<PAGE> 1
THIS PROSPECTUS CONTAINS important information about the Platinum Class of the
AMERICAN AADVANTAGE MONEY MARKET MILEAGE FUND ("Money Market Fund"), a separate
investment portfolio of the AMERICAN AADVANTAGE MILEAGE FUNDS ("Mileage
Trust"), an open-end management investment company which consists of multiple
investment portfolios. THE MONEY MARKET FUND SEEKS ITS INVESTMENT OBJECTIVE BY
INVESTING ALL OF ITS INVESTABLE ASSETS IN THE MONEY MARKET PORTFOLIO OF THE AMR
INVESTMENT SERVICES TRUST ("AMR TRUST") WHICH HAS AN INVESTMENT OBJECTIVE
IDENTICAL TO THE MONEY MARKET FUND. The investment experience of the Fund will
correspond directly with the investment experience of the Money Market
Portfolio. Platinum Class shares are offered exclusively to customers of
certain broker-dealers. Individuals should read this Prospectus carefully
before making an investment decision and retain it for future reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated January 1, 1996 has been filed with the Securities and Exchange
Commission and is incorporated herein by reference. The SAI contains more
detailed information about the Money Market Fund. For a free copy of the SAI,
call 800-967-9009. For further information on the Platinum Class or the Money
Market Fund's other class of shares, please refer to the appropriate address
and phone number on the back cover of this Prospectus.
AN INVESTMENT IN THE MONEY MARKET FUND IS NEITHER INSURED NOR GUARANTEED BY THE
U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO MAINTAIN
A STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
JANUARY 1, 1996
[LOGO]
AAdvantage
Money Market Mileage Fund
-Platinum Class-(SM)
<PAGE> 2
The AMERICAN AADVANTAGE MONEY MARKET MILEAGE FUNDSM seeks current income,
liquidity, and the maintenance of a stable price per share of $1.00 by investing
all of its investable assets in the Money Market Portfolio of the AMR Trust,
which in turn invests in high quality, short-term obligations.
Under a Hub and Spoke(R)(1) operating structure, the Money Market Fund seeks
its investment objective by investing all of its investable assets in the Money
Market Portfolio, which has an investment objective that is identical to the
Money Market Fund's. Whenever the phrase "all of the Fund's investable assets"
is used, it means that the only investment securities that will be held by the
Money Market Fund will be its interest in the Money Market Portfolio. AMR
Investment Services, Inc. ("Manager") provides investment management and
administrative services to the Money Market Portfolio and administrative
services to the Money Market Fund. This Hub and Spoke operating structure is
different from that of many other investment companies which directly acquire
and manage their own portfolios of securities. Accordingly, investors should
carefully consider this investment approach. See "Investment Objective, Policies
and Risks -- Additional Information About the Money Market Portfolio." The Money
Market Fund may withdraw its investment in the Money Market Portfolio at any
time if the Mileage Trust's Board of Trustees ("Mileage Trust Board") determines
that it would be in the best interests of the Money Market Fund and its
shareholders to do so. Upon any such withdrawal, the Money Market Fund's assets
would be invested in accordance with the investment policies and restrictions
described in this Prospectus and the SAI.
<TABLE>
<S> <C>
TABLE OF FEES AND EXPENSES... 3
INTRODUCTION................. 4
INVESTMENT OBJECTIVE,
POLICIES AND RISKS......... 5
INVESTMENT RESTRICTIONS...... 10
YIELDS AND TOTAL RETURNS..... 11
MANAGEMENT AND ADMINISTRATION
OF THE MILEAGE TRUST....... 12
AADVANTAGE(R) MILES.......... 14
HOW TO PURCHASE SHARES....... 15
HOW TO REDEEM SHARES......... 16
VALUATION OF SHARES.......... 17
DIVIDENDS AND TAX MATTERS.... 18
GENERAL INFORMATION.......... 19
</TABLE>
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(1) Hub and Spoke is a registered service mark of Signature Financial
Group, Inc.
PROSPECTUS
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<PAGE> 3
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<S> <C>
Management Fees 0.15%
12b-1 Fees(1) 0.25%
Other Expenses 0.69%
---------
Total Operating Expenses 1.09%
---------
---------
</TABLE>
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(1) The Mileage Trust anticipates that some of the "12b-1 Fees" charged for the
coming year will be used to pay for AAdvantage miles. See "AAdvantage
Miles."
The Mileage Trust Board believes that the aggregate per share expenses of
the Money Market Fund and the Money Market Portfolio will be approximately equal
to the expenses that the Money Market Fund would incur if its assets were
invested directly in the type of securities held by the Money Market Portfolio.
EXAMPLE
An investor in the Money Market Fund would directly or indirectly pay on a
cumulative basis the following expenses on a $1,000 investment assuming a 5%
annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS
<S> <C>
$11 $35
</TABLE>
The purpose of the table above is to assist a potential investor in
understanding the various costs and expenses expected to be incurred directly or
indirectly as a Platinum Class shareholder in the Money Market Fund for the
coming fiscal year. Additional information may be found under "Management and
Administration of the Mileage Trust."
THE FOREGOING EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLE.
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INTRODUCTION
The Mileage Trust is an open-end, management investment company organized as a
Massachusetts business trust on February 22, 1995. The Money Market Fund is a
separate investment portfolio of the Mileage Trust. The Money Market Fund
invests all of its investable assets in the Money Market Portfolio of the AMR
Trust which has an identical investment objective. The Money Market Fund
currently consists of two classes of shares: the "Platinum Class" for
individuals and certain grantor trusts which are customers of various
broker-dealers; and the "Mileage Class" which is available directly to
individuals and certain grantor trusts. This Prospectus relates only to the
Platinum Class. For further information about the Mileage Class, call (800) 645-
3795.
Although each class of shares is designed to meet the needs of different
categories of investors, both classes of the Money Market Fund share the same
portfolio of investments and share a common investment objective. See
"Investment Objective, Policies and Risks." There is no guarantee that the Money
Market Fund will achieve its investment objective. Based on its value, a share
of the Money Market Fund, regardless of class, will receive a proportionate
share of the investment income and the gains (or losses) earned (or incurred) by
the Money Market Fund. It also will bear its proportionate share of expenses
that are allocated to the Money Market Fund as a whole. However, certain
expenses will be allocated separately to each class of shares.
The Manager provides investment advisory services to the Money Market
Portfolio. Investment decisions for the Money Market Portfolio are made by the
Manager in accordance with the investment objectives, policies and restrictions
described in this Prospectus and in the SAI.
Platinum Class shares are sold without any sales charges at the next share
price calculated after an investment is received and accepted. Shares will be
redeemed at the next share price calculated after receipt of a redemption order.
See "How to Purchase Shares" and "How to Redeem Shares."
Each shareholder will receive American Airlines(R) AAdvantage(R) travel
awards program ("AAdvantage") miles.(2) AAdvantage miles will be posted monthly
to each shareholder's AAdvantage account at an annual rate of one mile for every
$10 invested in the Fund. The Manager reserves the right to discontinue the
posting of AAdvantage miles or to change the mileage calculation at any time
upon notice to shareholders. See "AAdvantage Miles."
- ---------------
(2) American Airlines and AAdvantage are registered trademarks of American
Airlines, Inc. American Airlines may find it necessary to change AAdvantage
program rules, regulations, travel awards and special offers at any time.
PROSPECTUS
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INVESTMENT OBJECTIVE, POLICIES AND RISKS
The investment objective and policies of the Money Market Fund and Money
Market Portfolio are described below. Except as otherwise indicated, the
investment policies of the Money Market Fund may be changed at any time by the
Mileage Trust Board to the extent that such changes are consistent with the
investment objective of the Money Market Fund. However, the Money Market Fund's
investment objective may not be changed without a majority vote of its
outstanding shares, which is defined as the lesser of (a) 67% of the shares of
the Money Market Fund present or represented if the holders of more than 50% of
the shares are present or represented at the shareholders' meeting, or (b) more
than 50% of the shares of the Money Market Fund (hereinafter, "majority vote").
The Money Market Portfolio's investment objective may not be changed without a
majority vote of its interest holders.
The Money Market Fund has a fundamental investment policy which allows it to
invest all of its investable assets in the Money Market Portfolio. All other
fundamental investment policies and the non-fundamental investment policies of
the Money Market Fund and the Money Market Portfolio are identical. Therefore,
although the following discusses the investment objective and the investment
policies of the Money Market Portfolio and the AMR Trust's Board of Trustees
("AMR Trust Board"), it applies equally to the Money Market Fund and the Mileage
Trust Board.
The Money Market Portfolio's investment objective is to seek current income,
liquidity and maintenance of a stable price per share of $1.00. The Money Market
Portfolio may invest in obligations permitted to be purchased under Rule 2a-7 of
the 1940 Act including, but not limited to, (1) obligations of the U.S.
Government or its agencies or instrumentalities; (2) loan participation
interests, medium-term notes, funding agreements and asset-backed securities;
(3) domestic, Yankeedollar and Eurodollar certificates of deposit, time
deposits, bankers' acceptances, commercial paper, bearer deposit notes and other
promissory notes including floating or variable rate obligations issued by U.S.
or foreign bank holding companies and their bank subsidiaries, branches and
agencies; and (4) repurchase agreements involving the obligations listed above.
The Money Market Portfolio will invest only in issuers or instruments that at
the time of purchase (1) have received the highest short-term rating by at least
two nationally recognized statistical rating organizations ("Rating
Organizations") such as "A-1" by Standard & Poor's and "P-1" by Moody's
Investors Services, Inc.; (2) are single rated and have received the highest
short-term rating by a Rating Organization; or (3) are unrated, but are
determined to be of comparable quality by the Manager pursuant to guidelines
approved by the AMR Trust Board and subject to the ratification of the AMR Trust
Board. See the SAI for definitions of the foregoing instruments and rating
systems.
The Money Market Portfolio will invest more than 25% of its assets in
obligations issued by the banking industry. However, for temporary defensive
purposes
PROSPECTUS
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<PAGE> 6
during periods when the Manager believes that maintaining this concentration may
be inconsistent with the best interest of shareholders, the Money Market
Portfolio will not maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign companies; there may be less governmental
regulation and supervision; they may use different accounting and financial
standards; and the adoption of foreign governmental restrictions may adversely
affect the payment of principal and interest on foreign investments. In
addition, not all foreign branches of banks are supervised or examined by
regulatory authorities as are U.S. banks, and such branches may not be subject
to reserve requirements.
Variable amount master demand notes in which the Money Market Portfolio may
invest are unsecured demand notes that permit the indebtedness thereunder to
vary, and provide for periodic adjustments in the interest rate. Because master
demand notes are direct lending arrangements between the Money Market Portfolio
and the issuer, they are not normally traded. There is no secondary market for
the notes; however, the period of time remaining until payment of principal and
accrued interest can be recovered under a variable amount master demand note
generally shall not exceed seven days. To the extent this period is exceeded,
the note in question would be considered illiquid. Issuers of variable amount
master demand notes must satisfy the same criteria as set forth for other
promissory notes (e.g. commercial paper). The Money Market Portfolio will invest
in variable amount master demand notes only when such notes are determined by
the Manager, pursuant to guidelines established by the AMR Trust Board, to be of
comparable quality to rated issuers or instruments eligible for investment by
the Money Market Portfolio. In determining average dollar weighted portfolio
maturity, a variable amount master demand note will be deemed to have a maturity
equal to the longer of the period of time remaining until the next readjustment
of the interest rate or the period of time remaining until the principal amount
can be recovered from the issuer on demand.
The Portfolio also may engage in dollar rolls or purchase or sell securities
on a "when-issued" and on a "forward commitment" basis. The purchase or sale of
when-issued securities enables an investor to hedge against anticipated changes
in interest rates and prices by locking in an attractive price or yield. The
price of when-issued securities is fixed at the time the commitment to purchase
or sell is made, but delivery and payment for the when-issued securities take
place at a later date, normally one to two months after the date of purchase.
During the period between purchase and settlement, no payment is made by the
purchaser to the issuer and no interest accrues to the purchaser. Such
transactions therefore involve a risk of loss if the value of the security to be
purchased declines prior to the settlement date or if the value of the
PROSPECTUS
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<PAGE> 7
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.
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, the Money Market Portfolio may also lend its securities, enter into
fully collateralized repurchase agreements, and invest in private placement
investments.
The Money Market Portfolio may lend securities to broker-dealers or other
institutional investors pursuant to agreements requiring that the loans be
continuously secured by any combination of cash, securities of the U.S.
Government and its agencies and instrumentalities and approved bank letters of
credit that at all times equals at least 100% of the market value of the loaned
securities. Such loans will not be made if, as a result, the aggregate amount of
all outstanding securities loans by the Money Market Portfolio would exceed
33 1/3% of its total assets. The Money Market Portfolio continues to receive
interest on the securities loaned and simultaneously earns either interest on
the investment of the cash collateral or fee income if the loan is otherwise
collateralized. However, the Money Market Portfolio normally pays (including, in
some cases, payments to the Manager) lending fees and related expenses from this
interest or fee income. Should the borrower of the securities fail financially,
there is a risk of delay in recovery of the securities loaned or loss of rights
in the collateral. However, the Money Market Portfolio seeks to minimize this
risk by making loans only to borrowers which are deemed by the Manager to be of
good financial standing and which have been approved by the AMR Trust Board. For
purposes of complying with the Money Market Portfolio's investment policies and
restrictions, collateral received in connection with securities loans will be
deemed an asset of the Money Market Portfolio to the extent required by law. See
the SAI for further information regarding loan transactions.
A repurchase agreement is an agreement under which securities are acquired
by the Money Market Portfolio from a securities dealer or bank subject to resale
at an agreed upon price on a later date. The Money Market Portfolio bears a risk
of loss in the event that the other party to a repurchase agreement defaults on
its obligations and the Money Market Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, the
Manager attempt to minimize this risk by
PROSPECTUS
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<PAGE> 8
entering into repurchase agreements only with financial institutions which are
deemed to be of good financial standing and which have been approved by the AMR
Trust Board. See the SAI for more information regarding repurchase agreements.
Investments in private placement offerings are made in reliance on the
"private placement" exemption from registration afforded by Section 4(2) of the
Securities Act of 1933 (the "Securities Act"), and resold to qualified
institutional buyers under Rule 144A of the Securities Act ("Section 4(2)
paper"). Section 4(2) paper is restricted as to disposition under the federal
securities laws, and generally is sold to an institutional investor, such as the
Money Market Portfolio, that agrees it is purchasing the paper 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) paper normally is resold to other
institutional investors such as the Money Market Portfolio through or with the
assistance of the issuer or dealers that make a market in the Section 4(2)
paper, thus providing liquidity. The Money Market Portfolio will not invest more
than 10% of its net assets in Section 4(2) paper and illiquid securities unless
the Manager determines, by continuous reference to the appropriate trading
markets and pursuant to guidelines approved by the AMR Trust Board, that any
Section 4(2) paper held by the Money Market Portfolio in excess of this level is
at all times liquid.
Because it is not possible to predict with assurance exactly how this market
for Section 4(2) paper offered and sold under Rule 144A will develop, the AMR
Trust Board and the Manager, pursuant to the guidelines approved by the AMR
Trust Board, will carefully monitor the Money Market Portfolio's investments in
these securities, focusing on such important factors, among others, as
valuation, liquidity, and availability of information. Investments in Section
4(2) paper could have the effect of reducing the Money Market Portfolio's
liquidity to the extent that qualified institutional buyers no longer wish to
purchase these restricted securities.
BROKERAGE PRACTICES -- The Money Market Portfolio normally will not incur any
brokerage commissions on its transactions because money market instruments are
generally traded on a "net" basis with dealers acting as principal for their own
accounts without a stated commission. The price of the obligation, however,
usually includes a profit to the dealer. Obligations purchased in underwritten
offerings include a fixed amount of compensation to the underwriter, generally
referred to as the underwriter's concession or discount. No commissions or
discounts are paid when securities are purchased directly from an issuer.
ADDITIONAL INFORMATION ABOUT THE MONEY MARKET PORTFOLIO -- As previously
described, investors should be aware that the Money Market Fund, unlike mutual
funds that directly acquire and manage their own portfolios of securities, seeks
to achieve its investment objective by investing all of its investable assets in
the Money Market Portfolio, a separate investment company. Since the Money
Market Fund will invest only in the
PROSPECTUS
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<PAGE> 9
Money Market Portfolio, the Money Market Fund's shareholders will acquire only
an indirect interest in the investments of the Money Market Portfolio.
Historically, the Manager has sponsored traditionally structured funds and,
therefore, has limited experience with funds that invest all their assets in a
separate portfolio.
The Manager expects, although it cannot guarantee, that the Trust will
achieve economies of scale by investing in the AMR Trust. In addition to selling
its interests to the Money Market Fund, the Money Market Portfolio may sell its
interests to other non-affiliated investment companies and/or other
institutional investors. All institutional investors in the Money Market
Portfolio will pay a proportionate share of its expenses and will invest in it
on the same terms and conditions. However, if another investment company invests
all of its assets in the Money Market Portfolio, it would not be required to
sell its shares at the same public offering price as the Money Market Fund and
may charge different sales commissions. Therefore, investors in the Money Market
Fund may experience different returns from investors in another investment
company that invests exclusively in the Money Market Portfolio.
The Money Market Fund's investment in the Money Market Portfolio may be
materially affected by the actions of large investors in the Money Market
Portfolio. For example, as with all open-end investment companies, if a large
investor were to redeem its interest in the Money Market Portfolio, the
remaining investors could experience higher pro rata operating expenses, thereby
producing lower returns. As a result, the Money Market Portfolio's security
holdings may become less diverse, resulting in increased risk. Institutional
investors in the Money Market Portfolio that have a greater pro rata ownership
interest in the Money Market Portfolio than the Money Market Fund could have
effective voting control over the operation of the Money Market Portfolio. A
change in the Money Market Portfolio's fundamental objective, policies and
restrictions, that is not approved by the shareholders of the Money Market Fund
could require the Money Market Fund to redeem its interest in the Money Market
Portfolio. Any such redemption could result in a distribution in kind of
portfolio securities (as opposed to a cash distribution) by the Money Market
Portfolio. Should such a distribution occur, the Money Market Fund could incur
brokerage fees or other transaction costs in converting such securities to cash.
In addition, a distribution in kind could result in a less diversified portfolio
of investments for the Money Market Fund and could affect adversely its
liquidity.
The Money Market Fund's and the Money Market Portfolio's investment
objective and policies are described above. See "Investment Restrictions" for a
description of their investment restrictions. The investment objective of the
Money Market Fund can be changed only with shareholder approval. The approval of
the Money Market Fund and of other investors in the Money Market Portfolio is
not required to change the investment objective, policies or limitations of the
Money Market Portfolio, unless otherwise specified. Written notice shall be
provided to shareholders of the Money Market Fund within thirty days prior to
any changes in the
PROSPECTUS
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Money Market Portfolio's investment objective. If the investment objective of
the Money Market Portfolio changes and the shareholders of the Money Market Fund
do not approve a parallel change in the Money Market Fund's investment
objective, the Money Market Fund would seek an alternative investment vehicle or
would be actively managed by the Manager.
See "Management and Administration of the Mileage Trust" for a complete
description of the investment management fee and other expenses associated with
the Money Market Fund's investment in the Money Market Portfolio. This
Prospectus and the SAI contain more detailed information about the Money Market
Fund and the Money Market Portfolio, including information related to (1) the
investment objective, policies and restrictions of the Money Market Fund and the
Money Market Portfolio, (2) the Board of Trustees and officers of the Mileage
Trust and the AMR Trust, (3) brokerage practices, (4) the Money Market Fund's
shares, including the rights and liabilities of its shareholders, (5) additional
performance information, including the method used to calculate yield and total
return and (6) the determination of the value of the Money Market Fund's shares.
INVESTMENT RESTRICTIONS
The following fundamental and non-fundamental investment restrictions are
identical for the Money Market Fund and the Money Market Portfolio. Therefore,
although the following discusses the investment restrictions of the Money Market
Portfolio and the AMR Trust Board, it applies equally to the Money Market Fund
and the Mileage Trust Board. The following fundamental investment restrictions
may be changed with respect to the Money Market Fund by the majority vote of its
outstanding shares or with respect to the Money Market Portfolio by the majority
vote of its interest holders. The Money Market Portfolio may not:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of its
total assets. In addition, although not a fundamental investment
restriction and therefore subject to change without shareholder vote, the
Money Market Portfolio applies this restriction with respect to 100% of
its assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry other than the U.S. Government, its
agencies and instrumentalities, or the banking industry. Municipal
governments and their agencies and authorities are not deemed to be
industries. Finance companies as a group are not considered a single
industry for purposes of this policy.
PROSPECTUS
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The following non-fundamental investment restrictions may be changed with
respect to the Money Market Fund by a vote of a majority of the Mileage Trust
Board or with respect to the Money Market Portfolio by a vote of a majority of
the AMR Trust Board. The Money Market Portfolio may not:
- Invest in securities of an issuer that, together with any predecessor, has
been in operation for less than three years if more than 5% of its total
assets would be invested in such securities. This limitation does not
apply with regard to collateralized trust securities.
- Invest more than 10% of its net assets in illiquid securities, including
time deposits and repurchase agreements that mature in more than seven
days.
The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction that was in compliance with the investment restrictions
at the time such transaction was effected. See the SAI for other investment
limitations.
YIELDS AND TOTAL RETURNS
From time to time the Money Market Fund, including the Platinum Class and the
Mileage Class, may advertise its "current yield" and "effective yield." Both
yield figures are based on historical earnings and are not intended to indicate
future performance. The current yield refers to the income generated by an
investment over a seven calendar-day period (which period will be stated in the
advertisement). This income is then annualized by assuming the amount of income
generated by the investment during that week is earned each week over a one-year
period and is shown as a percentage of the investment. The effective yield is
calculated similarly but, when annualized, the income earned by the investment
is assumed to be reinvested. The effective yield will be slightly higher than
the current yield because of the compounding effect of this assumed
reinvestment. Total return quotations advertised by the Money Market Fund may
reflect the average annual compounded (or aggregate compounded) rate of return
during the designated time period based on a hypothetical initial investment and
the redeemable value of that investment at the end of the period. The Money
Market Fund will at times compare its performance to applicable published
indices, and may also disclose its performance as ranked by certain ranking
entities. Each class of the Money Market Fund has different expenses which will
impact its performance. See the SAI for more information about the calculation
of yields and total returns.
PROSPECTUS
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MANAGEMENT AND ADMINISTRATION OF THE MILEAGE TRUST
The Board has general supervisory responsibility over the Trust's affairs. The
Manager serves as investment manager and administrator of the Money Market Fund
and the Money Market Portfolio pursuant to separate Management Agreements, each
dated October 1, 1995, which obligate the Manager to provide or oversee all
administrative, investment advisory and portfolio management services for the
Mileage Trust and the AMR Trust. The Manager, located at 4333 Amon Carter
Boulevard, MD 5645, Fort Worth, Texas 76155, is a wholly-owned subsidiary of AMR
Corporation ("AMR"), the parent company of American Airlines, Inc., and was
organized in 1986 to provide business management, advisory, administrative and
asset management consulting services. As of September 30, 1995, the Manager had
assets under management totaling approximately $12.9 billion including
approximately $4.7 billion under active management and $8.2 billion as named
fiduciary or fiduciary adviser. Of the total, approximately $9.5 billion of
assets are related to AMR. American Airlines is not responsible for investments
made in the American AAdvantage Mileage Funds.
The Manager provides each Trust with office space, office equipment and
personnel necessary to manage and administer the Trusts' operations. This
includes complying with reporting requirements; corresponding with shareholders;
maintaining internal bookkeeping, accounting and auditing services and records;
and supervising the provision of services to the Trusts by third parties. The
Manager also develops the investment programs for the Money Market Portfolio.
The Manager bears the expense of providing the above services. As
compensation for paying these expenses and for providing the Money Market
Portfolio with advisory services, the Manager receives from the AMR Trust an
annualized fee that is calculated and accrued daily, equal to the sum of 0.15%
of the net assets of the Money Market Portfolio. To the extent that the Money
Market Fund invests all of its investable assets in the Money Market Portfolio,
the Manager receives no advisory fee from the Mileage Trust. The fees received
by the Manager from the AMR Trust ("Management Fees") are payable quarterly in
arrears.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Mileage Trust Board
and the AMR Trust Board, including the affirmative vote of a majority of the
independent Trustees of each Board who are not parties to the Management
Agreement or "interested persons" as defined in the 1940 Act of any such party
("Independent Trustees"), cast in person at a meeting called for the purpose of
considering such approval, or by the vote of the Money Market Fund's
shareholders or the Money Market Portfolio's interest holders. A Management
Agreement may be terminated with respect to the Money Market Fund or the Money
Market Portfolio at any time, without penalty, by a majority vote of outstanding
Money Market Fund shares or Portfolio interests on sixty (60) days' written
notice to the Manager, or by the
PROSPECTUS
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Manager, on sixty (60) days' written notice to the Mileage Trust or the AMR
Trust. A Management Agreement will automatically terminate in the event of its
"assignment" as defined in the 1940 Act.
The Mileage Trust is responsible for the following expenses: audits by
independent auditors; transfer agent, custodian, dividend disbursing agent and
shareholder recordkeeping services; taxes, if any, and the preparation of the
Money Market Fund's tax returns; interest; costs of Trustee and shareholder
meetings; printing and mailing prospectuses and reports to existing
shareholders; fees for filing reports with regulatory bodies and the maintenance
of the Money Market Fund's existence; legal fees; fees to federal and state
authorities for the registration of shares; fees and expenses of Independent
Trustees; insurance and fidelity bond premiums; and any extraordinary expenses
of a nonrecurring nature.
A majority of the Independent Trustees of the Mileage Trust Board have
adopted written procedures reasonably appropriate to deal with potential
conflicts of interest between the Mileage Trust and the AMR Trust, including
creating a separate Board of Trustees of the AMR Trust.
ADMINISTRATIVE SERVICES PLAN -- The Manager and the Mileage Trust entered into
an Administrative Services Plan which obligates the Manager to provide the
Platinum Class with administrative services either directly or through the
various broker-dealers that offer Platinum Class shares. These services include,
but not limited to, the payment of fees for record maintenance, forwarding
shareholder communications to the shareholders and aggregating and processing
orders for the purchase and redemption of Platinum Class shares. As compensation
for these services, the Manager receives an annualized fee of up to 0.55% of the
net assets of the Platinum Class of the Money Market Fund. The fee is payable
quarterly in arrears.
DISTRIBUTION PLAN -- The Platinum Class distribution plan (the "Plan") was
adopted pursuant to Rule 12b-1 under the 1940 Act and provides that it will
continue in effect so long as its continuance is approved at least annually by a
majority of the Trustees, including the affirmative votes of a majority of
Independent Trustees of the Mileage Trust Board, cast in person at a meeting
called for the purpose of considering such approval, or by the vote of
shareholders. The Plan may be terminated at any time, without the payment of any
penalty, by a vote of Independent Trustees of the Mileage Trust Board or by a
vote of a majority of the outstanding voting securities of the Platinum Class.
The Plan provides that the Platinum Class will pay 0.25% per annum of its
average daily net assets to the Manager (or another entity approved by the
Mileage Trust Board) for distribution-related services. The fees will be payable
quarterly in arrears without regard to whether the amount of the fee is more or
less than the actual expenses incurred in a particular quarter by the entity for
the services provided
PROSPECTUS
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<PAGE> 14
pursuant to the Plan. The Plan authorizes AMR, or any other entity approved by
the Mileage Trust Board, to spend 12b-1 fees on any activities or expenses
intended to result in the sale or servicing of Platinum Class shares, including,
but not limited to, advertising, expenses of various broker-dealers relating to
selling efforts, transfer agency fees, preparation and distribution of
advertising material and sales literature and expenses incurred in connection
with participation in the American Airlines AAdvantage Travel Awards Program.
ALLOCATION OF MONEY MARKET FUND EXPENSES -- Expenses of the Money Market Fund
generally are allocated equally among its shares, regardless of class. However,
certain expenses approved by the Mileage Trust Board will be allocated solely to
the class to which they relate.
PRINCIPAL UNDERWRITER -- BROKERS TRANSACTION SERVICES, INC., 7001 Preston Road,
Dallas, Texas, 75205 serves as the principal underwriter of the Mileage Trust.
CUSTODIAN AND TRANSFER AGENT -- NATIONSBANK OF TEXAS, N.A., Dallas, Texas,
serves as custodian for the Money Market Portfolio and the Money Market Fund and
as transfer agent for the Platinum Class.
INDEPENDENT AUDITOR -- The independent auditor for the Mileage Trust and the AMR
Trust is ERNST & YOUNG LLP, Dallas, Texas.
AADVANTAGE(R) MILES
The AAdvantage program offers the opportunity to obtain free upgrades and travel
awards on American Airlines and AAdvantage airline participants, as well as
upgrades and discounts on car rentals and hotel accommodations. For more
information about the AAdvantage program, call American Airlines at (800)
433-7300.
AAdvantage miles will be posted monthly in arrears to each shareholder's
AAdvantage account based on the shareholder's average daily account balance
during the previous month. Miles are posted at an annual rate of one mile per
$10 maintained in the Money Market Fund. Mileage is calculated on the average
daily balance and posted monthly. The average daily balance is calculated by
adding each day's balance and dividing by the number of days in the month. For
example, the average daily balance on a $50,000 account funded on the 16th of a
month having 30 days (and maintained at that balance through the end of the
month) would be $25,000. Mileage received for that month would be 208 miles. If
the same balance were maintained through the next month, the average daily
balance would be $50,000, and the mileage would be 417 miles that month and
every month the $50,000 investment was
PROSPECTUS
14
<PAGE> 15
maintained in the Money Market Fund. These miles appear on the subsequent
AAdvantage program statements.
The Manager reserves the right to discontinue the posting of AAdvantage
miles or to change the mileage calculation at any time upon notice to
shareholders. See also "Dividends and Tax Matters."
American Airlines may find it necessary to change AAdvantage program rules,
regulations, travel awards and special offers at any time. This means that
American Airlines may initiate changes impacting, for example, participant
affiliations, rules for earning mileage credit, mileage levels and rules for the
use of travel awards, continued availability of travel awards, blackout dates
and limited seating for travel awards, and the features of special offers.
American Airlines reserves the right to end the AAdvantage program with six
months' notice. AAdvantage travel awards, mileage accrual and special offers are
subject to government regulations.
HOW TO PURCHASE SHARES
Platinum Class shares are sold at net asset value through selected financial
services firms such as broker-dealers ("firms"). The Platinum Class has
established a minimum initial investment of $1,000 and $100 for subsequent
investments, but these minimums may be changed at any time at the Mileage
Trust's discretion.
Orders for purchase of Platinum Class shares received by wire transfer in
the form of federal funds will be effected at the next determined net asset
value. Shares are offered and orders are accepted until 3:00 p.m. Eastern time
on each day on which the Federal Reserve and the custodian/transfer agent are
open for business ("Business Day"). These purchases will receive that day's
dividend. Orders for purchase accompanied by a check or other negotiable bank
draft will be accepted and effected as of 3:00 p.m. Eastern time on the next
Business Day following receipt and such shares will receive the dividend for the
Business Day following the day the purchase is effected. The Money Market 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.
Firms provide varying arrangements for their clients with respect to the
purchase and redemption of Platinum Class shares and the confirmation thereof
and may arrange with their clients for other investment or administrative
services. Such firms are responsible for the prompt transmission of purchase and
redemption orders. Some firms may establish higher or lower minimum investment
requirements than set forth above. Such firms may independently establish and
charge additional amounts to their clients for their services, which charges
would reduce their clients' yield or return. Firms also may hold Platinum Class
shares in nominee or street name as agent for and
PROSPECTUS
15
<PAGE> 16
on behalf of their clients. In such instances, the transfer agent will have no
information with respect to or control over the accounts of specific
shareholders. Such shareholders may obtain access to their accounts and
information about their accounts only from their firm. Certain of these firms
may receive compensation from the Manager for recordkeeping and other expenses
relating to these nominee accounts. In addition, certain privileges with respect
to the purchase and redemption of shares (such as check writing) may not be
available through such firms or may only be available subject to certain
conditions or limitations. Some firms may participate in a program allowing them
access to their clients' accounts for servicing, including, without limitation,
transfers of registration and dividend payee changes, and may perform functions
such as generation of confirmation statements and disbursements of cash
dividends.
HOW TO REDEEM SHARES
Shareholders should contact the firm through which their shares were purchased
for redemption instructions. Shares of the Money Market Fund may be redeemed by
telephone, by writing a check, by pre-authorized automatic redemption or by mail
on any Business Day. Shares will be redeemed at the net asset value next
calculated after the Money Market Fund has received and accepted the redemption
request. Proceeds from a redemption of shares purchased by check or
pre-authorized automatic purchase may be withheld until the funds have cleared,
which may take up to 15 days. Although the Money Market 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 Money Market
Portfolio. See the SAI for further information concerning redemptions in kind.
Firms may charge a fee for wire redemptions to cover transaction costs.
Redemption proceeds will generally be sent within one Business Day, as
applicable. However, if making immediate payment could adversely affect the
Money Market Fund, it may take up to seven days to send payment.
To ensure acceptance of a redemption request, be sure to adhere to the
following procedures.
REDEEMING BY CHECK -- Upon request, shareholders will be provided with drafts to
be drawn on the Money Market Fund ("Redemption Checks"). Redemption Checks may
be made payable to the order of any person for not less than $250 and not more
than $5 million. When a Redemption Check is presented for payment, a sufficient
number of full and fractional shares in the shareholder's account will be
redeemed as of the next determined net asset value to cover the amount of the
Redemption Check. This will enable the shareholder to continue earning dividends
until the Money Market Fund receives the Redemption Check. A shareholder wishing
to use this method of redemption must complete and file an account application
that is available from the Money Market Fund or firms through which shares were
purchased. Redemption
PROSPECTUS
16
<PAGE> 17
Checks should not be used to close an account since the account normally
includes accrued but unpaid dividends. The Money Market Fund reserves the right
to terminate or modify this privilege at any time. This privilege may not be
available through some firms that distribute shares of the Money Market Fund. In
addition, firms may impose minimum balance requirements in order to obtain this
feature. Firms also may impose fees on investors for this privilege or, if
approved by the Money Market Fund, establish variations on minimum check
amounts.
Unless one signer is authorized on the account application, Redemption
Checks must be signed by all shareholders. Any change in the signature
authorization must be made by written notice to the firm. Shares purchased by
check or through an Automated Clearing House ("ACH") transaction may not be
redeemed by Redemption Check until the shares have been on the Money Market
Fund's books for at least 15 days. The Money Market Fund reserves the right to
terminate or modify this privilege at any time.
The Money Market Fund may refuse to honor Redemption Checks whenever the
right of redemption has been suspended or postponed, or whenever the account is
otherwise impaired. A $15 service fee will be charged when a Redemption Check is
presented to redeem Money Market Fund shares in excess of the value of the Money
Market Fund account or for an amount less than $250 or when a Redemption Check
is presented that would require redemption of shares that were purchased by
check or ACH transaction within 15 days. A fee of $12 will be charged when "stop
payment" of a Redemption Check is requested. Firms may charge different service
fees.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- Shareholders purchasing through some
firms can arrange to have a pre-authorized amount ($100 or more) redeemed from
their shareholder account and automatically deposited into a bank account on one
or more specified day(s) of each month. For more information regarding
pre-authorized automatic redemptions, contact your firm.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of the Money Market Fund generally will be paid at the
time of redemption.
VALUATION OF SHARES
The net asset value of each share (share price) of each class of the Money
Market Fund is determined as of 4:00 p.m. Eastern time on each Business Day. The
net asset value of all outstanding shares of the Platinum class of the Money
Market Fund will be determined based on a pro rata allocation of the Money
Market Portfolio's investment income, expenses and total capital gains and
losses. The allocation will be based on comparative net asset value at the
beginning of the day except for expenses related
PROSPECTUS
17
<PAGE> 18
solely to one class of shares ("Class Expenses") which will be borne only by the
appropriate class of shares. Because of Class Expenses, the net income
attributable to and the dividends payable may be different for each class of
shares.
Portfolio obligations held by the Money Market Portfolio are valued in
accordance with the amortized cost method, which is designed to maintain a
stable $1.00 per share net asset value. The amortized cost method is described
in the SAI.
DIVIDENDS AND TAX MATTERS
Dividends paid on each class of the Fund's shares are calculated at the same
time and in the same manner. All of the Money Market Fund's net investment
income and net short-term capital gain, if any, generally are declared as
dividends on each Business Day immediately prior to the determination of the net
asset value. Dividends generally are paid on the first Business Day of the
following month. The Money Market Fund's net investment income attributable to
the Platinum Class consists of that class pro rata share of the Money Market
Fund's share of interest accrued and discount earned on the Money Market
Portfolio's securities, less amortization of premium and the estimated expenses
of both the Money Market Portfolio and the Money Market Fund attributable to the
Platinum Class. The Money Market Portfolio does not expect to realize net
capital gain and thus does not foresee paying any capital gain distributions. If
the Money Market Fund (either directly or through the Money Market Portfolio)
incurred or anticipated any unusual expenses, loss or depreciation that would
adversely affect its net asset value or income for a particular period, the
Mileage Trust Board would at that time consider whether to adhere to the
dividend policy described above or to revise it in the light of the then
prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends on the Platinum Class shares are automatically declared and paid in
additional Platinum Class shares. However, a shareholder may choose to have
dividends paid in cash. An election may be changed at any time by delivering
written notice to your firm at least ten days prior to the payment date for a
dividend.
The Money Market Fund will be treated as a separate corporation for federal
income tax purposes and intends to qualify for treatment as a regulated
investment company under the Internal Revenue Code of 1986, as amended. In each
taxable year that the Money Market Fund so qualifies, the Money Market Fund (but
not its shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (generally, net investment income plus net
short-term capital gain) that it distributes to its shareholders. However, the
Money Market Fund will be subject to a nondeductible 4% excise tax to the extent
it fails to distribute by the end of any calendar year substantially all of its
ordinary income and capital gain net income for that year, plus certain other
amounts. For these and other purposes, dividends declared by the Fund in
December of any year and payable to shareholders of record
PROSPECTUS
18
<PAGE> 19
on a date in one of those months will be deemed to have been paid by the Fund
and received by the shareholders on December 31 of that year if they are paid by
the Fund during the following January. The Money Market Portfolio has requested
and expects to receive a ruling from the Internal Revenue Service that it will
be classified for federal income tax purposes as a partnership; accordingly, the
Money Market Portfolio will not be subject to federal income tax.
Dividends from the Money Market Fund's investment company taxable income
will be taxable to its shareholders as ordinary income to the extent of the
earnings and profits, whether received in cash or paid in additional Platinum
Class shares.
The Money Market Fund will notify its shareholders following the end of each
calendar year of the amounts of dividends paid (or deemed paid) that year. The
Manager expects that the Money Market Fund also will notify its shareholders
that their taxable dividends for each year include a nominal amount reflecting
the value of AAdvantage miles credited to their accounts, which are deemed by
the Internal Revenue Service to constitute taxable distributions by the Money
Market Fund. The Money Market Fund is required to withhold 31% of all dividends
payable to any individuals and certain other non-corporate shareholders who do
not provide the Money Market Fund with a correct taxpayer identification number
or who otherwise are subject to back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Money Market Fund and its shareholders. Prospective
investors are urged to consult their own tax advisers regarding specific
questions as to the effect of federal, state or local income taxes on any
investment in the Money Market Fund. For further tax information, see the SAI.
GENERAL INFORMATION
The Mileage Trust currently is comprised of seven separate investment
portfolios, one of which is the Money Market Fund. The Money Market Fund is
comprised of two classes of shares, which can be issued in an unlimited number.
Each share represents an equal proportionate beneficial interest in the Money
Market Fund and is entitled to one vote. Only shares of the Money Market Fund
may vote on matters affecting the Money Market Fund. Only shares of a class may
vote on matters affecting that class. All shares of the Mileage Trust vote on
matters affecting it as a whole. Share voting rights are not cumulative, and
shares have no preemptive or conversion rights. Shares of the Mileage Trust are
nontransferable.
On most issues subjected to a vote of the Money Market Portfolio's interest
holders, as required by the 1940 Act, the Money Market Fund will solicit proxies
from its shareholders and will vote its interest in the Money Market Portfolio
in proportion to the votes cast by the Money Market Fund's shareholders. Because
the Money
PROSPECTUS
19
<PAGE> 20
Market Portfolio interest holders' votes are proportionate to its percentage
interests in the Portfolio, one or more other Portfolio investors could, in
certain instances, approve an action against which a majority of the outstanding
voting securities of the Money Market Fund had voted. This could result in the
Money Market Fund's redeeming its investment in the Money Market Portfolio,
which could result in increased expenses for the Money Market Fund. Whenever the
shareholders of the Money Market Fund are called to vote on matters related to
the Money Market Portfolio, the Trustees of the Trust shall vote shares for
which they receive no voting instructions in the same proportion as the shares
for which they do receive voting instructions. Any information received from the
Money Market Portfolio in its report to shareholders will be provided to the
shareholders of the Money Market Fund.
As a Massachusetts business trust, the Mileage Trust is not obligated to
conduct annual shareholder meetings. However, the Mileage Trust will hold
special shareholder meetings whenever required to do so under the federal
securities laws or the Declaration of Trust or By-Laws. Trustees can be removed
by a shareholder vote at special shareholder meetings.
Shareholders will receive periodic reports, including annual and semi-annual
reports, which will include financial statements showing the results of the
Money Market Fund's operations and other information. The financial statements
of the Mileage Trust and the AMR Trust will be audited by Ernst & Young LLP,
independent auditors, at least annually. Shareholder inquiries and requests for
information regarding the other investment companies that also invest in the AMR
Trust should be made by contacting your firm or by calling (800) 967-9009 or by
writing to the Money Market Fund at P.O. Box 619003, MD 5645, Dallas/Fort Worth
Airport, Texas 75261-9003.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE MILEAGE TRUST FOR USE IN
CONNECTION WITH THE OFFER OF ANY PLATINUM CLASS SHARES, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE MONEY MARKET FUND. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY
NOT LAWFULLY BE MADE.
American AAdvantage Mileage Funds is a service mark of AMR Corporation.
Mileage Class is a registered service mark and Platinum Class and American
AAdvantage Money Market Mileage Fund are service marks of AMR Investment
Services, Inc.
PROSPECTUS
20
<PAGE> 21
[LOGO]
- PLATINUM CLASS -(SM)
P.O. BOX 619003
DALLAS/FORT WORTH AIRPORT, TEXAS
75261-9003
(800) 967-9009
- MILEAGE CLASS -(R)
P.O. BOX 4580
CHICAGO, ILLINOIS 60680-4580
(800) 231-4252
PROSPECTUS
<PAGE> 22
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE MILEAGE FUNDS
-- Platinum Class[sm] --
January 1, 1996
The American AAdvantage Money Market Mileage Fund[sm] ("Money Market
Fund") is a separate investment portfolio of the American AAdvantage Mileage
Funds ("Mileage Trust"). The Mileage Trust is an open-end, diversified
management investment company. The Money Market Fund consists of two classes of
shares designed to meet the needs of different groups of investors. This
Statement of Additional Information relates only to the Platinum Class.
The Money Market Fund will seek its investment objective by investing
all of its investable assets in the Money Market Portfolio of the AMR
Investment Services Trust ("AMR Trust"), which has an identical investment
objective.
This Statement of Additional Information should be read in conjunction
with the Platinum Class prospectus dated January 1, 1996 ("Prospectus"), a
copy of which may be obtained without charge by calling (800) 645-3795.
This Statement of Additional Information is not a prospectus and is
authorized for distribution to prospective investors only if preceded or
accompanied by a current Prospectus.
INVESTMENT RESTRICTIONS
The Money Market Fund has the following fundamental investment policy
that enables it to invest in the Money Market Portfolio of the AMR Trust:
Notwithstanding any other limitation, the Fund may invest all
of its investable assets in an open-end management investment
company with substantially the same investment objectives,
policies and limitations as the Fund. For this purpose, "all
of the Fund's investable assets" means that the only
investment securities that will be held by the Fund will be
the Fund's interest in the investment company.
All other fundamental investment policies and the non-fundamental
policies of the Money Market Fund and the Money Market Portfolio are identical.
Therefore, although the following discusses the investment policies of the
Money Market Portfolio and the AMR Trust's Board of Trustees ("AMR Trust
Board"), it applies equally to the Money Market Fund and the Mileage Trust's
Board of Trustees ("Mileage Trust Board").
In addition to the investment limitations noted in the Prospectus, the
following eight restrictions have been adopted by the Money Market Portfolio
and may be changed only by the majority vote of the Money Market Portfolio's
outstanding interests, which as used herein means the lesser of (a) 67% of the
interests of the Money Market 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 Money Market
Portfolio. Whenever the Money Market Fund is requested to vote on a change in
the investment restrictions of the Money Market Portfolio, it will hold a
meeting of its shareholders and will cast its votes as instructed by its
shareholders. The Money Market Portfolio may not:
1. Purchase or sell real estate or real estate limited
partnership interests, provided, however, that the Money Market
Portfolio may invest in securities secured by real estate or interests
therein or issued by companies which invest in real estate or
interests therein when consistent with the other policies and
limitations described in the Prospectus.
<PAGE> 23
2. Purchase or sell commodities (including direct interests
and/or leases in oil, gas or minerals) or commodities contracts,
except with respect to forward foreign currency exchange contracts,
foreign currency futures contracts and "when-issued" securities when
consistent with the other policies and limitations described in the
Prospectus.
3. Engage in the business of underwriting securities issued by
others, except to the extent that, in connection with the disposition
of securities, the Money Market 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 Money Market Portfolio may lend its
investment securities to broker-dealers or other institutional
investors in accordance with the guidelines stated in the Prospectus.
5. Purchase from or sell portfolio securities to its officers,
Trustees or other "interested persons" of the AMR Trust, as defined in
the Investment Company Act of 1940 ("1940 Act"), including its
investment advisers and their affiliates, except as permitted by the
1940 Act and exemptive rules or orders thereunder.
6. Issue senior securities except that the Money Market Portfolio
may engage in when-issued securities and forward commitment
transactions.
7. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed
10% of the value of its total assets at the time of borrowing. In
addition, although not a fundamental policy, the Money Market
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.
8. Purchase the securities of other investment companies except
in connection with a merger, consolidation, acquisition of assets or
other reorganization approved by the Money Market Portfolio's interest
holders.
The following non-fundamental investment restrictions may be changed
by a majority vote of the AMR Trust Board. The Money Market Portfolio may not:
1. Purchase securities on margin, effect short sales (except that
the Money Market Portfolio may obtain such short-term credits as may
be necessary for the clearance of purchases or sales of securities) or
purchase or sell call options or engage in the writing of such
options.
2. Purchase or retain the securities of an issuer if, to the AMR
Trust's knowledge, one or more of the trustees or officers of the AMR
Trust, or the investment adviser responsible for the investment of the
AMR Trust's assets or its directors or officers, individually own
beneficially more than 1/2 of 1% of the securities of such issuer and
together own beneficially more than 5% of such securities.
2
<PAGE> 24
TRUSTEES AND OFFICERS
The Mileage Trust Board provides broad supervision over the Mileage
Trust's affairs. AMR Investment Services, Inc. (the "Manager") is responsible
for the management of Mileage Trust assets, and the Mileage Trust's officers
are responsible for its operations. The Trustees and officers of the Mileage
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* (47) Trustee and President President, AMR Investment Services, Inc. (November 1986-
Present); Chairman, American Airlines Employees Federal
Credit Union (October 1989-Present); Trustee, American
Performance Funds (September 1990-July 1994); Director,
Crescent Real Estate Equities, Inc. (April 1994 -
Present); President and Trustee, American AAdvantage
Funds (1987 - Present).
David G. Fox (71) Trustee Director, Capstead Mortgage Company (1985-1994);
5949 Sherry Lane Director, Southwestern Medical Foundation (1984-
Suite 1220, LB 125 Present); Trustee, Shelter Ministries of Dallas (1993-
Dallas, Texas 75225-6521 Present); Member, Dallas Citizens Council (1967-
Present); President, Dallas County Historical Foundation
(1987-1993); Chairman of the Board, Sensible
Metropolitan Area Rapid Transit (1987-1994); Chairman of
the Board, State Fair of Texas (April 1988-April 1993);
Owner, David G. Fox Investments (1985-Present); Trustee,
American AAdvantage Funds (1985 - Present).
John S. Justin (78) Trustee Chairman and Chief Executive Officer, Justin Industries,
2821 West Seventh Street Inc. (a diversified holding company) (1969-Present);
Fort Worth, Texas 76107 Executive Board Member, Blue Cross/Blue Shield of Texas
(1985-Present); Board Member, Zale Lipshy Hospital (June
1993-Present); Trustee, Texas Christian University
(1980-Present); Director and Executive Board Member,
Moncrief Radiation Center (1985-Present); Director,
Texas New Mexico Enterprises (1984-1993); Director,
Texas New Mexico Power Company (1979-1993); Trustee,
American AAdvantage Funds (1989 - Present).
Stephen D. O'Sullivan* (60) Trustee Consultant (July 1994-Present); Vice President and
Controller (April 1985-June 1994), American Airlines,
Inc.; Trustee, American AAdvantage Funds (1987 -
Present).
</TABLE>
3
<PAGE> 25
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
--------------------- ------------ ----------------------------------------
<S> <C> <C>
Roger T. Staubach (53) Trustee Chairman of the Board and Chief Executive Officer (1982-
6750 LBJ Freeway present) and President (1983-1991) of The Staubach
Dallas, TX 75240 Company (a commercial real estate company); Director,
Halliburton Company (1991-present); Director, First USA,
Inc. (1993-present); Director, Brinker International
(1993-present); Director, Columbus Realty Trust (1994-
present); Member of the Advisory Board, The Salvation
Army; Member of the Advisory Board, Dallas International
Sports Commission; Member of the Advisory Board,
Hartford Whalers Hockey Club; Trustee, Institute for
Aerobics Research; Member of Executive Council,
Daytop/Dallas; former quarterback of the Dallas Cowboys
professional football team; Trustee, American AAdvantage
Funds (1995 - Present).
Nancy A. Eckl (33) Vice President Vice President (December 1990-Present)
Michael W. Fields (41) Vice President Vice President, AMR Investment Services, Inc. (August
1988-Present).
Barry Y. Greenberg (32) Vice President and Director, Legal and Compliance, AMR Investment Services,
Assistant Secretary Inc. (July 1995-Present); Branch Chief (May 1992-June
1995) and Staff Attorney (August 1988-May 1992), Fort
Worth division of the Securities and Exchange
Commission.
Rebecca L. Harris (29) Treasurer Director of Finance (May 1995-Present), Controller
(November 1991-April 1995), AMR Investment Services,
Inc.; Financial Analyst, Sabre Travel Information
Network (December 1990-October 1991).
John B. Roberson (37) Vice President Vice President (June 1991-Present), Assistant Vice
President (August 1988-May 1991), AMR Investment
Services, Inc.
Janice B. Schwarz (36) Assistant Secretary Senior Compliance Analyst, AMR Investment Services, Inc.
(December 1990-Present).
Clifford J. Alexander (52) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
Robert J. Zutz (42) Assistant Secretary Partner, Kirkpatrick & Lockhart LLP (law firm)
</TABLE>
* Messrs. Quinn and O'Sullivan, by virtue of their current or former
positions, are deemed to be "interested persons" of the Mileage Trust
and the AMR Trust as defined by the 1940 Act.
As of October 31, 1995, all Trustees and officers as a group own less
than 1% of the outstanding shares of the Money Market Fund.
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<PAGE> 26
The Mileage Trust compensates each Independent Trustee with payments
in an amount equal to the Trustees' income tax on the value of free airline
travel for him and his spouse on American Airlines, Inc. The direct aggregate
and total remuneration paid to all Trustees on behalf of the other investment
companies in the American AAdvantage Funds complex for the fiscal year ended
October 31, 1995 is shown below.
<TABLE>
<CAPTION>
Pension or Retirement Total Compensation
Aggregate Compensation Benefits Accrued as Estimated Annual From American
From the Part of the Mileage Benefits AAdvantage Funds
Name of Trustee Mileage Trust Trust's Expenses Upon Retirement Complex
--------------- -------------- ----------------- --------------- --------
<S> <C> <C> <C> <C>
William F. Quinn $0 $0 $0 $0
David G. Fox $0 $0 $0 $27,510
John S. Justin $0 $0 $0 $14,475
Stephen D. O'Sullivan $0 $0 $0 $0
Roger T. Staubach $0 $0 $0 $0
</TABLE>
MANAGEMENT, ADMINISTRATIVE SERVICES AND DISTRIBUTION FEES
As described more fully in each class's Prospectus, the Manager is
paid a management fee by the AMR Trust as compensation for its administrative
and advisory services. In addition, the Manager receives a fee from the Mileage
Trust for compensation for its administrative services. The Manager also
receives an administrative services fee from the Mileage Trust with respect to
the Platinum Class.
Also as described more fully in the Platinum Class Prospectus, the
Manager (or another entity approved by the Mileage Trust Board) under a
distribution plan adopted pursuant to Rule 12b-1 under the 1940 Act, is paid by
the Platinum Class 0.25% per annum of the average daily net assets of the class
for distribution-related services.
BTS, as principal underwriter of the Mileage Trust, receives an
annualized fee of $50,000 from the Manager for distributing the Mileage Trust
and American AAdvantage Funds shares.
REDEMPTIONS IN KIND
Although the Money Market 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 Money Market
Portfolio. However, shareholders always will be entitled to redeem shares for
cash up to the lesser of $250,000 or 1% of the Money Market Fund's net asset
value during any 90-day period. Redemption in kind is not as liquid as a cash
redemption. In addition, if redemption is made in kind, shareholders who
receive securities and sell them could receive less than the redemption value
of their securities and could incur certain transactions costs.
EXPENSE LIMITATIONS
Subject to certain state law expense limits, the Money Market Fund
pays all of its expenses (including its share of the Money Market Portfolio's
expenses) other than those expressly assumed by the Manager. The most
restrictive state expense limit currently imposed is 2.5% of the Money Market
Fund's first $30 million in assets, 2.0% of the next $70 million in assets and
1.5% of all excess assets. If the Money Market Fund's expenses exceed any
applicable state expense limits, the Manager would have to bear such excess
expenses in order for the Mileage Trust to continue selling its shares in that
state. Any excess expenses assumed by the Manager can be reimbursed monthly
whenever the Money Market Fund's expenses are below applicable expense limits.
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<PAGE> 27
NET ASSET VALUE
It is the policy of the Money Market Fund to attempt to maintain a
constant price per share of $1.00. There can be no assurance that a $1.00 net
asset value per share will be maintained. The Money Market Portfolio's
investment securities are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the 1940 Act. This involves valuing an
instrument at its cost and thereafter assuming a constant amortization to
maturity of any discount or premium, even though the portfolio security may
increase or decrease in market value. Such market fluctuations are generally in
response to changes in interest rates. Use of the amortized cost valuation
method requires the Money Market Portfolio to purchase instruments having
remaining maturities of 397 days or less, to maintain a dollar weighted average
portfolio maturity of 90 days or less, and to invest only in securities
determined by the AMR Trust Board to be of high quality with minimal credit
risks.
TAX INFORMATION
TAXATION OF THE MONEY MARKET FUND
To qualify for treatment as a regulated investment company ("RIC")
under the Internal Revenue Code of 1986, as amended, the Money Market Fund
(which is treated as a separate corporation for these purposes) 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;
o Derive less than 30% of its gross income each taxable year
from the sale or other disposition of securities that are held
for less than three months;
o Diversify its investments in securities within certain
statutory limits; and
o Distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, net investment
income plus net short-term capital gain).
The Mileage Trust has applied for and expects to receive a ruling from
the Internal Revenue Service ("IRS") that the Money Market Fund, as an investor
in the Money Market Portfolio, will be deemed to own a proportionate share of
the Money Market Portfolio's assets and to earn the income on that share for
purposes of determining whether the Money Market Fund satisfies all the
requirements described above to qualify as a RIC.
TAXATION OF THE MONEY MARKET PORTFOLIO
The AMR Trust has applied for and expects to receive a ruling from the
IRS to the effect that, among other things, the Money Market Portfolio will be
treated as a separate partnership for federal income tax purposes and will not
be a "publicly traded partnership." As a result, the Money Market Portfolio
will not be subject to federal income tax; instead, each investor in the Money
Market Portfolio, such as the Money Market Fund, will be required to take into
account in determining its federal income tax liability its share of the Money
Market Portfolio's income, gains, losses, deductions and credits, without
regard to whether it has received any cash distributions from the Money Market
Portfolio.
Because the ruling from the IRS is expected to provide, as noted
above, that the Money Market Fund will be deemed to own a proportionate share
of the Money Market Portfolio's assets and income for purposes of determining
whether the Money Market Fund satisfies the
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<PAGE> 28
requirements to qualify as a RIC, the Money Market Portfolio intends to conduct
its operations so that the Money Market Fund will be able to satisfy all those
requirements.
Distributions to the Money Market Fund from the Money Market Portfolio
(whether pursuant to a partial or complete withdrawal or otherwise) will not
result in the Money Market 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 Money Market Fund's basis for its interest
in the Money Market Portfolio before the distribution, (2) income or gain will
be recognized if the distribution is in liquidation of the Money Market Fund's
entire interest in the Money Market Portfolio and includes a disproportionate
share of any unrealized receivables held by the Money Market Portfolio, and (3)
loss will be recognized if a liquidation distribution consists solely of cash
and/or unrealized receivables. The Money Market Fund's basis for its interest
in the Money Market Portfolio generally will equal the amount of cash and the
basis of any property the Money Market Fund invests in the Money Market
Portfolio, increased by the Money Market Fund's share of the Money Market
Portfolio's net income and gains and decreased by (a) the amount of cash and
the basis of any property the Money Market Portfolio distributes to the Money
Market Fund and (b) the Money Market Fund's share of the Money Market
Portfolio's losses.
The foregoing is only a summary of some of the important federal tax
considerations affecting the Money Market 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 Platinum Class is expected to commence operations on or about
January 2, 1996, and thus has no past performance. However, for purposes of
advertising performance, and in accordance with Securities and Exchange
Commission staff interpretations, the Platinum Class has adopted the
performance of the Mileage Class of the American AAdvantage Money Market Fund.
The Manager also provides investment management services to the American
AAdvantage Money Market Fund. Like the Money Market Fund, the American
AAdvantage Money Market Fund also invests all of its investable assets in the
Money Market Portfolio of the AMR Trust.
Quotations of yield on shares of each class of the Money Market Fund
may appear from time to time in advertisements and in communications to
shareholders and others. Quotations of yields are indicative of yields for the
limited historical period used but not for the future. Yield will vary as
interest rates and other conditions change. Yield also depends on the quality,
length of maturity and type of instruments invested in by the Money Market
Fund, and its operating expenses. A comparison of the quoted yields offered for
various investments is valid only if yields are calculated in the same manner.
In addition, other similar investment companies may have more or less risk due
to differences in the quality or maturity of securities held.
The yields of the Money Market Fund may be calculated in one of two
ways:
(1) Current Yield--the net average annualized return without
compounding accrued interest income. For a 7-day current yield, this
is computed by dividing the net change in value over a 7 calendar-day
period of a hypothetical account having one share at the beginning of
a 7 calendar-day period by the value of the account at the beginning
of this period to determine the "base period return". The quotient is
multiplied by 365 divided by 7 and stated to two decimal places. A
daily current yield is calculated by multiplying the net change in
value over one day by 365 and stating it to two decimal places.
Capital changes, such as realized gains and losses from the sale of
securities and unrealized appreciation and depreciation, are excluded
in calculating the net change in value of an account, but this
calculation includes the aggregate fees charged to each class and
other expenses that are charged to all shareholder accounts in the
Money Market Fund. In
7
<PAGE> 29
determining the net change in value of a hypothetical account, this
value is adjusted to reflect the value of any additional shares
purchased with dividends from the original share and dividends
declared on both the original share and any such additional shares.
(2) Effective Yield--the net average annualized return as computed by
compounding accrued interest income. In determining the 7-day
effective yield, each class of the Money Market Fund will compute the
"base period return" in the same manner used to compute the "current
yield" over a 7 calendar-day period as described above. One is then
added to the base period return and the sum is raised to the 365/7
power. One is subtracted from the result, according to the following
formula:
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1)365/7 ] - 1
The current and effective yields for the Mileage Class of the American
AAdvantage Money Market Fund are as follows:
<TABLE>
<CAPTION>
Current yield for the Effective yield for the
Current daily yield as of seven-day period ended seven-day period ended
October 31, 1995 October 31, 1995 October 31, 1995
---------------- ---------------- ----------------
<S> <C> <C> <C>
American AAdvantage Money Market Fund -- 5.48% 5.46% 5.60%
Mileage Class
</TABLE>
The advertised total return for the Money Market Fund would be
calculated by equating an initial amount invested in the Money Market Fund to
the ending redeemable value, according to the following formula:
P(1 + T)N= ERV
where "P" is a hypothetical initial payment of $1,000; "T" is the average
annual total return for the Money Market Fund; "n" is the number of years
involved; and "ERV" is the ending redeemable value of a hypothetical $1,000
payment made in the Money Market Fund at the beginning of the investment period
covered.
Based on this formula, annualized total returns were as follows for
the periods shown for the Mileage Class of the American AAdvantage Money Market
Fund:
<TABLE>
<CAPTION>
For the period from the
For the one-year For the five-year period commencement of active
period ended ended October 31, operations through
October 31, 1995 1995(1) October 31, 1995 (1)(2)
---------------- ------------------------ -----------------------
<S> <C> <C> <C>
American AAdvantage Money Market Fund -- 5.61% 4.70% 6.12%
Mileage Class
</TABLE>
(1) The Institutional Class is the initial class for the American
AAdvantage Money Market Fund. Total returns for the Mileage Class for
the five-year period and the period from the commencement of active
operations reflect Institutional Class returns from the commencement
of operations of the American AAdvantage Money Market Fund to the
inception date of the Mileage Class. Total returns shown are higher
than they would have been for the Mileage Class, if it had been in
operation for the entire period, due to the lower expense structure of
the Institutional Class.
(2) The Institutional Class of the American AAdvantage Money Market Fund
commenced active operations on September 1, 1987. The Mileage Class of
the American AAdvantage Money Market Fund commenced active operations
on November 1, 1991.
Each class of the Money Market Fund also may use "aggregate" total
return figures for various periods which represent the cumulative change in
value of an investment in the Money Market Fund for the specific period. Such
total returns assume reinvestment of dividends.
8
<PAGE> 30
In reports or other communications to shareholders or in advertising
material, the Money Market Fund may from time to time compare its performance
with that of other mutual funds in rankings prepared by Lipper Analytical
Services, Inc., Morningstar, Inc., IBC/Donoghue, Inc. and other similar
independent services which monitor the performance of mutual funds or
publications such as the "New York Times" and the "Wall Street Journal."
Advertisements for the Money Market Fund may compare it 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.
DESCRIPTION OF THE MILEAGE TRUST
The Mileage Trust, organized on February 22, 1995, 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 Mileage Trust's Declaration
of Trust contains an express disclaimer of shareholder liability for acts or
obligations of the Mileage Trust and provides for indemnification and
reimbursement of expenses out of Mileage Trust property for any shareholder
held personally liable for the obligations of the Mileage Trust. The
Declaration of Trust also provides that the Mileage Trust may maintain
appropriate insurance (for example, fidelity bonding) for the protection of the
Mileage 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 Mileage Trust
itself was unable to meet its obligations. The Mileage Trust has not engaged in
any other business.
OTHER INFORMATION
Bank Deposit Notes - Bank deposit notes are obligations of a bank, rather than
bank holding company corporate debt. The only structural difference between
bank deposit notes and certificates of deposit is that interest on bank deposit
notes is calculated on a 30/360 basis as are corporate notes/bonds. Similar to
certificates of deposit, deposit notes represent bank level investments and,
therefore, are senior to all holding company corporate debt.
Bankers' Acceptances - Bankers' acceptances are short-term credit instruments
used to finance the import, export, transfer or storage of goods. They are
termed "accepted" when a bank guarantees their payment at maturity.
Cash Equivalents - Cash equivalents include certificates of deposit, bearer
deposit notes, bankers' acceptances, government obligations, commercial paper,
short-term corporate debt securities and repurchase agreements.
Certificates of Deposit - Certificates of deposit are issued against funds
deposited in an eligible bank (including its domestic and foreign branches,
subsidiaries and agencies), are for a definite period of time, earn a specified
rate of return and are normally negotiable.
Commercial Paper - Commercial paper refers to promissory notes representing an
unsecured debt of a corporation or finance company with a fixed maturity of no
more than 270 days.
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
9
<PAGE> 31
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 Money Market 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
Money Market Portfolio must be able to terminate the loan after notice, at any
time; (4) the Money Market 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 Money Market
Portfolio may pay only reasonable custodian fees in connection with the loan;
and (6) voting rights on the securities loaned may pass to the borrower,
provided, however, that if a material event affecting the investment occurs,
the AMR Trust Board must be able to terminate the loan and vote proxies or
enter into an alternative arrangement with the borrower to enable the AMR Trust
Board to vote proxies.
While there may be delays in recovery of loaned securities or even a loss of
rights in collateral supplied should the borrower fail financially, loans will
be made only to firms deemed by the AMR Trust Board to be of good financial
standing and will not be made unless the consideration to be earned from such
loans would justify the risk. Such loan transactions are referred to in this
Statement of Additional Information as "qualified" loan transactions.
The cash collateral so acquired through qualified loan transactions
may be invested only in those categories of high quality liquid securities
previously authorized by the AMR Trust Board.
Mortgage-Backed Securities - Mortgage-backed securities, which are
derivatives, 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
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<PAGE> 32
generally exempt from federal income tax, but the income from the mortgages is
reported by investors. For investment purposes, interests in REMIC securities
are virtually indistinguishable from CMOs.
Mortgage Pass-Through Certificates - Mortgage pass-through
certificates are issued by governmental, government- related and private
organizations which are backed by pools of mortgage loans.
(1) Government National Mortgage Association ("GNMA") Mortgage
Pass-Through Certificates ("Ginnie Maes") - GNMA is a wholly-owned U.S.
Government corporation within the Department of Housing and Urban Development.
Ginnie Maes represent an undivided interest in a pool of mortgages that are
insured by the Federal Housing Administration or the Farmers Home
Administration or guaranteed by the Veterans Administration. Ginnie Maes
entitle the holder to receive all payments (including prepayments) of principal
and interest owed by the individual mortgagors, net of fees paid to GNMA and to
the issuer which assembles the mortgage pool and passes through the monthly
mortgage payments to the certificate holders (typically, a mortgage banking
firm), regardless of whether the individual mortgagor actually makes the
payment. Because payments are made to certificate holders regardless of
whether payments are actually received on the underlying mortgages, Ginnie Maes
are of the "modified pass-through" mortgage certificate type. The GNMA is
authorized to guarantee the timely payment of principal and interest on the
Ginnie Maes. The GNMA guarantee is backed by the full faith and credit of the
United States, and the GNMA has unlimited authority to borrow funds from the
U.S. Treasury to make payments under the guarantee. The market for Ginnie Maes
is highly liquid because of the size of the market and the active participation
in the secondary market of security dealers and a variety of investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie Macs") -
Freddie Macs represent interests in groups of specified first lien residential
conventional mortgages underwritten and owned by the FHLMC. Freddie Macs
entitle the holder to timely payment of interest, which is guaranteed by the
FHLMC. The FHLMC guarantees either ultimate collection or timely payment of all
principal payments on the underlying mortgage loans. In cases where the FHLMC
has not guaranteed timely payment of principal, the FHLMC may remit the amount
due because of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable. Freddie Macs are not guaranteed by the United States or by any
of the Federal Home Loan Banks and do not constitute a debt or obligation of
the United States or of any Federal Home Loan Bank. The secondary market for
Freddie Macs is highly liquid because of the size of the market and the active
participation in the secondary market of the FHLMC, security dealers and a
variety of investors.
(3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie Maes")
- - Fannie Maes represent an undivided interest in a pool of conventional
mortgage loans secured by first mortgages or deeds of trust, on one family or
two to four family, residential properties. The FNMA is obligated to distribute
scheduled monthly installments of principal and interest on the mortgages in
the pool, whether or not received, plus full principal of any foreclosed or
otherwise liquidated mortgages. The obligation of the FNMA under its guarantee
is solely its obligation and is not backed by, nor entitled to, the full faith
and credit of the United States.
(4) Mortgage-Related Securities Issued by Private Organizations -
Pools created by non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government guarantees of payments in such pools. However,
timely payment of interest and principal of these pools is often partially
supported by various enhancements such as over-collateralization and
senior/subordination structures and by various forms of insurance or
guarantees, including individual loan, title, pool and hazard insurance. The
insurance and guarantees are issued by government entities, private insurers or
the mortgage poolers. Although the market for such securities is becoming
increasingly liquid, securities issued by certain private organizations may not
be readily marketable.
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<PAGE> 33
Ratings of Short-term Obligations - The rating P-1 is the highest
short-term rating assigned by Moody's Investors Service, Inc. ("Moody's") .
Among the factors considered by Moody's in assigning ratings are the following:
(1) evaluations of the management of the issuer; (2) economic evaluation of the
issuer's industry or industries and an appraisal of speculative-type risks
which may be inherent in certain areas; (3) evaluation of the issuer's products
in relation to competition and customer acceptance; (4) liquidity; (5) amount
and quality of long-term debt; (6) trend of earnings over a period of ten
years; (7) financial strength of a parent company and the relationships which
exist with the issuer; and (8) recognition by the management of obligations
which may be present or may arise as a result of public interest questions and
preparations to meet such obligations.
Short-term obligations (or issuers thereof) rated A-1 by Standard &
Poor's have the following characteristics. Liquidity ratios are adequate to
meet cash requirements. The issuer has access to at least two additional
channels of borrowing. Basic earnings and cash flow have an upward trend with
allowance made for unusual circumstances. Typically, the issuer's industry is
well established and the issuer has a strong position within the industry. The
reliability and quality of management are unquestioned. Relative strength or
weakness of the above factors determines whether the issuer's short-term
obligation is rated A-1, A-2, or A-3.
IBCA's short-term rating of A1 indicates obligations supported by the
highest capacity for timely repayment. Where issues possess particularly
strong credit features, a rating of A1+ is assigned. Obligations rated A2 are
supported by a good capacity for timely repayment.
The distinguishing feature of Duff & Phelps Credit Ratings' short-term
rating is the refinement of the traditional 1 category. The majority of
short-term debt issuers carry the highest rating, yet quality differences exist
within that tier. Obligations rated D-1+ indicate the highest certainty of
timely payment. Safety is just below risk- free U.S. Treasury obligations.
Obligations rated D-1 have a very high certainty of timely payment. Risk
factors are minor. Obligations rated D-1- have a high certainty of timely
payment. Risk factors are very small. Obligations rated D- 2 have good
certainty of timely payment. Liquidity factors and company fundamentals are
sound. Although ongoing funding needs may enlarge total financing requirements,
access to capital markets is good. Risk factors are small.
Thomson BankWatch short-term ratings are intended to assess the
likelihood of an untimely or incomplete payment of principal or interest.
Obligations rated TBW-1 indicate a very high likelihood that principal and
interest will be paid on a timely basis. While the degree of safety regarding
timely payment of principal and interest is strong for an obligation rated
TBW-2, the relative degree of safety is not as high as for issues rated TBW-1.
Fitch Investors Service, Inc. 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 Money Market 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.
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<PAGE> 34
The Money Market Portfolio may enter into repurchase agreements with
any bank or registered broker-dealer who, in the opinion of the AMR Trust
Board, presents a minimum risk of bankruptcy during the term of the agreement
based upon guidelines that periodically are reviewed by the AMR Trust Board.
The Money Market 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 Money Market 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 Money Market 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 Money Market Portfolio may incur a loss if its proceeds from
the sale of the securities to a third party are less than the repurchase price.
Reverse Repurchase Agreements- The Money Market Portfolio may borrow
funds for temporary purposes by entering into reverse repurchase agreements.
Pursuant to such agreements, the Money Market Portfolio would sell portfolio
securities to financial institutions such as banks and broker/dealers and agree
to repurchase them at a mutually agreed- upon date and price. The Money Market
Portfolio intends to enter into reverse repurchase agreements only to avoid
selling securities to meet redemptions during market conditions deemed
unfavorable by the Manager. At the time the Money Market 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 Money Market Portfolio may decline below
the price at which it is obligated to repurchase the securities. Reverse
repurchase agreements are considered to be borrowings by an investment company
under the 1940 Act.
U.S. Government Securities- U.S. Government securities are issued or
guaranteed by the U.S. Government and include U.S. Treasury obligations (see
definition below) and securities issued by U.S. agencies and instrumentalities.
U. S. Government agencies or instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services Administration, Central Bank
for Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit
Banks, Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Inter-American Development Bank,
Asian-American Development Bank, Agency for International Development, Student
Loan Marketing Association and International Bank of Reconstruction and
Development.
Obligations of U.S. Government agencies and instrumentalities may or
may not be supported by the full faith and credit of the United States. Some
are backed by the right of the issuer to borrow from the Treasury; others are
supported by the 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.
13
<PAGE> 35
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 U.S. 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 Money Market 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 Money Market 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 Money Market 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 Money Market 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
Money Market Portfolio is entitled to receive the principal amount of the
obligation either at any time on no more than 30 days' notice or at specified
intervals not exceeding one year and upon no more than 30 days' notice.
Variable Rate Auction and Residual Interest Obligations - Variable
rate auction and residual interest obligations are created when an issuer or
dealer separates the principal portion of a long-term, fixed-rate municipal
bond into two long-term, variable-rate instruments. The interest rate on one
portion reflects short-term interest rates, while the interest rate on the
other portion is typically higher than the rate available on the original
fixed-rate bond.
FINANCIAL STATEMENTS
The Mileage Trust's financial statements as of September 13, 1995,
which have been audited by Ernst & Young LLP, the Mileage Trust's independent
auditors, are filed with this Statement of Additional Information and are
incorporated herein by reference.
14
<PAGE> 36
TABLE OF CONTENTS
<TABLE>
<S> <C>
Investment Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Trustees and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management, Administrative Services and Distribution Fees . . . . . . . . . 5
Redemptions in Kind . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Expense Limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Net Asset Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Tax Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Yield and Total Return Quotations . . . . . . . . . . . . . . . . . . . . . 7
Description of the Mileage Trust . . . . . . . . . . . . . . . . . . . . . 9
Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . .14
</TABLE>
15
<PAGE> 37
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
American AAdvantage Balanced Mileage Fund
American AAdvantage Growth & Income Mileage Fund
American AAdvantage International Equity Mileage Fund
American AAdvantage Limited Term Income Mileage Fund
American AAdvantage Money Market Mileage Fund
American AAdvantage Municipal Money Market Mileage Fund
American AAdvantage U.S. Treasury Money Market Mileage Fund
We have audited the accompanying statements of assets and liabilities of the
American AAdvantage Balanced Mileage Fund, the American AAdvantage Growth &
Income Mileage Fund, the American AAdvantage International Equity Mileage Fund,
the American AAdvantage Limited-Term Income Mileage Fund, the American
AAdvantage Money Market Mileage Fund, the American AAdvantage Municipal Money
Market Mileage Fund, and the American AAdvantage U.S. Treasury Money Market
Mileage Fund (collectively, the "Mileage Funds") (seven separate portfolios
comprising the American AAdvantage Mileage Funds), as of September 13, 1995.
These statements of assets and liabilities are the responsibility of the
Mileage Funds' management. Our responsibility is to express an opinion on the
statements of assets and liabilities based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the statements of assets and liabilities are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the statements of assets and
liabilities. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial presentation of the statements of assets and liabilities. We believe
that our audit provides a reasonable basis for our opinion.
In our opinion, the statements of assets and liabilities referred to above
present fairly, in all material respects, the financial position of each of the
respective American AAdvantage Mileage Funds at September 13, 1995 in
conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
September 15, 1995
<PAGE> 38
American AAdvantage Mileage Funds
Statements of Assets and Liabilities
September 13, 1995
<TABLE>
<CAPTION>
Municipal U.S. Treasury
Balanced Growth and International Limited-Term Money Market Money Market Money Market
Fund Income Fund Equity Fund Income Fund Fund Fund Fund
-------- ----------- ------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash............................. $ 1,000 $ 1,000 $ 1,000 $ 1,000 $ 94,000 $ 1,000 $ 1,000
Deferred organization expenses... 10,100 10,100 10,100 10,100 10,100 10,100 10,100
------- ------- ------- ------- -------- ------- -------
Total Assets.................... 11,100 11,100 11,100 11,100 104,100 11,100 11,100
------- ------- ------- ------- -------- ------- -------
LIABILITIES:
Due to Manager................... 10,100 10,100 10,100 10,100 10,100 10,100 10,100
------- ------- ------- ------- -------- ------- -------
Total Liabilities............... 10,100 10,100 10,100 10,100 10,100 10,100 10,100
------- ------- ------- ------- -------- ------- -------
NET ASSETS:
Applicable to 50; 50; 50; 50;
94,000; 1,000; and 1,000
shares of beneficial interest,
respectively (unlimited
authorization -- no par value).. $1,000 $1,000 $1,000 $1,000 $94,000 $1,000 $1,000
======= ======= ======= ======= ======== ======= =======
NET ASSET VALUE, offering and
redemption price per share)...... $20.00 $20.00 $20.00 $20.00 $1.00 $1.00 $1.00
======= ======= ======= ======= ======== ======= =======
</TABLE>
<PAGE> 39
AMERICAN AADVANTAGE MILEAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 13, 1995
1. ORGANIZATION
American AAdvantage Mileage Funds (the "Trust") is organized as a
Massachusetts business trust under a Declaration of Trust dated February 14,
1995 and is registered under the Investment Company Act of 1940, as amended, as
a no-load, open-end, management investment company. On July 19, 1995 the
Trust's Board of Trustees created seven new portfolios: the American AAdvantage
Balanced Mileage Fund, the American AAdvantage Growth and Income Mileage Fund,
the American AAdvantage International Equity Mileage Fund, the American
AAdvantage Limited-Term Income Mileage Fund, the American AAdvantage Money
Market Mileage Fund, the American AAdvantage Municipal Money Market Mileage
Fund and the U.S. Treasury Money Market Mileage Fund (collectively, the
"Funds"). The Funds had no operations other than those related to
organizational matters and the sale of 50 shares of beneficial interest of the
Balanced, Growth and Income, International Equity and Limited-Term Income Funds
for $1,000 per Fund, 94,000 shares of beneficial interest of the Money Market
Fund for $94,000 and 1,000 shares of beneficial interest of the Municipal Money
Market and U.S. Treasury Money Market Funds for $1,000 per Fund to AMR
Investment Services, Inc. (the "Manager") on September 13, 1995. The Trust has
been advised that the Manager has no present intention of redeeming or
reselling such shares. The Manager is a wholly-owned subsidiary of AMR
Corporation, the parent company of American Airlines, Inc., and was organized
in 1986 to provide business management, advisory, administrative and asset
management consulting services.
2. DEFERRED ORGANIZATION EXPENSES AND TRANSACTIONS WITH AFFILIATES
It is expected that the Funds will reimburse the Manager over a
five-year period for the costs incurred by the Manager in connection with the
Funds' organization. The costs will be deferred and amortized on a
straight-line basis over a period of five years beginning upon commencement of
active operations.
In the event that the Manager (or any subsequent holder) redeems any
of its original shares prior to the end of the five-year period, the proceeds
of the redemption payable in respect of such shares shall be reduced by a
pro-rata share (based on the proportionate share of the original shares
redeemed to the total number of shares outstanding at the time of redemption)
of the unamortized, deferred organization expenses as of the date of such
redemption.
In the event that the Fund is liquidated prior to the end of the
five-year period, the Manager (or any subsequent holder) shall bear the
unamortized, deferred organization costs.
Certain officers and/or Trustees of the Trust are also officers of the
Manager.
