the term to maturity of
the rated instrument. BankWatch's four highest ratings for long-term obligations
are AAA, AA, A and BBB. Obligations rated AAA indicate that the ability to repay
principal and interest on a timely basis is very high. Obligations rated AA
indicate a very strong ability to repay principal and interest on a timely
basis, with limited incremental risk compared to issues rated in the highest
category. Obligations rated A indicate the ability to repay principal and
interest is strong. Issues rated A could be more vulnerable to adverse
developments (both internal and external) than obligations with higher ratings.
BBB is the lowest investment grade category and indicates an acceptable capacity
to repay principal and interest. Issues rated BBB are, however, more vulnerable
to adverse developments (both internal and external) than obligations with
higher ratings. While not investment grade, the BB rating suggests that the
likelihood of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to adequately
service debt obligations. Issues rated B show a higher degree of uncertainty and
therefore greater likelihood of default than higher-rated issues. Adverse
developments could negatively affect the payment of interest and principal on a
timely basis. Issues rated CCC clearly have a high likelihood of default, with
little capacity to address further adverse changes in financial circumstances. A
rating of CC is applied to issues that are subordinate to other obligations
rated CCC and are afforded less protection in the event of bankruptcy or
reorganization. Ratings of D are assigned to issues in default.
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Standard & Poor's and Fitch apply indicators, such as "+","-," or no
character, to indicate relative standing within the major rating categories.
Ratings of Short-Term Obligations-The rating P-1 is the highest
short-term rating assigned by Moody's. Among the factors considered by Moody's
in assigning ratings are the following: (1) evaluations of the management of the
issuer; (2) economic evaluation of the issuer's industry or industries and an
appraisal of speculative-type risks which may be inherent in certain areas; (3)
evaluation of the issuer's products in relation to competition and customer
acceptance; (4) liquidity; (5) amount and quality of long-term debt; (6) trend
of earnings over a period of ten years; (7) financial strength of a parent
company and the relationships which exist with the issuer; and (8) recognition
by the management of obligations which may be present or may arise as a result
of public interest questions and preparations to meet such obligations.
Short-term obligations (or issuers thereof) rated A-1 by Standard &
Poor's have the following characteristics. Liquidity ratios are adequate to meet
cash requirements. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's short-term obligation is rated
A-1, A-2, or A-3.
Thomson BankWatch short-term ratings are intended to assess the
likelihood of an untimely or incomplete payment of principal or interest.
Obligations rated TBW-1 indicate a very high likelihood that principal and
interest will be paid on a timely basis. While the degree of safety regarding
timely payment of principal and interest is strong for an obligation rated
TBW-2, the relative degree of safety is not as high as for issues rated TBW-1.
Fitch's short-term ratings apply to debt obligations that are payable
on demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. A rating of F-1+ indicates exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. Obligations rated F-1 have very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. Issues assigned a rating of F-2
indicate good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
Repurchase Agreements-A repurchase agreement, which provides a means to
earn income on funds for periods as short as overnight, is an arrangement under
which the purchaser (e.g., the Portfolio) purchases securities and the seller
agrees, at the time of sale, to repurchase the securities at a specified time
and price. The repurchase price will be higher than the purchase price, the
difference being income to the purchaser, or the purchase and repurchase prices
may be the same, with interest at a stated rate due to the purchaser together
with the repurchase price on repurchase. In either case, the income to the
purchaser is unrelated to the interest rate on the securities subject to the
repurchase agreement.
The Portfolio may enter into repurchase agreements with any bank or
registered broker-dealer who, in the opinion of the Manager, presents a minimum
risk of bankruptcy during the term of the agreement based upon guidelines that
periodically are reviewed by the AMR Trust Board. The Portfolio may enter into
repurchase agreements as a short-term investment of its idle cash in order to
earn income. The securities will be held by a custodian (or agent) approved by
the AMR Trust Board during the term of the agreement. However, if the market
value of the securities subject to the repurchase agreement becomes less than
the repurchase price (including interest), the Portfolio will direct the seller
of the securities to deliver additional securities so that the market value of
all securities subject to the repurchase agreement will equal or exceed the
repurchase price.
In the event of the commencement of bankruptcy or insolvency
proceedings with respect to the seller of the securities before the repurchase
of the securities under a repurchase agreement, the Portfolio may encounter a
delay and incur costs before being able to sell the security being held as
collateral. Delays may involve loss of interest or decline in price of the
securities. Apart from the risk of bankruptcy or insolvency proceedings, there
is also the risk that the seller may fail to repurchase the securities, in which
case the Portfolio may incur a loss if the proceeds to the Portfolio from the
sale of the securities to a third party are less than the repurchase price.
Reverse Repurchase Agreements-The Portfolio may borrow funds for
temporary purposes by entering into reverse repurchase agreements. Pursuant to
such agreements, the Portfolio would sell portfolio securities to
17
<PAGE> 41
financial institutions such as banks and broker/dealers and agree to repurchase
them at a mutually agreed-upon date and price. The Portfolio intends to enter
into reverse repurchase agreements only to avoid selling securities to meet
redemptions during market conditions deemed unfavorable by the investment
adviser possessing investment authority. At the time the Portfolio enters into a
reverse repurchase agreement, it will place in a segregated custodial account
assets such as liquid high quality debt securities having a value not less than
100% of the repurchase price (including accrued interest), and will subsequently
monitor the account to ensure that such required value is maintained. Reverse
repurchase agreements involve the risk that the market value of the securities
sold by the Portfolio may decline below the price at which such Portfolio is
obligated to repurchase the securities. Reverse repurchase agreements are
considered to be borrowings by an investment company under the 1940 Act.
Rights and Warrants-Rights are short-term warrants issued in
conjunction with new stock issues. Warrants are options to purchase an issuer's
securities at a stated price during a stated term. There is no specific limit on
the percentage of assets the Portfolio may invest in rights and warrants,
although the ability of the Portfolio to so invest is limited by its investment
objectives or policies.
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 through or with the
assistance of the issuer or dealers that make a market in the Section 4(2)
securities, thus providing liquidity.
The AMR Trust Board and the investment adviser 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.
Separately Traded Registered Interest and Principal Securities and Zero
Coupon Obligations-Separately traded registered interest and principal
securities or "STRIPS" and zero coupon obligations are securities that do not
make regular interest payments. Instead they are sold at a discount from their
face value. The Portfolio will take into account as income a portion of the
difference between these obligations' purchase prices and their face values.
Because they do not pay coupon income, the prices of STRIPS and zero coupon
obligations can be very volatile when interest rates change. STRIPS are zero
coupon bonds issued by the U.S. Treasury.
Short Sales- In connection with the use of certain instruments based
upon or consisting of one or more baskets of securities, the investment adviser
may sell a security the Portfolio does not own, or in an amount greater than the
Portfolio owns (i.e., make short sales). Generally, to complete a short sale
transaction, the Portfolio will borrow the security to make delivery to the
buyer. The Portfolio is then obligated to replace the security borrowed. The
price at the time of replacement may be more or less than the price at which the
security was sold by the Portfolio. Until the security is replaced, the
Portfolio is required to pay to the lender any interest which accrues during the
period of the loan. To borrow the security, the Portfolio may be required to pay
a premium, which would increase the cost of the security sold. The proceeds of
the short sale will be retained by the broker to the extent necessary to meet
margin requirements until the short position is closed out. Until the Portfolio
replaces the borrowed security, it will (a) maintain in a segregated account
with its custodian cash or liquid securities at such a level that the amount
deposited in the account plus the amount deposited with the broker as collateral
will equal the current market value of the security sold short or (b) otherwise
cover its short position.
U.S. Government Securities-U.S. Government securities are issued or
guaranteed by the U.S. Government and include U.S. Treasury obligations (see
definition below) and securities issued by U.S. agencies and instrumentalities.
U. S. Government agencies or instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Inter-American Development Bank,
Asian-American Development Bank, Agency for International Development, Student
Loan Marketing Association and International Bank of Reconstruction and
Development.
18
<PAGE> 42
Obligations of U.S. Government agencies and instrumentalities may or
may not be supported by the full faith and credit of the United States. Some are
backed by the right of the issuer to borrow from the Treasury; others are
supported by discretionary authority of the U.S. Government to purchase the
agencies' obligations; while still others, such as the Student Loan Marketing
Association, are supported only by the credit of the instrumentality. In the
case of securities not backed by the full faith and credit of the United States,
the investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
U.S. Treasury Obligations-U.S. Treasury obligations include bills,
notes and bonds issued by the U.S. Treasury and Separately Traded Registered
Interest and Principal component parts of such obligations known as STRIPS.
Variable or Floating Rate Obligations-A variable rate obligation is one
whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate obligation is one whose terms
provide for the adjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Variable or floating rate obligations may
be secured by bank letters of credit.
Pursuant to Rule 2a-7 under the 1940 Act, variable or floating rate
obligations with stated maturities of more than 397 days may be deemed to have
shorter maturities as follows:
(1) An obligation that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days will be deemed by the
Portfolio to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(2) A variable rate obligation, the principal amount of which is
scheduled on the face of the instrument to be paid in 397 days or less, will be
deemed by the Portfolio to have a maturity equal to the period remaining until
the next readjustment of the interest rate.
(3) A variable rate obligation that is subject to a demand feature will
be deemed by the Portfolio to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
(4) A floating rate obligation that is subject to a demand feature will
be deemed by the Portfolio to have a maturity equal to the period remaining
until the principal amount can be recovered through demand.
As used above, an obligation is "subject to a demand feature" when the
Portfolio is entitled to receive the principal amount of the obligation either
at any time on no more than 30 days' notice or at specified intervals not
exceeding one year and upon no more than 30 days' notice.
When-Issued and Forward Commitment Transactions- For purchases on a
when-issued basis, the price of the security is fixed at the date of purchase,
but delivery of and payment for the securities is not set until after the
securities are issued (generally one to two months later). The value of
when-issued securities is subject to market fluctuation during the interim
period and no income accrues to the Portfolio until settlement takes place.
Forward commitment transactions 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. The payment obligation and
interest rate are fixed at the time the buyer enters into the forward
commitment. Forward commitment transactions are typically used as a hedge
against anticipated changes in interest rates and prices. The Portfolio
maintains with the Custodian a segregated account containing high-grade liquid
securities in an amount at least equal to the when-issued or forward commitment
transaction. Forward commitment transactions are executed for existing
obligations, whereas in a when-issued transaction, the obligations have not yet
been issued. When entering into a when-issued or forward commitment transaction,
the Portfolio will rely on the other party to consummate the transaction; if the
other party fails to do so, the Portfolio may be disadvantaged.
19
<PAGE> 43
AMERICAN AADVANTAGE FUNDS
PART C. OTHER INFORMATION
Item 23. Exhibits
(a) Declaration of Trust - (iv)
(b) Bylaws - (iv)
(c) Voting trust agreement -- none
(d)(i)(A) Fund Management Agreement between American AAdvantage
Funds and AMR Investment Services, Inc. dated April 3,
1987*
(i)(B) Supplement to Fund Management Agreement dated August 1,
1994 - (iv)
(i)(C) Supplement to Fund Management Agreement dated August 1,
1995 - (iv)
(i)(D) Supplement to Fund Management Agreement dated November 1,
1995-(vii)
(i)(E) Amendment to Schedule A of Fund Management Agreement dated
December 1, 1995 - (i)
(i)(F) Supplement to Fund Management Agreement dated December 17,
1996 - (ii)
(i)(G) Supplement to Fund Management Agreement dated July 25,
1997 - (iii)
(i)(H) Supplement to Fund Management Agreement dated September 1,
1998 - (vi)
(i)(I) Supplement to Fund Management Agreement dated January 1,
1999 - (vii)
(i)(J) Supplemental Terms and Conditions to the Management
Agreement dated - May 19, 2000 - (ix)
(ii)(A) Investment Advisory Agreement between AMR Investment
Services, Inc. and Independence Investment Associates,
Inc. dated November 1, 1995 - (iv)
(ii)(B) Investment Advisory Agreement between AMR Investment
Services, Inc. and Morgan Stanley Asset Management Inc.
dated November 1, 1995 - (iv)
(ii)(C) Investment Advisory Agreement between AMR Investment
Services, Inc. and Templeton Investment Counsel, Inc.
dated November 1, 1995 - (iv)
(ii)(D) Investment Advisory Agreement between AMR Investment
Services, Inc. and Barrow, Hanley, Mewhinney & Strauss,
Inc. dated November 1, 1995 - (iv)
(ii)(E) Investment Advisory Agreement between AMR Investment
Services, Inc. and GSB Investment Management, Inc. dated
November 1, 1995 - (iv)
(ii)(F) Investment Advisory Agreement between AMR Investment
Services, Inc. and Brandywine Asset Management, Inc. dated
January 16, 1998 - (v)
<PAGE> 44
(ii)(G) Investment Advisory Agreement between AMR Investment
Services, Inc. and Hotchkis and Wiley, a division of the
Capital Management Group of Merrill Lynch Asset
Management, L.P. dated November 12, 1996 - (ii)
(ii)(H) Form of Investment Advisory Agreement between AMR
Investment Services, Inc. and Lazard Asset Management -
(vii)
(ii)(I) Amendment to Schedule A of Advisory Agreement between AMR
Investment Services, Inc. and Brandywine Asset Management,
Inc. dated October 15, 1998 - (vi)
(ii)(J) Amendment to Schedule A to of Advisory Agreement between
AMR Investment Services, Inc. and Hotchkis and Wiley, a
division of the Capital Management Group of Merrill Lynch
Asset Management, L.P. dated October 15, 1998 - (vi)
(ii)(K) Amendment to Schedule A of Advisory Agreement between AMR
Investment Services, Inc. and Independence Investment
Associates, Inc. - (vii)
(ii)(L) Investment Advisory Agreement between AMR Investment
Services, Inc. and Goldman Sachs & Co., dated July 31,
2000 - filed herewith
(ii)(M) Investment Advisory Agreement between AMR Investment
Services, Inc. and J.P. Morgan Investment Management Inc.,
dated July 31, 2000 - filed herewith
(ii)(N) Investment Advisory Agreement between AMR Investment
Services, Inc. and Morgan Stanley Dean Witter Investment
Management Inc., dated July 31, 2000 - filed herewith
(ii)(O) Investment Advisory Agreement between AMR Investment
Services, Inc. and The Boston Company Asset Management,
LLC, dated July 31, 2000 - filed herewith
(ii)(P) Investment Advisory Agreement between AMR Investment
Services, Inc. and MW Post Advisory Group, LLC- to be
filed
(iii)(A) Administrative Services Agreement between the American
AAdvantage Funds and AMR Investment Services, Inc., dated
November 21, 1997 - (iv)
(iii)(B) Supplement to Administrative Services Agreement, dated
September 1, 1998 - (vi)
(iii)(C) Supplement to Administrative Services Agreement, dated
January 1, 1999 - (vii)
(iii)(D) Supplement to Administrative Services Agreement, dated
March 1, 2000 - (viii)
(iii)(E) Supplement to Administrative Services Agreement, dated May
19, 2000 - filed herewith
(iv) Administrative Services Plan for the Platinum Class - (iv)
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<PAGE> 45
(v)(A) Administrative Agreement for S&P 500 Index Fund with
Bankers Trust Company- (iv)
(B) Administrative Agreement for S&P 500 Index Fund with State
Street Bank & Trust Company - (vii)
(C) Administrative Agreement for Small Cap Index Fund and
International Equity Index Fund - (ix)
(e)(i) Distribution Agreement among the American AAdvantage
Funds, the American AAdvantage Mileage Funds and Brokers
Transaction Services, Inc. dated September 1, 1995 - (iv)
(ii) Distribution Agreement among the American AAdvantage
Funds, the American AAdvantage Mileage Funds, the American
Select Funds and SWS Financial Services, Inc., dated
December 31, 1999 - (viii)
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between the American AAdvantage Funds
and State Street Bank and Trust Company dated December 1,
1997 - (v)
(ii) Amendment to Custodian Agreement to add Small Cap Value
Fund on January 1, 1999 - (ix)
(iii) Form of Amendment to Custodian Agreement to add Large Cap
Growth, Emerging Markets, Small Cap Index and
International Equity Index series of the American
AAdvantage Funds on July 31, 2000 - (ix)
(h)(i) Transfer Agency and Service Agreement between the American
AAdvantage Funds-and State Street Bank and Trust Company
dated January 1, 1998 - (v)
(ii) Amendment to Transfer Agency Agreement to add Small Cap
Value Fund on January 1, 1999 - (ix)
(iii) Form of Amendment to Transfer Agency Agreement to add four
new AAdvantage Funds on July 31, 2000 - (ix)
(iv) Securities Lending Authorization Agreement between
American AAdvantage Funds and State Street Bank and Trust
Company dated January 2, 1998 - (v)
(v) Service Plan Agreement for the American AAdvantage Funds
PlanAhead Class dated August 1, 1994 - (iv)
(vi) Credit Agreement between American AAdvantage Funds and AMR
Investment Services, Inc., dated December 1, 1999 - (vii)
(vii) Form of Amendment to Credit Agreement to add Large Cap
Growth and Emerging Markets Portfolios and the four
AAdvantage Funds on July 31, 2000 - (ix)
(viii) Administrative Services Agreement among American
AAdvantage Funds, American AAdvantage Mileage Funds, AMR
Investment Services Trust,
C-3
<PAGE> 46
AMR Investment Services, Inc. and State Street Bank and
Trust Company dated November 29, 1999 - (vii)
(i) Opinion and consent of counsel - (ix)
(j) Consent of Independent Auditors - none
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent - (iv)
(m)(i) Plan pursuant to Rule 12b-1 for the Institutional,
PlanAhead and AMR Classes - (iv)
(ii) Plan pursuant to Rule 12b-1 for the Platinum Class - (iv)
(n) Amended and Restated Plan pursuant to Rule 18f-3 - (iv)
(o)(i) Codes of Ethics of Registrant, American AAdvantage Mileage
Funds, American Select Funds and AMR Investment Services
Trust - (ix)
(ii) Code of Ethics of AMR Investments - (ix)
(iii) Codes of Ethics of each Investment Adviser - (ix)
Other Exhibits - Powers of Attorney for all Trustees - (ii)
----------
* Incorporated by reference to PEA No. 4 to the Registration Statement of
the Trust on Form N-1A as filed with the SEC on December 31, 1990.
(i) Incorporated by reference to PEA No. 15 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on December 22, 1995.
(ii) Incorporated by reference to PEA No. 19 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on February 13, 1997.
(iii) Incorporated by reference to PEA No. 20 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on July 1, 1997.
(iv) Incorporated by reference to PEA No. 23 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on December 18, 1997.
(v) Incorporated by reference to PEA No. 24 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on February 27, 1998.
(vi) Incorporated by reference to PEA No. 25 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on October 15, 1998.
(vii) Incorporated by reference to PEA No. 28 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on December 21, 1999.
(viii) Incorporated by reference to PEA No. 29 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on March 1, 2000.
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<PAGE> 47
(ix) Incorporated by reference to PEA No. 32 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on July 7, 2000.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
Article XI, Section 2 of the Declaration of Trust of the Trust provides
that:
(a) Subject to the exceptions and limitations contained in paragraph
(b) below:
(i) every person who is, or has been, a Trustee or officer of the
Trust (hereinafter referred to as "Covered Person") shall be indemnified by the
appropriate portfolios to the fullest extent permitted by law against liability
and against all expenses reasonably incurred or paid by him in connection with
any claim, action, suit or proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer and against
amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which
the proceeding was brought (A) to be liable to the Trust or its Shareholders by
reason of willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his office or (B) not to have acted in
good faith in the reasonable belief that his action was in the best interest of
the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to
C-5
<PAGE> 48
which any Covered Person may now or hereafter be entitled, shall continue as to
a person who has ceased to be such Trustee or officer and shall inure to the
benefit of the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which Trust
personnel, other than Trustees and officers, and other persons may be entitled
by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit, or proceeding of the character described in
paragraph (a) of this Section 2 may be paid by the applicable Portfolio from
time to time prior to final disposition thereof upon receipt of an undertaking
by or on behalf of such Covered Person that such amount will be paid over by him
to the Trust if it is ultimately determined that he is not entitled to
indemnification under this Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate security
for such undertaking;
(ii) the Trust is insured against losses arising out of any such
advance payments; or
(iii) either a majority of the Trustees who are neither interested
persons of the Trust nor parties to the matter, or independent legal counsel in
a written opinion, shall have determined, based upon a review of readily
available facts (as opposed to a trial-type inquiry or full investigation), that
there is reason to believe that such Covered Person will be found entitled to
indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the
Trust is a trust, not a partnership. Trustees are not liable personally to any
person extending credit to, contracting with or having any claim against the
Trust, a particular Portfolio or the Trustees. A Trustee, however, is not
protected from liability due to willful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in the conduct of his office.
Article XII, Section 2 provides that, subject to the provisions of
Section 1 of Article XII and to Article XI, the Trustees are not liable for
errors of judgment or mistakes of fact or law, or for any act or omission in
accordance with advice of counsel or other experts or for failing to follow such
advice.
Item 26. I. Business and Other Connections of Investment Manager
AMR Investment Services, Inc. (the "Manager"), 4333 Amon Carter
Boulevard, MD 5645, Fort Worth, Texas 76155, offers investment management and
administrative services. Information as to the officers and directors of the
Manager is included in its current Form ADV filed with the SEC and is
incorporated by reference herein.
II. Business and Other Connections of Investment Advisers
The investment advisers listed below provide investment advisory
services to the Trust.
C-6
<PAGE> 49
Barrow, Hanley, Mewhinney & Strauss, 3232 McKinney Avenue, 15th Floor,
Dallas, Texas 75204.
Brandywine Asset Management, Inc., 201 North Walnut Street, Wilmington,
Delaware 19801.
Fund Asset Management, L.P., 800 Scudders Mill Road, Plainsboro, New
Jersey 08536.
Goldman Sachs Asset Management, 32 Old Slip, New York, New York 10005.
Merrill Lynch Investment Managers, L.P., 725 South Figueroa, Suite
4000, Los Angeles, California 90017.
Independence Investment Associates, Inc., 53 State Street, Boston,
Massachusetts 02109.
J.P. Morgan Investment Management, Inc., 522 Fifth Avenue, New York,
New York 10036.
Lazard Asset Management, 30 Rockefeller Plaza, New York, New York
10112.
MW Post Advisory Group, LLC, 1880 Century Park East, Suite 820, Los
Angeles, California 90067.
Morgan Stanley Dean Witter Investment Management, Inc. 1221 Avenue of
the Americas, New York, New York 10020.
Templeton Investment Counsel, Inc. 500 East Broward Boulevard, Ft.
Lauderdale, Florida 33394.
The Boston Company Asset Management, LLC, One Boston Place, Boston,
Massachusetts 02108.
Information as to the officers and directors of each of the above
investment advisers is included in that adviser's current Form ADV filed with
the SEC and is incorporated by reference herein.
Item 27. Principal Underwriter
(a) SWS Financial Services, Inc., 7001 Preston Road, Dallas, TX 75205
is the principal underwriter for the Trust and the American AAdvantage Mileage
Funds.
(b) The directors and officers of the Trust's principal underwriter
are:
C-7
<PAGE> 50
<TABLE>
<CAPTION>
Positions & Offices Position
Name with Underwriter with Registrant
---- ---------------- ---------------
<S> <C> <C>
Sue H. Peden Chief Executive Officer None
Diana Boswell President None
Diane Scott Vice President None
</TABLE>
The address of the above named directors and officers is 7001 Preston
Road, Dallas, TX 75205.
Item 28. Location of Accounts and Records
The books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940 are maintained as follows:
31a-1(b)(1) - in the physical possession of the Trust's custodian;
31a-1(b)(2)(i),(ii)&(iii) - in the physical possession of the Trust's custodian
31a-1(b)(2)(iv) - in the physical possession of the Trust's transfer agent
31a-1(b)(4) - in the physical possession of the Trust's Manager
31a-1(b)(5) - in the physical possession of the Trust's investment advisers
31a-1(b)(6) - A record of other purchases or sales etc. - in the physical
possession of the Trust's Manager, investment advisers and custodian
31a-1(b)(7) - in the physical possession of the Trust's custodian
31a-1(b)(8) - in the physical possession of the Trust's custodian
31a-1(b)(9) - in the physical possession of the Trust's investment advisers
31a-1(b)(10) - in the physical possession of the Trust's Manager
31a-1(b)(11) - in the physical possession of the Trust's Manager
31a-1(b)(12) - in the physical possession of the Trust's Manager, investment
advisers and custodian
Item 29. Management Services
All substantive provisions of any management-related service contract
are discussed in Part A or Part B.
Item 30. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to Shareholders,
upon request and without charge.
Registrant hereby undertakes to carry out all indemnification
provisions of its Declaration of Trust in accordance with Investment Company Act
Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended ("1933 Act"), may be permitted to trustees, officers and
controlling persons of the Registrant pursuant to the provisions under Item 25
herein, or otherwise, the Registrant has been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the 1933 Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a
C-8
<PAGE> 51
trustee, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such trustee, officer
or controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication.
C-9
<PAGE> 52
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this Post-Effective Amendment No. 33 to its Registration Statement on
Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth and the State of Texas, on October 12,
2000.
AMERICAN AADVANTAGE FUNDS
By: /s/ William F. Quinn
-----------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
--------------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Post-Effective Amendment No. 33 to the Registration Statement has been
signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and October 12, 2000
----------------------------------- Trustee
William F. Quinn
Alan D. Feld* Trustee October 12, 2000
----------------------------------
Alan D. Feld
Ben J. Fortson* Trustee October 12, 2000
-----------------------------------
Ben J. Fortson
John S. Justin* Trustee October 12, 2000
-----------------------------------
John S. Justin
Stephen D. O'Sullivan* Trustee October 12, 2000
-----------------------------------
Stephen D. O'Sullivan
Roger T. Staubach* Trustee October 12, 2000
-----------------------------------
Roger T. Staubach
Dr. Kneeland Youngblood * Trustee October 12, 2000
-----------------------------------
Dr. Kneeland Youngblood
*By /s/ William F. Quinn
-----------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
<PAGE> 53
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, as
amended, AMR Investment Services Trust has duly caused this Post-Effective
Amendment No. 33 to the Registration Statement on Form N-1A for the American
AAdvantage Funds as it relates to AMR Investment Services Trust to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Fort
Worth and the State of Texas, on October 12, 2000.
AMR INVESTMENT SERVICES TRUST
By: /s/ William F. Quinn
-----------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
--------------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
This Post-Effective Amendment No. 33 to the Registration Statement for
the American AAdvantage Funds as it relates to the AMR Investment Services Trust
has been signed below by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and October 12, 2000
----------------------------------- Trustee
William F. Quinn
Alan D. Feld* Trustee October 12, 2000
----------------------------------
Alan D. Feld
Ben J. Fortson* Trustee October 12, 2000
-----------------------------------
Ben J. Fortson
John S. Justin* Trustee October 12, 2000
-----------------------------------
John S. Justin
Stephen D. O'Sullivan* Trustee October 12, 2000
-----------------------------------
Stephen D. O'Sullivan
Roger T. Staubach* Trustee October 12, 2000
-----------------------------------
Roger T. Staubach
Dr. Kneeland Youngblood * Trustee October 12, 2000
-----------------------------------
Dr. Kneeland Youngblood
*By /s/ William F. Quinn
-----------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
<PAGE> 54
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
(a) Declaration of Trust - (iv)
(b) Bylaws - (iv)
(c) Voting trust agreement -- none
(d)(i)(A) Fund Management Agreement between American AAdvantage
Funds and AMR Investment Services, Inc. dated April 3,
1987*
(i)(B) Supplement to Fund Management Agreement dated August 1,
1994 - (iv)
(i)(C) Supplement to Fund Management Agreement dated August 1,
1995 - (iv)
(i)(D) Supplement to Fund Management Agreement dated November 1,
1995-(vii)
(i)(E) Amendment to Schedule A of Fund Management Agreement dated
December 1, 1995 - (i)
(i)(F) Supplement to Fund Management Agreement dated December 17,
1996 - (ii)
(i)(G) Supplement to Fund Management Agreement dated July 25,
1997 - (iii)
(i)(H) Supplement to Fund Management Agreement dated September 1,
1998 - (vi)
(i)(I) Supplement to Fund Management Agreement dated January 1,
1999 - (vii)
(i)(J) Supplemental Terms and Conditions to the Management
Agreement dated - May 19, 2000 - (ix)
(ii)(A) Investment Advisory Agreement between AMR Investment
Services, Inc. and Independence Investment Associates,
Inc. dated November 1, 1995 - (iv)
(ii)(B) Investment Advisory Agreement between AMR Investment
Services, Inc. and Morgan Stanley Asset Management Inc.
dated November 1, 1995 - (iv)
(ii)(C) Investment Advisory Agreement between AMR Investment
Services, Inc. and Templeton Investment Counsel, Inc.
dated November 1, 1995 - (iv)
(ii)(D) Investment Advisory Agreement between AMR Investment
Services, Inc. and Barrow, Hanley, Mewhinney & Strauss,
Inc. dated November 1, 1995 - (iv)
(ii)(E) Investment Advisory Agreement between AMR Investment
Services, Inc. and GSB Investment Management, Inc. dated
November 1, 1995 - (iv)
(ii)(F) Investment Advisory Agreement between AMR Investment
Services, Inc. and Brandywine Asset Management, Inc. dated
January 16, 1998 - (v)
(ii)(G) Investment Advisory Agreement between AMR Investment
Services, Inc. and Hotchkis and Wiley, a division of the
Capital Management Group of Merrill Lynch Asset
Management, L.P. dated November 12, 1996 - (ii)
</TABLE>
<PAGE> 55
<TABLE>
<S> <C>
(ii)(H) Form of Investment Advisory Agreement between AMR
Investment Services, Inc. and Lazard Asset Management -
(vii)
(ii)(I) Amendment to Schedule A of Advisory Agreement between AMR
Investment Services, Inc. and Brandywine Asset Management,
Inc. dated October 15, 1998 - (vi)
(ii)(J) Amendment to Schedule A to of Advisory Agreement between
AMR Investment Services, Inc. and Hotchkis and Wiley, a
division of the Capital Management Group of Merrill Lynch
Asset Management, L.P. dated October 15, 1998 - (vi)
(ii)(K) Amendment to Schedule A of Advisory Agreement between AMR
Investment Services, Inc. and Independence Investment
Associates, Inc. - (vii)
(ii)(L) Investment Advisory Agreement between AMR Investment
Services, Inc. and Goldman Sachs & Co., dated July 31,
2000 - filed herewith
(ii)(M) Investment Advisory Agreement between AMR Investment
Services, Inc. and J.P. Morgan Investment Management Inc.,
dated July 31, 2000 - filed herewith
(ii)(N) Investment Advisory Agreement between AMR Investment
Services, Inc. and Morgan Stanley Dean Witter Investment
Management Inc., dated July 31, 2000 - filed herewith
(ii)(O) Investment Advisory Agreement between AMR Investment
Services, Inc. and The Boston Company Asset Management,
LLC, dated July 31, 2000 - filed herewith
(ii)(P) Investment Advisory Agreement between AMR Investment
Services, Inc. and MW Post Advisory Group, LLC- to be
filed
(iii)(A) Administrative Services Agreement between the American
AAdvantage Funds and AMR Investment Services, Inc., dated
November 21, 1997 - (iv)
(iii)(B) Supplement to Administrative Services Agreement, dated
September 1, 1998 - (vi)
(iii)(C) Supplement to Administrative Services Agreement, dated
January 1, 1999 - (vii)
(iii)(D) Supplement to Administrative Services Agreement, dated
March 1, 2000 - (viii)
(iii)(E) Supplement to Administrative Services Agreement, dated May
19, 2000 - filed herewith
(iv) Administrative Services Plan for the Platinum Class - (iv)
(v)(A) Administrative Agreement for S&P 500 Index Fund with
Bankers Trust Company- (iv)
(B) Administrative Agreement for S&P 500 Index Fund with State
Street Bank & Trust Company - (vii)
</TABLE>
<PAGE> 56
<TABLE>
<S> <C>
(C) Administrative Agreement for Small Cap Index Fund and
International Equity Index Fund - (ix)
(e)(i) Distribution Agreement among the American AAdvantage
Funds, the American AAdvantage Mileage Funds and Brokers
Transaction Services, Inc. dated September 1, 1995 - (iv)
(ii) Distribution Agreement among the American AAdvantage
Funds, the American AAdvantage Mileage Funds, the American
Select Funds and SWS Financial Services, Inc., dated
December 31, 1999 - (viii)
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between the American AAdvantage Funds
and State Street Bank and Trust Company dated December 1,
1997 - (v)
(ii) Amendment to Custodian Agreement to add Small Cap Value
Fund on January 1, 1999 - (ix)
(iii) Form of Amendment to Custodian Agreement to add Large Cap
Growth, Emerging Markets, Small Cap Index and
International Equity Index series of the American
AAdvantage Funds on July 31, 2000 - (ix)
(h)(i) Transfer Agency and Service Agreement between the American
AAdvantage Funds-and State Street Bank and Trust Company
dated January 1, 1998 - (v)
(ii) Amendment to Transfer Agency Agreement to add Small Cap
Value Fund on January 1, 1999 - (ix)
(iii) Form of Amendment to Transfer Agency Agreement to add four
new AAdvantage Funds on July 31, 2000 - (ix)
(iv) Securities Lending Authorization Agreement between
American AAdvantage Funds and State Street Bank and Trust
Company dated January 2, 1998 - (v)
(v) Service Plan Agreement for the American AAdvantage Funds
PlanAhead Class dated August 1, 1994 - (iv)
(vi) Credit Agreement between American AAdvantage Funds and AMR
Investment Services, Inc., dated December 1, 1999 - (vii)
(vii) Form of Amendment to Credit Agreement to add Large Cap
Growth and Emerging Markets Portfolios and the four
AAdvantage Funds on July 31, 2000 - (ix)
(viii) Administrative Services Agreement among American
AAdvantage Funds, American AAdvantage Mileage Funds, AMR
Investment Services Trust,
AMR Investment Services, Inc. and State Street Bank and
Trust Company dated November 29, 1999 - (vii)
(i) Opinion and consent of counsel - (ix)
(j) Consent of Independent Auditors - none
(k) Financial statements omitted from prospectus - none
</TABLE>
<PAGE> 57
<TABLE>
<S> <C>
(l) Letter of investment intent - (iv)
(m)(i) Plan pursuant to Rule 12b-1 for the Institutional,
PlanAhead and AMR Classes - (iv)
(ii) Plan pursuant to Rule 12b-1 for the Platinum Class - (iv)
(n) Amended and Restated Plan pursuant to Rule 18f-3 - (iv)
(o)(i) Codes of Ethics of Registrant, American AAdvantage Mileage
Funds, American Select Funds and AMR Investment Services
Trust - (ix)
(ii) Code of Ethics of AMR Investments - (ix)
(iii) Codes of Ethics of each Investment Adviser - (ix)
Other Exhibits - Powers of Attorney for all Trustees - (ii)
--------------------
</TABLE>
* Incorporated by reference to PEA No. 4 to the Registration Statement of
the Trust on Form N-1A as filed with the SEC on December 31, 1990.
(i) Incorporated by reference to PEA No. 15 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on December 22, 1995.
(ii) Incorporated by reference to PEA No. 19 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on February 13, 1997.
(iii) Incorporated by reference to PEA No. 20 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on July 1, 1997.
(iv) Incorporated by reference to PEA No. 23 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on December 18, 1997.
(v) Incorporated by reference to PEA No. 24 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on February 27, 1998.
(vi) Incorporated by reference to PEA No. 25 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on October 15, 1998.
(vii) Incorporated by reference to PEA No. 28 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on December 21, 1999.
(viii) Incorporated by reference to PEA No. 29 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on March 1, 2000.
(ix) Incorporated by reference to PEA No. 32 to the Registration Statement
of the Trust on Form N-1A as filed with the SEC on July 7, 2000.
