<PAGE> 1
As filed with the Securities and Exchange Commission on August 4, 1999
1933 Act File No. 33-91058
1940 Act File No. 811-9018
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [ X ]
Pre-Effective Amendment No. [ ]
---
Post-Effective Amendment No. 9 [ X ]
---
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [ X ]
Amendment No. 10
---
(Check appropriate box or boxes.)
AMERICAN AADVANTAGE MILEAGE FUNDS
(Exact name of Registrant as Specified in Charter)
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: (817) 967-3509
WILLIAM F. QUINN, PRESIDENT
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
(Name and Address of Agent for Service)
Copy to:
ROBERT J. ZUTZ, ESQ.
Kirkpatrick & Lockhart LLP
1800 Massachusetts Avenue, NW
Washington, DC 20036
Approximate Date of Proposed Public Offering October 4, 1999
---------------
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ X ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485.
Registrant has adopted a master-feeder operating structure for each of its
series. This Post-Effective Amendment includes signature pages for the AMR
Investment Services Trust, the master trust, and the American AAdvantage
Mileage Funds, the feeder trust.
<PAGE> 2
AMERICAN AADVANTAGE MILEAGE FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the Platinum Class of the American AAdvantage
Money Market Fund, American AAdvantage Municipal Money Market
Fund, American AAdvantage U.S. Government Money Market Fund,
American AAdvantage Money Market Mileage Fund, American
AAdvantage Municipal Money Market Mileage Fund and American
AAdvantage U.S. Government Money Market Mileage Fund
Statement of Additional Information for the Platinum Class of
the American AAdvantage Money Market Fund, American
AAdvantage Municipal Money Market Fund, American AAdvantage
U.S. Government Money Market Fund, American AAdvantage Money
Market Mileage Fund, American AAdvantage Municipal Money
Market Mileage Fund and American AAdvantage U.S. Government
Money Market Mileage Fund
Part C
Signature Pages
Exhibits
The purpose of this filing is to add a Platinum class to the Trust's American
AAdvantage Municipal Money Market Mileage Fund and American AAdvantage U.S.
Government Money Market Mileage Fund. This filing does not make any change to
or affect the Trust's other series or classes not included in this
post-effective amendment.
<PAGE> 3
------------------
PLATINUM CLASS(SM)
------------------
[LOGO]
PROSPECTUS
OCTOBER 1, 1999
[AMERICAN AADVANTAGE FUNDS LOGO]
o MONEY MARKET FUND
o MUNICIPAL MONEY MARKET FUND
o U.S. GOVERNMENT MONEY MARKET FUND
[AMERICAN AADVANTAGE MILEAGE FUNDS LOGO]
o MONEY MARKET MILEAGE FUND
o MUNICIPAL MONEY MARKET MILEAGE FUND
o U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
MANAGED BY AMR INVESTMENT SERVICES, INC.
[EAGLE LOGO]
The Securities and Exchange Commission does not guarantee that the information
in this Prospectus or any other mutual fund's prospectus is accurate or
complete, nor does it judge the investment merit of these Funds. To state
otherwise is a criminal offense.
<PAGE> 4
TABLE OF CONTENTS
<TABLE>
<S> <C>
About the Funds
Overview.................................................... 2
Money Market Fund...................................... 3
Municipal Money Market Fund............................ 7
U.S. Government Money Market Fund...................... 11
Money Market Mileage Fund.............................. 14
Municipal Money Market Mileage Fund.................... 18
U.S. Government Money Market Mileage Fund.............. 22
The Manager................................................. 27
Valuation of Shares......................................... 27
About Your Investment
Purchase and Redemption of Shares........................... 28
Distributions and Taxes..................................... 34
AAdvantage(R) Miles......................................... 34
Additional Information
Distribution of Trust Shares................................ 36
Master-Feeder Structure..................................... 36
Year 2000................................................... 37
Financial Highlights........................................ 37
</TABLE>
ABOUT THE FUNDS
- --------------------------------------------------------------------------------
Overview
- ---------------
The American AAdvantage Funds (the "AAdvantage Funds") and the American
AAdvantage Mileage Funds (the "Mileage Funds") are managed by AMR Investment
Services, Inc. (the "Manager"), a wholly owned subsidiary of AMR Corporation.
The AAdvantage Funds and Mileage Funds (collectively, the "Funds") operate under
a master-feeder structure. This means that each Fund seeks its investment
objective by investing all of its investable assets in a corresponding Portfolio
of the AMR Investment Services Trust ("AMR Trust") that has a similar name and
identical investment objective. Throughout this Prospectus, statements regarding
investments by a Fund refer to investments made by its corresponding Portfolio.
For easier reading, the term "Fund" is used throughout the Prospectus to refer
to either a Fund or its Portfolio, unless stated otherwise. See "Master-Feeder
Structure".
Each shareholder of the Mileage Funds 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 the Fund. See "AAdvantage Miles".
- ---------------
(1)American Airlines and AAdvantage are registered trademarks of American
Airlines, Inc.
- --------------------------------------------------------------------------------
About the Funds 2 Prospectus
<PAGE> 5
AMERICAN AADVANTAGE
MONEY MARKET FUND(sm)
- --------------------------------------------------------------------------------
Investment Objective
- -------------------------------
Current income, liquidity and the maintenance of a stable price of $1.00 per
share.
Principal Strategies
- ------------------------------
The Fund invests exclusively in high quality variable or fixed rate, U.S.
dollar-denominated short-term money market instruments. These securities may
include obligations of the U.S. Government, its agencies and instrumentalities;
corporate debt securities, such as commercial paper, master demand notes, loan
participation interests, medium-term notes and funding agreements; Yankeedollar
and Eurodollar bank certificates of deposit, time deposits, and bankers'
acceptances; asset-backed securities; and repurchase agreements involving the
foregoing obligations.
The Fund will only buy securities with the following credit qualities:
- - rated in the highest short-term categories by two rating organizations, such
as "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors
Service, Inc.,
- - rated in the highest short-term category by one rating organization if the
securities are rated only by one rating organization, or
- - unrated securities that are determined to be of equivalent quality by the
Manager.
The Fund invests more than 25% of its total assets in obligations issued by the
banking industry. However, for temporary defensive purposes when the Manager
believes that maintaining this concentration may be inconsistent with the best
interests of shareholders, the Fund may not maintain this concentration.
Securities purchased by the Fund 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 maturity of the Fund will not exceed 90 days.
- --------------------------------------------------------------------------------
Prospectus 3 About the Funds
<PAGE> 6
AMERICAN AADVANTAGE
MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Risk Factors
- -------------------
- - The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would lower
its yield and the overall return on your investment.
- - Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
- - As with any money market fund, there is the risk that the issuers or
guarantors of securities owned by the Fund will default on the payment of
principal or interest or the obligation to repurchase securities from the
Fund.
Your investment in the Fund is not insured or guaranteed by the U.S. Government
or any financial or government institution.
Investor Profile
- -----------------------
This Fund may be suitable for investors who:
- - seek the preservation of capital and to avoid fluctuations in principal
- - desire regular, monthly income from a highly liquid investment
- - require a short-term vehicle for cash when making long-term investment
decisions
- - seek a rate of return that is potentially higher than certificates of deposit
or savings accounts
Historical Performance
- -----------------------------------
The bar chart below provides an indication of risk by showing how the Fund's
performance has varied from year to year. The Platinum Class of the Fund began
offering its shares on November 7, 1995. However, another class of shares of the
Fund not offered in this prospectus has been offered since September 1, 1987. In
the chart and table below, performance results before November 7, 1995 are for
the older class. Because the other class had lower expenses, its performance was
better than the Platinum Class of the Fund would have realized in the same
period. Past performance is not necessarily
- --------------------------------------------------------------------------------
About the Funds 4 Prospectus
<PAGE> 7
AMERICAN AADVANTAGE
MONEY MARKET FUND(SM) -- (CONTINUED)
- --------------------------------------------------------------------------------
indicative of how the Fund will perform in the future. Investors may call
1-800-388-3344 to obtain the Fund's current seven-day yield.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
Highest Quarterly Return: 2.45%
(1/1/89 through 12/31/98) (2nd Quarter 1989)
Lowest Quarterly Return: 0.80%
(1/1/89 through 12/31/98) (2nd & 4th Quarter 1993,
1st Quarter 1994)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
---------------------------
AS OF 12/31/98
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Money Market Fund........................................... 4.82% 4.93% 5.64%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus 5 About the Funds
<PAGE> 8
AMERICAN AADVANTAGE
MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Fees and Expenses
- ----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Money Market Fund.(1)
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees............................................. 0.10%
Distribution (12b-1) Fees................................... 0.25
Other Expenses.............................................. 0.59
----
TOTAL ANNUAL FUND OPERATING EXPENSES........................ 0.94%
====
</TABLE>
(1) The expense table and the Example below reflect the expenses of both the
Fund and its corresponding Portfolio.
Example
- -------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR ......................................................$96
3 YEARS.....................................................$300
5 YEARS.....................................................$520
10 YEARS..................................................$1,155
Investment Adviser
- -----------------------------
AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
About the Funds 6 Prospectus
<PAGE> 9
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET FUND(sm)
- --------------------------------------------------------------------------------
Investment Objective
- -------------------------------
Current income, liquidity and the maintenance of a stable price of $1.00 per
share.
Principal Strategies
- ------------------------------
Under normal market conditions, the Fund invests at least 80% of its net assets
in securities whose interest income is exempt from federal income tax. These
securities may be issued by or on behalf of the governments of U.S. states,
counties, cities, towns, territories, or public authorities. All securities
purchased by the Fund will be guaranteed by the U.S. Government, its agencies,
or instrumentalities; secured by irrevocable letters of credit issued by
qualified banks; or guaranteed by one or more municipal bond insurance policies.
The Fund will only buy securities with the following credit qualities:
- - rated in the highest short-term categories by two rating organizations, such
as "A-1" by Standard & Poor's and "P-1" by Moody's Investors Service, Inc.,
- - rated in the highest short-term category by one rating organization if the
securities are rated only by one rating organization, or
- - unrated securities that are determined to be of equivalent quality by the
Manager.
Securities purchased by the Fund 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 maturity of the Fund will not exceed 90 days.
- --------------------------------------------------------------------------------
Prospectus 7 About the Funds
<PAGE> 10
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Risk Factors
- -------------------
- - The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would lower
its yield and the overall return on your investment.
- - Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
- - As with any money market fund, there is the risk that the issuers or
guarantors of securities owned by the Fund will default on the payment of
principal or interest or the obligation to repurchase securities from the
Fund.
Your investment in the Fund is not insured or guaranteed by the U.S. Government
or any financial or government institution.
Investor Profile
- -----------------------
This Fund may be suitable for investors who:
- - seek the preservation of capital and to avoid fluctuations in principal
- - desire regular, monthly income that is generally exempt from Federal income
tax
- - require a short-term vehicle for cash when making long-term investment
decisions
- - seek an after-tax rate of return that is potentially higher than certificates
of deposit or savings accounts
Historical Performance
- -----------------------------------
The bar chart below provides an indication of risk by showing how the Fund's
performance has varied from year to year. The Platinum Class of the Fund began
offering its shares on November 7, 1995. However, another class of shares of the
Fund not offered in this prospectus has been offered since November 10, 1993. In
the chart and table below, performance results before November 7, 1995 are for
the older class. Because the other class had lower expenses, its performance was
better than the Platinum Class of the Fund would have realized in the same
period. Past performance is not necessarily
- --------------------------------------------------------------------------------
About the Funds 8 Prospectus
<PAGE> 11
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
indicative of how the Fund will perform in the future. Investors may call 1-800-
388-3344 to obtain the Fund's current seven-day yield.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
Highest Quarterly Return: 1.00%
(1/1/94 through 12/31/98) (2nd Quarter 1995)
Lowest Quarterly Return: 0.52%
(1/1/94 through 12/31/98) (1st Quarter 1994)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------
AS OF 12/31/98
----------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (11/10/93)
------ ------- ---------------
<S> <C> <C> <C>
Municipal Money Market Fund.......................... 2.64% 2.92% 2.91%
</TABLE>
- --------------------------------------------------------------------------------
Prospectus 9 About the Funds
<PAGE> 12
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Fees and Expenses
- ----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Municipal Money Market Fund.(1)
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees............................................. 0.10%
Distribution (12b-1) Fees................................... 0.25
Other Expenses.............................................. 0.72
----
Total Annual Fund Operating Expenses........................ 1.07%
====
Fee Waiver and/or Expense Reimbursement..................... 0.02(2)
NET EXPENSES................................................ 1.05%
</TABLE>
(1) The expense table and the Example below reflect the expenses of both the
Fund and its corresponding Portfolio.
(2) The Manager has contractually agreed to waive a portion of Distribution
Fees through October 31, 1999 to the extent that Total Annual Fund
Operating Expenses exceed 1.05%.
Example
- -------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR .....................................................$107
3 YEARS.....................................................$338
5 YEARS.....................................................$588
10 YEARS..................................................$1,304
Investment Adviser
- -----------------------------
AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
About the Funds 10 Prospectus
<PAGE> 13
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET FUND(sm)
- --------------------------------------------------------------------------------
Investment Objective
- -------------------------------
Current income, liquidity and the maintenance of a stable price of $1.00 per
share.
Principal Strategies
- ------------------------------
The Fund invests exclusively in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements that are
collateralized by such obligations. Some of these securities are not backed by
the full faith and credit of the U.S. Government. U.S. Government securities
include direct obligations of the U.S. Treasury (such as Treasury bills,
Treasury notes and Treasury bonds).
Securities purchased by the Fund 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 maturity of the Fund will not exceed 90 days.
Risk Factors
- -------------------
- - The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would lower
its yield and the overall return on your investment.
- - Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
Your investment in the Fund is not insured or guaranteed by the U.S. Government
or any financial or government institution.
Investor Profile
- -----------------------
This Fund may be suitable for investors who:
- - seek the preservation of capital and to avoid fluctuations in principal
- - desire regular, monthly income from a highly liquid investment
- --------------------------------------------------------------------------------
Prospectus 11 About the Funds
<PAGE> 14
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
- - require a short-term vehicle for cash when making long-term investment
decisions
- - seek a rate of return that is potentially higher than certificates of deposit
or savings accounts
Historical Performance
- -----------------------------------
The bar chart below provides an indication of risk by showing how the Fund's
performance has varied from year to year. The Platinum Class of the Fund began
offering its shares on November 7, 1995. However, another class of shares of the
Fund not offered in this prospectus has been offered since March 2, 1992. In the
chart and table below, performance results before November 7, 1995 are for the
older class. Because the other class had lower expenses, its performance was
better than the Platinum Class of the Fund would have realized in the same
period. Past performance is not necessarily indicative of how the Fund will
perform in the future. Investors may call 1-800-388-3344 to obtain the Fund's
current seven-day yield.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
Highest Quarterly Return: 1.43%
(1/1/93 through 12/31/98) (2nd Quarter 1995)
Lowest Quarterly Return: 0.74%
(1/1/93 through 12/31/98) (4th Quarter 1993)
</TABLE>
- --------------------------------------------------------------------------------
About the Funds 12 Prospectus
<PAGE> 15
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
----------------------------------
AS OF 12/31/98
----------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (3/2/92)
------ ------- ---------------
<S> <C> <C> <C>
U.S. Government Money Market Fund................ 4.62% 4.70% 4.31%
</TABLE>
Fees and Expenses
- ----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the U.S. Government Money Market Fund.(1)
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees............................................. 0.10%
Distribution (12b-1) Fees................................... 0.25
Other Expenses.............................................. 0.66
----
TOTAL ANNUAL FUND OPERATING EXPENSES........................ 1.01%
====
</TABLE>
(1) The expense table and the Example below reflect the expenses of both the
Fund and its corresponding Portfolio.
Example
- -------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR .....................................................$103
3 YEARS.....................................................$322
5 YEARS.....................................................$558
10 YEARS..................................................$1,236
Investment Adviser
- -----------------------------
AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
Prospectus 13 About the Funds
<PAGE> 16
AMERICAN AADVANTAGE
MONEY MARKET MILEAGE FUND(sm)
- --------------------------------------------------------------------------------
Investment Objective
- -------------------------------
Current income, liquidity and the maintenance of a stable price of $1.00 per
share.
Principal Strategies
- ------------------------------
The Fund invests exclusively in high quality variable or fixed rate, U.S.
dollar-denominated short-term money market instruments. These securities may
include obligations of the U.S. Government, its agencies and instrumentalities;
corporate debt securities, such as commercial paper, master demand notes, loan
participation interests, medium-term notes and funding agreements; Yankeedollar
and Eurodollar bank certificates of deposit, time deposits, and bankers'
acceptances; asset-backed securities; and repurchase agreements involving the
foregoing obligations.
The Fund will only buy securities with the following credit qualities:
- - rated in the highest short-term categories by two rating organizations, such
as "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors
Service, Inc.,
- - rated in the highest short-term category by one rating organization if the
securities are rated only by one rating organization, or
- - unrated securities that are determined to be of equivalent quality by the
Manager.
The Fund invests more than 25% of its total assets in obligations issued by the
banking industry. However, for temporary defensive purposes when the Manager
believes that maintaining this concentration may be inconsistent with the best
interests of shareholders, the Fund may not maintain this concentration.
Securities purchased by the Fund 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 maturity of the Fund will not exceed 90 days.
- --------------------------------------------------------------------------------
About the Funds 14 Prospectus
<PAGE> 17
AMERICAN AADVANTAGE
MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Risk Factors
- -------------------
- - The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would lower
its yield and the overall return on your investment.
- - Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
- - As with any money market fund, there is the risk that the issuers or
guarantors of securities owned by the Fund will default on the payment of
principal or interest or the obligation to repurchase securities from the
Fund.
Your investment in the Fund is not insured or guaranteed by the U.S. Government
or any financial or government institution.
Investor Profile
- -----------------------
This Fund may be suitable for investors who:
- - seek the preservation of capital and to avoid fluctuations in principal
- - desire regular, monthly income from a highly liquid investment
- - require a short-term vehicle for cash when making long-term investment
decisions
- - seek a rate of return that is potentially higher than certificates of deposit
or savings accounts
- - desire to receive miles in the American Airlines AAdvantage(R) program
Historical Performance
- -----------------------------------
The bar chart below provides an indication of risk by showing how the Fund's
performance has varied from year to year. The performance shown in the chart and
table below is a combination of the Fund's performance and that of its
predecessor fund. The Fund was created from a predecessor fund that began
offering its shares on September 1, 1987. Performance results through October
31, 1991 are for the Institutional Class of the predecessor fund, and results
from November 1, 1991 through October 31, 1995 are for the predecessor fund's
Mileage Class, and results from November 1, 1995 through Janu-
- --------------------------------------------------------------------------------
Prospectus 15 About the Funds
<PAGE> 18
AMERICAN AADVANTAGE
MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
ary 28, 1996 are for the original class of this Fund. The Platinum Class of the
Fund began offering its shares on January 29, 1996. Performance results shown
from that date through December 31, 1998 are for the Platinum Class of the Fund.
Because the predecessor fund and the original class of this Fund had lower
expenses, their performance was better than the Platinum Class of the Fund would
have realized in the same period. Past performance is not necessarily indicative
of how the Fund will perform in the future. Investors may call 1-800-388-3344 to
obtain the Fund's current seven-day yield.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
Highest Quarterly Return: 2.45%
(1/1/89 through 12/31/98) (2nd Quarter 1989)
Lowest Quarterly Return: 0.74%
(1/1/89 through 12/31/98) (2nd & 4th Quarter 1993,
1st Quarter 1994)
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL
RETURN
---------------------------
AS OF 12/31/98
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
<S> <C> <C> <C>
Money Market Mileage Fund................................... 4.67% 4.73% 5.48%
</TABLE>
- --------------------------------------------------------------------------------
About the Funds 16 Prospectus
<PAGE> 19
AMERICAN AADVANTAGE
MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Fees and Expenses
- ----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Money Market Mileage Fund.(1)
Annual Fund Operating Expenses (expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees............................................. 0.10%
Distribution (12b-1) Fees................................... 0.25
Other Expenses.............................................. 0.77
----
Total Annual Fund Operating Expenses........................ 1.12%
====
Fee Waiver and/or Expense Reimbursement..................... 0.03(2)
NET EXPENSES................................................ 1.09%
</TABLE>
(1) The expense table and the Example below reflect the expenses of both the
Fund and its corresponding Portfolio.
(2) The Manager has contractually agreed to waive a portion of Distribution
Fees through October 31, 1999 to the extent that Total Annual Fund
Operating Expenses exceed 1.09%.
Example
- -------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all of
your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR .....................................................$111
3 YEARS.....................................................$353
5 YEARS.....................................................$614
10 YEARS..................................................$1,360
Investment Adviser
- -----------------------------
AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
Prospectus 17 About the Funds
<PAGE> 20
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET MILEAGE FUND(sm)
- --------------------------------------------------------------------------------
Investment Objective
- -------------------------------
Current income, liquidity and the maintenance of a stable price of $1.00 per
share.
Principal Strategies
- ------------------------------
Under normal market conditions, the Fund invests at least 80% of its net assets
in securities whose interest income is exempt from federal income tax. These
securities may be issued by or on behalf of the governments of U.S. states,
counties, cities, towns, territories, or public authorities. All securities
purchased by the Fund will be guaranteed by the U.S. Government, its agencies,
or instrumentalities; secured by irrevocable letters of credit issued by
qualified banks; or guaranteed by one or more municipal bond insurance policies.
The Fund will only buy securities with the following credit qualities:
- - rated in the highest short-term categories by two rating organizations, such
as "A-1" by Standard & Poor's Corporation and "P-1" by Moody's Investors
Service, Inc.,
- - rated in the highest short-term category by one rating organization if the
securities are rated only by one rating organization, or
- - unrated securities that are determined to be of equivalent quality by the
Manager.
Securities purchased by the Fund 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 maturity of the Fund will not exceed 90 days.
Risk Factors
- -------------------
- - The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would lower
its yield and the overall return on your investment.
- - Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
- --------------------------------------------------------------------------------
About the Funds 18 Prospectus
<PAGE> 21
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
- - As with any money market fund, there is the risk that the issuers or
guarantors of securities owned by the Fund will default on the payment of
principal or interest or the obligation to repurchase securities from the
Fund.
Your investment in the Fund is not insured or guaranteed by the U.S. Government
or any financial or government institution.
Investor Profile
- -----------------------
This Fund may be suitable for investors who:
- - seek the preservation of capital and to avoid fluctuations in principal
- - desire regular, monthly income that is generally exempt from Federal income
tax
- - require a short-term vehicle for cash when making long-term investment
decisions
- - seek an after-tax rate of return that is potentially higher than certificates
of deposit or savings accounts
- - desire to receive miles in the American Airlines AAdvantage(R) program
- --------------------------------------------------------------------------------
Prospectus 19 About the Funds
<PAGE> 22
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Historical Performance
- -----------------------------------
The bar chart below provides an indication of risk by showing how the Fund's
performance has varied from year to year. Platinum Class shares of the Fund were
not offered prior to October 1, 1999. The performance shown in the chart and
table below is a combination of the Fund's performance and that of its
predecessor fund. The Fund was created from a predecessor fund that began
offering its shares on November 10, 1993. Performance results through October
31, 1995 are for the Mileage Class of the predecessor fund. The Fund began
offering its shares on November 1, 1995. Performance results shown from that
date through December 31, 1998 are for the original class of the Fund. Because
the predecessor fund and the original class of this Fund had lower expenses,
their performance was better than the Fund would have realized in the same
period. Past performance is not necessarily indicative of how the Fund will
perform in the future. Investors may call 1-800-388-3344 to obtain the Fund's
current seven-day yield.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
Highest Quarterly Return: 0.91%
(1/1/94 through 12/31/98) (2nd Quarter 1995)
Lowest Quarterly Return: 0.46%
(1/1/94 through 12/31/98) (1st Quarter 1994)
</TABLE>
- --------------------------------------------------------------------------------
About the Funds 20 Prospectus
<PAGE> 23
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------
AS OF 12/31/98
-------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (11/10/93)
------ ------- ----------
<S> <C> <C> <C>
Municipal Money Market Mileage Fund.................... 3.06% 3.04% 3.01%
</TABLE>
Fees and Expenses
- ----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Municipal Money Market Mileage Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees 0.10%
Distribution (12b-1) Fees 0.25
Other Expenses x.xx(2)
----
Total Annual Fund Operating Expenses x.xx%
====
Fee Waiver and/or Expense Reimbursement x.xx%(3)
NET EXPENSES X.XX%
</TABLE>
(1) The expense table and the Example below reflect the expenses of both the
Fund and its corresponding Portfolio.
(2) Other Expenses are based on estimates for the current fiscal year.
(3) The Manager has contractually agreed to waive Distribution Fees through
October 31, 1999 to the extent that Total Annual Fund Operating Expenses
exceed x.xx%.
- --------------------------------------------------------------------------------
Prospectus 21 About the Funds
<PAGE> 24
AMERICAN AADVANTAGE
MUNICIPAL MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Example
-------------
This Example is intended to help you compare the cost of
investing in the Fund with the cost of investing in other
mutual funds. The Example assumes that you invest $10,000 in
the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year and
that the Fund's operating expenses remain the same. Although
your actual costs may be higher or lower, based on these
assumptions your costs would be:
1 YEAR ..................................................$XX
3 YEARS.................................................$XXX
Investment Adviser
- --------------------------------
AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
About the Funds 22 Prospectus
<PAGE> 25
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(sm)
- --------------------------------------------------------------------------------
Investment Objective
- -------------------------------
Current income, liquidity and the maintenance of a stable price of $1.00 per
share.
Principal Strategies
- ------------------------------
The Fund invests exclusively in obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities and repurchase agreements that are
collateralized by such obligations. Some of these securities are not backed by
the full faith and credit of the U.S. Government. U.S. Government securities
include direct obligations of the U.S. Treasury (such as Treasury bills,
Treasury notes and Treasury bonds).
Securities purchased by the Fund 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 maturity of the Fund will not exceed 90 days.
Risk Factors
- -------------------
- - The yield paid by the Fund is subject to changes in interest rates. As a
result, there is risk that a decline in short-term interest rates would lower
its yield and the overall return on your investment.
- - Although the Fund seeks to preserve the value of your investment at $1.00 per
share, it is possible to lose money by investing in the Fund.
Your investment in the Fund is not insured or guaranteed by the U.S. Government
or any financial or government institution.
- --------------------------------------------------------------------------------
Prospectus 23 About the Funds
<PAGE> 26
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Investor Profile
- -----------------------
This Fund may be suitable for investors who:
- - seek the preservation of capital and to avoid fluctuations in principal
- - desire regular, monthly income from a highly liquid investment
- - require a short-term vehicle for cash when making long-term investment
decisions
- - seek a rate of return that is potentially higher than certificates of deposit
or savings accounts
- - desire to receive miles in the American Airlines AAdvantage(R) program
- --------------------------------------------------------------------------------
About the Funds 24 Prospectus
<PAGE> 27
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Historical Performance
- -----------------------------------
The bar chart below provides an indication of risk by showing how the Fund's
performance has varied from year to year. Platinum Class shares of the Fund were
not offered prior to October 1, 1999. The performance shown in the chart and
table below is a combination of the Fund's performance and that of its
predecessor fund. The Fund was created from a predecessor fund that began
offering its shares on March 2, 1992. Performance results through October 31,
1993 are for the Institutional Class of the predecessor fund, and from November
1, 1993 through October 31, 1995 are for the predecessor fund's Mileage Class.
The Fund began offering its shares on November 1, 1995. Performance results
shown from that date through December 31, 1998 are for the original class of the
Fund. Because the predecessor fund and the original class of this Fund had lower
expenses, their performance was better than the Fund would have realized in the
same period. Past performance is not necessarily indicative of how the Fund will
perform in the future. Investors may call 1-800-388-3344 to obtain the Fund's
current seven-day yield.
[PERFORMANCE GRAPH]
<TABLE>
<S> <C>
Highest Quarterly Return: 1.35%
(1/1/93 through 12/31/98) (2nd Quarter 1995)
Lowest Quarterly Return: 0.70%
(1/1/93 through 12/31/98) (4th Quarter 1993,
1st Quarter 1994)
</TABLE>
- --------------------------------------------------------------------------------
Prospectus 25 About the Funds
<PAGE> 28
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN
-------------------------------
AS OF 12/31/98
-------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (3/2/92)
------ ------- ----------
<S> <C> <C> <C>
U.S. Government Money Market Mileage Fund 5.04% 4.83% 4.40%
</TABLE>
Fees and Expenses
- ----------------------------
This table describes the fees and expenses that you may pay if you buy and hold
shares of the U.S. Government Money Market Mileage Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
<TABLE>
<S> <C>
Management Fees 0.10%
Distribution (12b-1) Fees 0.25
Other Expenses x.xx(2)
----
Total Annual Fund Operating Expenses x.xx%
====
Fee Waiver and/or Expense Reimbursement x.xx%(3)
NET EXPENSES X.XX%
</TABLE>
(1) The expense table and the Example below reflect the expenses of both the
Fund and its corresponding Portfolio.
(2) Other Expenses are based on estimates for the current fiscal year.
(3) The Manager has contractually agreed to waive Distribution Fees through
October 31, 1999 to the extent that Total Annual Fund Operating Expenses
exceed x.xx%.
- --------------------------------------------------------------------------------
About the Funds 26 Prospectus
<PAGE> 29
AMERICAN AADVANTAGE
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND(sm) -- (CONTINUED)
- --------------------------------------------------------------------------------
Example
- -------------
This Example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. The Example assumes that you
invest $10,000 in the Fund for the time periods indicated and then redeem all
of your shares at the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Fund's operating expenses
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
1 YEAR ..................................................$XX
3 YEARS..................................................$XX
Investment Adviser
- --------------------------------
AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
Prospectus 27 About the Funds
<PAGE> 30
The Manager
- ---------------------
The Trust has retained AMR Investment Services, Inc. to serve as its Manager.
The Manager, located at 4333 Amon Carter Boulevard, Fort Worth, Texas 76155, is
a wholly owned subsidiary of AMR Corporation, the parent company of American
Airlines, Inc. The Manager was organized in 1986 to provide investment
management, advisory, administrative and asset management consulting services.
As of December 31, 1998, the Manager had approximately $20.4 billion of assets
under management, including approximately $7.2 billion under active management
and $13.2 billion as named fiduciary or financial adviser. Of the total,
approximately $14.5 billion of assets are related to AMR Corporation.
The Manager provides or oversees the provision of all administrative, investment
advisory and portfolio management services to the Funds. The Manager develops
the investment programs for each Fund and serves as the sole investment adviser
to the Funds. As compensation for providing management services, each Fund pays
the Manager an annualized advisory fee that is calculated and accrued daily,
equal to the sum of 0.10% of the net assets of the Fund.
Valuation of Shares
- -------------------------------
The price of each Fund's shares is based on its net asset value ("NAV") per
share. Each Fund's NAV is computed by adding total assets, subtracting all of
the Fund's liabilities, and dividing the result by the total number of shares
outstanding. Securities held by the Funds are valued in accordance with the
amortized cost method, which is designed to enable the Funds to maintain a
stable NAV of $1.00 per share. Debt securities (other than short-term
securities) usually are valued on the basis of prices provided by a pricing
service. In some cases, the price of debt securities is determined using quotes
obtained from brokers.
The NAV of Platinum Class shares will be determined based on a pro rata
allocation of investment income, expenses and total capital gains and losses.
Each Fund's NAV per share is determined as of the close of the New York Stock
Exchange ("Exchange"), generally 4:00 p.m. Eastern time, on each day on which
the Exchange is open for business, with the exception of Columbus Day and
Veterans Day. The Funds are closed and no NAV is calculated on these days.
- --------------------------------------------------------------------------------
About the Funds 28 Prospectus
<PAGE> 31
ABOUT YOUR INVESTMENT
- --------------------------------------------------------------------------------
Purchase and Redemption of Shares
- ----------------------------------------------------------
Eligibility
- ---------------
Platinum Class shares are offered on a continuous basis at net asset value
through selected financial institutions (such as banks and broker-dealers).
Shares of the Mileage Funds are offered only to individuals and certain grantor
trusts. Qualified retirement plans (i.e. IRAs, Keogh, profit sharing plans) and
institutional investors are not eligible to invest in the Mileage Funds.
Purchase Policies
- --------------------------
No sales charges are assessed on the purchase or sale of Fund shares. Shares of
the Funds are offered and purchase orders accepted until the deadlines listed
below on each day on which the Exchange is open for trading. In addition, shares
are not offered and orders are not accepted on Columbus Day and Veterans Day.
<TABLE>
<CAPTION>
PURCHASE BY
FUND (EASTERN TIME)*:
---- ----------------
<S> <C>
Money Market 4:00 p.m.
Municipal Money Market 11:45 a.m.
U.S. Government Money Market 4:00 p.m.
Money Market Mileage 4:00 p.m.
Municipal Money Market Mileage 11:45 a.m.
U.S. Government Money Market Mileage 4:00 p.m.
* or the close of the Exchange (whichever comes first)
</TABLE>
If a purchase order is received in good order prior to the applicable Fund's
deadline, the purchase price will be the NAV per share next determined on that
day. If a purchase order is received in good order after the applicable
deadline, the purchase price will be the NAV of the following day that the Fund
is open for business. Checks to purchase shares are accepted subject to
collection at full face value in U.S. funds and must be drawn in U.S. dollars on
a U.S. bank.
- --------------------------------------------------------------------------------
Prospectus 29 About Your Investment
<PAGE> 32
Opening an Account
- -------------------------------
A completed, signed application is required to open an account. Financial
institutions may have different procedures for opening an account. Eligible
investors in the Mileage Funds can enroll in the American Airlines AAdvantage(R)
Program by calling (800) 433-7300. You may request a Fund application form by
calling (800) 388-3344.
Complete the application, sign it and:
Mail to:
American AAdvantage Funds-Platinum Class
P.O. 419643
Kansas City, MO 64141-6643
Redemption Policies
- ------------------------------
Shares of any Fund may be redeemed by telephone or mail on any day that the Fund
is open for business. The redemption price will be the NAV next determined after
a redemption order is received in good order. Any questions regarding what
constitutes good order should be directed to the financial institution through
which Fund shares were purchased or the Fund's transfer agent at (800) 388-3344.
Proceeds from redemptions requested by the following deadlines will generally be
wired to shareholders on the same day.
<TABLE>
<CAPTION>
SAME DAY WIRE REDEMPTION
ORDER DEADLINE
FUND (EASTERN TIME)*:
- ---- ------------------------
<S> <C>
Money Market 2:00 p.m.
Municipal Money Market 11:45 a.m.
U.S. Government Money Market 2:00 p.m.
Money Market Mileage 2:00 p.m.
Municipal Money Market Mileage 11:45 a.m.
U.S. Government Money Market Mileage 2:00 p.m.
* or the close of the Exchange (whichever comes first)
</TABLE>
In any event, proceeds from a redemption order for any Fund will be transmitted
to a shareholder by no later than seven days after the receipt of a redemption
request in good order. Delivery of proceeds from shares purchased by check may
be delayed until the check has cleared, which may take up to 15 days.
The Funds reserve the right to suspend redemptions or postpone the date of
payment (i) when the Exchange is closed (other than for customary weekend
- --------------------------------------------------------------------------------
About Your Investment 30 Prospectus
<PAGE> 33
and holiday closings); (ii) when trading on the Exchange is restricted; (iii)
when the SEC determines that an emergency exists so that disposal of a Fund's
investments or determination of its NAV is not reasonably practicable; or (iv)
by order of the SEC for protection of the Funds' shareholders.
Although the Funds intend to redeem shares in cash, each Fund reserves the right
to pay the redemption price in whole or in part by a distribution of readily
marketable securities held by the applicable Fund's corresponding Portfolio.
Unpaid dividends credited to an account up to the date of redemption of all
shares generally will be paid at the time of redemption.
HOW TO PURCHASE SHARES
<TABLE>
<CAPTION>
To Make an Initial Purchase To Add to an Existing Account
- ------------------------------------------------------------------------------------------
<S> <C>
By Check
- - Make check payable to American AAdvantage Include the shareholder's account number and
Funds Fund name and Fund number on the check. Mail
- - Include the Fund name, Fund number and check ($50 minimum) to:
"Platinum Class" on the check.
- - Mail check ($2,500 minimum) to: American AAdvantage Funds
P.O. Box 419643
American AAdvantage Funds Kansas City, MO 64141-6643
P.O. Box 419643
Kansas City, MO 64141-6643
By Wire
If your account has been established, you Call (800) 388-3344 to purchase shares by
may call (800) 388-3344 to purchase shares wire. Send a bank wire to State Street Bank
by wire. Send a bank wire to State Street & Trust Co. with these instructions:
Bank & Trust Co. with these instructions: - ABA# 0110-0002-8; AC-9905-342-3
- - ABA# 0110-0002-8; AC-9905-342-3 - Attn: American AAdvantage Funds
- - Attn: American AAdvantage Funds - the Fund name and Fund number
- - the Fund name and Fund number - shareholder's account number and
- - account number and registration registration
By Exchange
Shares of an AAdvantage Fund or Mileage Fund Shares of an AAdvantage Fund or Mileage Fund
may be purchased by exchange from another may be redeemed in exchange for another
American AAdvantage Fund-Platinum Class or American AAdvantage Fund-Platinum Class or
American AAdvantage Mileage Fund-Platinum American AAdvantage Mileage Fund- Platinum
Class, as applicable, if the shareholder has Class, as applicable if the shareholder has
owned shares of the other AAdvantage Fund or owned shares of the AAdvantage Fund or
Mileage Fund for at least 15 days. Send a Mileage Fund for at least 15 days. Send a
written request to the address above or call written request to the address above or call
(800) 388-3344 to exchange shares. (800) 388-3344 to exchange shares.
</TABLE>
- --------------------------------------------------------------------------------
Prospectus 31 About Your Investment
<PAGE> 34
HOW TO REDEEM SHARES
<TABLE>
<CAPTION>
Method Additional Instructions
- ------------------------------------------------------------------------------------------
<S> <C>
By Telephone
Call (800) 388-3344 to request a redemption. Proceeds from redemptions placed by
telephone will generally be transmitted by
wire only, as instructed on the application
form.
By Mail
Write a letter of instruction including - Other supporting documents may be required
- - the Fund name, Fund number and class for estates, trusts, guardianships,
- - shareholder account number custodians, corporations, IRAs and welfare,
- - shares or dollar amount to be redeemed pension and profit sharing plans. Call (800)
- - authorized signature(s) of all persons 388-3344 for instructions.
required to sign for the account - Proceeds will only be mailed to the
account address of record or transmitted by
wire to a commercial bank account
designated on the account application
form.
Mail to:
American AAdvantage Funds
P.O. Box 419643
Kansas City, MO 64141-6643
By Check
Choose the check writing feature on the - Minimum check amount is $100
account application. - A $2 service fee per check is charged for
check copies
- A $15 service fee will be charged when a
check is presented for an amount greater
than the value of the shareholder's
account
- A $12 fee will be charged for "stop
payment" requests
By Pre-Authorized Automatic Redemption
Contact the financial institution through Proceeds will be transferred automatically
which you purchased Fund shares. from your Fund account to your bank account
via ACH on or about the 15th day of each
month ($100 minimum).
By Exchange
Shares of an AAdvantage Fund or Mileage Fund may be redeemed in exchange for another
American AAdvantage Fund-Platinum Class or American AAdvantage Mileage Fund-Platinum
Class, as applicable, if the shareholder has owned shares of the AAdvantage Fund or
Mileage Fund for at least 15 days. Send a written request to the address above or call
(800) 388-3344 to exchange shares.
</TABLE>
- --------------------------------------------------------------------------------
About Your Investment 32 Prospectus
<PAGE> 35
General Policies
- ------------------------
If a shareholder's account balance in any Fund falls below $2,500, the
shareholder may be asked to increase the balance. If the account balance remains
below $2,500 after 45 days, the Funds reserve the right to close the account and
send the proceeds to the shareholder.
The following policies apply to instructions you may provide to the Funds by
telephone:
- - The Funds, their officers, trustees, directors, employees, or agents are not
responsible for the authenticity of instructions provided by telephone, nor
for any loss, liability, cost or expense incurred for acting on them.
- - The Funds employ procedures reasonably designed to confirm that instructions
communicated by telephone are genuine.
- - Due to the volume of calls or other unusual circumstances, telephone
redemptions may be difficult to implement during certain time periods.
The Funds reserve the right to:
- - reject any order for the purchase of shares and to limit or suspend, without
prior notice, the offering of shares,
- - modify or terminate the exchange privilege at any time,
- - limit the number of exchanges between Funds an investor may exercise, and
- - seek reimbursement from you for any related loss incurred if your payment for
the purchase of Fund shares by check does not clear your bank.
Each financial institution is responsible for the prompt transmission of
purchase and redemption orders of its clients. Financial institutions may
provide varying arrangements for their clients with respect to the purchase and
redemption of Platinum Class shares. Shares purchased through financial
institutions may be subject to transaction fees. Financial institutions offering
Platinum Class shares may impose fees on investors for check writing privileges
or, if approved by the Funds, establish variations on minimum check amounts.
Some institutions may arrange for additional privileges associated with Platinum
Class shares, such as a debit card, which may only be available subject to
certain conditions or limitations.
- --------------------------------------------------------------------------------
Prospectus 33 About Your Investment
<PAGE> 36
Distribution and Taxes
- -------------------------------------
The Funds distribute most or all of their net earnings in the form of dividends
from net investment income and distributions of realized net capital gains that
are paid to shareholders monthly on the first business day after the month ends.
Unless the account application instructs otherwise, distributions will be
reinvested in additional Fund shares. Usually, dividends (except those paid by
the Municipal Money Market Fund and the Municipal Money Market Mileage Fund) and
distributions of net realized gains are taxable events.
The Municipal Money Market Fund and the Municipal Money Market Mileage Fund
designate most of their distributions as "exempt-interest dividends," which may
be excluded from gross income. If the Funds earn taxable income from any of
their investments, that income will be distributed as a taxable dividend. If the
Funds invest in private activity obligations, shareholders will be required to
treat a portion of the exempt-interest dividends they receive as a "tax
preference item" in determining their liability for federal alternative minimum
tax ("AMT"). Some states exempt from income tax the interest on their own
obligations and on obligations of governmental agencies and municipalities in
the state; accordingly, each year shareholders will receive tax information on
the Funds' exempt-interest income by state.
This is only a summary of some of the important income tax considerations that
may affect Fund shareholders. Shareholders should consult their tax adviser
regarding specific questions as to the effect of federal, state or local income
taxes on an investment in the Funds.
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 rental and hotel accommodations. For more
information about the AAdvantage program, call American Airlines at (800)
433-7300.
AAdvantage travel awards ("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 each Mileage Fund. Mileage is calculated on the
average daily balance and posted monthly. The average daily balance is
- --------------------------------------------------------------------------------
About Your Investment 34 Prospectus
<PAGE> 37
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 Mileage Fund.
These miles appear on subsequent AAdvantage program statements.
For 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
the Mileage Funds, 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 Mileage 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 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.
American Airlines may find it necessary to change AAdvantage program rules,
regulations, travel awards and special offers at any time. This means that
American Airlines may initiate changes impacting, for example, participant
affiliations, rules for earning mileage credit, mileage levels and rules for the
use of travel awards, continued availability of travel awards, blackout dates
and limited seating for travel awards, and the features of special offers.
American Airlines reserves the right to end the AAdvantage program with six
months' notice. AAdvantage travel awards, mileage accrual and special offers are
subject to governmental regulations.
- --------------------------------------------------------------------------------
Prospectus 35 About Your Investment
<PAGE> 38
ADDITIONAL INFORMATION
- --------------------------------------------------------------------------------
Distribution of Trust Shares
- ----------------------------------------------
The AAdvantage Funds and Mileage Funds have each adopted a Distribution Plan for
the Platinum Class (the "Plans") in accordance with Rule 12b-1 under the
Investment Company Act of 1940 ("1940 Act"), which allow the Funds to pay
distribution and other fees for the sale of Fund shares and for other services
provided to shareholders. In addition, the Mileage Funds' Plan authorizes
expenses incurred in connection with participation in the AAdvantage program.
The Plans provide that each Platinum Class will pay 0.25% per annum of its
average daily net assets to the Manager (or another entity approved by the
applicable Board). Because these fees are paid out of each Fund's assets on an
on-going basis, over time these fees will increase the cost of your investment
and may cost you more than paying other types of sales charges.
Master-Feeder Structure
- --------------------------------------
The Funds operate under a master-feeder structure. This means that each Fund is
a "feeder" fund that invests all of its investable assets in a "master" fund
with the same investment objective. The "master" fund purchases securities for
investment. The master-feeder structure works as follows:
[Master-Feeder Structure graph]
Each Fund can withdraw its investment in its corresponding Portfolio at any time
if the Board determines that it is in the best interest of the Fund and its
shareholders to do so. If this happens, the Fund's assets will be invested
according to the investment policies and restrictions described in this
Prospectus.
- --------------------------------------------------------------------------------
Additional Information 36 Prospectus
<PAGE> 39
Year 2000
- -----------------
The Funds could be affected adversely if the computer systems used by the
Manager, the Funds' other service providers, or companies in which the Funds
invest do not properly process and calculate information that relates to dates
beginning on January 1, 2000 and beyond. Due to the Funds' reliance on various
service providers to perform essential functions, each of the Funds could have
difficulty calculating its NAV, processing orders for share redemptions and
delivering account statements and other information to shareholders. The Manager
has taken steps that it believes are reasonably designed to address the
potential failure of computer systems used by the Manager and the Funds' service
providers to address the Year 2000 issue. There can be no assurance that the
steps taken by the Manager will be sufficient to avoid any adverse impact.
In evaluating current and potential portfolio positions, Year 2000 is one of the
factors that the Manager takes into consideration. The Manager will rely upon
public filings and other statements made by companies regarding their Year 2000
readiness. Issuers in countries outside of the U.S. may not be required to make
the level of disclosure regarding Year 2000 readiness that is required in the
U.S. If the value of a Fund's investment is adversely affected by a Year 2000
problem, the NAV of the Fund may be affected as well.
Financial Highlights
- ---------------------------------
The financial highlights tables are intended to help you understand each Fund's
financial performance for the past five years (or, if shorter, the period of the
Fund's operations). Certain information reflects financial results for a single
share of the Fund's Platinum Class. The total returns in the table represent the
rate that an investor would have earned (or lost) on an investment in the Fund
(assuming reinvestment of all dividends and distributions). Financial highlights
are not available for the Platinum Class of the Municipal Money Market Mileage
Fund or the U.S. Government Money Market Mileage Fund, because as of the date of
this Prospectus, they had not commenced active operations. Except for the
six-month period ended April 30, 1999, each Fund's highlights were audited by
Ernst & Young LLP, independent auditors. More financial information about the
Funds is found in their Annual Report and Semi-Annual Report, which you may
obtain upon request.
- --------------------------------------------------------------------------------
Prospectus 37 Additional Information
<PAGE> 40
<TABLE>
<CAPTION>
MONEY MARKET FUND
---------------------------------------------
PLATINUM CLASS
-----------------------------------------
SIX MONTHS YEAR ENDED PERIOD
ENDED OCTOBER 31, ENDED
APRIL 30, ----------------------- OCTOBER 31,
FOR A SHARE OUTSTANDING 1999 1998 1997 1996(A)
THROUGHOUT THE PERIOD: ----------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- --------
Net investment income........ 0.02(B) 0.05(B) 0.05(B) 0.05(B)
Less dividends from net
investment income........... (0.02) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Net asset value, end of
period...................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========
Total return (annualized).... 2.15% 4.89% 4.87% 4.85%(C)
======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period
(in thousands)............ $884,485 $744,226 $494,413 $119,981
Ratios to average net assets
(annualized)
Expenses.................. 0.95%(B) 0.94%(B) 0.93%(B) 0.94%(B)
Net investment income..... 4.24%(B) 4.78%(B) 4.80%(B) 4.63%(B)
<CAPTION>
MONEY MARKET FUND
--------------------------------------------
INSTITUTIONAL CLASS
--------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------
FOR A SHARE OUTSTANDING 1996 1995
THROUGHOUT THE PERIOD: ---------- ---------- 1994
----------
<S> <C> <C> <C>
Net asset value, beginning of
period...................... $ 1.00 $ 1.00 $ 1.00
---------- ---------- ----------
Net investment income........ 0.05(B) 0.06 0.04
Less dividends from net
investment income........... (0.05) (0.06) (0.04)
---------- ---------- ----------
Net asset value, end of
period...................... $ 1.00 $ 1.00 $ 1.00
========== ========== ==========
Total return (annualized).... 5.57% 5.96% 3.85%
========== ========== ==========
Ratios and supplemental data:
Net assets, end of period
(in thousands)............ $1,406,939 $1,206,041 $1,893,144
Ratios to average net assets
(annualized)
Expenses.................. 0.24%(B) 0.23% 0.21%
Net investment income..... 5.41%(B) 5.79% 3.63%
</TABLE>
(A) The Money Market Fund-Platinum Class commenced active operations on November
7, 1995.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
its corresponding Portfolio.
(C) Total return for the Platinum Class for the period ended October 31, 1996
reflects Institutional Class returns from November 1, 1995 through November
6, 1995 and returns of the Platinum Class through October 31, 1996. Due to
the different expense structures between the classes, total return would
vary from the results shown had the Platinum Class been in operation for the
entire year.
- --------------------------------------------------------------------------------
Additional Information 38 Prospectus
<PAGE> 41
<TABLE>
<CAPTION>
MUNICIPAL MONEY MARKET FUND
-------------------------------------------
PLATINUM CLASS
---------------------------------------
SIX MONTHS YEAR ENDED PERIOD
ENDED OCTOBER 31, ENDED
APRIL 30, --------------------- OCTOBER 31,
FOR A SHARE OUTSTANDING 1999 1998 1997 1996(A)
THROUGHOUT THE PERIOD: ----------- ------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- -------
Net investment income................ 0.01(B) 0.03(B) 0.03(B) 0.03(B)
Less dividends from net investment
income.............................. (0.01) (0.03) (0.03) (0.03)
------- ------- ------- -------
Net asset value, end of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= =======
Total return (annualized)............ 1.08% 2.75% 2.79% 2.88%(C)
======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in
thousands)........................ $82,842 $87,852 $63,883 $49,862
Ratios to average net assets
(annualized)(D)
Expenses.......................... 1.05%(B) 1.04%(B) 1.03%(B) 0.97%(B)
Net investment income............. 2.14%(B) 2.69%(B) 2.75%(B) 2.72%(B)
<CAPTION>
MUNICIPAL MONEY MARKET FUND
--------------------------------------
INSTITUTIONAL CLASS
--------------------------------------
YEAR ENDED
OCTOBER 31, PERIOD
------------------- ENDED
FOR A SHARE OUTSTANDING 1996 1995 OCTOBER 31,
THROUGHOUT THE PERIOD: ------ ------ 1994(A)
-----------
<S> <C> <C> <C>
Net asset value, beginning of
period.............................. $ 1.00 $ 1.00 $ 1.00
------ ------ ------
Net investment income................ 0.04(B) 0.04 0.02
Less dividends from net investment
income.............................. (0.04) (0.04) (0.02)
------ ------ ------
Net asset value, end of period....... $ 1.00 $ 1.00 $ 1.00
====== ====== ======
Total return (annualized)............ 3.59% 3.75% 2.44%
====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in
thousands)........................ $ 6 $ 7 $9,736
Ratios to average net assets
(annualized)(D)
Expenses.......................... 0.27%(B) 0.35% 0.30%
Net investment income............. 3.49%(B) 3.70% 2.38%
</TABLE>
(A) The Municipal Money Market Fund commenced active operations on November 10,
1993. The Municipal Money Market Fund-Platinum Class commenced active
operations on November 7, 1995.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
its corresponding Portfolio.
(C) Total return for the Platinum Class for the period ended October 31, 1996
reflects Institutional Class returns from November 1, 1995 through November
6, 1995 and returns of the Platinum Class through October 31, 1996. Due to
the different expense structures between the classes, total return would
vary from the results shown had the Platinum Class been in operation for
the entire year.
(D) Operating results exclude management and administrative services fees
waived by the Manager. Had the Platinum Class of the Fund paid such fees,
the ratio of expenses and net investment income to average net assets would
have been 1.02% and 2.67%, respectively, for the period ended October 31,
1996, 1.04% and 2.74%, respectively, for the year ended October 31, 1997
and 1.07% and 2.66%, respectively, for the year ended October 31, 1998. Had
the Institutional Class of the Fund paid such fees, the ratio of expenses
and net investment income to average net assets would have been 0.50% and
2.18%, respectively, for the period ended October 31, 1994, 0.55% and
3.50%, respectively, for the year ended October 31, 1995 and 0.33% and
3.43%, respectively, for the year ended October 31, 1996.
- --------------------------------------------------------------------------------
Prospectus 39 Additional Information
<PAGE> 42
<TABLE>
<CAPTION>
U.S. GOVERNMENT MONEY MARKET FUND
---------------------------------------------------------------------------------
PLATINUM CLASS
--------------------------------------- INSTITUTIONAL CLASS
SIX MONTHS YEAR ENDED PERIOD -----------------------------------
ENDED OCTOBER 31, ENDED YEAR ENDED OCTOBER 31,
FOR A SHARE OUTSTANDING APRIL 30, --------------------- OCTOBER 31, -----------------------------------
THROUGHOUT THE PERIOD: 1999 1998 1997(B) 1996(A) 1996 1995
----------- ------- ------- ----------- ------- ------- 1994
(UNAUDITED) -------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning
of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- ------- -------
Net investment income....... 0.02(C) 0.05(C) 0.05(C) 0.04(C) 0.05(C) 0.06 0.04
Less dividends from net
investment income.......... (0.02) (0.05) (0.05) (0.04) (0.05) (0.06) (0.04)
------- ------- ------- ------- ------- ------- -------
Net asset value, end of
period..................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= ======= =======
Total return (annualized)... 2.02% 4.71% 4.61% 4.58%(D) 5.29% 5.67% 3.70%
======= ======= ======= ======= ======= ======= =======
Ratios and supplemental
data:
Net assets, end of period
(in thousands)........... $81,554 $78,412 $68,439 $52,153 $25,595 $47,184 $67,607
Ratios to average net
assets (annualized)(E)
Expenses................. 1.00%(C) 1.01%(C) 0.99%(C) 1.00%(C) 0.32%(C) 0.32% 0.25%
Net investment income.... 3.99%(C) 4.62%(C) 4.53%(C) 4.35%(C) 5.16%(C) 5.49% 3.44%
</TABLE>
(A) The U.S. Government Money Market Fund-Platinum Class commenced active
operations on November 7, 1995.
(B) Prior to March 1, 1997, the American AAdvantage U.S. Government Money Market
Fund was known as the U.S. Treasury Money Market Fund and operated under
different investment policies.
(C) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
its corresponding Portfolio.
(D) Total return for the Platinum Class for the period ended October 31, 1996
reflects Institutional Class returns from November 1, 1995 through November
6, 1995 and returns of the Platinum Class through October 31, 1996. Due to
the different expense structures between the classes, total return would
vary from the results shown had the Platinum Class been in operation for the
entire year.
(E) Operating results excluded fees waived by the Manager during the year ended
October 31, 1998. The ratio of expenses to average net assets was 1.02% and
the ratio of net investment income to average net assets was 4.62% prior to
expenses waived.
- --------------------------------------------------------------------------------
Additional Information 40 Prospectus
<PAGE> 43
<TABLE>
<CAPTION>
MONEY MARKET MILEAGE FUND
----------------------------------------------------------
PLATINUM CLASS
---------------------------------------- MILEAGE
SIX MONTHS YEAR ENDED CLASS
ENDED OCTOBER 31, PERIOD ENDED -----------
APRIL 30, --------------------- OCTOBER 31, YEAR ENDED
FOR A SHARE OUTSTANDING 1999 1998 1997 1996(A) OCTOBER 31,
THROUGHOUT THE PERIOD: ----------- ------- ------- ------------ 1996
(UNAUDITED) -----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- --------
Net investment income...................... 0.02%(B) 0.05(B) 0.05(B) 0.03(B) 0.05(B)
Less dividends from net investment income.. (0.02) (0.05) (0.05) (0.03) (0.05)
-------- ------- ------- ------- --------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ========
Total return (annualized).................. 2.09% 4.74% 4.71% 4.78% 5.12%
======== ======= ======= ======= ========
Ratios and supplemental data:
Net assets, end of period (in
thousands).............................. $156,433 $73,875 $49,184 $15,429 $106,709
Ratios to average net assets
(annualized)(C)
Expenses................................ 1.08%(B) 1.09%(B) 1.09%(B) 1.09%(B) 0.67%(B)
Net investment income................... 4.07%(B) 4.64%(B) 4.64%(B) 4.48%(B) 5.02%(B)
</TABLE>
(A) The Money Market Mileage Fund-Platinum Class commenced active operations on
January 29, 1996, and at that time the existing shares of the Fund were
designated as Mileage Class shares.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
its corresponding Portfolio.
(C) Operating results exclude expenses reimbursed by the Manager. Had the
Platinum Class of the Fund paid such fees, the ratio of expenses and net
investment income to average net assets would have been 1.24% and 4.33%,
respectively, for the period ended October 31, 1996, 1.14% and 4.59%,
respectively, for the year ended October 31, 1997 and 1.12% and 4.61%,
respectively, for the year ended October 31, 1998. Had the Mileage Class of
the Fund paid such fees, the ratio of expenses and net investment income to
average net assets would have been 0.78% and 4.91%, respectively, for the
year ended October 31, 1996.
- --------------------------------------------------------------------------------
Prospectus 41 Additional Information
<PAGE> 44
ADDITIONAL INFORMATION
ADDITIONAL INFORMATION ABOUT THE FUNDS IS FOUND IN THE DOCUMENTS LISTED BELOW.
REQUEST A FREE COPY OF THESE DOCUMENTS BY CALLING (800) 388-3344.
ANNUAL REPORT/SEMI-ANNUAL REPORT
The Fund's Annual and Semi-Annual Reports list the Fund's actual investments as
of the report's date. They also include a discussion by the Manager of market
conditions and investment strategies that ~significantly affected the Fund's
performance. The report of the Fund's independent auditors is included in the
Annual Report.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more details about the Fund and its investment policies. The
SAI is incorporated in this Prospectus by reference (it is legally part of this
Prospectus). A current SAI is on file with the Securities and Exchange
Commission (SEC).
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS OR TO REQUEST A COPY OF THE DOCUMENTS
LISTED ABOVE:
[TELEPHONE LOGO]
BY TELEPHONE:
Call (800) 388-3344
[MAILBOX LOGO]
BY MAIL:
American AAdvantage Funds
P.O. Box 619003, MD5645
DFW Airport, TX 75261-9003
[KEYBOARD LOGO]
BY E-MAIL:
[email protected]
[COMPUTER MOUSE LOGO]
ON THE INTERNET:
Visit our website at www.aafunds.com
Visit the SEC website at www.sec.gov
Copies of these documents may also be obtained from the SEC Public Reference
Room in Washington, D.C. The Public Reference Room can be reached at (800)
732-0330 or by mailing a request, including a duplicating fee to: SEC's Public
Reference Section, 450 5th Street NW, Washington, D.C. 20549-6009.
[AMERICAN AADVANTAGE FUNDS LOGO] [AMERICAN AADVANTAGE MILEAGE FUNDS LOGO]
SEC File Number 811-4984 SEC File Number 811-9018
American Airlines is not responsible for investments made in the American
AAdvantage Funds. American AAdvantage Funds and American AAdvantage Mileage
Funds are registered service marks of AMR Corporation. Platinum Class, American
AAdvantage Money Market Fund, American AAdvantage Municipal Money Market Fund,
American AAdvantage U.S. Government Money Market 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.
<PAGE> 45
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE FUNDS(R)
AMERICAN AADVANTAGE MILEAGE FUNDS(R)
-- PLATINUM CLASS(SM) --
OCTOBER 1, 1999
The American AAdvantage Money Market Fund(sm) (the "Money Market Fund"),
the American AAdvantage Municipal Money Market Fund(sm) (the "Municipal Money
Market Fund"), and the American AAdvantage U.S. Government Money Market
Fund(sm), formerly known as the American AAdvantage U.S. Treasury Money Market
Fund prior to March 1, 1997 (the "U.S. Government Money Market Fund"), are three
separate investment portfolios of the American AAdvantage Funds (the "AAdvantage
Trust"). The American AAdvantage Money Market Mileage Fund (the "Money Market
Mileage Fund"), the American AAdvantage Municipal Money Market Mileage Fund (the
"Municipal Money Market Mileage Fund"), and the American AAdvantage U.S.
Government Money Market Mileage Fund (the "U.S. Government Money Market Mileage
Fund") (collectively, the "Mileage Funds") are three separate investment
portfolios of the American AAdvantage Mileage Funds (the "Mileage Trust")
(individually, a "Fund" and, collectively, the "Funds"). The AAdvantage Trust
and the Mileage Trust (collectively the "Trusts") are no load, open-end,
diversified management investment companies. The Trusts were organized as
Massachusetts business trusts on January 16, 1987 and February 22, 1995,
respectively. Each Fund consists of multiple classes of shares designed to meet
the needs of different groups of investors. This Statement of Additional
Information ("SAI") relates only to the Platinum Class of the Funds.
Each Fund seeks its investment objective by investing all of its
investable assets in a corresponding portfolio (individually, a "Portfolio"
and, collectively, the "Portfolios") of the AMR Investment Services Trust ("AMR
Trust") that has a similar name and an identical investment objective to the
investing Fund.
This SAI should be read in conjunction with the Platinum Class
prospectus dated October 1, 1999 ("Prospectus"), a copy of which may be
obtained without charge by calling (800) 967-9009.
This SAI is not a prospectus and is authorized for distribution to
prospective investors only if preceded or accompanied by a current Prospectus.
TABLE OF CONTENTS
<TABLE>
<S> <C>
Non-Principal Investment Strategies and Risks............................................................................2
Investment Restrictions..................................................................................................2
Trustees and Officers of the Trusts and the AMR Trust....................................................................4
Control Persons and 5% Shareholders......................................................................................6
Management, Administrative Services and Distribution Fees................................................................6
Other Service Providers..................................................................................................7
Redemptions in Kind......................................................................................................7
Net Asset Value..........................................................................................................7
Tax Information..........................................................................................................8
Yield and Total Return Quotations........................................................................................9
Description of the Trusts...............................................................................................12
Other Information.......................................................................................................12
Financial Statements....................................................................................................19
</TABLE>
<PAGE> 46
NON-PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Each Fund may:
1. Invest in other investment companies to the extent permitted by the
Investment Company Act of 1940 ("1940 Act") or exemptive relief
granted by the Securities and Exchange Commission ("SEC").
2. Loan securities to broker-dealers or other institutional investors.
Securities loans will not be made if, as a result, the aggregate
amount of all outstanding securities loans by a Portfolio exceeds 33
1/3% of its total assets (including the market value of collateral
received). For purposes of complying with a Portfolio's investment
policies and restrictions, collateral received in connection with
securities loans is deemed an asset of the Portfolio to the extent
required by law. AMR Investment Services, Inc. (the "Manager")
receives compensation for administrative and oversight functions with
respect to securities lending. The amount of such compensation depends
on the income generated by the loan of the securities. 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.
3. Enter into repurchase agreements. A repurchase agreement is an
agreement under which securities are acquired by a Portfolio from a
securities dealer or bank subject to resale at an agreed upon price on
a later date. The acquiring Portfolio bears a risk of loss in the
event that the other party to a repurchase agreement defaults on its
obligations and the Portfolio is delayed or prevented from exercising
its rights to dispose of the collateral securities. However, the
Manager attempts to minimize this risk by entering into repurchase
agreements only with financial institutions which are deemed to be of
good financial standing and which have been approved by the AMR
Trust's Board of Trustees ("AMR Trust Board").
4. Purchase securities in private placement offerings made in reliance
on the "private placement" exemption from registration afforded by
Section 4(2) of the Securities Act of 1933 ("1933 Act"), and resold to
qualified institutional buyers under Rule 144A under the 1933 Act
("Section 4(2) securities"). The Portfolios will not invest more than
10% of their respective net assets in Section 4(2) securities and
illiquid securities unless the applicable investment adviser
determines, by continuous reference to the appropriate trading markets
and pursuant to guidelines approved by the AMR Trust Board, that any
Section 4(2) securities held by such Portfolio in excess of this level
are at all times liquid.
INVESTMENT RESTRICTIONS
Each Fund has the following fundamental investment policy that enables
it to invest in a corresponding Portfolio of the AMR Trust:
Notwithstanding any other limitation, the Fund may invest all of
its investable assets in an open-end management investment company
with substantially the same investment objectives, policies and
limitations as the Fund. For this purpose, "all of the Fund's
investable assets" means that the only investment securities that
will be held by the Fund will be the Fund's interest in the
investment company.
All other fundamental investment policies and the non-fundamental
policies of each Fund and its corresponding Portfolio are identical. Therefore,
although the following discusses the investment policies of each Portfolio and
the AMR Trust Board, it applies equally to each Fund and the AAdvantage Trust's
Board of Trustees ("AAdvantage Board") and the Mileage Trust's Board of
Trustees ("Mileage Trust Board"), as applicable.
In addition to the investment limitations noted in the Prospectus, the
following seven restrictions have been adopted by each Portfolio and may be
changed with respect to any Portfolio only by the majority vote of that
Portfolio's outstanding interests. "Majority of the outstanding voting
securities" under the Investment Company Act of 1940, as amended (the "1940
Act"), and as used herein means, with respect to the Portfolio, the lesser of
(a) 67% of the interests of the Portfolio present at the meeting if the holders
of more than 50% of the interests are present and represented at the interest
holders' meeting or (b) more than 50% of the interests
2
<PAGE> 47
of the Portfolio. Whenever a Fund is requested to vote on a change in the
investment restrictions of its corresponding Portfolio, that Fund will hold a
meeting of its shareholders and will cast its votes as instructed by its
shareholders. The percentage of a Fund's votes representing that Fund's
shareholders not voting will be voted by the AAdvantage Board and the Mileage
Trust Board in the same proportion as those Fund shareholders who do, in fact,
vote.
No Portfolio may:
1. Purchase or sell real estate or real estate limited partnership
interests, provided, however, that the Portfolio may invest in
securities secured by real estate or interests therein or issued by
companies which invest in real estate or interests therein when
consistent with the other policies and limitations described in the
Prospectus.
2. Purchase or sell commodities (including direct interests and/or
leases in oil, gas or minerals) or commodities contracts, except with
respect to forward foreign currency exchange contracts, foreign currency
futures contracts and when-issued securities when consistent with the
other policies and limitations described in the Prospectus.
3. Engage in the business of underwriting securities issued by others
except to the extent that, in connection with the disposition of
securities, the Portfolio may be deemed an underwriter under federal
securities law.
4. Make loans to any person or firm, provided, however, that the making
of a loan shall not be construed to include (i) the acquisition for
investment of bonds, debentures, notes or other evidences of
indebtedness of any corporation or government which are publicly
distributed or (ii) the entry into repurchase agreements and further
provided, however, that each Portfolio may lend its investment
securities to broker-dealers or other institutional investors in
accordance with the guidelines stated in the Prospectus.
5. Purchase from or sell portfolio securities to its officers, Trustees
or other "interested persons" of the AMR Trust, as defined in the 1940
Act, including its investment advisers and their affiliates, except as
permitted by the 1940 Act and exemptive rules or orders thereunder.
6. Issue senior securities except that the Portfolio may engage in
when-issued and forward commitment transactions.
7. Borrow money, except from banks or through reverse repurchase
agreements for temporary purposes in an aggregate amount not to exceed
10% of the value of its total assets at the time of borrowing. In
addition, although not a fundamental policy, the Portfolios intend to
repay any money borrowed before any additional portfolio securities are
purchased. See "Other Information" for a further description regarding
reverse repurchase agreements.
8. Invest more than 5% of its total assets (taken at market value) in
securities of any one issuer, other than obligations issued by the U.S.
Government, its agencies and instrumentalities, or purchase more than
10% of the voting securities of any one issuer, with respect to 75% of
the Portfolio's total assets; or
9. Invest more than 25% of its total assets in the securities of
companies primarily engaged in any one industry, provided that: (i) this
limitation does not apply to obligations issued or guaranteed by the
U.S. Government, its agencies and instrumentalities; (ii) municipalities
and their agencies and authorities are not deemed to be industries; and
(iii) financial service companies are classified according to the end
users of their services (for example, automobile finance, bank finance,
and diversified finance will be considered separate industries).
The following non-fundamental investment restrictions may be changed
with respect to each Fund by a vote of a majority of the Board or, with respect
to the Portfolio, by a vote of a majority of the AMR Trust Board. The Portfolio
may not:
1. Invest more than 15% of its net assets in illiquid securities,
including time deposits and repurchase agreements that mature in more
than seven days; or
3
<PAGE> 48
2. Purchase securities on margin, effect short sales (except that a
Portfolio may obtain such short term credits as may be necessary for
the clearance of purchases or sales of securities) or purchase or sell
call options or engage in the writing of such options.
All Portfolios may invest up to 10% of their total assets in the
securities of other investment companies to the extent permitted by law. A
Portfolio may incur duplicate advisory or management fees when investing in
another mutual fund.
TRUSTEES AND OFFICERS OF THE TRUSTS AND THE AMR TRUST
The AAdvantage Board, the Mileage Trust Board and the AMR Trust Board
provide broad supervision over each Trust's affairs. The Manager is responsible
for the management and the administration of each Trust's assets, and each
Trust's officers are responsible for the respective Trust's operations. The
Trustees and officers of the Trusts and the AMR Trust are listed below,
together with their principal occupations during the past five years. Unless
otherwise indicated, the address of each person listed below is 4333 Amon
Carter Boulevard, MD 5645, Fort Worth, Texas 76155.
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ------------- ----------------------------------------
<S> <C> <C>
William F. Quinn* (51) Trustee and President, AMR Investment Services, Inc. (1986-Present);
President Chairman, American Airlines Employees Federal Credit Union
(October 1989-Present); Trustee, American Performance Funds
(1990-1994); Director, Crescent Real Estate Equities, Inc.
(1994 - Present); Trustee, American AAdvantage Funds
(1987-Present); Trustee, American AAdvantage Mileage Funds
(1995-Present).
Alan D. Feld (61) Trustee Partner, Akin, Gump, Strauss, Hauer & Feld, LLP
1700 Pacific Avenue (1960-Present)#; Director, Clear Channel Communications
Suite 4100 (1984-Present); Director, CenterPoint Properties, Inc.
Dallas, Texas 75201 (1994-Present); Trustee, American AAdvantage Funds (1996-
Present); Trustee, American AAdvantage Mileage Funds
(1996-Present).
Ben J. Fortson (66) Trustee President and CEO, Fortson Oil Company (1958-Present);
301 Commerce Street Director, Kimbell Art Foundation (1964-Present); Director,
Suite 3301 Burnett Foundation (1987-Present); Honorary Trustee, Texas
Fort Worth, Texas 76102 Christian University (1986-Present); Trustee, American
AAdvantage Funds (1996-Present); Trustee, American AAdvantage
Mileage Funds (1996-Present).
John S. Justin (82) Trustee Chairman (1969-Present), Chief Executive Officer (1969-1999),
2821 West Seventh Street Justin Industries, Inc. (a diversified holding company);
Fort Worth, Texas 76107 Executive Board Member, Blue Cross/Blue Shield of Texas
(1985-Present); Board Member, Zale Lipshy Hospital (June
1993-Present); Trustee, Texas Christian University
(1980-Present); Director and Executive Board Member, Moncrief
Radiation Center (1985-Present); Director, Texas New Mexico
Enterprises (1984-1993); Director, Texas New Mexico Power
Company (1979-1993); Trustee, American AAdvantage Funds
(1989-Present); Trustee, American AAdvantage Mileage Funds
(1995-Present).
</TABLE>
4
<PAGE> 49
<TABLE>
<CAPTION>
POSITION WITH
NAME, AGE AND ADDRESS EACH TRUST PRINCIPAL OCCUPATION DURING PAST 5 YEARS
- --------------------- ------------- ----------------------------------------
<S> <C> <C>
Stephen D. O'Sullivan* (63) Trustee Consultant (1994-Present); Vice President and Controller,
American Airlines, Inc. (1985-1994); Trustee, American
AAdvantage Funds (1987-Present); Trustee, American AAdvantage
Mileage Funds (1995-Present).
Roger T. Staubach (57) Trustee Chairman of the Board and Chief Executive Officer of The
6750 LBJ Freeway Staubach Company (a commercial real estate company)
Dallas, TX 75240 (1982-Present); Director, Brinker International
(1993-Present); Director, International Home Foods, Inc.
(1997-Present); Trustee, Institute for Aerobics Research;
Member, Executive Council, Daytop/Dallas; Member, National
Board of Governors, United Way of America; former quarterback
of the Dallas Cowboys professional football team; Trustee,
American AAdvantage Funds (1995-Present); Trustee, American
AAdvantage Mileage Funds (1995-Present).
Kneeland Youngblood (42) Trustee Managing Partner, Pharos Capital Group, L.L.C. (a private
100 Crescent Court equity firm) (1998-Present); Trustee, Teachers Retirement
Suite 1740 System of Texas (1993-Present); Director, United States
Dallas, Texas 75201 Enrichment Corporation (1993-1998), Director, Just For the
Kids (1995-Present); Director, Starwood Financial Trust
(1998-Present); Member, Council on Foreign Relations
(1995-Present); Trustee, American AAdvantage Funds
(1996-Present); Trustee, American AAdvantage Mileage Funds
(1996-Present).
Nancy A. Eckl (36) Vice President Vice President, AMR Investment Services, Inc. (December
1990-Present).
Michael W. Fields (45) Vice President Vice President, AMR Investment Services, Inc. (August
1988-Present).
Barry Y. Greenberg (35) Vice President Vice President, Legal and Compliance, AMR Investment
and Assistant Services, Inc. (1995-Present); Branch Chief (1992-1995) and
Secretary Staff Attorney (1988-1992), Securities and Exchange
Commission.
Rebecca L. Harris (32) Treasurer Vice President, Finance (1995-Present), Controller
(1991-1995), AMR Investment Services, Inc.
John B. Roberson (40) Vice President Vice President, AMR Investments Services, Inc. (1991-Present).
Robert J. Zutz (46) Secretary Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave. NW
Washington, D.C. 20036
</TABLE>
* Messrs. Quinn and O'Sullivan are deemed to be "interested persons" of each
Trust and the AMR Trust as defined by the 1940 Act.
# The law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump")
provides legal services to American Airlines, Inc., an affiliate of the
Manager. Mr. Feld has advised the Trusts that he has had no material
involvement in the services provided by Akin, Gump to American Airlines,
Inc. and that he has received no material benefit in connection with these
services. Akin, Gump does not provide legal services to the Manager or AMR
Corporation.
All Trustees and officers as a group own less than 1% of the outstanding
shares of any of the Funds.
5
<PAGE> 50
As compensation for their service to the Trusts and the AMR Trust, the
Independent Trustees and their spouses receive free air travel from American
Airlines, Inc., an affiliate of the Manager. The Trusts and the AMR Trust do
not pay for these travel arrangements. However, the Trusts and the AMR Trust
compensate each Trustee with payments in an amount equal to the Trustees'
income tax on the value of this free airline travel. Mr. O'Sullivan, as a
retiree of American Airlines, Inc., already receives flight benefits. The
Trusts compensate Mr. O'Sullivan up to $10,000 annually to cover his personal
flight service charges and the charges for his three adult children, as well as
any income tax charged on the value of these flight benefits. Trustees are also
reimbursed for any expenses incurred in attending Board meetings. These amounts
(excluding reimbursements) are reflected in the following table for the fiscal
year ended October 31, 1998.
<TABLE>
<CAPTION>
Pension or Total
Retirement Compensation
Aggregate Aggregate Benefits Estimated From
Compensation Compensation Accrued as Annual AAdvantage
From the From the Part of the Benefits Funds
AAdvantage Mileage Trusts' Upon Complex
Name of Trustee Trust Trust Expenses Retirement (30 Funds)
- --------------- ------------ ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William F. Quinn $ 0 $ 0 $0 $0 $ 0
Alan D. Feld $ 8,901 $ 8,901 $0 $0 $35,605
Ben J. Fortson $ 8,760 $ 8,760 $0 $0 $35,038
John S. Justin $ 404 $ 404 $0 $0 $ 1,618
Stephen D. O'Sullivan $ 1,421 $ 1,421 $0 $0 $ 5,686
Roger T. Staubach $ 4,356 $ 4,356 $0 $0 $17,423
Kneeland Youngblood $19,891 $19,891 $0 $0 $79,563
</TABLE>
CONTROL PERSONS AND 5% SHAREHOLDERS
There are no persons deemed to control any of the Funds by virtue of their
ownership of more than 25% of the
outstanding shares of a Fund as of June 30, 1999.
The following persons are record owners of 5% or more of the outstanding
shares of the Platinum Class of the Funds
as of June 30, 1999:
American AAdvantage Money Market Fund
Southwest Securities, Inc....................................................82%
1201 Elm Street, Suite 4300
Dallas, TX 75270-2180
American AAdvantage Municipal Money Market Fund
Southwest Securities, Inc....................................................84%
1201 Elm Street, Suite 4300
Dallas, TX 75270-2180
American AAdvantage U.S. Government Money Market Fund
Southwest Securities, Inc....................................................83%
1201 Elm Street, Suite 4300
Dallas, TX 75270-2180
American AAdvantage Money Market Mileage Fund
Southwest Securities, Inc....................................................19%
1201 Elm Street, Suite 4300
Dallas, TX 75270-2180
MANAGEMENT, ADMINISTRATIVE SERVICES AND DISTRIBUTION FEES
The Manager is paid a management fee as compensation for paying investment
advisory fees and for providing the Trust and the AMR Trust with advisory and
asset allocation services. Pursuant to management and
6
<PAGE> 51
administrative services agreements, the Manager provides the Trusts and the AMR
Trust with office space, office equipment and personnel necessary to manage and
administer the Trusts' operations. This includes:
o complying with reporting requirements;
o corresponding with shareholders;
o maintaining internal bookkeeping, accounting and auditing services and
records; and
o supervising the provision of services to the Trusts by third parties.
Management fees for the AAdvantage Trust for the fiscal years ended October
31 were approximately as follows: 1996, $10,853,000, of which approximately
$5,403,000 was paid by the Manager to other investment advisers; 1997,
$13,730,443, of which approximately $7,061,014 was paid by the Manager to other
investment advisers; and 1998, $17,230,000, of which approximately $8,675,000
was paid by the Manager to other investment advisers. Management fees in the
amount of approximately $44,000, $7,309, and $407,195 were waived by the Manager
during the fiscal years ended October 31, 1996, 1997, and 1998 respectively.
These amounts include payments by Portfolios in the AAdvantage Trust other than
the Funds.
Management fees for the Mileage Trust for the fiscal years ended October 31
were approximately as follows: 1996, $10,853,000, of which approximately
$5,403,000 was paid by the Manager to other investment advisers; 1997,
$13,730,443, of which $7,061,014 was paid by the Manager to other investment
advisers and 1998, $17,230,000 of which approximately $8,675,000 was paid by the
Manager to other investment advisers. Management fees in the amount of
approximately $44,000, $7,309 and $407,195 were waived by the Manager during the
fiscal years ended October 31, 1996, 1997 and 1998.
In addition to the management fee, the Manager is paid an administrative
services fee for providing administrative and management services (other than
investment advisory services) to the Funds. Administrative services fees for the
AAdvantage Trust for the fiscal years ended October 31 were approximately as
follows: 1996, $2,893,400; 1997, $4,538,345; and 1998, $7,476,000. These amounts
include payments by Portfolios in the AAdvantage Trust other than the Funds.
Administrative service fees for the Mileage Trust for the fiscal years ended
October 31, 1996, 1997 and 1998 were approximately $95,944, $275,120 and
$548,000, respectively.
The Manager (or another entity approved by the Board) under a distribution
plan adopted pursuant to Rule 12b-1 under the 1940 Act, is paid 0.25% per annum
of the average daily net assets of each Mileage Fund for distribution-related
services, including costs of advertising and AAdvantage Miles. Distribution fees
pursuant to Rule 12b-1 under the 1940 Act for the fiscal years ended October 31,
1996, 1997 and 1998 were approximately $188,590, $470,306 and $632,000,
respectively.
The Manager receives compensation for administrative and oversight functions
with respect to securities lending of the Portfolios of the AMR Trust. Fees
received by the Manager from securities lending for the fiscal years ended
October 31, 1997 and 1998 were approximately $81,113 and $175,025.
SWS Financial Services, located at 7001 Preston Road, Dallas, Texas 75205,
is the distributor and principal underwriter of the Funds' shares and, as such,
receives an annualized fee of $50,000 from the Manager for distributing shares
of the AAdvantage and Mileage Trusts.
OTHER SERVICE PROVIDERS
The transfer agent for the Trust is State Street Bank & Company ("State
Street"), Boston, Massachusetts, who provides transfer agency services to Fund
shareholders directly and through its affiliate National Financial Data
Services, Kansas City, Missouri. State Street also serves as custodian for the
Portfolios of the AMR Trust and the Funds. The independent auditor for the Funds
and the AMR Trust is Ernst & Young LLP, Dallas, Texas.
REDEMPTIONS IN KIND
Although each Fund intends to redeem shares in cash, each reserves the right
to pay the redemption price in whole or in part by a distribution of readily
marketable securities held by the applicable Fund's corresponding Portfolio.
However, shareholders always will be entitled to redeem shares for cash up to
the lesser of $250,000 or 1% of the applicable Fund's net asset value during any
90 day period. Redemption in kind is not as liquid as a cash redemption. In
addition, if redemption is made in kind, shareholders who receive securities and
sell them could receive less than the redemption value of their securities and
could incur certain transactions costs.
7
<PAGE> 52
NET ASSET VALUE
It is the policy of the Funds to attempt to maintain a constant price per
share of $1.00. There can be no assurance that a $1.00 net asset value per share
will be maintained. The portfolio instruments held by each Fund's corresponding
Portfolio are valued based on the amortized cost valuation technique pursuant to
Rule 2a-7 under the 1940 Act. This involves valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity of any discount or
premium, even though the portfolio security may increase or decrease in market
value. Such market fluctuations are generally in response to changes in interest
rates. Use of the amortized cost valuation method requires the Funds'
corresponding Portfolios to purchase instruments having remaining maturities of
397 days or less, to maintain a dollar-weighted average portfolio maturity of 90
days or less, and to invest only in securities determined by the AMR Trust Board
to be of high quality with minimal credit risks. The corresponding portfolios of
the Money Market Funds may invest in issuers or instruments that at the time of
purchase have received the highest short-term rating by two Rating
Organizations, such as "D-1" by Duff & Phelps and "F-1" by Fitch IBCA, Inc., and
have received the next highest short-term rating by other Rating Organizations,
such as "A-2" by Standard & Poors and "P-2" by Moody's Investors Service, Inc.
See "Ratings of Municipal Obligations" and "Ratings of Short-Term Obligations"
for further information concerning ratings.
TAX INFORMATION
TAXATION OF THE FUNDS
To qualify for treatment as a regulated investment company ("RIC") under the
Internal Revenue Code of 1986, as amended ("Code"), each Fund (each of which is
treated as a separate corporation for these purposes) must, among other
requirements:
o Derive at least 90% of its gross income each taxable year from
dividends, interest, payments with respect to securities loans and
gains from the sale or other disposition of securities or certain
other income;
o Diversify its investments in securities within certain statutory
limits ("Diversification Requirement"); and
o Distribute annually to its shareholders at least 90% of its
investment company taxable income (generally, taxable net investment
income plus net short-term capital gain) plus, in the case of the
Municipal Money Market Funds, net interest income excludable from
gross income under Section 103(a) of the Code ("Distribution
Requirement").
Each Fund, as an investor in its corresponding Portfolio, is deemed to own a
proportionate share of the Portfolio's assets and to earn the income on that
share for purposes of determining whether the Fund satisfies the Income and
Diversification Requirements. If a Fund failed to qualify as a RIC for any
taxable year, it would be taxed on the full amount of its taxable income for
that year without being able to deduct the distributions it makes to its
shareholders and the shareholders would treat all those distributions as
dividends (that is, ordinary income) to the extent of the Fund's earnings and
profits.
TAXATION OF THE PORTFOLIOS
Each Portfolio should be classified as a separate partnership for federal
income tax purposes and is not a "publicly traded partnership." As a result,
each Portfolio is not or should not be subject to federal income tax; instead,
each investor in a Portfolio, such as a Fund, is required to take into account
in determining its federal income tax liability its share of the Portfolio's
income, gains, losses, deductions, credits and tax preference items, without
regard to whether it has received any cash distributions from the Portfolio.
Because, as noted above, each Fund is deemed to own a proportionate share of
its corresponding Portfolio's assets and to earn a proportionate share of its
corresponding Portfolio's income for purposes of determining whether the Fund
satisfies the requirements to qualify as a RIC, each Portfolio intends to
conduct its operations so that its corresponding Fund will be able to satisfy
all those requirements.
8
<PAGE> 53
Distributions to a Fund from its corresponding Portfolio (whether pursuant
to a partial or complete withdrawal or otherwise) will not result in the Fund's
recognition of any gain or loss for federal income tax purposes, except that (1)
gain will be recognized to the extent any cash that is distributed exceeds the
Fund's basis for its interest in the Portfolio before the distribution, (2)
income or gain will be recognized if the distribution is in liquidation of the
Fund's entire interest in the Portfolio and includes a disproportionate share of
any unrealized receivables held by the Portfolio and (3) loss will be recognized
if a liquidation distribution consists solely of cash and/or unrealized
receivables. A Fund's basis for its interest in its corresponding Portfolio
generally will equal the amount of cash and the basis of any property the Fund
invests in the Portfolio, increased by the Fund's share of the Portfolio's net
income and gains and decreased by (a) the amount of cash and the basis of any
property the Portfolio distributes to the Fund and (b) the Fund's share of the
Portfolio's losses.
The Municipal Money Market Funds' corresponding Portfolio may acquire zero
coupon or other securities issued with original issue discount. As investors in
the Portfolio that holds those securities, the Municipal Money Market Funds
would have to include in their income their share of the original issue discount
that accrues on the securities during the taxable year, even if the Portfolio
(and, hence, the Funds) receive no corresponding payment on the securities
during the year. Because each Fund annually must distribute substantially all of
its investment company taxable income, including any original issue discount, to
satisfy the Distribution Requirement and avoid imposition of the 4% excise tax
described in the Prospectus, each Municipal Money Market Fund may be required in
a particular year to distribute as a dividend an amount that is greater than the
total amount of cash it actually receives. Those distributions would be made
from the Fund's cash assets, if any, or the proceeds of redemption of a portion
of each Municipal Money Market Fund's interest in its corresponding Portfolio
(which redemption proceeds would be paid from the Portfolio's cash assets or the
proceeds of sales of portfolio securities, if necessary). The Portfolio might
realize capital gains or losses from any such sales, which would increase or
decrease each Municipal Money Market Fund's investment company taxable income
and/or net capital gain (the excess of net long-term capital gain over net
short-term capital loss).
TAXATION OF THE FUNDS' SHAREHOLDERS
Distributions by the Municipal Money Market Funds of the amount by which the
Funds' shares of their corresponding Portfolio's income on tax-exempt securities
exceeds certain amounts disallowed as deductions, designated by the Funds as
"exempt-interest dividends," generally may be excluded from gross income by
their shareholders. Dividends paid by the Municipal Money Market Funds will
qualify as exempt-interest dividends if, at the close of each quarter of the
taxable year, at least 50% of the value of each Fund's total assets (including
its share of the Municipal Money Market Portfolio's assets) consists of
securities the interest on which is excludable from gross income under Section
103(a) of the Code. The Municipal Money Market Funds intend to continue to
satisfy this requirement. The aggregate dividends excludable from shareholders'
gross income may not exceed the Municipal Money Market Funds' net tax-exempt
income. The shareholders' treatment of dividends from the Municipal Money Market
Funds under state and local income tax laws may differ from the treatment
thereof under the Code.
Exempt-interest dividends received by a corporate shareholder may be
indirectly subject to the alternative minimum tax. In addition, entities or
persons who are "substantial users" (or persons related to "substantial users")
of facilities financed by private activity bonds ("PABs") or industrial
development bonds ("IDBs") should consult their tax advisers before purchasing
shares of either Municipal Money Market Fund because, for users of certain of
these facilities, the interest on those bonds is not exempt from federal income
tax. For these purposes, the term "substantial user" is defined generally to
include a "non-exempt person" who regularly uses in trade or business a part of
a facility financed from the proceeds of PABs or IDBs.
Up to 85% of social security and railroad retirement benefits may be
included in taxable income for recipients whose adjusted gross income (including
income from tax-exempt sources such as the Municipal Money Market Funds) plus
50% of their benefits exceeds certain base amounts. Exempt-interest dividends
from the Municipal Money Market Funds still are tax-exempt to the extent
described above; they are only included in the calculation of whether a
recipient's income exceeds the established amounts.
The foregoing is only a summary of some of the important federal tax
considerations affecting the Funds and their shareholders and is not intended as
a substitute for careful tax planning. Accordingly, prospective investors are
advised to consult their own tax advisers for more detailed information
regarding the above and for information regarding federal, state, local and
foreign taxes.
9
<PAGE> 54
YIELD AND TOTAL RETURN QUOTATIONS
The Platinum Class of the AAdvantage Trust commenced operations on November
7, 1995, the Platinum Class of the Money Market Mileage Fund commenced
operations on January 29, 1996, and the Platinum Class of the Municipal Money
Market Mileage Fund and the U.S. Government Money Market Mileage Fund commenced
operations on October 1, 1999. For purposes of advertising performance, and in
accordance with Securities and Exchange Commission staff interpretations, the
Funds in the AAdvantage Trust have adopted the performance of the Institutional
Class of the Funds in the AAdvantage Trust for periods prior to the inception
date. The Mileage Funds have adopted the performance of the Institutional Class
of the Funds in the AAdvantage Trust (except the Municipal Money Market Mileage
Fund), the Mileage Class of the Funds in the AAdvantage Trust, and the Mileage
Class of the Funds in the Mileage Trust for periods prior to the inception date.
The performance results for the Platinum Class will be lower, because the
figures for the other classes (except for the Mileage Funds) do not reflect the
12b-1 fees, Administrative Services Plan fees or other class expenses that will
be borne by the Platinum Class.
A quotation of yield on shares of the Funds may appear from time to time in
advertisements and in communications to shareholders and others. Quotations of
yields are indicative of yields for the limited historical period used but not
for the future. Yield will vary as interest rates and other conditions change.
Yield also depends on the quality, length of maturity and type of instruments
invested in by the Funds, and the applicable Fund's operating expenses. A
comparison of the quoted yields offered for various investments is valid only if
yields are calculated in the same manner. In addition, other similar investment
companies may have more or less risk due to differences in the quality or
maturity of securities held.
The yields of the Funds may be calculated in one of two ways:
(1) Current Yield--the net average annualized return without compounding
accrued interest income. For a 7-day current yield, this is computed by
dividing the net change in value over a 7 calendar-day period of a
hypothetical account having one share at the beginning of a 7
calendar-day period by the value of the account at the beginning of this
period to determine the "base period return". The quotient is multiplied
by 365 divided by 7 and stated to two decimal places. A daily current
yield is calculated by multiplying the net change in value over one day
by 365 and stating it to two decimal places. Income other than
investment income and capital changes, such as realized gains and losses
from the sale of securities and unrealized appreciation and
depreciation, are excluded in calculating the net change in value of an
account. However, this calculation includes the aggregate fees and other
expenses that are charged to all shareholder accounts in a Fund. In
determining the net change in value of a hypothetical account, this
value is adjusted to reflect the value of any additional shares
purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares.
(2) Effective Yield--the net average annualized return as computed by
compounding accrued interest income. In determining the 7-day effective
yield, a Fund will compute the "base period return" in the same manner
used to compute the "current yield" over a 7 calendar-day period as
described above. One is then added to the base period return and the sum
is raised to the 365/7 power. One is subtracted from the result,
according to the following formula:
(365/7)
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1) ] - 1
The current and effective yields for the Funds are as follows:
<TABLE>
<CAPTION>
Current daily Current yield for Effective yield for
yield as of the seven-day period the seven-day period
April 30, ended April 30, ended April 30,
1999 1999 1999
---- ---- ----
<S> <C> <C> <C>
Platinum Class
Money Market Fund 4.05% 4.04% 4.12%
Municipal Money Market Fund 2.77% 2.58% 2.61%
U.S. Government Money Market Fund 3.89% 3.83% 3.90%
Money Market Mileage Fund 3.95% 3.94% 4.01%
</TABLE>
10
<PAGE> 55
The Municipal Money Market Funds also may advertise a tax-equivalent current
and effective yield. The tax-equivalent yields are calculated as follows:
CURRENT YIELD/(1 - APPLICABLE TAX RATE) = CURRENT TAX-EQUIVALENT YIELD
EFFECTIVE YIELD/(1 - APPLICABLE TAX RATE) = EFFECTIVE TAX-EQUIVALENT YIELD
Based on these formulas, the current and effective tax-equivalent yields for
the Municipal Money Market Fund for the seven day period ending April 30, 1999
were 4.27% and 4.32%, respectively (based upon a 39.6% personal tax rate).
The advertised total return for a class of a Fund would be calculated by
equating an initial amount invested in a class of a Fund to the ending
redeemable value, according to the following formula:
(N)
P(1 + T) = ERV
where "P" is a hypothetical initial payment of $1,000; "T" is the average
annual total return for the Fund; "n" is the number of years involved; and
"ERV" is the ending redeemable value of a hypothetical $1,000 payment made in
the Fund at the beginning of the investment period covered.
Based on this formula, annualized total returns were as follows for the
periods indicated:
<TABLE>
<CAPTION>
For the For the For the For the period from
one-year five-year ten-year commencement of
period ended period ended period ended operations through
April 30, April 30, April 30, April 30,
1999(1) 1999(1) 1999(1) 1999(1)
------- ------- ------- --------------------
<S> <C> <C> <C> <C>
Platinum Class
Money Market Fund 4.62% 4.99% 5.47% 5.82%
Municipal Money Market Fund 2.43% 2.92% N/A(2) 2.85%
U. S. Government Money Mkt. Fund (3) 4.37% 4.76% N/A(2) 4.30%
Money Market Mileage Fund 4.47% 4.80% 5.31% 5.68%
Municipal Money Market Mileage Fund 2.84% 3.08% N/A(2) 2.98%
U.S. Government Money Market Mileage 4.77% 4.93% N/A(2) 4.40%
Fund
</TABLE>
(1) Performance of the Funds of the AAdvantage Trust represents total returns
achieved by the Institutional Class from the inception date of each Fund up to
the inception date of the Platinum Class on 11/7/95. Performance of the Money
Market Mileage Fund represents total returns of the Money Market
Fund-Institutional Class (9/1/87-10/31/91); the Money Market Fund-Mileage Class
(11/1/91-10/31/95); the Money Market Mileage Fund-Mileage Class
(11/1/95-1/28/96) and the Money Market Mileage Fund-Platinum Class since its
1/29/96 inception. Performance of the Municipal Money Market Mileage Fund
represents total returns of the Municipal Money Market Fund-Mileage Class
(11/10/93-10/31/95) and the Municipal Money Market Mileage Fund-Mileage Class
(11/1/95-4/30/99). Performance of the U.S. Government Money Market Mileage Fund
represents total returns of the U.S. Government Money Market Fund-Institutional
Class (3/2/92-10/31/93); the U.S. Government Money Market Fund-Mileage Class
(11/1/93-10/31/95) and the U.S. Government Money Market Mileage Fund-Mileage
Class (11/1/95-4/30/99). Total returns have not been adjusted for any
difference between the fees and expenses of each Fund and the historical fees
and expenses of the predecessor Funds. Inception dates are: Money Market
Fund-Institutional Class, 9/1/87; Municipal Money Market Fund-Institutional
Class, 11/10/93; U.S. Government Money Market Fund-Institutional Class, 3/1/92.
(2) The Fund was not operational during this period.
(3) Prior to March 1, 1997, the U.S. Government Money Market Fund was known as
the U.S. Treasury Money Market Fund and operated under different investment
policies.
Each Fund also may use "aggregate" total return figures for various periods
which represent the cumulative change in value of an investment in a Fund for
the specific period. Such total returns reflect changes in share prices of a
Fund and assume reinvestment of dividends and distributions.
In reports or other communications to shareholders or in advertising
material, each class of a Fund may from time to time compare its performance
with that of other mutual funds in rankings prepared by Lipper Analytical
Services, Inc., Morningstar, Inc., IBC Financial Data, Inc. and other similar
independent services which monitor the performance of mutual funds or
publications such as the "New York Times," "Barrons" and the "Wall Street
Journal." Each Fund also may compare its performance with various indices
prepared by independent
11
<PAGE> 56
services such as Standard & Poor's, Merrill Lynch, Morgan Stanley or Lehman
Brothers or to unmanaged indices that may assume reinvestment of dividends but
generally do not reflect deductions for administrative and management costs.
Advertisements for the Funds may mention that the Funds offer a variety of
investment options. They also may compare the Funds to federally insured
investments such as bank certificates of deposit and credit union deposits,
including the long-term effects of inflation on these types of investments.
Advertisements also may compare the historical rate of return of different types
of investments. Information concerning broker-dealers who sell the Funds also
may appear in advertisements for the Funds, including their ranking as
established by various publications compared to other broker-dealers.
From time to time, the Manager may use contests as a means of promoting the
AAdvantage Trust and the Mileage Trust. Prizes may include free air travel
and/or hotel accommodations. Listings for certain of the Funds may be found in
newspapers under the heading Amer AAdvant.
DESCRIPTION OF THE TRUSTS
The AAdvantage Trust, organized on January 16, 1987 and the Mileage Trust,
organized on February 22, 1995, (originally named American AAdvantage Funds II)
are entities of the type commonly known as a "Massachusetts business trust."
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable for its obligations. However, each
Trust's Declaration of Trust contains an express disclaimer of shareholder
liability for acts or obligations of the Trust and provides for indemnification
and reimbursement of expenses out of Trust property for any shareholder held
personally liable for the obligations of the Trust. The Declaration of Trust
also provides that the Trusts may maintain appropriate insurance (for example,
fidelity bonding) for the protection of the Trust, its shareholders, Trustees,
officers, employees and agents to cover possible tort and other liabilities.
Thus, the risk of a shareholder incurring financial loss due to shareholder
liability is limited to circumstances in which both inadequate insurance existed
and the Trust itself was unable to meet its obligations. The Trust has not
engaged in any other business. The Platinum Class was created as an investment
vehicle for cash balances of customers of certain broker-dealers.
OTHER INFORMATION
Asset-Backed Securities-Through the use of trusts and special purpose
subsidiaries, various types of assets (primarily home equity loans, automobile
and credit card receivables, other types of receivables/assets as well as
purchase contracts, financing leases and sales agreements entered into by
municipalities) are securitized in pass-through structures similar to
Mortgage-Backed Securities, as described below. The Portfolios are permitted to
invest in asset-backed securities, subject to the Portfolios' rating and quality
requirements.
Bank Deposit Notes-Bank deposit notes are obligations of a bank, rather than
bank holding company corporate debt. The only structural difference between bank
deposit notes and certificates of deposit is that interest on bank deposit notes
is calculated on a 30/360 basis as are corporate notes/bonds. Similar to
certificates of deposit, deposit notes represent bank level investments and,
therefore, are senior to all holding company corporate debt.
Bankers' Acceptances-Bankers' acceptances are short-term credit instruments
designed to enable businesses to obtain funds to finance commercial
transactions. Generally, an acceptance is a time draft drawn on a bank by an
exporter or an importer to obtain a stated amount of funds to pay for specific
merchandise. The draft is then "accepted" by a bank that, in effect,
unconditionally guarantees to pay the face value of the instrument on its
maturity date. The acceptance may then be held by the accepting bank as an
earning asset or it may be sold in the secondary market at the going rate of
discount for a specific maturity. Although maturities for acceptances can be as
long as 270 days, most acceptances have maturities of six months or less.
Cash Equivalents-Cash equivalents include certificates of deposit, bearer
deposit notes, bankers' acceptances, government obligations, commercial paper,
short-term corporate debt securities and repurchase agreements.
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Certificates of Deposit-Certificates of deposit are issued against funds
deposited in an eligible bank (including its domestic and foreign branches,
subsidiaries and agencies), are for a definite period of time, earn a specified
rate of return and are normally negotiable.
Commercial Paper-Commercial paper refers to promissory notes representing an
unsecured debt of a corporation or finance company with a fixed maturity of no
more than 270 days. A variable amount master demand note (which is a type of
commercial paper) represents a direct borrowing arrangement involving
periodically fluctuating rates of interest under a letter agreement between a
commercial paper issuer and an institutional lender pursuant to which the lender
may determine to invest varying amounts.
Derivatives-Generally, a derivative is a financial arrangement, the value of
which is based on, or "derived" from, a traditional security, asset or market
index. Some "derivatives" such as mortgage-related and other asset-backed
securities are in many respects like any other investment, although they may be
more volatile or less liquid than more traditional debt securities. There are,
in fact, many different types of derivatives and many different ways to use
them. There are a range of risks associated with those uses.
Eurodollar and Yankeedollar obligations-Eurodollar obligations are U.S.
dollar obligations issued outside the United States by domestic or foreign
entities, while Yankeedollar obligations are U.S. dollar obligations issued
inside the United States by foreign entities. There is generally less publicly
available information about foreign issuers and there may be less governmental
regulation and supervision of foreign stock exchanges, brokers and listed
companies. Foreign issuers may use different accounting and financial standards,
and the addition of foreign governmental restrictions may affect adversely the
payment of principal and interest on foreign investments. In addition, not all
foreign branches of United States banks are supervised or examined by regulatory
authorities as are United States banks, and such branches may not be subject to
reserve requirements.
Full Faith and Credit Obligations of the U.S. Government-Securities issued
or guaranteed by the U.S. Treasury, backed by the full taxing power of the U.S.
Government or the right of the issuer to borrow from the U.S. Treasury.
General Obligation Bonds-General obligation bonds are secured by the
pledge of the issuer's full faith, credit, and usually, taxing power. The
taxing power may be an unlimited ad valorem tax or a limited tax, usually on
real estate and personal property. Most states do not tax real estate, but
leave that power to local units of government.
Illiquid Securities-Historically, illiquid securities have included
securities subject to contractual or legal restrictions on resale because they
have not been registered under the 1933 Act, securities that are otherwise not
readily marketable and repurchase agreements having a remaining maturity of
longer than seven calendar days. Securities that have not been registered under
the 1933 Act are referred to as private placements or restricted securities and
are purchased directly from the issuer or in the secondary market. Mutual funds
do not typically hold a significant amount of these restricted or other
illiquid securities because of the potential for delays on resale and
uncertainty in valuation. Limitations on resale may have an adverse effect on
the marketability of portfolio securities and a mutual fund might be unable to
dispose of restricted or other illiquid securities promptly or at reasonable
prices and might thereby experience difficulty satisfying redemptions within
seven calendar days. A mutual fund also might have to register such restricted
securities in order to dispose of them resulting in additional expense and
delay. Adverse market conditions could impede such a public offering of
securities.
In recent years, however, a large institutional market has developed for
certain securities that are not registered under the 1933 Act, including
repurchase agreements, commercial paper, foreign securities, municipal
securities and corporate bonds and notes. Institutional investors depend on an
efficient institutional market in which the unregistered security can be
readily resold or on an issuer's ability to honor a demand for repayment.
However, the fact that there are contractual or legal restrictions on resale of
such investments to the general public or to certain institutions may not be
indicative of their liquidity.
Loan Participation Interests-Loan participation interests represent
interests in bank loans made to corporations. The contractual arrangement with
the bank transfers the cash stream of the underlying bank loan to the
participating investor. Because the issuing bank does not guarantee the
participations, they are subject to the credit risks generally associated with
the underlying corporate borrower. In addition, because it may be necessary
under the terms of the loan participation for the investor to assert through
the issuing bank such
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rights as may exist against the underlying corporate borrower, in the event the
underlying corporate borrower fails to pay principal and interest when due, the
investor may be subject to delays, expenses and risks that are greater than
those that would have been involved if the investor had purchased a direct
obligation (such as commercial paper) of such borrower. Moreover, under the
terms of the loan participation, the investor may be regarded as a creditor of
the issuing bank (rather than of the underlying corporate borrower), so that the
issuer also may be subject to the risk that the issuing bank may become
insolvent. Further, in the event of the bankruptcy or insolvency of the
corporate borrower, the loan participation may be subject to certain defenses
that can be asserted by such borrower as a result of improper conduct by the
issuing bank. The secondary market, if any, for these loan participations is
extremely limited and any such participations purchased by the investor are
regarded as illiquid.
Loan Transactions-Loan transactions involve the lending of securities to a
broker-dealer or institutional investor for its use in connection with short
sales, arbitrages or other security transactions. The purpose of a qualified
loan transaction is to afford a lender the opportunity to continue to earn
income on the securities loaned and at the same time earn fee income or income
on the collateral held by it.
Securities loans will be made in accordance with the following conditions:
(1) the Portfolio must receive at least 100% collateral in the form of cash or
cash equivalents, securities of the U.S. Government and its agencies and
instrumentalities, and approved bank letters of credit; (2) the borrower must
increase the collateral whenever the market value of the loaned securities
(determined on a daily basis) rises above the level of collateral; (3) the
Portfolio must be able to terminate the loan after notice, at any time; (4) the
Portfolio must receive reasonable interest on the loan or a flat fee from the
borrower, as well as amounts equivalent to any dividends, interest or other
distributions on the securities loaned, and any increase in market value of the
loaned securities; (5) the Portfolio may pay only reasonable custodian fees in
connection with the loan; and (6) voting rights on the securities loaned may
pass to the borrower, provided, however, that if a material event affecting the
investment occurs, the AMR Trust Board must be able to terminate the loan and
vote proxies or enter into an alternative arrangement with the borrower to
enable the AMR Trust Board to vote proxies.
While there may be delays in recovery of loaned securities or even a loss of
rights in collateral supplied should the borrower fail financially, loans will
be made only to firms deemed by the AMR Trust Board to be of good financial
standing and will not be made unless the consideration to be earned from such
loans would justify the risk. If the borrower of the securities fails
financially, there is a risk of delay in recovery of the securities loaned or
loss of rights in the collateral. Such loan transactions are referred to in this
Statement of Additional Information as "qualified" loan transactions.
The cash collateral so acquired through qualified loan transactions may be
invested only in those categories of high quality liquid securities previously
authorized by the AMR Trust Board.
Mortgage-Backed Securities-Mortgage-backed securities consist of both
collateralized mortgage obligations and mortgage pass-through certificates.
Collateralized Mortgage Obligations ("CMOs")-CMOs and interests in real
estate mortgage investment conduits ("REMICs") are debt securities
collateralized by mortgages, or mortgage pass-through securities. CMOs divide
the cash flow generated from the underlying mortgages or mortgage pass-through
securities into different groups referred to as "tranches," which are then
retired sequentially over time in order of priority. The principal governmental
issuers of such securities are the Federal National Mortgage Association
("FNMA"), a government sponsored corporation owned entirely by private
stockholders and the Federal Home Loan Mortgage Corporation ("FHLMC"), a
corporate instrumentality of the United States created pursuant to an act of
Congress which is owned entirely by Federal Home Loan Banks. The issuers of CMOs
are structured as trusts or corporations established for the purpose of issuing
such CMOs and often have no assets other than those underlying the securities
and any credit support provided. A REMIC is a mortgage securities vehicle that
holds residential or commercial mortgages and issues securities representing
interests in those mortgages. A REMIC may be formed as a corporation,
partnership, or segregated pool of assets. The REMIC itself is generally exempt
from federal income tax, but the income from the mortgages is reported by
investors. For investment purposes, interests in REMIC securities are virtually
indistinguishable from CMOs.
Mortgage Pass-Through Certificates-Mortgage pass-through certificates are
issued by governmental, government-related and private organizations which are
backed by pools of mortgage loans.
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(1) Government National Mortgage Association ("GNMA") Mortgage Pass-Through
Certificates ("Ginnie Maes")-GNMA is a wholly-owned U.S. Government corporation
within the Department of Housing and Urban Development. Ginnie Maes represent an
undivided interest in a pool of mortgages that are insured by the Federal
Housing Administration or the Farmers Home Administration or guaranteed by the
Veterans Administration. Ginnie Maes entitle the holder to receive all payments
(including prepayments) of principal and interest owed by the individual
mortgagors, net of fees paid to GNMA and to the issuer which assembles the
mortgage pool and passes through the monthly mortgage payments to the
certificate holders (typically, a mortgage banking firm), regardless of whether
the individual mortgagor actually makes the payment. Because payments are made
to certificate holders regardless of whether payments are actually received on
the underlying mortgages, Ginnie Maes are of the "modified pass-through"
mortgage certificate type. The GNMA is authorized to guarantee the timely
payment of principal and interest on the Ginnie Maes. The GNMA guarantee is
backed by the full faith and credit of the United States, and the GNMA has
unlimited authority to borrow funds from the U.S. Treasury to make payments
under the guarantee. The market for Ginnie Maes is highly liquid because of the
size of the market and the active participation in the secondary market of
security dealers and a variety of investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie Macs")-Freddie Macs
represent interests in groups of specified first lien residential conventional
mortgages underwritten and owned by the FHLMC. Freddie Macs entitle the holder
to timely payment of interest, which is guaranteed by the FHLMC. The FHLMC
guarantees either ultimate collection or timely payment of all principal
payments on the underlying mortgage loans. In cases where the FHLMC has not
guaranteed timely payment of principal, the FHLMC may remit the amount due
because of its guarantee of ultimate payment of principal at any time after
default on an underlying mortgage, but in no event later than one year after it
becomes payable. Freddie Macs are not guaranteed by the United States or by any
of the Federal Home Loan Banks and do not constitute a debt or obligation of the
United States or of any Federal Home Loan Bank. The secondary market for Freddie
Macs is highly liquid because of the size of the market and the active
participation in the secondary market of the FHLMC, security dealers and a
variety of investors.
(3) FNMA Guaranteed Mortgage Pass-Through Certificates ("Fannie
Maes")-Fannie Maes represent an undivided interest in a pool of conventional
mortgage loans secured by first mortgages or deeds of trust, on one family or
two to four family, residential properties. The FNMA is obligated to distribute
scheduled monthly installments of principal and interest on the mortgages in the
pool, whether or not received, plus full principal of any foreclosed or
otherwise liquidated mortgages. The obligation of the FNMA under its guarantee
is solely its obligation and is not backed by, nor entitled to, the full faith
and credit of the United States.
(4) Mortgage-Related Securities Issued by Private Organizations-Pools
created by non-governmental issuers generally offer a higher rate of interest
than government and government-related pools because there are no direct or
indirect government guarantees of payments in such pools. However, timely
payment of interest and principal of these pools is often partially supported by
various enhancements such as over-collateralization and senior/subordination
structures and by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance. The insurance and guarantees are issued
by government entities, private insurers or the mortgage poolers. Although the
market for such securities is becoming increasingly liquid, securities issued by
certain private organizations may not be readily marketable.
Municipal Lease Obligations ("MLOs")-MLOs are issued by state and local
governments and authorities to acquire land and a wide variety of equipment and
facilities. These obligations typically are not fully backed by the
municipality's credit and thus interest may become taxable if the lease is
assigned. If funds are not appropriated for the following year's lease payments,
a lease may terminate with the possibility of default on the lease obligation.
With respect to MLOs purchased by the corresponding Portfolio of the Municipal
Money Market Fund, the AMR Trust Board has established the following guidelines
for determining the liquidity of the MLOs in its portfolio, and, subject to
review by the AMR Trust Board, has delegated that responsibility to the
investment adviser: (1) the frequency of trades and quotes for the security; (2)
the number of dealers willing to purchase or sell the security and the number of
other potential buyers; (3) the willingness of dealers to undertake to make a
market in the security; (4) the nature of the marketplace trades; (5) the
likelihood that the marketability of the obligation will be maintained through
the time the security is held by the Portfolio; (6) the credit quality of the
issuer and the lessee; (7) the essentiality to the lessee of the property
covered by the lease and (8) for unrated MLOs, the MLOs' credit status analyzed
according to the factors reviewed by rating agencies.
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Private Activity Obligations-Private activity obligations are issued to
finance, among other things, privately operated housing facilities, pollution
control facilities, convention or trade show facilities, mass transit, airport,
port or parking facilities and certain facilities for water supply, gas,
electricity, sewage or solid waste disposal. Private activity obligations are
also issued to privately held or publicly owned corporations in the financing of
commercial or industrial facilities. The principal and interest on these
obligations may be payable from the general revenues of the users of such
facilities. Shareholders, depending on their individual tax status, may be
subject to the federal alternative minimum tax on the portion of a distribution
attributable to these obligations. Interest on private activity obligations will
be considered exempt from federal income taxes; however, shareholders should
consult their own tax advisers to determine whether they may be subject to the
federal alternative minimum tax.
Ratings of Long-Term Obligations-The Portfolio utilizes ratings provided by
the following nationally recognized statistical rating organizations ("Rating
Organizations") in order to determine eligibility of long-term obligations.
The two highest Moody's Investors Service, Inc. ("Moody's") ratings for
long-term obligations (or issuers thereof) are Aaa and Aa. Obligations rated Aaa
are judged by Moody's to be of the best quality. Obligations rated Aa are judged
to be of high quality by all standards. Together with the Aaa group, such debt
comprises what is generally known as high-grade debt. Moody's states that debt
rated Aa is rated lower than Aaa debt because margins of protection or other
elements make long-term risks appear somewhat larger than for Aaa debt. Moody's
also supplies numerical indicators 1, 2, and 3 to rating categories. The
modifier 1 indicates that the security is in the higher end of its rating
category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates
a ranking toward the lower end of the category.
The two highest Standard & Poor's ratings for long-term obligations are AAA
and AA. Obligations rated AAA have the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
Obligations rated AA have a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.
Duff & Phelps' two highest ratings for long-term obligations are AAA and AA.
Obligations rated AAA have the highest credit quality with risk factors being
negligible. Obligations rated AA are of high credit quality and strong
protection factors. Risk is modest but may vary slightly from time to time
because of economic conditions.
Thomson BankWatch ("BankWatch") long-term debt ratings apply to specific
issues of long-term debt and preferred stock. They specifically assess the
likelihood of an untimely repayment of principal or interest over the term to
maturity of the rated instrument. BankWatch's two highest ratings for long-term
obligations are AAA and AA. Obligations rated AAA indicate that the ability to
repay principal and interest on a timely basis is very high. Obligations rated
AA indicate a superior ability to repay principal and interest on a timely
basis, with limited incremental risk compared to issues rated in the highest
category.
Fitch IBCA, Inc. ("Fitch") investment grade bond ratings provide a guide to
investors in determining the credit risk associated with a particular security.
The ratings represent Fitch's assessment of the issuer's ability to meet the
obligations of a specific debt issue or class of debt in a timely manner.
Obligations rated AAA are considered to be investment grade and of the highest
credit quality. The obligor has an exceptionally strong ability to pay interest
and repay principal, which is unlikely to be affected by reasonable foreseeable
events. Bonds rated AA are considered to be investment grade and of very high
credit quality. The obligor's ability to pay interest and repay principal is
very strong, although not quite as strong as bonds rated AAA.
Standard & Poor's, Duff & Phelps and Fitch apply indicators, such as
"+","-," or no character, to indicate relative standing within the major rating
categories.
Ratings of Municipal Obligations-Moody's ratings for state and municipal
short-term obligations are designated Moody's Investment Grade or "MIG" with
variable rate demand obligations being designated as "VMIG." A VMIG rating also
may be assigned to commercial paper programs which are characterized as having
variable short-term maturities but having neither a variable rate nor demand
feature. Factors used in determination of ratings include liquidity of the
borrower and short-term cyclical elements.
Standard & Poor's uses SP-1, SP-2, and SP-3 to rate short-term municipal
obligations. A rating of SP-1 denotes a very strong or strong capacity to pay
principal and interest.
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Ratings of Short-term Obligations-The rating P-1 is the highest short-term
rating assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluations of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and customer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations.
Short-term obligations (or issuers thereof) rated A-1 by Standard & Poor's
have the following characteristics. Liquidity ratios are adequate to meet cash
requirements. The issuer has access to at least two additional channels of
borrowing. Basic earnings and cash flow have an upward trend with allowance made
for unusual circumstances. Typically, the issuer's industry is well established
and the issuer has a strong position within the industry. The reliability and
quality of management are unquestioned. Relative strength or weakness of the
above factors determines whether the issuer's short-term obligation is rated
A-1, A-2, or A-3.
The distinguishing feature of Duff & Phelps Credit Ratings' short-term
rating is the refinement of the traditional 1 category. The majority of
short-term debt issuers carry the highest rating, yet quality differences exist
within that tier. Obligations rated D-1+ indicate the highest certainty of
timely payment. Safety is just below risk-free U.S. Treasury obligations.
Obligations rated D-1 have a very high certainty of timely payment. Risk factors
are minor. Obligations rated D-1- have a high certainty of timely payment. Risk
factors are very small. Obligations rated D-2 have good certainty of timely
payment. Liquidity factors and company fundamentals are sound. Although ongoing
funding needs may enlarge total financing requirements, access to capital
markets is good. Risk factors are small.
Thomson BankWatch short-term ratings are intended to assess the likelihood
of an untimely or incomplete payment of principal or interest. Obligations rated
TBW-1 indicate a very high likelihood that principal and interest will be paid
on a timely basis. While the degree of safety regarding timely payment of
principal and interest is strong for an obligation rated TBW-2, the relative
degree of safety is not as high as for issues rated TBW-1.
Fitch's short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years, including
commercial paper, certificates of deposit, medium-term notes, and municipal and
investment notes. A rating of F-1+ indicates exceptionally strong credit
quality. Issues assigned this rating are regarded as having the strongest degree
of assurance for timely payment. Obligations rated F-1 have very strong credit
quality. Issues assigned this rating reflect an assurance of timely payment only
slightly less in degree than issues rated F-1+. Issues assigned a rating of F-2
indicate good credit quality. Issues assigned this rating have a satisfactory
degree of assurance for timely payment, but the margin of safety is not as great
as for issues assigned F-1+ and F-1 ratings.
Repurchase Agreements-A repurchase agreement, which provides a means to earn
income on funds for periods as short as overnight, is an arrangement under which
the purchaser (e.g., a Portfolio) purchases securities and the seller agrees, at
the time of sale, to repurchase the securities at a specified time and price.
The repurchase price will be higher than the purchase price, the difference
being income to the purchaser, or the purchase and repurchase prices may be the
same, with interest at a stated rate due to the purchaser together with the
repurchase price on repurchase. In either case, the income to the purchaser is
unrelated to the interest rate on the securities subject to the repurchase
agreement.
Each Portfolio may enter into repurchase agreements with any bank or
registered broker-dealer who, in the opinion of the AMR Trust Board presents a
minimum risk of bankruptcy during the term of the agreement based upon
guidelines that periodically are reviewed by the AMR Trust Board. Each Portfolio
may enter into repurchase agreements as a short-term investment of its idle cash
in order to earn income. The securities will be held by a custodian (or agent)
approved by the AMR Trust Board during the term of the agreement. However, if
the market value of the securities subject to the repurchase agreement becomes
less than the repurchase price (including interest), the Portfolio will direct
the seller of the securities to deliver additional securities so that the market
value of all securities subject to the repurchase agreement will equal or exceed
the repurchase price.
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In the event of the commencement of bankruptcy or insolvency proceedings
with respect to the seller of the securities before the repurchase of the
securities under a repurchase agreement, a Portfolio may encounter a delay and
incur costs before being able to sell the security being held as collateral.
Delays may involve loss of interest or decline in price of the securities. Apart
from the risk of bankruptcy or insolvency proceedings, there is also the risk
that the seller may fail to repurchase the securities, in which case a Portfolio
may incur a loss if the proceeds to the Portfolio from the sale of the
securities to a third party are less than the repurchase price.
Reverse Repurchase Agreements-The Portfolios may borrow funds for temporary
purposes by entering into reverse repurchase agreements. Pursuant to such
agreements, a Portfolio would sell portfolio securities to financial
institutions such as banks and broker/dealers and agree to repurchase them at a
mutually agreed-upon date and price. The Portfolios intend to enter into reverse
repurchase agreements only to avoid selling securities to meet redemptions
during market conditions deemed unfavorable by the investment adviser possessing
investment authority. At the time a Portfolio enters into a reverse repurchase
agreement, it will place in a segregated custodial account assets such as liquid
high quality debt securities having a value not less than 100% of the repurchase
price (including accrued interest), and will subsequently monitor the account to
ensure that such required value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Portfolio may
decline below the price at which such Portfolio is obligated to repurchase the
securities. Reverse repurchase agreements are considered to be borrowings by an
investment company under the 1940 Act.
Resource Recovery Obligations-Resource recovery obligations are a type of
municipal revenue obligation issued to build facilities such as solid waste
incinerators or waste-to-energy plants. Usually, a private corporation will be
involved and the revenue cash flow will be supported by fees or units paid by
municipalities for use of the facilities. The viability of a resource recovery
project, environmental protection regulations and project operator tax
incentives may affect the value and credit quality of these obligations.
Revenue Obligations-Revenue obligations are backed by the revenue cash flow
of a project or facility.
Section 4(2) Securities-Section 4(2) securities are restricted as to
disposition under the federal securities laws, and generally are sold to
institutional investors, such as the Portfolio, that agree they are purchasing
the securities for investment and not with an intention to distribute to the
public. Any resale by the purchaser must be pursuant to an exempt transaction
and may be accomplished in accordance with Rule 144A. Section 4(2) securities
normally are resold to other institutional investors through or with the
assistance of the issuer or dealers that make a market in the Section 4(2)
securities, thus providing liquidity.
The AMR Trust Board and the applicable investment adviser will carefully
monitor the Portfolio's investments in Section 4(2) securities offered and sold
under Rule 144A, focusing on such important factors, among others, as valuation,
liquidity, and availability of information. Investments in Section 4(2)
securities could have the effect of reducing the Portfolio's liquidity to the
extent that qualified institutional buyers no longer wish to purchase these
restricted securities.
Separately Traded Registered Interest and Principal Securities and Zero
Coupon Obligations-Separately traded registered interest and principal
securities or "STRIPS" and zero coupon obligations are securities that do not
make regular interest payments. Instead they are sold at a discount from their
face value. Each Portfolio will take into account as income a portion of the
difference between these obligations' purchase prices and their face values.
Because they do not pay coupon income, the prices of STRIPS and zero coupon
obligations can be very volatile when interest rates change. STRIPS are zero
coupon bonds issued by the U.S. Treasury.
Tax, Revenue or Bond Anticipation Notes-Tax, revenue or bond anticipation
notes are issued by municipalities in expectation of future tax or other
revenues which are payable from these specific taxes or revenues. Bond
anticipation notes usually provide interim financing in advance of an issue of
bonds or notes, the proceeds of which are used to repay the anticipation notes.
Tax-exempt commercial paper is issued by municipalities to help finance
short-term capital or operating needs in anticipation of future tax or other
revenue.
U.S. Government Securities-U.S. Government securities are issued or
guaranteed by the U.S. Government and include U.S. Treasury obligations (see
definition below) and securities issued by U.S. agencies and instrumentalities.
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U. S. Government agencies or instrumentalities that issue or guarantee
securities include, but are not limited to, the Federal Housing Administration,
Farmers Home Administration, Export-Import Bank of the United States, Small
Business Administration, GNMA, General Services Administration, Central Bank for
Cooperatives, Federal Home Loan Banks, FHLMC, Federal Intermediate Credit Banks,
Federal Land Banks, Maritime Administration, Tennessee Valley Authority,
District of Columbia Armory Board, Inter-American Development Bank,
Asian-American Development Bank, Agency for International Development, Student
Loan Marketing Association and International Bank of Reconstruction and
Development.
Obligations of U.S. Government agencies and instrumentalities may or may not
be supported by the full faith and credit of the United States. Some are backed
by the right of the issuer to borrow from the Treasury; others are supported by
discretionary authority of the U.S. Government to purchase the agencies'
obligations; while still others, such as the Student Loan Marketing Association,
are supported only by the credit of the instrumentality. In the case of
securities not backed by the full faith and credit of the United States, the
investor must look principally to the agency issuing or guaranteeing the
obligation for ultimate repayment, and may not be able to assert a claim against
the United States itself in the event the agency or instrumentality does not
meet its commitment.
U.S. Treasury Obligations-U.S. Treasury obligations include bills, notes and
bonds issued by the U.S. Treasury and Separately Traded Registered Interest and
Principal component parts of such obligations known as STRIPS.
Variable or Floating Rate Obligations-A variable rate obligation is one
whose terms provide for the adjustment of its interest rate on set dates and
which, upon such adjustment, can reasonably be expected to have a market value
that approximates its par value. A floating rate obligation is one whose terms
provide for the adjustment of its interest rate whenever a specified interest
rate changes and which, at any time, can reasonably be expected to have a market
value that approximates its par value. Variable or floating rate obligations may
be secured by bank letters of credit.
Pursuant to Rule 2a-7 under the 1940 Act, variable or floating rate
obligations with stated maturities of more than 397 days may be deemed to have
shorter maturities as follows:
(1) An obligation that is issued or guaranteed by the United States
Government or any agency thereof which has a variable rate of interest
readjusted no less frequently than every 762 days will be deemed by a Portfolio
to have a maturity equal to the period remaining until the next readjustment of
the interest rate.
(2) A variable rate obligation, the principal amount of which is scheduled
on the face of the instrument to be paid in 397 days or less, will be deemed by
a Portfolio to have a maturity equal to the period remaining until the next
readjustment of the interest rate.
(3) A variable rate obligation that is subject to a demand feature will be
deemed by a Portfolio to have a maturity equal to the longer of the period
remaining until the next readjustment of the interest rate or the period
remaining until the principal amount can be recovered through demand.
(4) A floating rate obligation that is subject to a demand feature will be
deemed by a Portfolio to have a maturity equal to the period remaining until the
principal amount can be recovered through demand.
As used above, an obligation is "subject to a demand feature" when a
Portfolio is entitled to receive the principal amount of the obligation either
at any time on no more than 30 days' notice or at specified intervals not
exceeding one year and upon no more than 30 days' notice.
Variable Rate Auction and Residual Interest Obligations-Variable rate
auction and residual interest obligations are created when an issuer or dealer
separates the principal portion of a long-term, fixed-rate municipal bond into
two long-term, variable-rate instruments. The interest rate on one portion
reflects short-term interest rates, while the interest rate on the other portion
is typically higher than the rate available on the original fixed-rate bond.
19
<PAGE> 64
FINANCIAL STATEMENTS
The American AAdvantage Money Market Funds' and the American AAdvantage
Mileage Funds' Semi-Annual Reports to Shareholders for the period ended April
30, 1999 and the Annual Reports to Shareholders for the fiscal year ended
October 31, 1998, as audited by Ernst & Young, LLP, are supplied with the SAI,
and the financial statements and accompanying notes appearing therein are
incorporated by reference in this SAI.
20
<PAGE> 65
AMERICAN AADVANTAGE MILEAGE FUNDS
PART C. OTHER INFORMATION
Item 23. Exhibits
<TABLE>
<S> <C>
(a) Amended and Restated Declaration of Trust - (ii)
(b) Amended Bylaws - (ii)
(c) Voting trust agreement -- none
(d)(i)(A) Management Agreement between American AAdvantage
Mileage Funds and AMR Investment Services, Inc.
dated October 1, 1995 - (ii)
(i)(B) Supplement to Management Agreement dated December
17, 1996 - (i)
(ii)(A) Investment Advisory Agreement between AMR Investment
Services, Inc. and Independence Investment
Associates, Inc. dated November 1, 1995 - (ii)
(ii)(B) Investment Advisory Agreement between AMR Investment
Services, Inc. and Morgan Stanley Asset Management
Inc. dated November 1, 1995 - (ii)
(ii)(C) Investment Advisory Agreement between AMR Investment
Services, Inc. and Templeton Investment Counsel,
Inc. dated November 1, 1995 - (ii)
(ii)(D) Investment Advisory Agreement between AMR Investment
Services, Inc. and Barrow, Hanley, Mewhinney &
Strause, Inc. dated November 1, 1995 - (ii)
(ii)(E) Investment Advisory Agreement between AMR Investment
Services, Inc. and GSB Investment Management, Inc.
dated November 1, 1995 - (ii)
(ii)(F) Investment Advisory Agreement between AMR Investment
Services, Inc. and Brandywine Asset Management, Inc.
dated January 16, 1998 - (iii)
(ii)(G) Investment Advisory Agreement between AMR Investment
Services, Inc. and Hotchkis and Wiley, a division of
the Capital Management Group of Merrill Lynch Asset
Management, L.P. dated November 12, 1996 - (i)
(ii)(H) Form of Investment Advisory Agreement between AMR
Investment Services, Inc. and Lazard Asset
Management - (iv)
(ii)(I) Amendment to Schedule A of Advisory Agreement
between AMR Investment Services, Inc. and Brandywine
Asset Management, Inc. - (v)
(ii)(J) Amendment to Schedule A of Advisory Agreement
between AMR Investment Services, Inc. and Hotchkis
and Wiley, a division of the Capital Management
Group of Merrill Lynch Asset Management, L.P. - (v)
(ii)(K) Form of Amendment to Schedule A of Advisory
Agreement between AMR Investment Services, Inc. and
Independence Investment Associates, Inc. - (iv)
</TABLE>
<PAGE> 66
<TABLE>
<S> <C>
(e) Distribution Agreement among the American AAdvantage
Mileage Funds, the American AAdvantage Funds and
Brokers Transaction Services, Inc. dated September
1, 1995 - (ii)
(f) Bonus, profit sharing or pension plans -- none
(g) Custodian Agreement between the American AAdvantage
Mileage Funds and State Street Bank and Trust
Company dated December 1, 1997 - (iii)
(h)(i) Transfer Agency and Service Agreement between the
American AAdvantage Mileage Funds-and State Street
Bank and Trust Company dated January 1, 1998 - (iii)
(ii) Securities Lending Authorization Agreement between
American AAdvantage Mileage Funds and State Street
Bank and Trust Company dated January 2, 1998 - (iii)
(i) Opinion and consent of counsel - filed herewith
(j) Consent of Independent Auditors - filed herewith
(k) Financial statements omitted from prospectus -- (not
applicable)
(l) Letter of investment intent - (ii)
(m)(i) Plan pursuant to Rule 12b-1 for the Mileage Class -
(ii)
(ii) Plan pursuant to Rule 12b-1 for the Platinum Class -
(ii)
(iii) Administrative Services Plan for the Platinum Class
- (ii)
(n) Financial Data Schedules - (not applicable)
(o) Plan Pursuant to Rule 18f-3 - (ii)
Other: Powers of Attorney for Trustees - (i)
</TABLE>
- -----------------------
(i) Incorporated by reference to Post-Effective Amendment No. 4 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on February 13,
1997.
(ii) Incorporated by reference to Post-Effective Amendment No. 4 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on December 15,
1997.
(iii) Incorporated by reference to Post-Effective Amendment No. 6 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on February 26,
1998.
(iv) Incorporated by reference to Post-Effective Amendment No. 8 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on March 1, 1999.
(v) To be filed by subsequent amendment.
C-2
<PAGE> 67
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
Article XI, Section 2 of the Declaration of Trust of the Mileage Trust
provides that:
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Mileage Trust (hereinafter referred to as "Covered Person") shall be
indemnified by the appropriate portfolios to the fullest extent permitted by
law against liability and against all expenses reasonably incurred or paid by
him in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or having been
a Trustee or officer and against amounts paid or incurred by him in the
settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or other,
including appeals), actual or threatened while in office or thereafter, and the
words "liability" and "expenses" shall include, without limitation, attorneys'
fees, costs, judgments, amounts paid in settlement, fines, penalties and other
liabilities.
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Mileage Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his office or (B)
not to have acted in good faith in the reasonable belief that his action was in
the best interest of the Mileage Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Mileage Trust nor are parties to the matter based
upon a review of readily available facts (as opposed to a full trial-type
inquiry); or (C) by written opinion of independent legal counsel based upon a
review of readily available facts (as opposed to a full trial-type inquiry);
provided, however, that any Shareholder may, by appropriate legal proceedings,
challenge any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Mileage Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered Person may
now or hereafter be entitled, shall continue as to a person who has ceased to
be such Trustee or officer and shall inure to the benefit of the heirs,
executors and
C-3
<PAGE> 68
administrators of such a person. Nothing contained herein shall affect any
rights to indemnification to which Mileage Trust personnel, other than Trustees
and officers, and other persons may be entitled by contract or otherwise under
law.
(d) Expenses in connection with the preparation and presentation
of a defense to any claim, action, suit, or proceeding of the character
described in paragraph (a) of this Section 2 may be paid by the applicable
Portfolio from time to time prior to final disposition thereof upon receipt of
an undertaking by or on behalf of such Covered Person that such amount will be
paid over by him to the Mileage Trust if it is ultimately determined that he is
not entitled to indemnification under this Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate
security for such undertaking;
(ii) the Mileage Trust is insured against losses arising out
of any such advance payments; or
(iii) either a majority of the Trustees who are neither
interested persons of the Mileage Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined, based
upon a review of readily available facts (as opposed to a trial-type inquiry or
full investigation), that there is reason to believe that such Covered Person
will be found entitled to indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the
Mileage Trust is a trust, not a partnership. Trustees are not liable personally
to any person extending credit to, contracting with or having any claim against
the Mileage Trust, a particular Portfolio or the Trustees. A Trustee, however,
is not protected from liability due to willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct of his
office.
Article XII, Section 2 provides that, subject to the provisions of
Section 1 of Article XII and to Article XI, the Trustees are not liable for
errors of judgment or mistakes of fact or law, or for any act or omission in
accordance with advice of counsel or other experts or for failing to follow
such advice.
Item 26. I. Business and Other Connections of Investment Manager
AMR Investment Services, Inc., 4333 Amon Carter Boulevard, MD 5645,
Fort Worth, Texas 76155, offers investment management and administrative
services. Information as to the officers and directors of the Manager is
included in its current Form ADV filed with the SEC and is incorporated by
reference herein.
C-4
<PAGE> 69
II. Business and Other Connections of Investment Advisers
The investment advisers listed below provide investment advisory
services to the Mileage Trust.
Barrow, Hanley, Mewhinney & Strauss, 3232 McKinney Avenue, Dallas,
Texas 75204.
Brandywine Asset Management, Inc., 201 North Walnut Street,
Wilmington, Delaware 19801.
GSB Investment Management, Inc., 301 Commerce Street, Suite 1501, Fort
Worth, Texas 76102.
Hotchkis & Wiley, 800 West Sixth Street, 5th Floor, Los Angeles,
California 90017.
Independence Investment Associates, Inc., 53 State Street, Boston,
Massachusetts 02109.
Lazard Asset Management, 30 Rockefellar Plaza, New York, New York
10112.
Morgan Stanley Asset Management Inc., 1221 Avenue of the Americas,
21st Floor, New York, New York 10020.
Templeton Investment Counsel, Inc. 500 East Broward Blvd., Ft.
Lauderdale, Florida 33394.
Information as to the officers and directors of each of the above
investment advisers is included in that adviser's current Form ADV filed with
the SEC and is incorporated by reference herein.
Item 27. Principal Underwriter
(a) SWS Financial Services, 7001 Preston Road, Dallas, TX
75205, is the principal underwriter for the Mileage Trust and the American
AAdvantage Funds.
(b) The directors and officers of the Mileage Trust's principal
underwriter are:
<TABLE>
<CAPTION>
Positions & Offices Position
Name with Underwriter with Registrant
- ---- ------------------- ---------------
<S> <C> <C>
Sue H. Peden Chief Executive Officer None
Raymond E. Wooldridge Chairman None
Dianna Boswell President None
Diana Burrell Vice President None
Diane Scott Assistant Vice President None
</TABLE>
C-5
<PAGE> 70
The address of the above named directors and officers is 7001 Preston
Road, Dallas, TX 75205.
Item 28. Location of Accounts and Records
The books and other documents required by Rule 31a-1 under the
Investment Company Act of 1940 are maintained as follows: 31a-1(b)(1) -
Journals - in the physical possession of the Trust's custodian; 31-1(b)(2)(I),
(ii) & (iii) - in the physical possession of the Trust's custodian;
31a-1()(2)(iv) - in the physical possession of the Trust's transfer agent;
31a-1(b)(4) - in the physical possession of the Trust's Manager; 31a-1(b)(5) -
in the physical possession of the Trust's investment advisers; 31a-1(b)(6) - in
the physical possession of the Trust's Manager, investment advisers and
custodian; 31a-1(b)(7) - in the physical possession of the Trust's custodian;
31a-1(b)(8) - in the physical possession of the Trust's custodian; 31a-1(b)(9)
- - in the physical possession of the Trust's investment advisers; 31a-1(b)(10) -
in the physical possession of the Trust's Manager; 31a-1(b)(11) - in the
physical possession of the Trust's Manager; 31a-1(b)(12) - in the physical
possession of the Trust's Manager, investment advisers and custodian.
Item 29. Management Services
All substantive provisions of any management-related service contract
are discussed in Part A or Part B.
Item 30. Undertakings
Registrant hereby undertakes to furnish each person to whom a
prospectus is delivered with a copy of its latest annual report to
Shareholders, upon request and without charge.
Registrant hereby undertakes to carry out all indemnification
provisions of its Declaration of Trust in accordance with Investment Company
Act Release No. 11330 (September 4, 1980) and successor releases.
Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended ("1933 Act"), may be permitted to trustees, officers
and controlling persons of the Registrant pursuant to the provisions in under
Item 25 herein, or otherwise, the Registrant has been advised that in the
opinion of the SEC such indemnification is against public policy as expressed
in the 1933 Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933
Act and will be governed by the final adjudication.
C-6
<PAGE> 71
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, the Registrant has
duly caused this Post-Effective Amendment No. 9 to its Registration Statement
on Form N-1A to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth and the State of Texas, on August 2,
1999.
AMERICAN AADVANTAGE MILEAGE FUNDS
By: /s/ William F. Quinn
------------------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
- --------------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 9 to the Registration Statement has
been signed below by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and August 2, 1999
- -------------------------------- Trustee
William F. Quinn
Alan D. Feld* Trustee August 2, 1999
- --------------------------------
Alan D. Feld
Ben J. Fortson* Trustee August 2, 1999
- --------------------------------
Ben J. Fortson
John S. Justin* Trustee August 2, 1999
- --------------------------------
John S. Justin
Stephen D. O'Sullivan* Trustee August 2, 1999
- --------------------------------
Stephen D. O'Sullivan
Roger T. Staubach* Trustee August 2, 1999
- --------------------------------
Roger T. Staubach
Dr. Kneeland Youngblood* Trustee August 2, 1999
- --------------------------------
Dr. Kneeland Youngblood
*By /s/ William F. Quinn
------------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
<PAGE> 72
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, and the Investment Company Act of 1940, as amended, AMR Investment
Services Trust has duly caused this Post-Effective Amendment No. 9 to the
Registration Statement on Form N-1A as it relates to AMR Investment Services
Trust to be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of Fort Worth and the State of Texas, on August 2, 1999.
AMR INVESTMENT SERVICES TRUST
By: /s/ William F. Quinn
----------------------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
- --------------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, as
amended, this Post-Effective Amendment No. 9 to the Registration Statement for
the American AAdvantage Mileage Funds as it relates to the AMR Investment
Services Trust has been signed below by the following persons in the capacities
and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ William F. Quinn President and August 2, 1999
- -------------------------------- Trustee
William F. Quinn
Alan D. Feld* Trustee August 2, 1999
- --------------------------------
Alan D. Feld
Ben J. Fortson* Trustee August 2, 1999
- --------------------------------
Ben J. Fortson
John S. Justin* Trustee August 2, 1999
- --------------------------------
John S. Justin
Stephen D. O'Sullivan* Trustee August 2, 1999
- --------------------------------
Stephen D. O'Sullivan
Roger T. Staubach* Trustee August 2, 1999
- --------------------------------
Roger T. Staubach
Dr. Kneeland Youngblood* Trustee August 2, 1999
- --------------------------------
Dr. Kneeland Youngblood
*By /s/ William F. Quinn
------------------------------------
William F. Quinn, Attorney-In-Fact
</TABLE>
<PAGE> 73
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
-------- -----------
<S> <C>
(a) Amended and Restated Declaration of Trust - (ii)
(b) Amended Bylaws - (ii)
(c) Voting trust agreement -- none
(d)(i)(A) Management Agreement between American AAdvantage
Mileage Funds and AMR Investment Services, Inc.
dated October 1, 1995 - (ii)
(i)(B) Supplement to Management Agreement dated December
17, 1996 - (i)
(ii)(A) Investment Advisory Agreement between AMR Investment
Services, Inc. and Independence Investment
Associates, Inc. dated November 1, 1995 - (ii)
(ii)(B) Investment Advisory Agreement between AMR Investment
Services, Inc. and Morgan Stanley Asset Management
Inc. dated November 1, 1995 - (ii)
(ii)(C) Investment Advisory Agreement between AMR Investment
Services, Inc. and Templeton Investment Counsel,
Inc. dated November 1, 1995 - (ii)
(ii)(D) Investment Advisory Agreement between AMR Investment
Services, Inc. and Barrow, Hanley, Mewhinney &
Strause, Inc. dated November 1, 1995 - (ii)
(ii)(E) Investment Advisory Agreement between AMR Investment
Services, Inc. and GSB Investment Management, Inc.
dated November 1, 1995 - (ii)
(ii)(F) Investment Advisory Agreement between AMR Investment
Services, Inc. and Brandywine Asset Management, Inc.
dated January 16, 1998 - (iii)
(ii)(G) Investment Advisory Agreement between AMR Investment
Services, Inc. and Hotchkis and Wiley, a division of
the Capital Management Group of Merrill Lynch Asset
Management, L.P. dated November 12, 1996 - (i)
(ii)(H) Form of Investment Advisory Agreement between AMR
Investment Services, Inc. and Lazard Asset
Management - (iv)
(ii)(I) Amendment to Schedule A of Advisory Agreement
between AMR Investment Services, Inc. and Brandywine
Asset Management, Inc. - (v)
(ii)(J) Amendment to Schedule A of Advisory Agreement
between AMR Investment Services, Inc. and Hotchkis
and Wiley, a division of the Capital Management
Group of Merrill Lynch Asset Management, L.P. - (v)
(ii)(K) Form of Amendment to Schedule A of Advisory
Agreement between AMR Investment Services, Inc. and
Independence Investment Associates, Inc. - (iv)
(e) Distribution Agreement among the American AAdvantage
Mileage Funds, the American AAdvantage Funds and
Brokers Transaction Services, Inc. dated September
1, 1995 - (ii)
</TABLE>
<PAGE> 74
<TABLE>
<S> <C>
(f) Bonus, profit sharing or pension plans -- none
(g) Custodian Agreement between the American AAdvantage
Mileage Funds and State Street Bank and Trust
Company dated December 1, 1997 - (iii)
(h)(i) Transfer Agency and Service Agreement between the
American AAdvantage Mileage Funds-and State Street
Bank and Trust Company dated January 1, 1998 - (iii)
(ii) Securities Lending Authorization Agreement between
American AAdvantage Mileage Funds and State Street
Bank and Trust Company dated January 2, 1998 - (iii)
(i) Opinion and consent of counsel - filed herewith
(j) Consent of Independent Auditors - filed herewith
(k) Financial statements omitted from prospectus -- (not
applicable)
(l) Letter of investment intent - (ii)
(m)(i) Plan pursuant to Rule 12b-1 for the Mileage Class -
(ii)
(ii) Plan pursuant to Rule 12b-1 for the Platinum Class -
(ii)
(iii) Administrative Services Plan for the Platinum Class
- (ii)
(n) Financial Data Schedules - (not applicable)
(o) Plan Pursuant to Rule 18f-3 - (ii)
Other: Powers of Attorney for Trustees - (i)
</TABLE>
- -----------------------
(i) Incorporated by reference to Post-Effective Amendment No. 4 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on February 13,
1997.
(ii) Incorporated by reference to Post-Effective Amendment No. 4 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on December 15,
1997.
(iii) Incorporated by reference to Post-Effective Amendment No. 6 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on February 26,
1998.
(iv) Incorporated by reference to Post-Effective Amendment No. 8 to the
American AAdvantage Mileage Funds' Registration Statement on Form N-1A
as filed with the Securities and Exchange Commission on March 1, 1999.
(v) To be filed by subsequent amendment.
<PAGE> 1
--------------------------
KIRKPATRICK & LOCKHART LLP
--------------------------
1800 MASSACHUSETTS AVENUE, N.W.
2ND FLOOR
WASHINGTON, D.C. 20036-1800
TELEPHONE (202) 778-9000
FACSIMILE (202) 778-9100
August 2, 1999
American AAdvantage Mileage Funds
4333 Amon Carter Boulevard
Fort Worth, Texas 76155
Ladies and Gentlemen:
You have requested our opinion, as counsel to American AAdvantage
Mileage Funds (the "Trust"), as to certain matters regarding the issuance by
the American AAdvantage Municipal Money Market Mileage Fund and the American
AAdvantage U.S. Government Money Market Mileage Fund of the Platinum Class
shares of beneficial interest (collectively, the "Shares").
As such counsel, we have examined certified or other copies, believed
by us to be genuine, of the Trust's Declaration of Trust and by-laws and such
resolutions and minutes of meetings of the Trust's Board of Trustees as we have
deemed relevant to our opinion, as set forth herein. Our opinion is limited to
the laws and facts in existence on the date hereof, and it is further limited
to the laws (other than the conflict of law rules) in the Commonwealth of
Massachusetts that in our experience are normally applicable to the issuance of
shares by unincorporated voluntary associations and to the Securities Act of
1933 ("1933 Act"), the Investment Company Act of 1940 ("1940 Act") and the
regulations of the Securities and Exchange Commission ("SEC") thereunder.
Based on present laws and facts, we are of the opinion that the
issuance of the Shares has been duly authorized by the Trust and that, when
sold in accordance with the terms contemplated by the Post-Effective Amendment
No. 9 to the Trust's Registration Statement on Form N-1A ("PEA"), including
receipt by the Trust of full payment for the Shares and compliance with the
1933 Act and the 1940 Act, the Shares will have been validly issued, fully paid
and non-assessable.
We note, however, that the Trust is an entity of the type commonly
known as a "Massachusetts business trust." Under Massachusetts law,
shareholders could, under certain circumstances, be held personally liable for
the obligations of the Trust. The Declaration of Trust states that all persons
extending credit to, contracting with or having any claim against the Trust or
the Trustees shall look only to the assets of the Trust for payment under such
credit, contract or claim; and neither the Shareholders nor the Trustees, nor
any of their agents, whether past, present or future, shall be personally
liable therefor. It also requires that every note, bond, contract or other
undertaking issued by or on behalf of the Trust or the Trustees relating to the
Trust shall include a recitation limiting the obligation represented thereby to
the Trust and its assets. The Declaration of Trust further provides: (1) for
indemnification from the assets of the
<PAGE> 2
Trust for all loss and expense of any shareholder held personally liable for
the obligations of the Trust by virtue of ownership of shares of the Trust; and
(2) for the Trust to assume the defense of any claim against the shareholder
for any act or obligation of the Trust. Thus, the risk of a shareholder
incurring financial loss on account of shareholder liability is limited to
circumstances in which the Trust or series would be unable to meet its
obligations.
We hereby consent to this opinion accompanying the PEA when it is
filed with the SEC and to the reference to our firm in the PEA.
Very truly yours,
KIRKPATRICK & LOCKHART LLP
By /s/ Robert J. Zutz
--------------------------------
Robert J. Zutz
<PAGE> 1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Other Service Providers" in the Statement of
Additional Information and to the incorporation by reference in Post-Effective
Amendment Number 9 to the Registration Statement (Form N-1A) filed with the
Securities and Exchange Commission under the Securities Act of 1933 (File No.
33-91058) and Amendment Number 10 to the Registration Statement filed under the
Investment Company Act of 1940 (File No. 811-9018) of our report dated December
17, 1998 on the Platinum Class of the American AAdvantage Money Market Funds
and American AAdvantage Money Market Mileage Fund.
ERNST & YOUNG LLP
Dallas, Texas
August 3, 1999
