<PAGE> 1
THIS PROSPECTUS contains important information about the AMERICAN AADVANTAGE
MILEAGE FUNDS ("Mileage Trust"), an open-end investment company which consists
of the separate investment portfolios listed on this cover page (individually
referred to as a "Fund" and, collectively, the "Funds"). EACH FUND SEEKS ITS
INVESTMENT OBJECTIVE BY INVESTING ALL OF ITS INVESTABLE ASSETS IN A
CORRESPONDING PORTFOLIO (INDIVIDUALLY REFERRED TO AS A "PORTFOLIO" AND,
COLLECTIVELY, "PORTFOLIOS") OF THE AMR INVESTMENT SERVICES TRUST ("AMR TRUST")
WHICH HAS AN INVESTMENT OBJECTIVE IDENTICAL TO THE INVESTING FUND. The
investment experience of each Fund will correspond directly with the investment
experience of each Portfolio. Fund shares are offered to individuals and
certain grantor trusts. Prospective investors should read this Prospectus
carefully before making an investment decision and retain it for future
reference.
IN ADDITION TO THIS PROSPECTUS, a Statement of Additional Information ("SAI")
dated March 1, 1997 has been filed with the Securities and Exchange Commission
and is incorporated herein by reference. The SAI contains more detailed
information about the Funds. For a free copy of the SAI, call 800-388-3344.
The Securities and Exchange Commission maintains a Web Site
(http://www.sec.gov) that contains the SAI, material incorporated by reference
and other information regarding the Funds and the Portfolios.
AN INVESTMENT IN ANY OF THE MONEY MARKET FUNDS IS NEITHER INSURED NOR
GUARANTEED BY THE U.S. GOVERNMENT AND THERE CAN BE NO ASSURANCE THAT THEY WILL
BE ABLE TO MAINTAIN A STABLE PRICE OF $1.00 PER SHARE.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY SUCH STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
PROSPECTUS
dated
March 1, 1997,
As Supplemented
January 1, 1998
[AMERICAN AADVANTAGE MILEAGE FUNDS LOGO]
American AAdvantage
Mileage Funds (R)
BALANCED MILEAGE FUND
GROWTH AND INCOME MILEAGE FUND
INTERNATIONAL EQUITY MILEAGE FUND
LIMITED-TERM INCOME MILEAGE FUND
MONEY MARKET MILEAGE FUND
MUNICIPAL MONEY MARKET MILEAGE FUND
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
MANAGED BY
AMR INVESTMENT SERVICES, INC.
<PAGE> 2
The AMERICAN AADVANTAGE BALANCED MILEAGE FUND(SM) ("Balanced Fund") seeks income
and capital appreciation by investing all of its investable assets in the
Balanced Portfolio of the AMR Trust ("Balanced Portfolio") which in turn
primarily invests in equity and debt securities (such as stocks and bonds).
The AMERICAN AADVANTAGE GROWTH AND INCOME MILEAGE FUND(SM) ("Growth and Income
Fund") seeks long-term capital appreciation and current income by investing all
of its investable assets in the Growth and Income Portfolio of the AMR Trust
("Growth and Income Portfolio") which in turn primarily invests in equity
securities (such as stocks).
The AMERICAN AADVANTAGE INTERNATIONAL EQUITY MILEAGE FUND(SM) ("International
Equity Fund") seeks long-term capital appreciation by investing all of its
investable assets in the International Equity Portfolio of the AMR Trust
("International Equity Portfolio") which in turn primarily invests in equity
securities of issuers based outside the United States (such as foreign stocks).
The AMERICAN AADVANTAGE LIMITED-TERM INCOME MILEAGE FUND(SM) ("Limited-Term
Income Fund") seeks income and capital appreciation by investing all of its
investable assets in the Limited-Term Income Portfolio of the AMR Trust
("Limited-Term Income Portfolio") which in turn primarily invests in debt
obligations.
The AMERICAN AADVANTAGE MONEY MARKET MILEAGE FUND(SM) ("Money Market Fund"),
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET MILEAGE FUND(SM) ("Municipal Money
Market Fund") and AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET MILEAGE
FUND(SM) ("U.S. Government Money Market Fund," formerly the American AAdvantage
U.S. Treasury Money Market Mileage Fund) (collectively, the "Money Market
Funds") each seeks current income, liquidity, and the maintenance of a stable
price per share of $1.00 by investing all of their investable assets in the
Money Market Portfolio of the AMR Trust ("Money Market Portfolio"), the
Municipal Money Market Portfolio of the AMR Trust ("Municipal Money Market
Portfolio") and the U.S. Government Money Market Portfolio of the AMR Trust
("U.S. Government Money Market Portfolio," formerly the U.S. Treasury Money
Market Portfolio), respectively (collectively the "Money Market Portfolios"),
which in turn invest in high quality, short-term obligations. The Municipal
Money Market Portfolio invests primarily in municipal obligations and the U.S.
Government Money Market Portfolio invests exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and in
repurchase agreements that are collateralized by such obligations.
<TABLE>
<S> <C>
TABLE OF FEES AND EXPENSES.............. 3
FINANCIAL HIGHLIGHTS.................... 4
INTRODUCTION............................ 6
INVESTMENT OBJECTIVES, POLICIES AND
RISKS................................. 6
INVESTMENT RESTRICTIONS................. 16
YIELDS AND TOTAL RETURNS................ 17
MANAGEMENT AND ADMINISTRATION OF THE
MILEAGE TRUST......................... 17
INVESTMENT ADVISERS..................... 20
AADVANTAGE(R) MILES..................... 22
HOW TO PURCHASE SHARES.................. 23
HOW TO REDEEM SHARES.................... 24
EXCHANGE PRIVILEGE...................... 25
VALUATION OF SHARES..................... 26
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX
MATTERS............................... 26
GENERAL INFORMATION..................... 28
SHAREHOLDER COMMUNICATIONS.............. 29
</TABLE>
PROSPECTUS
2
<PAGE> 3
Under a master-feeder operating structure, each Fund seeks its investment
objective by investing all of its investable assets in a corresponding Portfolio
as described above. Each Portfolio's investment objective is identical to that
of its corresponding Fund. Whenever the phrase "all of the Fund's investable
assets" is used, it means that the only investment securities that will be held
by a Fund will be that Fund's interest in its corresponding Portfolio. AMR
Investment Services, Inc. ("Manager") provides investment management and
administrative services to the Portfolios and administrative services to the
Funds. This master-feeder operating structure is different from that of many
other investment companies which directly acquire and manage their own
portfolios of securities. Accordingly, investors should carefully consider this
investment approach. See "Investment Objective, Policies and Risks -- Additional
Information About the Portfolios." A Fund may withdraw its investment in a
corresponding Portfolio at any time if the Mileage Trust's Board of Trustees
("Mileage Trust Board") determines that it would be in the best interest of that
Fund and its shareholders to do so. Upon any such withdrawal, that Fund's assets
would be invested in accordance with the investment policies and restrictions
described in this Prospectus and the SAI.
TABLE OF FEES AND EXPENSES
Annual Operating Expenses (as a percentage of average net assets):
<TABLE>
<CAPTION>
MONEY U.S.
GROWTH LIMITED- MARKET MUNICIPAL GOVERNMENT
AND INT'L TERM FUND - MONEY MONEY
BALANCED INCOME EQUITY INCOME MILEAGE MARKET MARKET
FUND FUND FUND FUND CLASS FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C>
MANAGEMENT FEES 0.33% 0.33% 0.48% 0.25% 0.15% 0.15% 0.15%
12B-1 FEES (AFTER WAIVERS)(1) 0.00 0.00 0.00 0.00 0.25 0.25 0.00
OTHER EXPENSES (AFTER FEE WAIVERS AND
REIMBURSEMENTS)(2) 0.66 0.66 1.00 0.61 0.27 0.27 0.47
----- ---- ---- ---- ----- ------ ------
TOTAL OPERATING EXPENSES (AFTER FEE WAIVERS
AND REIMBURSEMENTS)(3) 0.99% 0.99% 1.48% 0.86% 0.67% 0.67% 0.62%
===== ==== ==== ==== ===== ====== ======
</TABLE>
(1) Absent fee waivers, "12b-1 Fees" for the Balanced Fund, the Growth and
Income Fund, the International Equity Fund, the Limited-Term Income Fund and
the U.S. Government Money Market Fund would be .25%. The Mileage Trust
anticipates that the 12b-1 fee charged for the current fiscal year will be
used to pay for advertising and AAdvantage miles. See "AAdvantage Miles."
(2) "Other Expenses" before fee waivers and reimbursements are estimated to be
2.35% for the Balanced Fund, 1.30% for the Growth and Income Fund, 1.98% for
the International Equity Fund, 3.09% for the Limited-Term Income Fund and
0.71% for the U.S. Government Money Market Fund.
(3) "Total Operating Expenses" before fee waivers and reimbursements are
estimated to be 2.93% for the Balanced Fund, 1.88% for the Growth and Income
Fund, 2.71% for the International Equity Fund, 3.19% for the Limited-Term
Income Fund, 0.78% for the Money Market Fund -- Mileage Class, 0.80% for the
Municipal Money Market Fund and 1.11% for the U.S. Government Money Market
Fund.
The above expenses reflect the expenses of each Fund and the Portfolio in
which it invests. The Mileage Trust Board believes that the aggregate per share
expenses of each Fund and its corresponding Portfolio will be approximately
equal to the expenses that the Fund would incur if its assets were invested
directly in the type of securities held by the Portfolio.
PROSPECTUS
3
<PAGE> 4
EXAMPLES
An investor in each Fund would directly or indirectly pay on a cumulative basis
the following expenses on a $1,000 investment assuming a 5% annual return:
<TABLE>
<CAPTION>
1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
BALANCED FUND $10 $32 $55 $121
GROWTH AND INCOME FUND 10 32 55 121
INTERNATIONAL EQUITY FUND 15 47 81 177
LIMITED-TERM INCOME FUND 9 27 48 106
MONEY MARKET FUND 7 21 37 83
MUNICIPAL MONEY MARKET FUND 7 21 37 83
U.S. GOVERNMENT MONEY MARKET FUND 6 20 35 77
</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 shareholder in a Fund. Additional information may be found under
"Management and Administration of the Mileage Trust" and "Investment Advisers."
THE FOREGOING EXAMPLES SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR
FUTURE EXPENSES OR PERFORMANCE. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN AND PERFORMANCE MAY BE BETTER OR WORSE THAN THE 5% ANNUAL RETURN
ASSUMED IN THE EXAMPLES.
FINANCIAL HIGHLIGHTS
The financial highlights in the following table have been derived from
financial statements of the Mileage Trust. The information has been audited by
Ernst & Young LLP, independent auditors. Such information should be read in
conjunction with the financial statements and the report of the independent
auditors appearing in the Annual Report incorporated in the SAI, which contains
further information about performance of the Funds and can be obtained by
investors without charge.
PROSPECTUS
4
<PAGE> 5
(FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD)
<TABLE>
<CAPTION>
YEAR ENDED OCTOBER 31, 1996
----------------------------------------------------------------------------------------------
MONEY U.S.
GROWTH LIMITED- MARKET MUNICIPAL GOVERNMENT
AND INT'L TERM FUND- MONEY MONEY
BALANCED INCOME EQUITY INCOME MILEAGE MARKET MARKET
FUND(1)(3)(4) FUND(1)(3)(4) FUND(1)(3) FUND(1)(3) CLASS(1)(2) FUND(1) FUND(1)
------------- ------------- ---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF
PERIOD(5)......................... $ 13.97 $ 15.94 $ 13.15 $ 9.83 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------ -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS:
NET INVESTMENT INCOME(6)........ 0.49 0.34 0.20 0.59 0.05 0.03 0.05
NET GAINS (LOSSES) ON SECURITIES
(BOTH REALIZED AND
UNREALIZED)(6)................ 1.65 3.16 2.03 (0.18) -- -- --
------- ------- ------- ------ -------- ------- -------
TOTAL FROM INVESTMENT
OPERATIONS...................... 2.14 3.50 2.23 0.41 0.05 0.03 0.05
------- ------- ------- ------ -------- ------- -------
LESS DISTRIBUTIONS:
DIVIDENDS FROM NET INVESTMENT
INCOME........................ (0.10) (0.09) (0.07) (0.59) (0.05) (0.03) (0.05)
DISTRIBUTIONS FROM NET REALIZED
GAINS ON SECURITIES........... -- -- -- -- -- -- --
------- ------- ------- ------ -------- ------- -------
TOTAL DISTRIBUTIONS............... (0.10) (0.09) (0.07) (0.59) (0.05) (0.03) (0.05)
------- ------- ------- ------ -------- ------- -------
NET ASSET VALUE, END OF PERIOD.... $ 16.01 $ 19.35 $ 15.31 $ 9.65 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ====== ======== ======= =======
TOTAL RETURN (ANNUALIZED)......... 15.97% 22.77% 16.58% 4.55% 5.12% 3.19% 4.98%
======= ======= ======= ====== ======== ======= =======
RATIOS/SUPPLEMENTAL DATA:
NET ASSETS, END OF PERIOD (IN
THOUSANDS).................... $ 2,495 $ 6,234 $ 3,387 $1,168 $106,709 $28,726 $10,638
RATIOS TO AVERAGE NET ASSETS
(ANNUALIZED)(6)(7):
EXPENSES...................... 1.01% 1.00% 1.48% 0.86% 0.67% 0.66% 0.62%
NET INVESTMENT INCOME......... 3.58% 2.13% 1.63% 6.08% 5.02% 3.14% 4.82%
PORTFOLIO TURNOVER RATE(8).... 76% 40% 19% 304% -- -- --
AVERAGE COMMISSION RATE
PAID(8)..................... $0.0409 $0.0412 $0.0192 -- -- -- --
</TABLE>
(1) The Funds commenced active operations on November 1, 1995. Prior to March 1,
1997, the U.S. Government Money Market Fund was known as the American
AAdvantage U.S. Treasury Money Market Mileage Fund and operated under
different investment policies.
(2) The Platinum Class of the Money Market Mileage Fund commenced active
operations on January 29, 1996 and at that time the existing shares of the
Fund were designated as Mileage Class shares.
(3) Total return is calculated assuming an initial investment is made at the net
asset value last calculated on the business day before the first day of each
period reported, reinvestment of all dividends and capital gains
distributions on the payable date and a sale at net asset value on the last
day of each period reported.
(4) Capital Guardian Trust Company was replaced by Brandywine Asset Management,
Inc. as an investment adviser to the Balanced Fund and the Growth and Income
Fund on April 1, 1996.
(5) The net asset value per share for the Balanced, Growth and Income,
International Equity and Limited-Term Income Funds has been adjusted for a
stock split which occurred on November 1, 1995 in the ratio of 1.431690,
1.254705, 1.502913 and 2.034588, respectively.
(6) Per share amounts and ratios reflect income and expenses assuming inclusion
of each Fund's proportionate share of the income and expenses of its
corresponding Portfolio.
(7) Operating results exclude expenses reimbursed by the Manager. The ratios of
expenses to average net assets and of net investment income to average net
assets were 2.93% and 1.66%, respectively for the Balanced Fund, 1.88% and
1.25%, respectively for the Growth and Income Fund, 2.71% and 0.40%,
respectively for the International Equity Fund, 3.19% and 3.75%,
respectively for the Limited-Term Income Fund, 0.78% and 4.91%, respectively
for the Money Market Fund -- Mileage Class, 0.80% and 3.00%, respectively
for the Municipal Money Market Fund and 1.11% and 4.33%, respectively for
the U.S. Government Money Market Fund, for the year ended October 31, 1996.
(8) On November 1, 1995 each Fund invested all of its investable assets in its
corresponding Portfolio. Portfolio turnover rate and average commission rate
paid are those of the corresponding Portfolio.
PROSPECTUS
5
<PAGE> 6
INTRODUCTION
The Mileage Trust is an open-end, diversified management investment company
organized as a Massachusetts business trust on February 22, 1995. The Funds are
separate investment portfolios of the Mileage Trust. Each Fund has a distinctive
investment objective and investment policies. Each Fund will invest all of its
investable assets in a corresponding Portfolio of the AMR Trust which has an
identical investment objective. The Manager provides the Portfolios with
advisory and administrative services, including the evaluation and monitoring of
the investment advisers, and it provides the Funds with administrative services.
Each Fund, except for the Money Market Fund, currently consists of one class of
shares. The Money Market Fund consists of two classes of shares, the Mileage
Class, as described in this Prospectus, and the Platinum Class, which is
available to customers of certain broker-dealers as an investment for cash
balances in their brokerage accounts. The Funds are available to individuals and
certain grantor trusts ("Trust Accounts"). For further information or to obtain
a Platinum Class prospectus free of charge call (800) 967-9009.
Although each class of shares of the Money Market Fund is designed to meet
the needs of different investors, each class of the Fund shares the same
portfolio of investments and a common investment objective. See "Investment
Objectives, Policies and Risks." 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 Fund. It also will
bear its proportionate share of expenses that are allocated to the Money Market
Fund as a whole. However, certain expenses are allocated separately to each
class of shares.
The assets of the Balanced Portfolio, the Growth and Income Portfolio and
the International Equity Portfolio are allocated by the Manager among investment
advisers designated for each of those Portfolios. Investment decisions for the
Limited-Term Income Portfolio and the Money Market Portfolios are made directly
by the Manager. Each investment adviser has discretion to purchase and sell
portfolio securities in accordance with the investment objectives, policies and
restrictions described in this Prospectus and in the SAI and by specific
investment strategies developed by the Manager. There is no guarantee that a
Fund will achieve its investment objective. See "Investment Advisers."
Shares are offered without a sales charge at the net asset value next
determined after an investment is received and accepted. Shares will be redeemed
at the next share price calculated after receipt of a redemption order. See "How
to Purchase Shares" and "How to Redeem Shares."
Each shareholder will receive American Airlines(R) AAdvantage(R) travel
awards program ("AAdvantage") miles.(1) AAdvantage miles will be posted monthly
to each shareholder's AAdvantage account at an annual rate of one mile for every
$10 invested in any Fund. See "AAdvantage Miles."
INVESTMENT OBJECTIVES, POLICIES AND RISKS
The investment objective and policies of each Fund and its corresponding
Portfolio are described below. Except as otherwise indicated, the investment
policies of any Fund may be changed at any time by the Mileage Trust Board to
the extent that such changes are consistent with the investment objective of the
applicable Fund. However, each Fund's investment objective may not be changed
without a majority vote of that Fund's outstanding shares, which is defined as
the lesser of (a) 67% of the shares of the applicable Fund present or
represented if the holders of more than 50% of the shares are present or
represented at the shareholders' meeting, or (b) more than 50% of the shares of
the applicable Fund (hereinafter, "majority vote"). A Portfolio's investment
objective may not be changed without a majority vote of that Portfolio's
interest holders.
- ---------------
1 American Airlines and AAdvantage are registered trademarks of American
Airlines, Inc.
PROSPECTUS
6
<PAGE> 7
Each Fund has a fundamental investment policy which allows it to invest all
of its investable assets in its corresponding Portfolio. All other fundamental
investment policies and the non-fundamental investment policies of each Fund and
its corresponding Portfolio are identical. Therefore, although the following
discusses the investment policies of each Portfolio and the AMR Trust's Board of
Trustees ("AMR Trust Board"), it applies equally to each Fund and the Mileage
Trust Board.
AMERICAN AADVANTAGE BALANCED MILEAGE FUND -- This Fund's investment objective is
to realize both income and capital appreciation. This Fund seeks its investment
objective by investing all of its investable assets in the Balanced Portfolio,
which invests primarily in equity and debt securities. Although equity
securities (such as stocks) will be purchased primarily for capital appreciation
and debt securities (such as bonds) will be purchased primarily for income
purposes, income and capital appreciation potential will be considered in
connection with all such investments. Excluding collateral for securities
loaned, ordinarily the Portfolio will have a minimum of 30% and a maximum of 70%
of its assets invested in equity securities and a minimum of 30% and a maximum
of 70% of its assets invested in debt securities which, at the time of purchase,
are rated in one of the four highest rating categories by all nationally
recognized statistical rating organizations ("Rating Organizations") rating that
security such as Standard & Poor's or Moody's Investor Services, Inc.
("Moody's") or, if unrated, are deemed to be of comparable quality by the
applicable investment adviser. Obligations rated in the fourth highest rating
category are limited to 25% of the Portfolio's debt allocation. Obligations
rated BBB or Baa by any Rating Organization may have speculative characteristics
and thus changes in economic conditions or other circumstances are more likely
to lead to a weakened capacity to make principal and interest payments than is
the case with higher grade bonds. See the SAI for a description of debt ratings.
The Portfolio, at the discretion of the investment advisers, may retain a
security that has been downgraded below the initial investment criteria. The
Portfolio usually invests between 50% and 65% of its assets in equity securities
and between 35% and 50% of its assets in debt securities. The remainder of the
Portfolio's assets may be invested in cash or cash equivalents, including
obligations that are permitted investments for the Money Market Portfolio, and
in other investment companies. However, when its investment advisers deem that
market conditions warrant, the Portfolio may, for temporary defensive purposes,
invest up to 100% of its assets in cash, cash equivalents and investment grade
short-term obligations.
The Portfolio's investments in debt securities may include investments in
obligations of the U.S. Government or its agencies or instrumentalities,
including separately traded registered interest and principal securities
("STRIPS") and other zero coupon obligations; corporate bonds, notes and
debentures; non-convertible preferred stocks; mortgage-backed securities;
asset-backed securities; and domestic, Yankeedollar and Eurodollar bank deposit
notes, certificates of deposit, bonds and notes. Such obligations may have a
fixed, variable or floating rate of interest. See the SAI for a further
description of the foregoing securities. The value of the Portfolio's debt
investments will vary in response to interest rate changes as described in
"American AAdvantage Limited-Term Income Mileage Fund."
The Portfolio also may engage in dollar rolls or purchase or sell
securities on a "when-issued" or "forward commitment" basis. The purchase or
sale of when-issued securities enables an investor to hedge against anticipated
changes in interest rates and prices by locking in an attractive price or yield.
The price of when-issued securities is fixed at the time the commitment to
purchase or sell is made, but delivery and payment for the when-issued
securities take place at a later date, normally one to two months after the date
of purchase. During the period between purchase and settlement, no payment is
made by the purchaser to the issuer and no interest accrues to the purchaser.
Such transactions therefore involve a risk of loss if the value of the security
to be purchased declines prior to the settlement date or if the value of the
security to be sold increases prior to the settlement date. A sale of a
when-issued security also involves the risk that the other party will be unable
to settle the transaction. Dollar rolls are a type of forward commitment
transaction. Purchases and sales of securities on a forward commitment basis
involve a commitment to purchase or sell securities with payment and delivery to
take place at some future date, normally one to two months after the date of the
transaction. As with when-issued securities, these transactions involve certain
risks, but they also enable an investor to hedge against anticipated changes in
interest rates and prices. Forward commitment transactions are executed for
existing obligations, whereas in a when-issued transaction, the obligations have
not yet been issued. When purchasing securities on a
PROSPECTUS
7
<PAGE> 8
when-issued or forward commitment basis, a segregated account of liquid assets
at least equal to the value of purchase commitments for such securities will be
maintained until the settlement date.
The Portfolio's equity investments may consist of common stocks, preferred
stocks and convertible securities, including foreign securities that are
represented by U.S. dollar-denominated American Depository Receipts traded in
the United States on exchanges and in the over-the-counter market. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations. The Manager believes that
purchasing securities which the investment advisers believe are undervalued in
the market and that have above average growth potential will outperform other
investment styles over the longer term while minimizing volatility and downside
risk. The Manager will recommend that, with respect to portfolio management of
equity assets, the Mileage Trust retain only those investment advisers who, in
the Manager's opinion, utilize such an approach.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Balanced
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE GROWTH AND INCOME MILEAGE FUND -- This Fund's investment
objective is to realize long-term capital appreciation and current income. This
Fund seeks its investment objective by investing all of its investable assets in
the Growth and Income Portfolio, which invests primarily in equity securities.
Excluding collateral for securities loaned, ordinarily at least 80% of the
Portfolio's assets will be invested in equity securities consisting of common
stocks, preferred stocks, securities convertible into common stocks, and
securities having common stock characteristics, such as rights and warrants, and
foreign equity securities that are represented by U.S. dollar-denominated
American Depository Receipts traded in the United States on exchanges and in the
over-the-counter market. When purchasing equity securities, primary emphasis
will be placed on undervalued securities with above average growth expectations.
In order to seek either above average current income or capital appreciation
when interest rates are expected to decline, the Portfolio may invest in debt
securities which, at the time of purchase, are rated in one of the four highest
rating categories by all Rating Organizations rating that security or, if
unrated, are deemed to be of comparable quality by the applicable investment
adviser. Obligations rated in the fourth highest rating category are limited to
25% of the Portfolio's debt allocation. See "American AAdvantage Balanced
Mileage Fund" for a description of the risks involved with these obligations.
See the SAI for definitions of the foregoing securities and for a description of
debt ratings. The Portfolio also may invest in other investment companies or in
cash and cash equivalents, including obligations that are permitted investments
for the Money Market Portfolio. However, when its investment advisers deem that
market conditions warrant, the Portfolio may, for temporary defensive purposes,
invest up to 100% of its assets in cash, cash equivalents and investment grade
short-term obligations. In addition, the Portfolio may purchase or sell
securities on a when-issued or forward commitment basis. See "American
AAdvantage Balanced Mileage Fund" for a description of these transactions.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC.; BRANDYWINE ASSET MANAGEMENT,
INC.; GSB INVESTMENT MANAGEMENT, INC.; HOTCHKIS AND WILEY; and INDEPENDENCE
INVESTMENT ASSOCIATES, INC. currently manage the assets of the Growth and Income
Portfolio. See "Investment Advisers."
AMERICAN AADVANTAGE INTERNATIONAL EQUITY MILEAGE FUND -- This Fund's investment
objective is to realize long-term capital appreciation. This Fund seeks its
investment objective by investing all of its investable assets in the
International Equity Portfolio, which invests primarily in equity securities of
issuers based outside the United States. Ordinarily the Portfolio will invest at
least 65% of its assets in common stocks and securities convertible into common
stocks of issuers in at least three different countries other than the United
States. However, excluding collateral for securities loaned, the Portfolio
generally invests in excess of 80% of its assets in such securities. The
remainder of the Portfolio's assets will be invested in non-U.S. debt securities
which, at the time of purchase, are rated in one of the three highest rating
categories by any Rating Organization or, if unrated, are deemed to be of
comparable quality by the applicable investment adviser and traded publicly on a
world market, or in cash or cash equivalents, including obligations that are
permitted investments for the Money Market Portfolio, or in other investment
companies. However, when its investment advisers deem that market conditions
PROSPECTUS
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warrant, the Portfolio may, for temporary defensive purposes, invest up to 100%
of its assets in cash, cash equivalents, other investment companies and
investment grade short-term obligations.
The investment advisers select securities based upon a country's economic
outlook, market valuation and potential changes in currency exchange rates. When
purchasing equity securities, primary emphasis will be placed on undervalued
securities with above average growth expectations.
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) political and
financial instability abroad, including risk of nationalization or expropriation
of assets and the risk of war; (2) less liquidity and greater volatility of
foreign investments; (3) less public information regarding foreign companies;
(4) less government regulation and supervision of foreign stock exchanges,
brokers and listed companies; (5) lack of uniform accounting, auditing and
financial reporting standards; (6) delays in transaction settlement in some
foreign markets; (7) possible imposition of confiscatory foreign taxes; (8)
possible limitation on the removal of securities or other assets of the
Portfolio; (9) restrictions on foreign investments and repatriation of capital;
(10) currency fluctuations; (11) cost and possible restrictions of currency
conversion; (12) withholding taxes on dividends in foreign countries; and (13)
possible higher commissions, custodial fees and management costs than in the
U.S. market. These risks are often greater for investments in emerging or
developing countries.
The Portfolio will limit its investments to those in countries which have
been recommended by the Manager and which have been approved by the AMR Trust
Board. Countries may be added or deleted with AMR Trust Board approval. In
determining which countries will be approved, the AMR Trust Board will evaluate
the risk factors set forth above and will particularly focus on the ability to
repatriate funds, the size and liquidity of a particular country's market and
the investment climate for foreign investors. The current foreign countries in
which the Portfolio may invest are Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Italy, Japan, Malaysia, Mexico,
Netherlands, New Zealand, Norway, Portugal, Singapore, South Korea, Spain,
Sweden, Switzerland, and the United Kingdom.
The Portfolio may trade forward foreign currency contracts ("forward
contracts"), which are "derivatives," to hedge currency fluctuations of
underlying stock or bond positions or in other circumstances permitted by the
Commodity Futures Trading Commission ("CFTC"). Forward contracts to sell foreign
currency may be used when the management of the Portfolio believes that the
currency of a particular foreign country may suffer a decline against the U.S.
dollar. Forward contracts are also used to set the exchange rate for a future
transaction. In this manner, the Portfolio may protect itself against a possible
loss resulting from an adverse change in the relationship between the U.S.
dollar or other currency which is being used for the security purchase and the
foreign currency in which the security is denominated during the period between
the date on which the security is purchased or sold and the date on which
payment is made or received. Forward contracts involve certain risks which
include, but are not limited to: (1) imperfect correlation between the
securities hedged and the contracts themselves; and (2) possible decrease in the
total return of the Portfolio. Forward contracts are discussed in greater detail
in the SAI.
The Portfolio also may trade currency futures ("futures"), which are
derivatives, for the same reasons as for entering into forward contracts as set
forth above. Futures are traded on U.S. and foreign currency exchanges. The use
of futures also entails certain risks which include, but are not limited to: (1)
less liquidity due to daily limits on price fluctuation; (2) imperfect
correlation between the securities hedged and the contracts themselves; (3)
possible decrease in the total return of the Portfolio due to hedging; (4)
possible reduction in value for both the contracts and the securities being
hedged; and (5) potential losses in excess of the amounts invested in the
futures contracts themselves. The Portfolio may not enter into futures contracts
if the purchase or sale of such contract would cause the sum of the Portfolio's
initial and any variation margin deposits to exceed 5% of its total assets.
Futures contracts are discussed in greater detail in the SAI.
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HOTCHKIS AND WILEY, MORGAN STANLEY ASSET MANAGEMENT INC. and TEMPLETON
INVESTMENT COUNSEL, INC. currently serve as investment advisers to the
International Equity Portfolio.
AMERICAN AADVANTAGE LIMITED-TERM INCOME MILEAGE FUND -- This Fund's investment
objective is to realize income and capital appreciation. As an investment
policy, the Fund primarily seeks income and secondarily seeks capital
appreciation. The Fund seeks its investment objective by investing all of its
investable assets in the Limited-Term Income Portfolio, which invests primarily
in debt obligations. Permissible investments include securities of the U.S.
Government and its agencies and instrumentalities, including STRIPS and other
zero coupon obligations; corporate bonds, notes and debentures; non-convertible
preferred stocks; mortgage-backed securities; asset-backed securities; domestic,
Yankeedollar and Eurodollar certificates of deposit, bank deposit notes, and
bank notes; other investment companies; and cash or cash equivalents including
obligations that are permitted investments for the Money Market Portfolio. Such
obligations may have a fixed, variable or floating rate of interest. At the time
of purchase, all such securities will be rated in one of the four highest rating
categories by all Rating Organizations rating such obligation or, if unrated,
will be deemed to be of comparable quality by the Manager. Obligations rated in
the fourth highest rating category are limited to 25% of the Portfolio's total
assets. See "American AAdvantage Balanced Mileage Fund" for a description of the
risks involved with these obligations. The Portfolio, at the discretion of the
Manager, may retain a security which has been downgraded below the initial
investment criteria. See the SAI for definitions of the foregoing securities and
for a description of debt ratings. Principal and/or interest payments for
obligations of the U.S. Government's agencies or instrumentalities may or may
not be backed by the full faith and credit of the U.S. Government.
Investments in Yankeedollar and Eurodollar bonds, notes and certificates of
deposit involve risks that differ from investments in securities of domestic
issuers. See "American AAdvantage Money Market Mileage Fund" for a description
of these risks. The Portfolio also may engage in dollar rolls, or purchase or
sell securities on a when-issued or forward commitment basis as described under
"American AAdvantage Balanced Mileage Fund."
The market value of fixed rate securities, and thus the net asset value of
this Portfolio's shares, is expected to vary inversely with movements in
interest rates. The market value of variable and floating rate instruments will
not vary as much due to the periodic adjustments in their interest rates. An
adjustment which increases the interest rate of such securities should reduce or
eliminate declines in market value resulting from a prior upward movement in
interest rates, and an adjustment which decreases the interest rate of such
securities should reduce or eliminate increases in market value resulting from a
prior downward movement in interest rates.
Mortgage-backed securities are securities representing interests in "pools"
of mortgages in which payments of both interest and principal on the securities
are made monthly, in effect, "passing through" monthly payments made by the
individual borrowers on the mortgage loans which underlie the securities (net of
fees paid to the issuer or guarantor of the securities). Early repayment of
principal on mortgage pass-through securities (arising from prepayments of
principal due to sale of the underlying property, refinancing, or foreclosure,
net of fees and costs which may be incurred) may expose the Portfolio to a lower
rate of return upon reinvestment of principal. Also, if a security subject to
prepayment has been purchased at a premium, in the event of prepayment, the
value of the premium would be lost. Like other debt securities, when interest
rates rise, the value of mortgage-related securities generally will decline;
however, when interest rates decline, the value of mortgage-related securities
with prepayment features may not increase as much as other debt securities.
Payment of principal and interest on some mortgage pass-through securities
(but not the market value of the securities themselves) may be guaranteed by the
full faith and credit of the U.S. Government (such as in the case of securities
guaranteed by the Government National Mortgage Association ("GNMA")) or
guaranteed by agencies or instrumentalities of the U.S. Government (such as in
the case of securities guaranteed by the Federal National Mortgage Association
("FNMA") or the Federal Home Loan Mortgage Corporation ("FHLMC"), which are
supported only by the discretionary authority of the U.S. Government to purchase
the agency's obligations). Mortgage pass-through securities created by
non-governmental issuers (such as commercial banks, savings and loan
institutions, private mortgage insurance companies, mortgage bankers and other
secondary
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market issuers) may be supported with various credit enhancements such as pool
insurance, guarantees issued by governmental entities, a letter of credit from a
bank or senior/subordinated structures.
Collateralized mortgage obligations ("CMOs") are hybrid instruments with
characteristics of both mortgage-backed bonds and mortgage pass-through
securities. Similar to a mortgage pass-through, interest and prepaid principal
on a CMO are paid, in most cases, monthly. CMOs may be collateralized by whole
mortgage loans but are more typically collateralized by portfolios of mortgage
pass-through securities guaranteed by GNMA, FHLMC or FNMA. CMOs are structured
in multiple classes, with each class bearing a different stated maturity or
interest rate.
The Portfolio is permitted to invest in asset-backed securities, subject to
the Portfolio's rating and quality requirements. Through the use of trusts and
special purpose subsidiaries, various types of assets, primarily home equity
loans, automobile and credit card receivables, and other types of receivables or
other assets as well as purchase contracts, financing leases and sales
agreements entered into by municipalities, are securitized in pass-through
structures similar to the mortgage pass-through structures described above.
Consistent with the Fund's and the Portfolio's investment objective, policies
and quality standards, the Portfolio may invest in these and other types of
asset-backed securities which may be developed in the future.
Asset-backed securities involve certain risks that do not exist with
mortgage-related securities, resulting mainly from the fact that asset-backed
securities do not usually contain the benefit of a complete security interest in
the related collateral. For example, credit card receivables generally are
unsecured and the debtors are entitled to the protection of a number of state
and federal consumer credit laws, some of which may reduce the ability to obtain
full payment. In the case of automobile receivables, due to various legal and
economic factors, proceeds from repossessed collateral may not always be
sufficient to support payments on the securities. The risks associated with
asset-backed securities are often reduced by the addition of credit
enhancements, such as a letter of credit from a bank, excess collateral or a
third-party guarantee.
Although investments will not be restricted by the maturity of the
securities purchased, under normal circumstances, the Portfolio will seek to
maintain a dollar-weighted average duration of one to three years. Because the
timing on return of principal for both asset-backed and mortgage-backed
securities is uncertain, in calculating the average weighted maturity of the
Portfolio, the maturity of these securities may be based on certain industry
conventions.
The Manager serves as the sole active investment adviser to the Limited-Term
Income Fund and its corresponding Portfolio.
MONEY MARKET FUNDS -- The investment objectives of the Money Market Funds are
current income, liquidity and the maintenance of a stable $1.00 price per share.
The Money Market Funds seek to achieve these objectives by investing all of
their investable assets in the Money Market Portfolios, which invest in high
quality, U.S. dollar-denominated short-term obligations that have been
determined by the Manager or the AMR Trust Board to present minimal credit
risks. Portfolio investments are valued based on the amortized cost valuation
technique pursuant to Rule 2a-7 under the Investment Company Act of 1940 ("1940
Act"). See the SAI for an explanation of the amortized cost valuation method.
Obligations in which the Money Market Portfolios invest generally have remaining
maturities of 397 days or less, although instruments subject to repurchase
agreements and certain variable and floating rate obligations may bear longer
final maturities. The average dollar-weighted portfolio maturity of each Money
Market Portfolio will not exceed 90 days. The Manager serves as the sole
investment adviser to the Money Market Funds. See "Management and Administration
of the Mileage Trust."
AMERICAN AADVANTAGE MONEY MARKET MILEAGE FUND -- The Fund's corresponding
Portfolio may invest in obligations permitted to be purchased under Rule 2a-7 of
the 1940 Act including, but not limited to, (1) obligations of the U.S.
Government or its agencies or instrumentalities; (2) loan participation
interests, medium-term notes, funding agreements and asset-backed securities;
(3) domestic, Yankeedollar and Eurodollar certificates of deposit, time
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deposits, bankers' acceptances, commercial paper, bank deposit notes and other
promissory notes including floating or variable rate obligations issued by U.S.
or foreign bank holding companies and their bank subsidiaries, branches and
agencies; and (4) repurchase agreements involving the obligations listed above.
The Money Market Portfolio will invest only in issuers or instruments that at
the time of purchase (1) have received the highest short-term rating by two
Rating Organizations such as "A-1" by Standard & Poor's and "P-1" by Moody's;
(2) are single rated and have received the highest short-term rating by a Rating
Organization; or (3) are unrated, but are determined to be of comparable quality
by the Manager pursuant to guidelines approved by the AMR Trust Board and
subject to ratification by the AMR Trust Board. See the SAI for definitions of
the foregoing instruments and rating systems. The Portfolio may invest in other
investment companies. The Portfolio also may purchase or sell securities on a
when-issued or forward commitment basis as described under "American AAdvantage
Balanced Mileage Fund."
The Portfolio will invest more than 25% of its assets in obligations issued
by the banking industry. However, for temporary defensive purposes during
periods when the Manager believes that maintaining this concentration may be
inconsistent with the best interest of shareholders, the Portfolio may not
maintain this concentration.
Investments in Eurodollar (U.S. dollar obligations issued outside the United
States by domestic or foreign entities) and Yankeedollar (U.S. dollar
obligations issued inside the United States by foreign entities) obligations
involve additional risks. Most notably, there generally is less publicly
available information about foreign issuers; there may be less governmental
regulation and supervision; foreign issuers may use different accounting and
financial standards; and the adoption of foreign governmental restrictions may
affect adversely the payment of principal and interest on foreign investments.
In addition, not all foreign branches of United States banks are supervised or
examined by regulatory authorities as are United States banks, and such branches
may not be subject to reserve requirements.
Variable amount master demand notes in which the Portfolio may invest are
unsecured demand notes that permit the indebtedness thereunder to vary, and
provide for periodic adjustments in the interest rate. Because master demand
notes are direct lending arrangements between the Portfolio and the issuer, they
are not normally publicly traded. There is no secondary market for the notes;
however, the period of time remaining until payment of principal and accrued
interest can be recovered under a variable amount master demand note generally
will not exceed seven days. To the extent this period is exceeded, the note in
question would be considered illiquid. Issuers of variable amount master demand
notes must satisfy the same criteria as set forth for other promissory notes
(e.g. commercial paper). The Portfolio will invest in variable amount master
demand notes only when such notes are determined by the Manager, pursuant to
guidelines established by the AMR Trust Board, to be of comparable quality to
rated issuers or instruments eligible for investment by the Portfolio. In
determining average dollar-weighted portfolio maturity, a variable amount master
demand note will be deemed to have a maturity equal to the longer of the period
of time remaining until the next readjustment of the interest rate or the period
of time remaining until the principal amount can be recovered from the issuer on
demand.
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET MILEAGE FUND -- The Fund's
corresponding Portfolio may invest in municipal obligations issued by or on
behalf of the governments of states, territories, or possessions of the United
States; the District of Columbia; and their political subdivisions, agencies and
instrumentalities if the interest these obligations provide is generally exempt
from federal income tax. The Municipal Money Market Portfolio will invest only
in issuers or instruments that at the time of purchase (1) are guaranteed by the
U.S. Government, its agencies, or instrumentalities; (2) are secured by letters
of credit that are irrevocable and issued by banks which qualify as authorized
issuers for the Money Market Portfolio (see "American AAdvantage Money Market
Mileage Fund"); (3) are guaranteed by one or more municipal bond insurance
policies that are noncancelable and are issued by third-party guarantors
possessing the highest claims-paying rating from a Rating Organization; (4) have
received one of the two highest short-term ratings from at least two Rating
Organizations; (5) are single rated and have received one of the two highest
short-term ratings from that Rating Organization; (6) have no short-term rating
but the instrument is comparable to the issuer's rated short-term debt; (7) have
no short-term rating (or comparable rating) but have received one of the top two
long-term ratings from all Rating Organizations rating
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the issuer or instrument; or (8) are unrated, but are determined to be of
comparable quality by the Manager pursuant to guidelines approved by, and
subject to the oversight of, the AMR Trust Board. The Portfolio also may invest
in other investment companies. Ordinarily at least 80% of the Portfolio's net
assets will be invested in municipal obligations the interest from which is
exempt from regular federal income tax. However, should market conditions
warrant, the Portfolio may invest up to 20% (or for temporary defensive
purposes, up to 100%) of its assets in eligible investments for the Money Market
Portfolio which are subject to federal income tax.
The Portfolio may invest in certain municipal obligations which have rates
of interest that are adjusted periodically according to formulas intended to
minimize fluctuations in the values of these instruments. These instruments,
commonly known as variable rate demand obligations, are long-term instruments
which allow the purchaser, at its discretion, to redeem securities before their
final maturity at par plus accrued interest upon notice (typically 7 to 30
days).
Municipal obligations may be backed by the full taxing power of a
municipality ("general obligations"), or by the revenues from a specific project
or the credit of a private organization ("revenue obligations"). Some municipal
obligations are collateralized as to payment of principal and interest by an
escrow of U.S. Government or federal agency obligations, while others are
insured by private insurance companies, while still others may be supported by
letters of credit furnished by domestic or foreign banks. The Portfolio's
investments in municipal obligations may include fixed, variable, or floating
rate general obligations and revenue obligations (including municipal lease
obligations and resource recovery obligations); zero coupon obligations and
asset-backed obligations; variable rate auction and residual interest
obligations; tax, revenue, or bond anticipation notes; tax-exempt commercial
paper; and purchase obligations that are subject to restrictions on resale. See
the SAI for a further discussion of the foregoing obligations. The Portfolio may
purchase or sell obligations on a when-issued or forward commitment basis as
described under "American AAdvantage Balanced Mileage Fund."
The Portfolio may invest more than 25% of the value of its total assets in
municipal obligations which are related in such a way that an economic, business
or political development or change affecting one such security would also affect
the other securities; for example, securities the interest of which is paid from
revenues of similar types of projects, or securities whose issuers are located
in the same state. As a result, the Portfolio may be subject to greater risk
compared to a fund that does not follow this practice. However, the Manager
believes this risk is mitigated because it is anticipated that most of the
Portfolio's assets will be insured or backed by bank letters of credit.
Additionally, the Portfolio may invest more than 25% of the value of its total
assets in industrial development bonds which, although issued by industrial
development authorities, may be backed only by the assets and revenues of the
non-governmental users.
The Portfolio also may invest in municipal obligations that constitute
"private activity obligations." These include obligations that finance student
loans, residential rental projects, and solid waste disposal facilities. To the
extent the Portfolio earns interest income on private activity obligations,
shareholders will be required to treat the portion of the Fund's distributions
attributable to its share of such interest as a "tax preference item" for
purposes of determining their liability for the federal alternative minimum tax
("AMT") and, as a result, may become subject to (or increase their liability
for) the AMT. Shareholders should consult their own tax advisers to determine
whether they may be subject to the AMT. The Portfolio may invest in private
activity obligations without limitation and it is anticipated that a substantial
portion of the Portfolio's assets will be invested in these obligations. As a
result, a substantial portion of the Fund's distributions may be a tax
preference item, which will reduce the net return from the Fund for taxpayers
subject to the AMT. Interest on "qualified" private activity obligations is
exempt from federal income tax.
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET MILEAGE FUND -- The Fund's
corresponding Portfolio will invest exclusively in obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities and
repurchase agreements which are collateralized by such obligations. U.S.
Government securities include direct obligations of the U.S. Treasury (such as
Treasury bills, Treasury notes and Treasury bonds). The Fund may invest in
securities issued by the Agency for International Development, Farmers Home
Administration, Farm
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Credit Banks, Federal Home Loan Bank, Federal Intermediate Credit Bank, Federal
Financing Bank, Federal Land Bank, FNMA, GNMA, General Services Administration,
Rural Electrification Administration, Small Business Administration, Tennessee
Valley Authority, and others. Some of these obligations, such as those issued by
the Federal Home Loan Bank and FHLMC, are supported only by the credit of the
agency or instrumentality issuing the obligation and the discretionary authority
of the U.S. Government to purchase the agency's obligations. Counterparties for
repurchase agreements must be approved by the AMR Trust Board. See the SAI for a
further discussion of the foregoing obligations. The Portfolio may purchase or
sell securities on a when-issued or forward commitment basis, as described under
"American AAdvantage Balanced Mileage Fund."
OTHER INVESTMENT POLICIES -- In addition to the investment policies described
previously, each Portfolio also may lend its securities, enter into fully
collateralized repurchase agreements, and invest in private placement offerings.
SECURITIES LENDING. Each Portfolio may lend securities to broker-dealers or
other institutional investors pursuant to agreements requiring that the loans be
continuously secured by any combination of cash, securities of the U.S.
Government and its agencies and instrumentalities and approved bank letters of
credit that at all times equal at least 100% of the market value of the loaned
securities. Such loans will not be made if, as a result, the aggregate amount of
all outstanding securities loans for any Portfolio exceeds 33 1/3% of its total
assets. A Portfolio continues to receive interest on the securities loaned and
simultaneously earns either interest on the investment of the cash collateral or
fee income if the loan is otherwise collateralized. Should the borrower of the
securities fail financially, there is a risk of delay in recovery of the
securities or loss of rights in the collateral. However, the Portfolios seek to
minimize this risk by making loans only to borrowers which are deemed by the
Manager to be of good financial standing and which have been approved by the AMR
Trust Board. For purposes of complying with each Portfolio's investment policies
and restrictions, collateral received in connection with securities loans will
be deemed an asset of a Portfolio to the extent required by law. The Manager
will receive compensation for administrative and oversight functions with
respect to securities lending. The amount of such compensation will depend on
the income generated by the loan of each Portfolio's securities. The SEC has
granted exemptive relief that permits the Portfolios to invest cash collateral
received from securities lending transactions in shares of one or more private
investment companies managed by the Manager. See the SAI for further information
regarding loan transactions.
REPURCHASE AGREEMENTS. A repurchase agreement is an agreement under which
securities are acquired by a Portfolio from a securities dealer or bank subject
to resale at an agreed upon price on a later date. The acquiring Portfolio bears
a risk of loss in the event that the other party to a repurchase agreement
defaults on its obligations and the Portfolio is delayed or prevented from
exercising its rights to dispose of the collateral securities. However, the
investment advisers or the Manager attempt to minimize this risk by entering
into repurchase agreements only with financial institutions which are deemed to
be of good financial standing and which have been approved by the AMR Trust
Board. See the SAI for more information regarding repurchase agreements.
PRIVATE PLACEMENT OFFERINGS. Investments in private placement offerings are
made in reliance on the "private placement" exemption from registration afforded
by Section 4(2) of the Securities Act of 1933 (the "1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1993 Act ("Section 4(2)
securities"). Section 4(2) securities are restricted as to disposition under the
federal securities laws, and generally are sold to institutional investors, such
as the Portfolios, that agree they are purchasing the securities for investment
and not with an intention to distribute to the public. Any resale by the
purchaser must be in an exempt transaction and may be accomplished in accordance
with Rule 144A. Section 4(2) securities normally are resold to other
institutional investors like the Portfolios through or with the assistance of
the issuer or investment dealers who make a market in the Section 4(2)
securities, thus providing liquidity. The Money Market Portfolios will not
invest more than 10% (and the Balanced, Growth and Income, International Equity
and Limited-Term Income Portfolios, no more than 15%) of their respective assets
in Section 4(2) securities and other illiquid securities unless the applicable
investment adviser determines, by continuous reference to the appropriate
trading markets and pursuant to guidelines approved by the AMR Trust Board, that
any Section 4(2) securities held by such Portfolio in excess of this level are
at all times liquid.
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The AMR Trust Board and the applicable investment adviser, pursuant to the
guidelines approved by the AMR Trust Board, will carefully monitor the
Portfolios' investments in Section 4(2) securities sold and offered under Rule
144A, focusing on such important factors, among others, as: valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing a Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
BROKERAGE PRACTICES AND PORTFOLIO TURNOVER -- Each investment adviser will place
its own orders to execute securities transactions which are designed to
implement the applicable Portfolio's investment objective and policies. In
placing such orders, each investment adviser will seek the best available price
and most favorable execution. The full range and quality of services offered by
the executing broker or dealer will be considered when making these
determinations. Pursuant to written guidelines approved by the AMR Trust Board,
an investment adviser of a Portfolio, or its affiliated broker-dealer, may
execute portfolio transactions and receive usual and customary brokerage
commissions (within the meaning of Rule 17e-1 of the 1940 Act) for doing so.
The Money Market Portfolios and the Limited-Term Income Portfolio normally
will not incur any brokerage commissions on their transactions because money
market and debt instruments are generally traded on a "net" basis with dealers
acting as principal for their own accounts and without a stated commission. The
price of the obligation, however, usually includes a profit to the dealer.
Obligations purchased in underwritten offerings include a fixed amount of
compensation to the underwriter, generally referred to as the underwriter's
concession or discount. No commissions or discounts are paid when securities are
purchased directly from an issuer.
No Portfolio, other than the Limited-Term Income Portfolio, currently
expects its portfolio turnover rate to exceed 100%. The portfolio turnover rate
for the Limited-Term Income Portfolio for the year ended October 31, 1996 was
304%. High portfolio activity increases a Portfolio's transaction costs,
including brokerage commissions, and may result in a greater number of taxable
transactions.
ADDITIONAL INFORMATION ABOUT THE PORTFOLIOS -- As previously described,
investors should be aware that each Fund, unlike mutual funds which directly
acquire and manage their own portfolios of securities, seeks to achieve its
investment objective by investing all of its investable assets in a
corresponding Portfolio of the AMR Trust, which is a separate investment
company. Since a Fund will invest only in its corresponding Portfolio, that
Fund's shareholders will acquire only an indirect interest in the investments of
the Portfolio.
The Manager expects, although it cannot guarantee, that the Mileage Trust
will achieve economies of scale by investing in the AMR Trust. In addition to
selling their interests to the Funds, the Portfolios sell their interests to
other non-affiliated investment companies and/or other institutional investors.
All institutional investors in a Portfolio pay a proportionate share of the
Portfolio's expenses and invest in that Portfolio on the same terms and
conditions. However, other investment companies investing all of their assets in
a Portfolio, are not required to sell their shares at the same public offering
price as a Fund and may charge different sales commissions. Therefore, investors
in a Fund may experience different returns from investors in another investment
company which invests exclusively in that Fund's corresponding Portfolio.
The Fund's investment in a Portfolio may be affected materially by the
actions of large investors in that Portfolio, if any. For example, as with all
open-end investment companies, if a large investor were to redeem its interest
in a Portfolio, that Portfolio's remaining investors could experience higher pro
rata operating expenses, thereby producing lower returns. As a result, that
Portfolio's security holdings may become less diverse, resulting in increased
risk. Institutional investors in a Portfolio that have a greater pro rata
ownership interest in the Portfolio than the Fund could have effective voting
control over the operation of that Portfolio. A change in a Portfolio's
fundamental objective, policies and restrictions, which is not approved by the
shareholders of its corresponding Fund could require that Fund to redeem its
interest in the Portfolio. Any such redemption could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) by the
Portfolio. Should such a distribution occur, that Fund could incur brokerage
fees or other transaction costs in converting such
PROSPECTUS
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securities to cash. In addition, a distribution in kind could result in a less
diversified portfolio of investments for that Fund and could affect its
liquidity adversely.
The Portfolios' and their corresponding Funds' investment objectives and
policies are described above. See "Investment Restrictions" for a description of
their investment restrictions. The investment objective of a Fund can be changed
only with shareholder approval. The approval of a Fund and of other investors in
its corresponding Portfolio, if any, is not required to change the investment
objective, policies or limitations of that Portfolio, unless otherwise
specified. Written notice shall be provided to shareholders of a Fund within
thirty days prior to any changes in its corresponding Portfolio's investment
objective. If the investment objective of a Portfolio changes and the
shareholders of its corresponding Fund do not approve a parallel change in that
Fund's investment objective, the Fund would seek an alternative investment
vehicle or the Manager and the investment advisers would actively manage the
Fund.
See "Management and Administration of the Mileage Trust" for a complete
description of the investment management fee and other expenses associated with
a Fund's investment in its corresponding Portfolio. This Prospectus and the SAI
contain more detailed information about each Fund and its corresponding
Portfolio, including information related to (1) the investment objective,
policies and restrictions of each Fund and its corresponding Portfolio, (2) the
Board of Trustees and officers of the Mileage Trust and the AMR Trust, (3)
brokerage practices, (4) the Funds' shares, including the rights and liabilities
of its shareholders, (5) additional performance information, including the
method used to calculate yield and total return and (6) the determination of the
value of each Fund's shares.
INVESTMENT RESTRICTIONS
The following fundamental investment restrictions and the non-fundamental
investment restriction are identical for each Fund and its corresponding
Portfolio. Therefore, although the following discusses the investment
restrictions of each Portfolio and the AMR Trust Board, it applies equally to
each Fund and the Mileage Trust Board. The following fundamental investment
restrictions may be changed with respect to a particular Fund by the majority
vote of that Fund's outstanding shares or with respect to a Portfolio by the
majority vote of that Portfolio's interest holders. No Portfolio may:
- Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than 10%
of the voting securities of any one issuer, with respect to 75% of a
Portfolio's total assets. In addition, although not a fundamental
investment restriction and therefore subject to change without shareholder
vote, the Money Market Portfolio and the U.S. Government Money Market
Portfolio apply this restriction with respect to 100% of their assets.
- Invest more than 25% of its total assets in the securities of companies
primarily engaged in any one industry, provided that: (i) this limitation
does not apply to obligations issued or guaranteed by the U.S. Government,
its agencies and instrumentalities; (ii) municipalities and their agencies
and authorities are not deemed to be industries; and (iii) financial
service companies are classified according to the end users of their
services (for example, automobile finance, bank finance, and diversified
finance will be considered separate industries). With respect to the Money
Market Portfolio, this restriction does not apply to the banking industry.
The following non-fundamental investment restriction may be changed with
respect to a particular Fund by a vote of a majority of the Mileage Trust Board
or with respect to a Portfolio by a vote of a majority of the AMR Trust Board:
no Portfolio may invest more than 15% (or, with respect to any Money Market
Portfolio, 10%) of its net assets in illiquid securities, including time
deposits and repurchase agreements which mature in more than seven days.
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The above percentage limits are based upon asset values at the time of the
applicable transaction; accordingly, a subsequent change in asset values will
not affect a transaction which was in compliance with the investment
restrictions at the time such transaction was effected. See the SAI for other
investment limitations.
YIELDS AND TOTAL RETURNS
From time to time the Money Market Funds may advertise their "current yield"
and "effective yield." Both yield figures are based on historical earnings and
are not intended to indicate future performance. The current yield refers to the
income generated by an investment over a seven calendar-day period (which period
will be stated in the advertisement). This income is then annualized by assuming
the amount of income generated by the investment during that week is earned each
week over a one-year period and is shown as a percentage of the investment. The
effective yield is calculated similarly but, when annualized, the income earned
by the investment is assumed to be reinvested. The effective yield will be
slightly higher than the current yield because of the compounding effect of this
assumed reinvestment. The Municipal Money Market Fund also may quote "tax
equivalent yields," which show the taxable yields a shareholder would have to
earn before federal income taxes to equal this Fund's tax-exempt yields. The tax
equivalent yield is calculated by dividing the Fund's tax-exempt yield by the
result of one minus a stated federal income tax rate. If only a portion of the
Fund's income was tax-exempt, only that portion is adjusted in the calculation.
As stated earlier, the Fund considers interest on private activity obligations
to be exempt from federal income tax. Each class of the Money Market Fund has
different expenses which will impact the performance of the class.
Advertised yields for the Balanced Fund, the Growth and Income Fund, the
International Equity Fund and the Limited-Term Income Fund (collectively, the
"Variable NAV Funds") may be computed by dividing the net investment income per
share earned by a Fund during the relevant time period by the maximum offering
price per share for that Fund on the last day of the period. Total return
quotations advertised by the Funds may reflect the average annual compounded (or
aggregate compounded) rate of return during the designated time period based on
a hypothetical initial investment and the redeemable value of that investment at
the end of the period. Additionally, the Limited-Term Income Fund may advertise
a "monthly distribution rate." This rate is based on an annualized monthly
dividend accrual rate per share compared with the month-end share price of this
Fund. The Funds will at times compare their performance to applicable published
indices, and also may disclose their performance as ranked by certain ranking
entities. See the SAI for more information about the calculation of yields and
total returns.
MANAGEMENT AND ADMINISTRATION OF THE MILEAGE TRUST
The Mileage Trust Board has general supervisory responsibility over the
Mileage Trust's affairs. The Manager serves as investment manager and
administrator to the Portfolios pursuant to a Management Agreement dated October
1, 1995, as amended on July 25, 1997, which obligates the Manager to provide or
oversee all administrative, investment advisory and portfolio management
services for the Portfolios. Similarly, the Manager entered into a Management
Agreement dated October 1, 1995, as amended on November 21, 1997, which
obligates the Manager to provide or oversee all administrative, investment
advisory and portfolio management services for the Funds. The Manager, located
at 4333 Amon Carter Boulevard, MD5645, Fort Worth, Texas 76155, is a wholly
owned subsidiary of AMR Corporation ("AMR"), the parent company of American
Airlines, Inc., organized in 1986 to provide investment management, advisory,
administrative and asset management consulting services. The assets of the
Balanced Portfolio, the Growth and Income Portfolio and the International Equity
Portfolio are allocated by the Manager among one or more investment advisers
designated for that Portfolio. See "Investment Advisers." The Manager serves as
the sole investment adviser to the Money Market Portfolios and the Limited-Term
Income Portfolio. In addition, with the exception of the International Equity
Portfolio, if so requested by any investment adviser, the Manager will make the
investment decisions with respect to assets allocated to that investment adviser
which the investment adviser determines should be invested in short-term
obligations of the type permitted for investment by the Money Market Portfolio.
As of December 31, 1996, the Manager had assets under management (including
assets under fiduciary advisory control) totaling
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approximately $16.0 billion including approximately $5.7 billion under active
management and $10.3 billion as named fiduciary or fiduciary adviser. Of the
total, approximately $11.9 billion of assets are related to AMR. American
Airlines, Inc. is not responsible for investments made in the Mileage Trust.
The Manager provides the Mileage Trust and the AMR Trust with office space,
office equipment and personnel necessary to manage and administer the Trusts'
operations. This includes complying with reporting requirements; corresponding
with shareholders; maintaining internal bookkeeping, accounting and auditing
services and records; and supervising the provision of services to the Trusts by
third parties. The Manager also oversees each Portfolio's participation in
securities lending activities and any actions taken by securities lending agents
in connection with those activities to ensure compliance with all applicable
regulatory and investment guidelines. The Manager also develops the investment
programs for each Portfolio, selects and changes investment advisers (subject to
approval by the AMR Trust Board and appropriate interest holders), allocates
assets among investment advisers, monitors the investment advisers' investment
programs and results, and coordinates the investment activities of the
investment advisers to ensure compliance with regulatory restrictions.
Except as otherwise provided below, the Manager bears the expense of
providing the above services and pays the fees of the investment advisers of the
Funds and their Portfolios. As compensation for paying the investment advisory
fees and for providing the Portfolios with advisory and asset allocation
services, the Manager receives from the AMR Trust an annualized fee which is
calculated and accrued daily, equal to the sum of (1) 0.15% of the net assets of
the Money Market Portfolios, (2) 0.25% of the net assets of the Limited-Term
Income Portfolio, (3) 0.10% of the net assets of the other Portfolios, plus (4)
all fees payable by the Manager to the AMR Trust's investment advisers as
described in "Investment Advisers." To the extent that a Fund invests all of its
investable assets in its corresponding Portfolio, the Manager will need to
provide only administrative services to the Funds. As compensation for these
services, the Manager receives from the Mileage Trust an annualized fee equal to
0.25% of the net assets of each Variable NAV Fund and 0.05% of the net assets of
the Money Market Funds. The Manager receives compensation in connection with
securities lending activities. If a Portfolio lends its portfolio securities and
receives cash collateral from the borrower, the Manager will receive up to 25%
of the net annual interest income (the gross interest earned by the investment
less the amount paid to the borrower as well as related expenses) received from
the investment of such cash. If a borrower posts collateral other than cash, the
borrower will pay to the lender a loan fee. In addition, the Manager will
receive up to 25% of the loan fees posted by borrowers. Currently, the Manager
receives 10% of the net annual interest income from the investment of cash
collateral or 10% of the loan fees posted by borrowers. The fees received by the
Manager from the Mileage Trust and the AMR Trust are payable quarterly in
arrears.
Each Management Agreement will continue in effect provided that annually
such continuance is specifically approved by a vote of the Mileage Trust Board
and the AMR Trust Board, including the affirmative votes of a majority of the
Trustees of each Board who are not parties to the Management Agreement or
"interested persons" as defined in the 1940 Act of any such party ("Independent
Trustees"), cast in person at a meeting called for the purpose of considering
such approval, or by the vote of a Fund's shareholders or a Portfolio's interest
holders. A Management Agreement may be terminated with respect to a Fund or a
Portfolio at any time, without penalty, by a majority vote of outstanding Fund
shares or Portfolio interests on sixty (60) days' written notice to the Manager,
or by the Manager, on sixty (60) days' written notice to the 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 expenses not otherwise assumed by the
Manager, including the following: audits by independent auditors; transfer
agency, custodian, dividend disbursing agent and shareholder recordkeeping
services; taxes, if any, and the preparation of each Fund's tax returns;
interest; costs of Trustee and shareholder meetings; printing and mailing
prospectuses and reports to existing shareholders; fees for filing reports with
regulatory bodies and the maintenance of the Funds' existence; legal fees; fees
to federal and state authorities for the registration of shares; fees and
expenses of Independent Trustees; insurance and fidelity bond premiums; fees
paid to consultants providing reports regarding adherence by investment advisers
to the investment style of a Portfolio; and any extraordinary expenses of a
nonrecurring nature.
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A majority of the Independent Trustees 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.
FUND ADVISORY AGREEMENTS -- Each investment adviser has entered into a separate
investment advisory agreement with the Manager to provide investment advisory
services to the Funds and their corresponding Portfolios, each dated October 1,
1995. To the extent that a Fund invests all of its investable assets in a
corresponding Portfolio, however, an investment adviser will receive an advisory
fee only on behalf of the Portfolio and not on behalf of its corresponding Fund.
Except for the Money Market Portfolios and the Limited-Term Income Portfolio,
the assets of each Portfolio are allocated among the investment advisers
designated for that Portfolio and described in this Prospectus in "Investment
Advisers." The Manager is permitted to enter into new or modified advisory
agreements with existing or new investment advisers without approval of Fund
shareholders or Portfolio interest holders, but subject to approval of the
Mileage Trust Board and the AMR Trust Board. The Securities and Exchange
Commission issued an exemptive order which eliminates the need for
shareholder/interest holder approval, subject to compliance with certain
conditions. These conditions include the requirement that within 90 days of
hiring a new adviser or implementing a material change with respect to an
advisory contract, the applicable Fund send a notice to shareholders containing
information about the change that would be included in a proxy statement. The
Manager recommends investment advisers to the AMR Trust Board based upon its
continuing quantitative and qualitative evaluation of the investment advisers'
skill in managing assets using specific investment styles and strategies. The
allocation of assets among investment advisers may be changed at any time by the
Manager. Allocations among investment advisers will vary based upon a variety of
factors, including the overall investment performance of each investment
adviser, the Portfolio's cash flow needs and market conditions. The Manager need
not allocate assets to each investment adviser designated for a Portfolio. The
investment advisers can be terminated without penalty to the AMR Trust by the
Manager, the AMR Trust Board or the interest holders of the applicable
Portfolio. Short-term investment performance, by itself, is not a significant
factor in selecting or terminating an investment adviser, and the Manager does
not expect to recommend frequent changes of investment advisers. The Prospectus
will be supplemented if additional investment advisers are retained or the
contract with any existing investment adviser is terminated.
Each investment adviser has discretion to purchase and sell securities for
its segment of a Portfolio's assets in accordance with that Portfolio's
objectives, policies and restrictions and the more specific strategies provided
by the Manager. Although the investment advisers are subject to general
supervision by the AMR Trust Board and the Manager, these parties do not
evaluate the investment merits of specific securities transactions. As
compensation for its services, each investment adviser is paid a fee by the
Manager out of the proceeds of the management fee received by the Manager from
the AMR Trust.
DISTRIBUTION PLAN -- The distribution plan for the Funds (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 the
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 with respect to a particular Fund at
any time, without the payment of any penalty, by a vote of a majority of the
Independent Trustees of the Mileage Trust Board or by a vote of a majority of
the outstanding voting securities of the applicable Fund. Shares are distributed
through the Funds' principal underwriter, Brokers Transaction Services ("BTS").
BTS is compensated by the Manager, and not the Trust.
The Plan provides that each Fund 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 fee will be payable monthly in
arrears without regard to whether the amount of the fee is more or less than the
actual expenses incurred in a particular month by the entity for the services
provided pursuant to the Plan. The primary expenses expected to be incurred
under the Plan are advertising and participation in the AAdvantage program.
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ALLOCATION OF FUND EXPENSES -- Expenses of the Money Market Fund's Platinum and
Mileage Classes generally are allocated equally among the shares of the Fund,
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 Funds.
CUSTODIAN -- STATE STREET BANK & TRUST CO. ("State Street"), Boston,
Massachusetts serves as custodian for the Portfolios and the Funds.
TRANSFER AGENT -- State Street serves as transfer agent and provides transfer
agency services for Fund shareholders through its affiliate NATIONAL FINANCIAL
DATA SERVICES, ("NFDS"), Kansas City, Missouri.
INDEPENDENT AUDITOR -- The independent auditor for the Funds and the AMR Trust
is ERNST & YOUNG LLP, Dallas, Texas.
INVESTMENT ADVISERS
Set forth below is a brief description of the investment advisers for each
Fund and its corresponding Portfolio, except for the Money Market Funds and
their corresponding Portfolios, whose sole investment adviser is the Manager.
References to the investment advisers retained by a Portfolio also apply to the
corresponding Fund. Except for the Manager, none of the investment advisers
provides any services to the Funds or the Portfolios except for portfolio
investment management and related recordkeeping services, or has any affiliation
with the Mileage Trust, the AMR Trust or the Manager.
William F. Quinn has served as President of the Manager since it was founded
in 1986, and Nancy A. Eckl serves as Vice President - Trust Investments of the
Manager. Ms. Eckl previously served as Vice President - Finance and Compliance
of the Manager from December 1990 to May 1995. In these capacities, Mr. Quinn
and Ms. Eckl have primary responsibility for the day-to-day operations of the
Balanced Fund, the Growth and Income Fund, the International Equity Fund and
their corresponding Portfolios. These responsibilities include oversight of the
investment advisers, regular review of each adviser's performance and asset
allocations among investment advisers.
Michael W. Fields is responsible for the portfolio management oversight of
the Limited-Term Income Fund and its corresponding Portfolio. Mr. Fields has
been with the Manager since it was founded in 1986 and serves as Vice
President-Fixed Income Investments. Benjamin L. Mayer is responsible for the
day-to-day portfolio management of the Limited-Term Income Portfolio. Mr. Mayer
has served as Senior Portfolio Manager of the Manager since May 1995. Prior to
that time, he was a Vice President of Institutional Fixed Income Sales at
Merrill Lynch, Pierce, Fenner & Smith from January 1994 to April 1995 and Vice
President, Regional Senior Strategist from April 1989 to January 1994. Mr. Mayer
has had portfolio management responsibility for the Fund since August 1995.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("Barrow"), 3232 McKinney Avenue,
15th Floor, Dallas, Texas 75204, is a professional investment counseling firm
which has been providing investment services since 1979. The firm is wholly
owned by United Asset Management Corporation, a Delaware corporation. As of
December 31, 1996, Barrow had discretionary investment management authority with
respect to approximately $20.5 billion of assets, including approximately $1.5
billion of assets of AMR and its subsidiaries and affiliated entities. Barrow
serves as an investment adviser to the Balanced Portfolio, the Growth and Income
Portfolio and the Limited-Term Income Portfolio, although the Manager does not
presently intend to allocate any of the assets in the Limited-Term Income
Portfolio to Barrow. The Manager pays Barrow an annualized fee equal to .30% on
the first $200 million in AMR Trust assets under its discretionary management,
.20% on the next $300 million, .15% on the next $500 million, and .125% on
assets over $1 billion.
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BRANDYWINE ASSET MANAGEMENT, INC. ("Brandywine"), 201 North Walnut Street,
Wilmington, Delaware 19801, is a privately held professional investment
counseling firm founded in 1986. As of December 31, 1996, Brandywine had assets
under management totaling approximately $6 billion, including approximately $285
million of assets of AMR and its subsidiaries and affiliated entities.
Brandywine serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. The Manager pays Brandywine, an annualized fee
equal to .25% of assets in the Growth and Income Portfolio and .225% of assets
in the Balanced Portfolio of the first $500 million of AMR Trust assets under
its discretionary management, .225% of the next $100 million on all assets, and
.20% on all excess assets.
On December 9, 1997, Brandywine and Legg Mason, Inc. announced the signing
of a definitive agreement to merge Brandywine into Legg Mason, Inc. in an
exchange of stock. Subject to various conditions being satisfied, it is
anticipated that the transaction will close in late January 1998. Thereafter,
Brandywine will become a wholly owned subsidiary of Legg Mason, Inc. but will
continue to be managed by its current senior management.
GSB INVESTMENT MANAGEMENT, INC. ("GSB"), 301 Commerce Street, Fort Worth,
Texas 76102, is a professional investment management firm which was founded in
1987 by Frank P. Ganucheau, Mark J. Stupfel, and Lyle E. Brumley. GSB is wholly
owned by United Asset Management Corporation, a Delaware corporation. As of
December 31, 1996, GSB managed approximately $3.2 billion of assets, including
approximately $802 million of assets of AMR and its subsidiaries and affiliated
entities. GSB serves as an investment adviser to the Balanced Portfolio and the
Growth and Income Portfolio. The Manager pays GSB an annualized fee equal to
.30% of the first $100 million in AMR Trust assets under its discretionary
management, .25% of the next $100 million, .20% of the next $100 million, and
.15% on all excess assets.
HOTCHKIS AND WILEY, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017, is a professional investment counseling firm which was founded
in 1980 by John F. Hotchkis and George Wiley. Hotchkis and Wiley is a division
of the Capital Management Group of Merrill Lynch Asset Management, L.P., a
wholly owned indirect subsidiary of Merrill Lynch & Co., Inc. Assets under
management as of December 31, 1996 were approximately $10.2 billion, which
included approximately $1.4 billion of assets of AMR and its subsidiaries and
affiliated entities. Hotchkis and Wiley serves as an investment adviser to the
Balanced Portfolio, the Growth and Income Portfolio and the International Equity
Portfolio. The Manager pays Hotchkis and Wiley an annualized fee equal to .60%
of the first $10 million of AMR Trust assets under its discretionary management,
.50% of the next $140 million of assets, .30% on the next $50 million of assets,
.20% of the next $800 million of assets and .15% of all excess assets.
INDEPENDENCE INVESTMENT ASSOCIATES, INC. ("IIA"), 53 State Street, Boston,
Massachusetts 02109, is a professional investment counseling firm which was
founded in 1982. The firm is a wholly owned subsidiary of John Hancock Mutual
Life Insurance Company. Assets under management as of December 31, 1996,
including funds managed for its parent company, were approximately $25.9
billion, which included approximately $981 million of assets of AMR and its
subsidiaries and affiliated entities. IIA serves as an investment adviser to the
Balanced Portfolio and the Growth and Income Portfolio. The Manager pays IIA an
annualized fee equal to .50% of the first $30 million of AMR Trust assets under
its discretionary management, .25% of the next $70 million of assets, and .20%
of all excess assets.
MORGAN STANLEY ASSET MANAGEMENT INC. ("MSAM"), 25 Cabot Square, London,
United Kingdom, E14 4QA, is a wholly owned subsidiary of Morgan Stanley, Dean
Witter, Discover & Co. MSAM provides portfolio management and named fiduciary
services to taxable and nontaxable institutions, international organizations and
individuals investing in United States and international equity and debt
securities. At September 30, 1996, MSAM, together with its other asset
management affiliates, had assets under management (including assets under
fiduciary advisory control) totaling approximately $67.1 billion, including
approximately $50.2 billion under active management and $16.9 billion as named
fiduciary or fiduciary adviser. As of September 30, 1996, MSAM had investment
authority over approximately $314 million of assets of AMR and its subsidiaries
and affiliated entities. MSAM serves as an investment adviser to the
International Equity Portfolio.
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The Manager pays MSAM an annual fee equal to .80% of the first $25 million of
AMR Trust assets under its discretionary management, .60% of the next $25
million in assets, .50% of the next $25 million in assets and .40% on all excess
assets.
TEMPLETON INVESTMENT COUNSEL, INC. ("Templeton"), 500 East Broward Blvd.,
Suite 2100, Fort Lauderdale, Florida 33394-3091, is a professional investment
counseling firm which has been providing investment services since 1979.
Templeton is indirectly owned by Franklin Resources, Inc. As of December 31,
1996, Templeton had discretionary investment management authority with respect
to approximately $21.7 billion of assets, including approximately $433.9 million
of assets of AMR and its subsidiaries and affiliated entities. Templeton serves
as an investment adviser to the International Equity Portfolio. The Manager pays
Templeton an annualized fee equal to .50% of the first $100 million in AMR Trust
assets under its discretionary management, .35% of the next $50 million in
assets, .30% of the next $250 million in assets and .25% on assets over $400
million.
Solely for the purpose of determining the applicable percentage rates when
calculating the fees for each investment adviser other than MSAM, there shall be
included all other assets or trust assets of American Airlines, Inc. also under
management by each respective investment adviser (except assets managed by
Barrow under the HALO Bond Program). For the purpose of determining the
applicable percentage rates when calculating MSAM's fees, all equity account
assets managed by MSAM on behalf of American Airlines, Inc. shall be included.
The inclusion of any such assets will result in lower overall fee rates being
applied to the applicable Portfolio.
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 a Fund. Mileage is calculated on the average daily balance and
posted monthly. The average daily balance is calculated by adding each day's
balance and dividing by the number of days in the month. For example, the
average daily balance on a $50,000 account funded on the 16th day of a month
having 30 days (and maintained at that balance through the end of the month)
would be $25,000. Mileage received for that month would be 208 miles. If the
same balance were maintained through the next month, the average daily balance
would be $50,000, and the mileage would be 417 miles that month and every month
the $50,000 investment was maintained in the Funds. These miles appear on the
monthly account statement as well as on subsequent AAdvantage program
statements.
In the case of Trust Accounts, AAdvantage miles will be posted only in a
trustee's individual name, and not in the name of the Trust Account. Before
investing in a Fund, trustees of Trust Accounts should consult their own legal
and tax advisers as to the tax effect of this arrangement and whether this
arrangement is consistent with their legal duties as trustees. American Airlines
has informed the Funds that in administering an AAdvantage member's AAdvantage
account, it shall not be required to distinguish between AAdvantage miles
accumulated by the individual in his/her capacity as trustee to a Trust Account
from AAdvantage miles accumulated in an individual capacity or from other
sources.
The Manager reserves the right to discontinue the posting of AAdvantage
miles or to change the mileage calculation at any time upon notice to
shareholders. See also "Dividends, Other Distributions 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,
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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
Shares are sold on a continuous basis. Purchase orders should be directed to
NFDS either by mail, by pre-authorized investment or by wire as described below.
The minimum initial purchase for each Fund is $2,500. The Funds have no
obligation to accept purchase requests or maintain accounts which do not meet
minimum purchase requirements. Accounts opened through financial intermediaries
may be subject to lower or higher minimums. The minimum for subsequent purchases
is $50, except for wire purchases for which a $500 minimum applies. The Manager
reserves the right to waive or change the minimum investment requirements. The
Manager also reserves the right to charge an annual account fee of $12 (to
offset the costs of servicing accounts with low balances) if an account balance
falls below certain asset levels.
An order to purchase shares of a Variable NAV Fund will be executed at the
next share price calculated Monday through Friday on each day on which the New
York Stock Exchange (the "Exchange") is open for trading, which excludes the
following business holidays: New Year's Day, Martin Luther King's Birthday,
President's Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day ("Business Day"). Shares of the Variable NAV
Funds are offered and purchase orders are accepted until the close of the
Exchange, generally 4:00 p.m. Eastern time, on each Business Day. An order to
purchase shares of the Money Market Funds will be executed at the Fund's next
determined net asset value per share on any day on which the Exchange is open
for business except for Columbus Day and Veteran's Day ("Money Market Business
Day") and during which federal funds become available to the Fund. Shares are
offered and orders are accepted for the Municipal Money Market Fund until 11:45
a.m. Eastern time, or the close of the Exchange (whichever comes first), for the
U.S. Government Money Market Fund until 2:00 p.m. Eastern time, or the close of
the Exchange (whichever comes first), and for the Money Market Fund until 3:00
p.m. Eastern time, or the close of the Exchange (whichever comes first), on each
Money Market Business Day. The Mileage Trust reserves the right to reject any
order for the purchase of shares and to limit or suspend, without prior notice,
the offering of shares. "Federal funds" are funds deposited by a commercial bank
in an account at a federal reserve bank that can be transferred to a similar
account of another bank in one day and thus may be made immediately available to
a Money Market Fund through its custodian.
OPENING AN ACCOUNT -- A completed and signed application is required for each
new account opened, regardless of the method chosen for making an initial
investment. If an individual opening an account is not yet a member of the
AAdvantage program, he or she automatically will be enrolled and assigned an
AAdvantage account number. If assistance is required in filling out the
application, or if extra applications are required, call (800) 388-3344.
PURCHASING BY MAIL -- To open an account by mail, complete the application form,
include a check payable to the American AAdvantage Funds ($2,500 minimum) and
mail both to:
American AAdvantage Funds
c/o NFDS
P.O. Box 419643
Kansas City, MO 64141-6643
Purchase checks are accepted subject to collection at full face value in
U.S. funds and must be drawn in U.S. dollars on a U.S. bank. For subsequent
purchases by mail make your check payable to the American AAdvantage Funds ($50
minimum) and include your account number on your check. Mail to the address
printed above. Include either the detachable form from your account statement,
the deposit slips from your checkbook (if you have a Money Market account and
opted for checking) or a letter with the account name and number.
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SUBSEQUENT PURCHASES BY PRE-AUTHORIZED AUTOMATIC INVESTMENT -- Pre-Authorized
Automatic Investment allows you to make regular, automatic transfers ($50
minimum) from your bank account to purchase shares in the Fund of your choice
after an account has been open. To establish this option, provide the
appropriate information on the application form and attach a voided check or a
deposit slip from your bank account. Funds will be transferred automatically
from your bank account via Automated Clearing House ("ACH") on the 5th day of
each month.
PURCHASES BY WIRE -- A completed application form must precede an initial
purchase by wire. Call (800) 388-3344 to wire funds. Federal funds ($2,500 for
initial purchases and $500 for subsequent purchases) should be wired to:
State Street Bank & Trust Co.
ABA Routing #0110-0002-8, AC-9905-342-3
Attention: American AAdvantage Mileage Funds, and specify the Fund to be
purchased.
You will be responsible for any charges assessed by your bank to handle wire
transfers.
HOW TO REDEEM SHARES
Shares of the Variable NAV Funds may be redeemed by telephone, by
pre-authorized automatic redemption or by mail on any Business Day. Shares of
the Money Market Funds may be redeemed by telephone, by writing a check, by
pre-authorized automatic redemption or by mail on any Money Market Business Day.
Shares will be redeemed at the net asset value next calculated after the
applicable Fund has received and accepted the redemption request. Proceeds from
a redemption of shares purchased by check or pre-authorized automatic purchase
may be withheld until the funds have cleared, which may take up to 15 days.
Although the Funds intend to redeem shares in cash, each Fund reserves the right
to pay the redemption price in whole or in part by a distribution of readily
marketable securities held by the Fund's corresponding Portfolio. See the SAI
for further information concerning redemptions in kind.
Redemption proceeds generally will be sent within one Business Day or Money
Market Business Day, as applicable. However, if making immediate payment could
affect a Fund adversely, it may take up to seven days to send payment.
A minimum balance of $2,500 is required in order to maintain an account in a
Fund. Otherwise, a Fund may give a shareholder 60 days' notice to increase the
account balance to this level in order to avoid the imposition of an account fee
or account closure. If a shareholder does not increase the account balance to
$2,500 within the 60 day period, the Fund is entitled to close the account and
mail the proceeds to the address of record.
To ensure acceptance of a redemption request, please adhere to the following
procedures.
REDEEMING BY TELEPHONE -- Shares may be redeemed by telephone if your account
application reflects that option. Telephone redemptions in any 30 day period
shall not exceed $25,000 without the express written consent of the Mileage
Trust. In order to redeem by telephone, you should call NFDS at (800) 388-3344.
Redemption proceeds will be mailed only to the address of record or mailed or
wired to a commercial bank account designated on the account application.
By establishing the telephone redemption service, you authorize the Funds or
their agent to act upon verbal instructions to redeem shares for any account for
which such service has been authorized. In an effort to prevent unauthorized or
fraudulent redemption requests by telephone, NFDS will employ reasonable
procedures specified by the Funds to confirm that such instructions are genuine.
For instance, all telephone redemption requests will be recorded and proceeds of
telephone redemption requests will be sent only to the address or account
designated in the application. Neither the Funds, the Trusts, the Manager, State
Street, NFDS or their trustees, directors or officers will be liable for any
unauthorized or fraudulent redemption instructions received by telephone. Due to
the volume of calls or other unusual circumstances, telephone redemptions may be
difficult to implement during
PROSPECTUS
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certain time periods. This service may be amended or terminated at any time by
the transfer agent or the Mileage Trust without prior notice.
REDEEMING BY CHECK -- If you elect so on the application, shares of the Money
Market Funds may be redeemed through the check writing feature. There is no
limit on the number of checks written per month and no check redemption fees.
Checks must be written in amounts of $100 or more. Check drafts however, are not
returned to you. If copies of drafts are required, a service charge of $2 per
check will be assessed to you.
PRE-AUTHORIZED AUTOMATIC REDEMPTIONS -- You can arrange to have a preauthorized
amount ($100 or more) redeemed from your account and automatically deposited
into a bank account, via ACH, on the 15th day of each month. For more
information regarding preauthorized automatic redemptions, contact NFDS at (800)
388-3344.
REDEEMING BY MAIL -- A letter of instruction may be mailed to the American
AAdvantage Mileage Funds, c/o NFDS, P.O. Box 419643, Kansas City, MO 64141-6643
to redeem shares. The letter should specify the Fund (Balanced, Growth and
Income, International Equity, Limited-Term Income, Money Market, Municipal Money
Market or U.S. Government Money Market Fund), the number of shares or dollar
amount to be redeemed, your name and account number. The letter must be signed
by all persons required to sign for the account, exactly as it is registered.
Redemption requests (i) over $25,000, (ii) for redemption proceeds to be sent to
an address other than the address of record or to a commercial bank account
other than the account designated on the application, or (iii) for an account
whose address of record has been changed within thirty days, must be accompanied
by a signature guarantee by a financial institution satisfying the standards
established by NFDS.
REDEEMING BY WIRE -- Shares may be redeemed by wire if your account application
reflects that option. Redemption proceeds will be transmitted directly to your
predesignated account at a domestic bank upon request, for amounts of at least
$500. In order to redeem by wire, call (800) 388-3344. Your account will be
charged $10 for wire redemptions to cover transaction costs.
FULL REDEMPTIONS -- Unpaid dividends credited to an account up to the date of
redemption of all shares of a Money Market Fund generally will be paid at the
time of redemption.
EXCHANGE PRIVILEGE
Shares of a Fund which have been registered in a shareholder's name for at
least 15 days may be exchanged into shares of another Fund. A minimum exchange
of $50 is required into existing accounts. If a shareholder wishes to establish
a new account by making an exchange, a $2,500 minimum investment is required.
Shareholders may exchange shares by sending the Funds a written request or
by calling NFDS at (800) 388-3344. The exchange will be processed at the next
share price calculated after the request is received in good order by the Funds.
In establishing a telephone exchange service, shareholders authorize the Funds
or their agent to act upon verbal instructions to exchange shares from any
account for which such service is authorized to any identically registered
account(s). NFDS will use reasonable procedures specified by the Funds to
confirm that such instructions are genuine such as the recording of all
telephone exchange requests. If reasonable procedures as described above are
implemented, neither the Funds, the Trusts, the Manager, State Street, NFDS or
their trustees, directors or officers will be liable for any unauthorized or
fraudulent instructions.
The general redemption policies apply to redemptions by telephone exchange.
The exchange privilege may be modified or terminated at any time by the Funds.
The Funds reserve the right to limit the number of exchanges an investor may
exercise.
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VALUATION OF SHARES
The net asset value of each share (share price) of the Variable NAV Funds is
determined as of the close of the Exchange, generally 4:00 p.m. Eastern time, on
each Business Day and the net asset value of each share of the Money Market
Funds is determined as of the close of the Exchange, generally 4:00 p.m. Eastern
time, on each Money Market Business Day. Except for the Mileage Class of the
Money Market Fund, the net asset value of all outstanding shares of a Fund will
be determined by computing that Fund's total assets (which is the value of the
Fund's investment in its corresponding Portfolio), subtracting all of each
Fund's liabilities, and dividing the result by the total number of shares of
that Fund outstanding at such time. The net asset value of Mileage Class shares
of the Money Market Fund will be based on a pro rata allocation of the value of
the Fund's corresponding Portfolio's investment income, expenses and total
capital gains and losses. The allocation will be based on the comparative net
asset value at the beginning of the day, except for expenses related solely to
one class of shares ("Class Expenses"), which will be borne only by the
appropriate class of shares. Because of Class Expenses, the net income
attributable to and the dividends payable may be different for each class of
shares.
Equity securities listed on securities exchanges, including all but United
Kingdom securities of the International Equity Portfolio, are valued at the last
quoted sales price on a designated exchange prior to the close of trading on the
Exchange or, lacking any sales, on the basis of the last current bid price prior
to the close of trading on the Exchange. Securities of the United Kingdom held
in the International Equity Portfolio are priced at the last jobber price (mid
of the bid and offer prices quoted by the leading stock jobber in the security)
prior to close of trading on the Exchange. Trading in foreign markets is usually
completed each day prior to the close of the Exchange. However, events may occur
which affect the values of such securities and the exchange rates between the
time of valuation and the close of the Exchange. Should events affect the value
of such securities materially during this period, the securities are priced at
fair value, as determined in good faith and pursuant to procedures approved by
the AMR Trust Board. Over-the-counter equity securities are valued on the basis
of the last bid price on that date prior to the close of trading. Debt
securities (other than short-term securities) will normally be valued on the
basis of prices provided by a pricing service and may take into account
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers. Securities for
which market quotations are not readily available are valued at fair value, as
determined in good faith and pursuant to procedures approved by the AMR Trust
Board. Assets and liabilities denominated in foreign currencies and forward
currency contracts are translated into U.S. dollar equivalents based on
prevailing market rates. Portfolio obligations held by the Money Market
Portfolios are valued in accordance with the amortized cost method, which is
designed to enable those Portfolios and their corresponding Funds to maintain a
consistent $1.00 per share net asset value. Investment grade short-term
obligations with 60 days or less to maturity held by all other Portfolios also
are valued using the amortized cost method as described in the SAI.
DIVIDENDS, OTHER DISTRIBUTIONS AND TAX MATTERS
DIVIDEND AND CAPITAL GAIN DISTRIBUTIONS -- Dividends from the net investment
income of the Balanced Fund, the Growth and Income Fund and the International
Equity Fund will be declared annually. Dividends consisting of substantially all
of the net investment income of the Limited-Term Income Fund, which are paid
monthly, normally are declared on each Business Day immediately prior to the
determination of the net asset value and are payable to shareholders of record
as of the close of business on the day on which declared. A Fund's net
investment income consists of its share of its corresponding Portfolio's
dividends and interest (including discount) accrued on its securities, less
applicable expenses. Distributions of a Fund's share of its corresponding
Portfolio's realized net short-term capital gain, net capital gain (the excess
of net long-term capital gain over net short-term capital loss), and net gains
from foreign currency transactions, if any, normally will be made annually.
All of each Money Market Fund's net investment income and net short-term
capital gain, if any, generally will be declared as dividends on each Money
Market Business Day immediately prior to the determination of the net asset
value. Dividends generally will be paid monthly, in cash or in Fund shares, on
the first day of the
PROSPECTUS
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following month. The Money Market Fund's net investment income attributable to
the Mileage Class consists of that class' pro rata share of the Fund's share of
interest accrued and discount earned on its corresponding Portfolio's securities
less amortization of premium and estimated expenses of both the Portfolio and
the Fund attributable to the Mileage Class. The Money Market Portfolios do not
expect to realize net capital gain, and, therefore, the Money Market Funds do
not foresee paying any capital gain distributions. If any Money Market Fund
(either directly or indirectly through its corresponding Portfolio) incurred or
anticipated any unusual expenses, loss or depreciation that would adversely
affect its net asset value or income for a particular period, the Board would at
that time consider whether to adhere to the dividend policy described above or
to revise it in the light of the then prevailing circumstances.
Unless a shareholder elects otherwise on the account application, all
dividends and other distributions on a Fund's shares will be automatically
declared and paid in additional shares of that Fund. However, a shareholder may
choose to have distributions of net capital gain paid in shares and dividends
paid in cash, or have all such distributions and dividends paid in cash. An
election may be changed at any time by delivering written notice that is
received by the transfer agent at least ten days prior to the payment date for a
dividend or other distribution.
TAX INFORMATION -- Each Fund is treated as a separate corporation for federal
income tax purposes and intends to continue to qualify for treatment as a
regulated investment company under the Internal Revenue Code of 1986, as
amended. In each taxable year that a Fund so qualifies, the Fund (but not its
shareholders) will be relieved of federal income tax on that part of its
investment company taxable income (generally, net investment income plus any net
short-term capital gain and gains from certain foreign currency transactions)
and net capital gain that it distributes to its shareholders. However, a Fund
will be subject to a nondeductible 4% excise tax to the extent that it fails to
distribute by the end of any calendar year substantially all of its ordinary
income for that calendar year and its net capital gain for the one-year period
ending on October 31 of that year, plus certain other amounts. For these and
other purposes, dividends and other distributions declared by a Fund in October,
November or December of any year and payable to shareholders of record on a date
in one of those months will be deemed to have been paid by the Fund and received
by the shareholders on December 31 of that year if they are paid by the Fund
during the following January. Each Portfolio has received a ruling from the
Internal Revenue Service that it is classified for federal income tax purposes
as a partnership; accordingly, no Portfolio is subject to federal income tax.
Dividends from a Fund's investment company taxable income will be taxable to
its shareholders as ordinary income to the extent of the Fund's earnings and
profits, whether received in cash or paid in additional Fund shares.
Distributions of a Fund's net capital gain (whether received in cash or paid in
additional Fund shares), when designated as such, generally will be taxable to
those shareholders as long-term capital gain, regardless of how long they have
held their Fund shares. A capital gain distribution from a Fund also may be
offset by capital losses from other sources.
Some foreign countries may impose withholding taxes on certain dividends
payable to the International Equity Portfolio. The International Equity Fund's
share of any such tax withheld may either be treated by that Fund as a deduction
or if it satisfies certain requirements, it may elect to flow the tax through to
its shareholders, who in turn may either treat it as a deduction or use it in
calculating a credit against their federal income tax.
Distributions by the Municipal Money Market Fund that it designates as
"exempt-interest dividends" generally may be excluded from gross income by its
shareholders. If the Municipal Money Market Portfolio earns taxable income from
any of its investments, the Municipal Money Market Fund's share of that income
will be distributed as a taxable dividend. To the extent that Portfolio invests
in certain private activity obligations, that Fund's shareholders will be
required to treat a portion of its dividends as a "tax preference item" in
determining their liability for the AMT. Exempt-interest dividends also may be
subject to state or local tax laws. Because some states exempt from tax the
interest on their own obligations and obligations of governmental agencies of
and municipalities in the state, shareholders will receive tax information each
year regarding the Municipal Money
PROSPECTUS
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Market Fund's exempt-interest income by state. Interest on indebtedness incurred
or continued by a shareholder to purchase or carry shares of that Fund is not
deductible.
Redemption of Fund shares (other than shares of the Money Market Funds) may
result in taxable gain or loss to the redeeming shareholder, depending upon
whether the fair market value of the redemption proceeds exceeds or is less than
the shareholder's adjusted basis for the redeemed shares. An exchange of shares
of a Fund for shares of any other Fund (see "Exchange Privileges") generally
will have similar tax consequences. If shares of a Fund are sold at a loss after
being held for six months or less, the loss will be treated as long-term,
instead of short-term, capital loss to the extent of any capital gain
distributions received on those shares.
If shares are purchased shortly before the record date for a dividend (other
than an exempt-interest dividend) or other distribution, the investor will pay
full price for the shares and receive some portion of the price back as a
taxable distribution.
Each Fund notifies its shareholders following the end of each calendar year
of the amounts of dividends and capital gain distributions paid (or deemed paid)
(and for the International Equity Fund, if it satisfies the requirements and
makes the election referred to above, their share of the Fund's share of any
foreign taxes paid by the International Equity Portfolio) that year and of any
portion of those dividends that qualifies for the corporate dividends-received
deduction. The notice sent by the Municipal Money Market Fund specifies the
amounts of exempt-interest dividends (and the portion thereof, if any, that is a
tax preference item for purposes of the AMT) and any taxable dividends.
Each Fund is required to withhold 31% of all taxable dividends, capital gain
distributions and, for all Funds other than the Money Market Funds, redemption
proceeds payable to any individuals and certain other non-corporate shareholders
who do not provide the Fund with a correct taxpayer identification number or
(except with respect to redemption proceeds) who otherwise are subject to
back-up withholding.
The foregoing is only a summary of some of the important tax considerations
generally affecting the Funds and their shareholders. Prospective investors are
urged to consult their own tax advisers regarding specific questions as to the
effect of federal, state or local income taxes on any investment in the Mileage
Trust, as well as any tax consequences relating to the receipt of AAdvantage
Miles. For further tax information, see the SAI.
GENERAL INFORMATION
The Mileage Trust currently is comprised of seven separate investment
portfolios. Each Fund's shares can be issued in an unlimited number. The Money
Market Fund consists of two classes of shares and all other Funds consist of one
class of shares. Each share represents an equal proportionate beneficial
interest in that Fund and is entitled to one vote. Only shares of a particular
class may vote on matters affecting that class. Only shares of a particular Fund
may vote on matters affecting that Fund. All shares of the 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. Each series in the Mileage Trust will not be involved in any
vote involving a Portfolio in which it does not invest its assets. Shareholders
of all of the series of the Mileage Trust, however, will vote together to elect
Trustees of the Mileage Trust and for certain other matters. Under certain
circumstances, the shareholders of one or more series could control the outcome
of these votes.
On most issues subjected to a vote of a Portfolio's interest holders, as
required by the 1940 Act, its corresponding Fund will solicit proxies from its
shareholders and will vote its interest in the Portfolio in proportion to the
votes cast by that Fund's shareholders. Because a Portfolio interest holder's
votes are proportionate to its percentage interests in that Portfolio, one or
more other Portfolio investors could, in certain instances, approve an action
against which a majority of the outstanding voting securities of its
corresponding Fund had voted. This could result in that Fund's redeeming its
investment in its corresponding Portfolio, which could result in increased
expenses for that Fund. Whenever the shareholders of a Fund are called to vote
on
PROSPECTUS
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matters related to its corresponding Portfolio, the Mileage Trust Board shall
vote shares for which they receive no voting instructions in the same proportion
as the shares for which they do receive voting instructions. Any information
received from a Portfolio in the Portfolio's report to shareholders will be
provided to the shareholders of its corresponding Fund.
As a Massachusetts business trust, the 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 Mileage Trust's Declaration of Trust or By-Laws. Trustees
can be removed by a shareholder vote at special shareholder meetings.
As more fully described in the SAI, the following person may be deemed to
control this Fund by virtue of their ownership of more than 25% of the
outstanding shares of the Fund as of January 31, 1997:
<TABLE>
<S> <C>
AMERICAN AADVANTAGE LIMITED-TERM INCOME MILEAGE FUND
Bonnie Stern 52%
</TABLE>
SHAREHOLDER COMMUNICATIONS
Shareholders will receive periodic reports, including annual and semi-annual
reports which will include financial statements showing the results of the
Funds' operations and other information. The financial statements of the Mileage
Trust and the AMR Trust will be audited by Ernst & Young LLP, independent
auditor, at least annually. Shareholder inquiries and requests for information
regarding the other investment companies which also invest in the AMR Trust
should be made in writing to the Funds at P.O. Box 619003, MD5645, Dallas/Fort
Worth Airport, Texas 75261-9003 or by calling (800) 388-3344.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND IN SALES
LITERATURE SPECIFICALLY APPROVED BY OFFICERS OF THE MILEAGE TRUST FOR USE IN
CONNECTION WITH THE OFFER OF ANY FUND'S SHARES, AND, IF GIVEN OR MADE, SUCH
OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE FUNDS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER IN ANY
JURISDICTION IN WHICH, OR TO ANY PERSON TO WHOM, SUCH OFFERING MAY NOT LAWFULLY
BE MADE.
American AAdvantage Mileage Funds is a registered service mark of AMR
Corporation. Mileage Class is a registered service mark and Platinum Class,
American AAdvantage Balanced Mileage Fund, American AAdvantage Growth and 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 and
American AAdvantage U.S. Government Money Market Mileage Fund are service marks
of AMR Investment Services, Inc.
PROSPECTUS
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-- NOTES --
<PAGE> 31
-- NOTES --
<PAGE> 32
American Advantage Mileage Funds(SM) Logo
P.O. BOX 419643
KANSAS CITY, MISSOURI 64141-6643
(800) 388-3344
<PAGE> 33
AMERICAN AADVANTAGE FUNDS
AMERICAN AADVANTAGE MILEAGE FUNDS
PLATINUM CLASS
SUPPLEMENT DATED JANUARY 1, 1998
TO THE PROSPECTUS DATED MARCH 1, 1997
1. All references to Hub & Spoke(R) should be replaced by "master-feeder" and
delete the footnote on page 2.
2. The section titled "CUSTODIAN AND TRANSFER AGENT" should be replaced by:
CUSTODIAN - STATE STREET BANK & TRUST COMPANY ("State Street"), Boston,
Massachusetts, serves as custodian for the Portfolios of the AMR Trust and
the Funds.
TRANSFER AGENT - State Street serves as transfer agent and provides
transfer agency services for Fund shareholders through its affiliate
NATIONAL FINANCIAL DATA SERVICES, ("NFDS"), Kansas City, Missouri.
