As filed with the Securities and Exchange Commission on February 28, 2003
1933 Act File No. 33-11387
1940 Act File No. 811-4984
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. ___ [ ]
Post-Effective Amendment No. 42 [X]
|
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 [X]
Amendment No. 43
(Check appropriate box or boxes.)
AMERICAN AADVANTAGE FUNDS
(Exact Name of Registrant as Specified in Charter)
4151 Amon Carter Boulevard, MD 2450
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
4151 Amon Carter Boulevard, MD 2450
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 March 1, 2003
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[X] on March 1, 2003 pursuant to paragraph (b)
[ ] 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 seven of its fifteen series. This Post-Effective Amendment includes signature pages for the AMR Investment Services Trust, the Quantitative Master Series Trust and the State Street Equity 500 Index Portfolio, the master trusts, and the American AAdvantage Funds, the feeder trust.
AMERICAN AADVANTAGE FUNDS
CONTENTS OF REGISTRATION STATEMENT
This registration statement is comprised of the following:
Cover Sheet
Contents of Registration Statement
Prospectus for the Institutional Class consisting of the following American AAdvantage Funds: Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, S&P 500 Index Fund, Small Cap Index Fund, International Equity Index Fund, High Yield Bond Fund, Intermediate Bond Fund, Short-Term Bond Fund, Money Market Fund, and Municipal Money Market Fund
Prospectus for the PlanAhead Class consisting of the following American AAdvantage Funds: Balanced Fund, Large Cap Value Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, S&P 500 Index Fund, High Yield Bond Fund, Intermediate Bond Fund, Short-Term Bond Fund, Money Market Fund, Municipal Money Market Fund and U.S. Government Money Market Fund
Prospectus for the AMR Class consisting of the following American AAdvantage Funds: Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, S&P 500 Index Fund-Institutional Class, Small Cap Index Fund-Institutional Class, International Equity Index Fund-Institutional Class, Intermediate Bond Fund and Short-Term Bond Fund
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
Prospectus for the Cash Management Class of the American AAdvantage Money Market Fund and American AAdvantage U.S. Government Money Market Fund
Statement of Additional Information for the AMR Class, Institutional Class and PlanAhead Class of the following American AAdvantage Funds: Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, S&P 500 Index Fund, Small Cap Index Fund, International Equity Index Fund, High Yield Bond Fund, Intermediate Bond Fund, Short-Term Bond Fund, Money Market Fund, Municipal Money Market Fund and U.S. Government Money Market Fund
Statement of Additional Information for the Cash Management and Platinum Classes of the American AAdvantage Money Market Fund, American AAdvantage Municipal Money Market Fund and American AAdvantage U.S. Government Money Market Fund and the Mileage and Platinum Classes of the 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
INSTITUTIONAL CLASS
[LOGO]
PRIVACY POLICY
AND
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO]
- LARGE CAP VALUE FUND
- LARGE CAP GROWTH FUND
- SMALL CAP VALUE FUND
- INTERNATIONAL EQUITY FUND
- SMALL CAP INDEX FUND
- INTERMEDIATE BOND FUND
- MUNICIPAL MONEY MARKET FUND
MANAGED BY AMR INVESTMENT SERVICES, INC. This page is not part of the Prospectus. |
[EAGLE LOGO]
[GLOBE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO]
PRIVACY POLICY
The American AAdvantage Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards.
This page is not part of the Prospectus.
INSTITUTIONAL CLASS
[LOGO]
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO]
- LARGE CAP VALUE FUND
- LARGE CAP GROWTH FUND
- SMALL CAP VALUE FUND
- INTERNATIONAL EQUITY FUND
- SMALL CAP INDEX FUND
- INTERMEDIATE BOND FUND
- MUNICIPAL MONEY MARKET FUND
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
MANAGED BY AMR INVESTMENT SERVICES, INC. offense.
|
[EAGLE LOGO]
[GLOBE LOGO]
[AMERICAN AADVANTAGE FUNDS INSTITUTIONAL CLASS LOGO]
TABLE OF CONTENTS
About the Funds Overview......................................... 2 Balanced Fund.................................... 3 Large Cap Value Fund............................. 6 Large Cap Growth Fund............................ 8 Small Cap Value Fund............................. 10 International Equity Fund........................ 12 Emerging Markets Fund............................ 15 S&P 500 Index Fund............................... 18 Small Cap Index Fund............................. 20 International Equity Index Fund.................. 22 High Yield Bond Fund............................. 25 Intermediate Bond Fund........................... 28 Short-Term Bond Fund............................. 31 Money Market Fund................................ 33 Municipal Money Market Fund...................... 35 The Manager...................................... 37 SSgA and Fund Asset Management................... 37 The Investment Advisers.......................... 38 Valuation of Shares.............................. 40 About Your Investment Purchase and Redemption of Shares................ 40 Distributions and Taxes.......................... 43 Additional Information Distribution of Fund Shares...................... 43 Master-Feeder Structure.......................... 44 Financial Highlights............................. 44 Additional Information...................... Back Cover |
Overview
The American AAdvantage Funds (the "Funds") are managed by AMR Investment Services, Inc. (the "Manager"), a wholly owned subsidiary of AMR Corporation.
The International Equity, S&P 500 Index, Small Cap Index, International Equity Index, Money Market and Municipal Money Market Funds operate under a master- feeder structure (the "Master-Feeder Funds"). Each Master-Feeder Fund seeks its investment objective by investing all of its investable assets in a corresponding portfolio with a similar name and identical investment objective.
- The International Equity, Money Market and Municipal Money Market Funds invest all of their investable assets in a corresponding portfolio of the AMR Investment Services Trust ("AMR Trust"). The AMR Trust is managed by the Manager.
- The S&P 500 Index Fund invests all of its investable assets in the State Street Equity 500 Index Portfolio. The State Street Equity 500 Index Portfolio is managed by SSgA Funds Management, Inc. ("SSgA"), a subsidiary of State Street Corp. and an affiliate of State Street Bank and Trust Company.
- The Small Cap Index and International Equity Index Funds invest all of their investable assets in corresponding portfolios of the Quantitative Master Series Trust ("Index Trust"). The Index Trust is managed by Fund Asset Management, L.P. ("FAM"), a Delaware limited partnership wholly owned by Merrill Lynch & Co., Inc.
Throughout this Prospectus, statements regarding investments by a Master-Feeder 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".
About the Funds 2 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
Ordinarily, between 50% and 70% of the Fund's total assets are invested in equity securities and between 30% and 50% of the Fund's total assets are invested in debt securities.
The Fund's equity investments may include common stocks, preferred stocks, securities convertible into common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets among four investment advisers:
AMR Investment Services, Inc.
Barrow, Hanley, Mewhinney & Strauss, Inc.
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
The Fund's equity assets are allocated, generally on an equal basis, among Barrow, Hanley, Mewhinney & Strauss, Inc., Brandywine Asset Management, LLC and Hotchkis and Wiley Capital Management, LLC. The Fund's fixed income assets are allocated, generally on an equal basis, among AMR Investment Services, Inc., Barrow, Hanley, Mewhinney & Strauss, Inc. and Brandywine Asset Management, LLC.
The Fund's investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the Fund's investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
The Fund's investments in debt securities may include: obligations of the U.S. Government, its agencies and instrumentalities; U.S. corporate debt securities, such as notes and bonds; mortgage-backed securities; asset-backed securities; master-demand notes; Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances, commercial paper and other notes; and other debt securities. The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). Obligations rated in the fourth highest rating category are limited to 25% of the Fund's total assets. The Fund, at the discretion of the applicable investment adviser, may retain a security that has been downgraded below the initial investment criteria.
In determining which debt securities to buy and sell, the investment advisers generally use a "top-down" or "bottom-up" investment strategy, or a combination of both strategies.
The top-down fixed income investment strategy is implemented as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
The bottom-up fixed income investment strategy is implemented as follows:
- Search for eligible securities with a yield to maturity advantage versus a U.S. Government security with a similar maturity.
- Evaluate credit quality of the securities.
- Perform an analysis of the expected price volatility of the securities to changes in interest rates by examin-
Prospectus 3 About the Funds
AMERICAN AADVANTAGE
ing actual price volatility between U.S. Government and non-U.S. Government securities.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
MARKET RISK (STOCKS)
Since this Fund invests a substantial portion of its assets in stocks, it is
subject to stock market risk. Market risk involves the possibility that the
value of the Fund's investments in stocks will decline due to drops in the stock
market. In general, the value of the Fund will move in the same direction as the
overall stock market, which will vary from day to day in response to the
activities of individual companies and general market and economic conditions.
VALUE STOCKS RISK (STOCKS)
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
INTEREST RATE RISK (BONDS)
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK (BONDS)
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK (BONDS)
The Fund's investments in asset-backed and mortgage-backed securities are
subject to the risk that the principal amount of the underlying collateral may
be repaid prior to the bond's maturity date. If this occurs, no additional
interest will be paid on the investment and the Fund may have to invest at a
lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to three broad-based market indices and the Lipper Balanced Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market indices do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 14.46% 94.......................................................... -1.84% 95.......................................................... 28.79% 96.......................................................... 13.96% 97.......................................................... 19.87% 98.......................................................... 8.28% 99.......................................................... -3.59% 00.......................................................... 10.57% 01.......................................................... 5.59% 02.......................................................... -7.49% |
Highest Quarterly Return: 9.96% (1/1/93 through 12/31/02) (2nd Quarter 1997) Lowest Quarterly Return: -10.83% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
About the Funds 4 Prospectus
AMERICAN AADVANTAGE
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
RETURN BEFORE TAXES -7.49% 2.43% 8.34%
RETURN AFTER TAXES ON
DISTRIBUTIONS -7.89% 0.36% 5.58%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE
OF FUND SHARES -4.60% 1.19% 5.77%
----------------------------------------------------------
S&P 500/Barra Value
Index(1) -20.85% -0.85% 9.39%
S&P 500 Index(2) -22.10% -0.59% 9.34%
Lehman Bros. Aggregate
Index(3) 10.27% 7.54% 7.51%
Lipper Balanced Index -10.69% 2.11% 7.53%
|
(1) The S&P 500/Barra Value Index is a market value weighted index of stocks with book-to-price ratios in the top 50% of the S&P 500 Index.
(2) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
(3) The Lehman Brothers Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Balanced Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.29%
Distribution (12b-1) Fees 0.00
Other Expenses 0.33
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.62%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Balanced Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $63 3 YEARS................................... $199 5 YEARS................................... $346 10 YEARS.................................. $774 |
Prospectus 5 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation and current income.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of large market capitalization U.S. companies. These companies generally have market capitalizations similar to the market capitalization of the companies in the Russell 1000(R) Index(1) at the time of investment. The Russell 1000 Index measures the performance of the 1,000 largest U.S. companies based on total market capitalization. The Fund's investments may include common stocks, preferred stocks, securities convertible into U.S. common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, among four investment advisers:
Barrow, Hanley, Mewhinney & Strauss, Inc.
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
Metropolitan West Capital Management, LLC
The Fund's investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the Fund's investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
VALUE STOCKS RISK
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be
(1) The Russell 1000 (R) Index is a service mark of Frank Russell Company.
About the Funds 6 Prospectus
AMERICAN AADVANTAGE
worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to two broad-based market indices and the Lipper Multi-Cap Value Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market indices do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 15.74% 94.......................................................... -1.14% 95.......................................................... 34.43% 96.......................................................... 21.09% 97.......................................................... 26.48% 98.......................................................... 6.17% 99.......................................................... -4.62% 00.......................................................... 11.44% 01.......................................................... 2.10% 02.......................................................... -15.89% |
Highest Quarterly Return: 14.13% (1/1/93 through 12/31/02) (2nd Quarter 1997) Lowest Quarterly Return: -18.63% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------- -------- --------
RETURN BEFORE TAXES -15.89% -0.62% 8.61%
RETURN AFTER TAXES ON
DISTRIBUTIONS -16.61% -2.86% 6.08%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -9.75% -0.92% 6.36%
------------------------------------------------------------
S&P 500/Barra Value Index(1) -20.85% -0.85% 9.39%
S&P 500 Index(2) -22.10% -0.59% 9.34%
Lipper Multi-Cap Value Index -17.61% 0.64% 8.99%
|
(1) The S&P 500/Barra Value Index is a market value weighted index of stocks with book-to-price ratios in the top 50% of the S&P 500 Index.
(2) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Large Cap Value Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.31%
Distribution (12b-1) Fees 0.00
Other Expenses 0.30
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.61%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Large Cap Value Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $62 3 YEARS................................... $195 5 YEARS................................... $340 10 YEARS.................................. $762 |
Prospectus 7 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of large market capitalization U.S. companies. These companies generally have market capitalizations similar to the market capitalization of the companies in the Russell 1000 Index at the time of investment. The Russell 1000(R) Index(1) measures the performance of the 1,000 largest U.S. companies based on total market capitalization. The Fund's investments may include common stocks, preferred stocks, securities convertible into U.S. common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks") that the investment advisers believe have above-average growth potential.
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Goldman Sachs Asset Management ("GSAM")
J.P. Morgan Investment Management Inc. ("J.P. Morgan")
GSAM utilizes quantitative techniques and fundamental research in seeking to maximize its portion of the Fund's expected return, while maintaining risk, style, capitalization and industry characteristics similar to the Russell 1000(R) Growth Index.(1) GSAM attempts to structure a portfolio that seeks attractively-valued stocks with positive momentum.
J.P. Morgan attempts to allocate its portion of the Fund's assets across industries in weightings similar to those of the Russell 1000 Growth Index. Within each industry, J.P. Morgan modestly overweights stocks that it determines to be undervalued or fairly valued, while modestly underweighting or not holding stocks that appear overvalued.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
GROWTH COMPANIES RISK
Growth companies are expected to increase their earnings at a certain rate. When
these expectations are not met, the prices of these stocks may go down, even if
earnings showed an absolute increase. Growth company stocks also typically lack
the dividend yield that can cushion stock prices in market downturns.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
(1) Russell 1000(R) Index and Russell 1000(R) Growth Index are service marks of the Frank Russell Company.
About the Funds 8 Prospectus
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Large Cap Growth Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... -20.97% 02.......................................................... -29.03% |
Highest Quarterly Return: 14.97% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -21.98% (1/1/01 through 12/31/02) (1st Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
RETURN BEFORE TAXES -29.03% -28.68%
RETURN AFTER TAXES ON
DISTRIBUTIONS -29.12% -28.73%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -17.82% -21.73%
------------------------------------------------------------
Lipper Large Cap Growth Index -28.11% -28.30%
Russell 1000(R) Growth
Index(1) -27.88% -28.42%
|
(1) The Russell 1000 Growth Index is an unmanaged index of those stocks in the Russell 1000 Index with above-average price-to-book ratios and above-average forecasted growth values.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Large Cap Growth Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.63%
Distribution (12b-1) Fees 0.00
Other Expenses 0.24
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.87%
====
|
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 ................................. $89 3 YEARS................................. $278 5 YEARS................................. $482 10 YEARS................................ $1,073 |
Prospectus 9 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation and current income.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of U.S. companies with market capitalizations of $2 billion or less at the time of investment. The Fund's investments may include common stocks, preferred stocks, securities convertible into common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively, "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
The investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
SMALL CAPITALIZATION COMPANIES RISK
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies, since smaller companies may have
limited operating history, product lines, and financial resources, and the
securities of these companies may lack sufficient market liquidity.
VALUE STOCKS RISK
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
About the Funds 10 Prospectus
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Small Cap Value Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
99.......................................................... -4.79% 00.......................................................... 18.99% 01.......................................................... 27.99% 02.......................................................... -6.80% |
Highest Quarterly Return: 22.27% (1/1/99 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -20.88% (1/1/99 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
SINCE INCEPTION
1 YEAR (12/31/98)
------- ---------------
RETURN BEFORE TAXES -6.80% 7.82%
RETURN AFTER TAXES ON
DISTRIBUTIONS -7.65% 6.37%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -4.11% 5.68%
-------------------------------------------------------------
Russell 2000(R) Value Index(1) -11.43% 5.14%
Lipper Small Cap Value Index -11.21% 5.18%
|
(1) The Russell 2000 Value Index is an unmanaged index of those stocks in the Russell 2000 Index with below-average price-to-book ratios and below-average forecasted growth values. Russell 2000 (R) Value Index is a service mark of the Frank Russell Company.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Small Cap Value Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.53%
Distribution (12b-1) Fees 0.00
Other Expenses 0.29
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.82%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Small Cap Value Portfolio of the AMR Trust through February 28, 2002.
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 ................................. $84 3 YEARS................................. $262 5 YEARS................................. $455 10 YEARS................................ $1,014 |
Prospectus 11 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation.
The Fund seeks its investment objective by investing all of its investable assets in the International Equity Portfolio of the AMR Trust.
Ordinarily, at least 80% of the Fund's total assets are invested in common stocks and securities convertible into common stocks (collectively, "stocks") of issuers based in at least three different countries located outside the United States. The Fund will primarily invest in countries comprising the Morgan Stanley Capital International Europe Australasia Far East Index ("EAFE Index"). The EAFE Index is comprised of equity securities of companies from various industrial sectors whose primary trading markets are located outside the United States. Companies included in the EAFE Index are selected from among the larger capitalization companies in these markets.
The Manager currently allocates the Fund's assets among four investment advisers:
Causeway Capital Management LLC
Independence Investment LLC ("Independence")
Lazard Asset Management LLC
Templeton Investment Counsel, LLC
Approximately 10% of the Fund's assets are allocated to Independence, and the remainder are allocated, generally on an equal basis, among the other three investment advisers.
The investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
The investment advisers may also consider potential changes in currency exchange rates when choosing stocks. Each of the investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk. The Fund may trade forward foreign currency contracts or currency futures to hedge currency fluctuations of underlying stock positions when it is believed that a foreign currency may suffer a decline against the U.S. dollar.
Independence utilizes an "amplified alpha" approach in determining which equity securities to buy and sell. This approach attempts to amplify the outperformance expected from the best ideas of the other investment advisers by concentrating assets in those stocks that are overweighted in the aggregate of the advisers' portfolios when compared to a relevant market index.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of that country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity
and greater volatility of foreign investments, (4) lack of uniform accounting,
auditing and financial reporting standards, (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies, (6)
increased price volatility, (7) delays in transaction settlement in some foreign
markets, and (8) adverse impact of the euro conversion on the business or
financial condition of companies in which the Fund is invested.
About the Funds 12 Prospectus
AMERICAN AADVANTAGE
DERIVATIVES RISK
The Fund may use derivatives, such as futures contracts, foreign currency
forward contracts and options on futures as a hedge against foreign currency
fluctuations. There can be no assurance that any strategy used will succeed. If
one of the investment advisers incorrectly forecasts currency exchange rates in
utilizing a derivatives strategy for the Fund, the Fund could lose money.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper International Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93............................. 42.33% 94............................. 0.98% 95............................. 17.69% 96............................. 19.78% 97............................. 9.56% 98............................. 11.73% 99............................. 26.91% 00............................. -4.14% 01............................. -15.43% 02............................. -14.09% |
Highest Quarterly Return: 15.19% (1/1/93 through 12/31/02) (4th Quarter 1998) Lowest Quarterly Return: -22.41% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
RETURN BEFORE TAXES -14.09% -0.25% 8.17%
RETURN AFTER TAXES ON
DISTRIBUTIONS -14.81% -1.62% 6.60%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -8.41% -0.29% 6.43%
------------------------------------------------------------
EAFE Index(1) -15.94% -2.89% 4.00%
Lipper International Index -13.84% -1.65% 5.55%
|
(1) The EAFE Index is an unmanaged index of international stock investment performance.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the International Equity Fund.(1)
Shareholder Fees
(fees paid directly from your investment)
Redemption Fee (as a percentage of amount redeemed, if applicable) 2.00%(2) |
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.37%
Distribution (12b-1) Fees 0.00
Other Expenses 0.38
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.75%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the International Equity Portfolio of the AMR Trust.
(2) Fee applies to the proceeds of shares that are redeemed within 30 days of their purchase.
Prospectus 13 About the Funds
AMERICAN AADVANTAGE
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 ................................... $77 3 YEARS................................... $240 5 YEARS................................... $417 10 YEARS.................................. $930 |
About the Funds 14 Prospectus
AMERICAN AADVANTAGE
Long-term capital appreciation.
Ordinarily, at least 80% of the total assets of this Fund are invested in equity securities of issuers that:
- are primarily listed on the trading market of an emerging market country;
- are headquartered in an emerging market country; or
- derive 50% or more of their revenues from, or have 50% or more of their assets in, an emerging market country.
An emerging market country is one that:
- has an emerging stock market as defined by the International Finance Corporation ("IFC");
- has a low- to middle-income economy according to the World Bank;
- is included in the IFC Investable Index or the Morgan Stanley Capital International Emerging Markets "Free" Index; or
- has a per-capita gross national product of $10,000 or less.
The Fund's investments may include common stocks, preferred stocks, securities convertible into common stocks, rights, warrants, and depositary receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Morgan Stanley Investment Management Inc. ("MSIM Inc.")
The Boston Company Asset Management, LLC ("The Boston Company")
MSIM Inc. combines a top-down country allocation investment approach with bottom-up stock selection. MSIM Inc. first allocates its portion of the Fund's assets among emerging market countries based on relative economic, political and social fundamentals, stock valuations and investor sentiment. MSIM Inc. then selects individual securities within these countries on the basis of attractive growth characteristics, reasonable valuations and company managements with a strong shareholder value orientation. To manage risk, MSIM Inc. emphasizes thorough macroeconomic and fundamental research.
The Boston Company utilizes a bottom-up investment strategy that is value-oriented and research-driven. This style is both quantitative and fundamentally based, focusing first on stock selection then enhanced by broadly diversified country allocation.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of each country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity
and greater volatility of foreign investments, (4) lack of uniform accounting,
auditing and financial reporting standards, (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies, (6)
increased price volatility, (7) delays in transaction settlement in some foreign
markets, and (8) adverse impact of the euro conversion on the business or
financial condition of companies in which the Fund is invested.
Prospectus 15 About the Funds
AMERICAN AADVANTAGE
EMERGING MARKETS RISK
The risks of foreign investing mentioned above are heightened when investing in emerging markets. In addition, the economies and political environments of emerging market countries tend to be more unstable than those of developed countries, resulting in more volatile rates of return than the developed markets and substantially greater risk to investors.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Emerging Markets Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... 2.59% 02.......................................................... -3.66% |
Highest Quarterly Return: 25.88% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -20.38% (1/1/01 through 12/31/02) (3rd Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE
INCEPTION
1 YEAR (7/31/00)
------ ----------
RETURN BEFORE TAXES -3.66% -10.97%
RETURN AFTER TAXES ON
DISTRIBUTIONS -3.89% -11.28%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -2.24% -8.77%
------------------------------------------------------------
Lipper Emerging Markets Index -4.63% -12.04%
MSCI Emerging Markets Free
Index(1) -6.17% -12.43%
|
(1) The MSCI Emerging Markets Free Index is a market capitalization weighted index composed of companies that are representative of the market structure of developing countries in Latin America, Asia, Eastern Europe, the Middle East and Africa.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
About the Funds 16 Prospectus
AMERICAN AADVANTAGE
This table describes the fees and expenses that you may pay if you buy and hold shares of the Emerging Markets Fund.(1)
Shareholder Fees
(fees paid directly from your investment)
Redemption Fee (as a percentage of amount redeemed, if applicable) 2.00%(2) |
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.99%
Distribution (12b-1) Fees 0.00
Other Expenses 0.52
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.51%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Emerging Markets Portfolio of the AMR Trust through February 28, 2002.
(2) Fee applies to the proceeds of shares that are redeemed within 90 days of their purchase.
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 ................................. $154 3 YEARS................................. $477 5 YEARS................................. $824 10 YEARS................................ $1,802 |
Prospectus 17 About the Funds
AMERICAN AADVANTAGE
To replicate as closely as possible, before expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index" or "Index").
The Fund seeks its investment objective by investing all of its investable assets in the State Street Equity 500 Index Portfolio.
The Fund uses a passive management strategy designed to track the performance of the S&P 500 Index. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States.
The Fund is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgement. Instead, the Fund, using a "passive" or "indexing" investment approach, attempts to replicate, before expenses, the performance of the S&P 500 Index. SSgA seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation.
The Fund intends to invest in all 500 stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all 500 stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by SSgA to replicate generally the performance of the Index as a whole. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index.
In addition, the Fund may at times purchase or sell futures contracts on the Index, or options on those futures, in lieu of investment directly in the stocks making up the Index. The Fund might do so, for example, in order to increase its investment exposure pending investment of cash in the stocks comprising the Index. Alternatively, the Fund might use futures or options on futures to reduce its investment exposure in situations where it intends to sell a portion of the stocks in its portfolio but the sale has not yet been completed. The Fund may also enter into other derivatives transactions, including the purchase or sale of options or enter into swap transactions, to assist in replicating the performance of the Index.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index, and incurs costs in buying and selling securities. The Fund may not
be fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the fund to meet redemptions. The return on the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return on the Index.
DERIVATIVES RISK
The use of these instruments to pursue the S&P 500 Index returns requires
special skills, knowledge and investment techniques that differ from those
required for normal portfolio management. Gains or losses from positions in a
derivative instrument may be much greater than the derivative's original cost.
ADDITIONAL RISKS
An investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be
(1) S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use. "Standard and Poor's (R)," "S&P (R)," "Standard & Poor's 500," "S&P 500 (R)" and "500" are all trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by State Street Bank and Trust Company. The S&P 500 Index Fund is not sponsored, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in this Fund.
About the Funds 18 Prospectus
AMERICAN AADVANTAGE
worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper S&P 500 Index, a composite of funds with the same investment objective as the Fund. The returns of the broad-based market index to not reflect fees, expenses or taxes. The Fund began offering its shares on January 1, 1997. Prior to March 1, 1998, the Fund's shares were offered as AMR Class shares. On March 1, 1998, AMR Class shares of the Fund were designated Institutional Class shares. Prior to March 1, 2000, the Fund invested all of its investable assets in the BT Equity 500 Index Portfolio, a separate investment company managed by Bankers Trust Company. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
97.......................................................... 33.09% 98.......................................................... 28.87% 99.......................................................... 20.70% 00.......................................................... -9.15% 01.......................................................... -12.12% 02.......................................................... -22.27% |
Highest Quarterly Return: 21.32% (1/1/97 through 12/31/02) (4th Quarter 1998) Lowest Quarterly Return: -17.43% (1/1/97 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (12/31/96)
------- ------- ----------
RETURN BEFORE TAXES -22.27% -0.70% 4.26%
RETURN AFTER TAXES ON
DISTRIBUTIONS -22.72% -1.17% 3.78%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -13.65% -0.74% 3.27%
--------------------------------------------------------------
S&P 500 Index(1) -22.10% -0.59% 4.40%
Lipper S&P 500 Index -22.30% -0.86% 4.13%
|
(1) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the S&P 500 Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees(2) 0.045%
Distribution (12b-1) Fees 0.000
Other Expenses 0.095
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.140%
=====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the State Street Equity 500 Index Portfolio.
(2) This fee represents the total fees paid by the State Street Equity 500 Index Portfolio to State Street Bank and Trust Company for its service as administrator, custodian and transfer agent and SSgA's service as investment adviser.
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 ................................... $14 3 YEARS................................... $45 5 YEARS................................... $79 10 YEARS.................................. $179 |
Prospectus 19 About the Funds
AMERICAN AADVANTAGE
To match the performance of the Russell 2000(R) Index(1) (the "Russell 2000" or "Index") as closely as possible before the deduction of Fund expenses.
The Fund seeks its investment objective by investing all of its investable assets in the Master Small Cap Index Series of the Index Trust. The investment objective of the Master Small Cap Index Series may be changed without shareholder approval.
The Fund employs a "passive" management approach, attempting to invest in a portfolio of assets whose performance is expected to match approximately the performance of the Russell 2000. The Russell 2000 is composed of the common stocks of the 1,001st through the 3,000th largest U.S. companies weighted by market capitalization, as determined by the Frank Russell Company. As of June 30, 2002, the median market capitalization of the Russell 2000 was approximately $490 million. The Fund will be substantially invested in securities in the Russell 2000, and will invest at least 80% of its assets in securities or other financial instruments, which are components of or correlated with, the Russell 2000. The Fund is also a non-diversified fund.
The Fund invests in a statistically selected sample of stocks included in the Russell 2000 and in derivative instruments linked to the Russell 2000. The Fund may not invest in all of the common stocks in the Russell 2000, or in the same weightings as in the Russell 2000. The Fund chooses investments so that the market capitalizations, industry weightings and other fundamental characteristics of the stocks and derivative instruments chosen are similar to the Russell 2000 as a whole.
The Fund may invest in derivative instruments, and may invest a substantial portion of its assets in options and futures contracts linked to the performance of the Russell 2000. Derivatives allow the Fund to increase or decrease its exposure to the Russell 2000 quickly and at less cost than buying or selling stocks. The Fund will invest in options and futures and other derivative instruments in order to gain market exposure quickly in the event of subscriptions, to maintain liquidity in the event of redemptions and to keep trading costs low. In connection with the use of derivative instruments, the Fund may enter into short sales in order to adjust the weightings of particular securities represented in a derivative to more accurately reflect the securities' weightings in the Index. The Fund may engage in securities lending, which involves the risk that the borrower may fail to return the Fund's securities in a timely manner or at all.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index, and incurs costs in buying and selling securities. The Fund may not
be fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the Fund to meet redemptions. The return on the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return on the Index.
NON-DIVERSIFICATION RISK
The Fund is non-diversified, which means that it may invest a high percentage of
its assets in a limited number of securities. Since the Fund is non-diversified,
its net asset value and total return may fluctuate more or fall greater in times
of weaker markets than a diversified mutual fund.
SMALL CAPITALIZATION COMPANIES RISK
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies, since smaller companies may have
limited operating history, product lines, and financial resources, and the
securities of these companies may lack sufficient market liquidity.
DERIVATIVES RISK
Gains or losses from positions in a derivative instrument may be much greater
than the derivative's original cost. The counterparty to the transaction may be
unable to honor its financial obligation to the Fund. In addition, a derivative
may be difficult or impossible to sell at the time the investment adviser would
like or at the price the investment adviser believes the security is currently
worth.
(1) Russell 2000 (R) Index is a service mark of the Frank Russell Company.
About the Funds 20 Prospectus
AMERICAN AADVANTAGE
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Small Cap Core Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... 2.07% 02.......................................................... -20.37% |
Highest Quarterly Return: 21.11% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -21.33% (1/1/01 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
RETURN BEFORE TAXES -20.37% -9.21%
RETURN AFTER TAXES ON
DISTRIBUTIONS -20.75% -9.61%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -12.50% -7.44%
------------------------------------------------------------
Lipper Small Cap Core Index -19.24% -5.17%
Russell 2000 Index(1) -20.48% -9.17%
|
(1) The Russell 2000 Index is an unmanaged index comprised of approximately 2,000 smaller-capitalization stocks from various industrial sectors.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Small Cap Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.08%(2)
Distribution (12b-1) Fees 0.00
Other Expenses 0.19
----
Total Annual Fund Operating Expenses 0.27%
====
Fee Waiver 0.07%(2)
NET EXPENSES 0.20%
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Master Small Cap Index Series.
(2) FAM has contractually agreed to waive a portion of its investment advisory fee through December 31, 2003. After such waiver, the Management Fee is 0.01%.
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. Because FAM has contractually agreed to waive fees through December 31, 2003, Net Expenses were used to calculate the cost in year one, and Total Annual Fund Operating Expenses were used to calculate costs for years two through ten. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR ................................... $20 3 YEARS................................... $80 5 YEARS................................... $145 10 YEARS.................................. $336 |
Prospectus 21 About the Funds
AMERICAN AADVANTAGE
To match the performance of the Morgan Stanley Capital International EAFE Index (the "EAFE Index" or "Index") as closely as possible before the deduction of Fund expenses.
The Fund seeks its investment objective by investing all of its investable assets in the Master International Index Series of the Index Trust. The investment objective of the Master International Index Series may be changed without shareholder approval.
The Fund employs a "passive" management approach, attempting to invest in a portfolio of assets whose performance is expected to match approximately the performance of the EAFE Index.(1) The EAFE Index is composed of equity securities of companies from various industrial sectors whose primary trading markets are located outside the United States. Companies included in the EAFE Index are selected from among the larger capitalization companies in these markets. The weighting of the countries in the Index is based upon each country's relative market capitalization, and not its gross domestic product. This means that the Index contains more companies from countries with the largest capital markets (like Japan and the United Kingdom), which in turn, will have the most effect on the Index's performance.
The Fund will be substantially invested in securities in the Index, and will invest at least 80% of its assets in securities or other financial instruments, which are components of or correlated with, the Index. The Fund is also a non-diversified fund.
The Fund invests in a statistically selected sample of equity securities included in the EAFE Index and in derivative instruments linked to the EAFE Index. The Fund will, under normal circumstances, invest in all of the countries represented in the EAFE Index. The Fund may not, however, invest in all of the companies within a country, represented in the EAFE Index, or in the same weightings as in the EAFE Index. The Fund will choose investments so that the market capitalizations, industry weightings and other fundamental characteristics of the stocks and derivative instruments chosen are similar to the EAFE Index as a whole.
The Fund may invest in derivative instruments, and will normally invest a substantial portion of its assets in options and futures contracts correlated with market indices or countries included within the EAFE Index. Derivatives allow the Fund to increase or decrease its exposure to the EAFE Index quickly and at less cost than buying or selling stocks. The Fund will invest in options and futures and other derivative instruments in order to gain market exposure quickly in the event of subscriptions, to maintain liquidity in the event of redemptions and to keep trading costs low. In connection with the use of derivative instruments, the Fund may enter into short sales in order to adjust the weightings of particular securities represented in a derivative to more accurately reflect the securities' weightings in the Index. The Fund may engage in securities lending, which involves the risk that the borrower may fail to return the Fund's securities in a timely manner or at all.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of each country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity
and greater volatility of foreign investments, (4) lack of uniform accounting,
auditing and financial reporting standards, (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies, (6)
increased price volatility, (7) delays in transaction settlement in some foreign
markets, and (8) adverse impact of the euro conversion on the business or
financial condition of companies in which the Fund is invested.
(1) Effective June 1, 2002, Morgan Stanley Capital International ("MSCI") made significant changes to the way it calculated the EAFE Index. As part of the implementation of these changes, MSCI introduced the MSCI Provisional EAFE Index. As of October 1, 2001, the Fund began to track the MSCI Provisional EAFE Index. As of June 1, 2002, all changes had been implemented, and accordingly, the EAFE Index returned as the Fund's benchmark.
About the Funds 22 Prospectus
AMERICAN AADVANTAGE
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index and incurs costs in buying and selling securities. The Fund may not be
fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the Fund to meet redemptions. The return of the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return of the Index.
NON-DIVERSIFICATION RISK
The Fund is non-diversified, which means that it may invest a high percentage of
its assets in a limited number of securities. Since the Fund is non-diversified,
its net asset value and total return may fluctuate more or fall greater in times
of weaker markets than a diversified mutual fund.
DERIVATIVES RISK
Gains or losses from positions in a derivative instrument may be much greater
than the derivative's original cost. The counterparty to the transaction may be
unable to honor its financial obligation to the Fund. In addition, a derivative
may be difficult or impossible to sell at the time the investment adviser would
like or at the price the investment adviser believes the security is currently
worth.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper International Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... -22.14% 02.......................................................... -15.65% |
Highest Quarterly Return: 6.53% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -19.77% (1/1/01 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
RETURN BEFORE TAXES -15.65% -18.46%
RETURN AFTER TAXES ON
DISTRIBUTIONS -16.13% -18.94%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -9.61% -14.50%
------------------------------------------------------------
EAFE Index(1) -15.63% -18.05%
Lipper International Index -13.84% -16.93%
|
(1) Performance is that of the EAFE Index from inception through September 30, 2001 and from June 1, 2002 through December 31, 2002. Performance from October 1, 2001 through May 31, 2002 is that of the Provisional EAFE Index.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
Prospectus 23 About the Funds
AMERICAN AADVANTAGE
This table describes the fees and expenses that you may pay if you buy and hold shares of the International Equity Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.01%
Distribution (12b-1) Fees 0.00
Other Expenses 0.24
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.25%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Master International Index Series.
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 ................................... $26 3 YEARS................................... $80 5 YEARS................................... $141 10 YEARS.................................. $318 |
About the Funds 24 Prospectus
AMERICAN AADVANTAGE
High current income and capital appreciation.
This Fund seeks to maximize current income by investing in a diversified portfolio of public and private issue debt securities that are rated below investment grade (such as BB or lower by Standard & Poor's Ratings Services and/or Ba or lower by Moody's Investors Service, Inc.) or deemed to be below investment grade by the investment adviser. These types of securities are commonly referred to as "junk bonds." The Fund seeks capital appreciation by investing in issues whose relative value is expected to increase over time.
The Manager currently allocates all of the Fund's assets to MW Post Advisory Group, LLC ("MW Post"). The Manager, with the approval of the Fund's Board of Trustees, has appointed Metropolitan West Securities, LLC as an investment adviser to the fund for the sole purpose of lending the Fund's securities. Metropolitan West Securities will also have the responsibility for investing the cash collateral received in connection with securities loans, in accordance with guidelines approved by the Board.
The Fund seeks its investment objective by investing, under normal circumstances, at least 80% of its total assets in a diversified portfolio of domestic and foreign high yield bonds. High yield issuers are generally those which have below investment grade ratings because they are relatively small in size, relatively young in years, relatively leveraged financially (perhaps borrowing heavily to finance expansion or due to a leveraged buyout), or formerly "blue chip" companies that have encountered some financial difficulties.
The weighted average maturity of the Fund's debt securities is generally expected to be from six to eight years. In selecting investments, MW Post relies heavily on internal research and credit analysis. MW Post will adjust the Fund's overall credit rating and average maturity based on its judgment of the economic climate, industry dynamics, and values in the high yield market.
MW Post expects to make, to a lesser extent, other investments including foreign securities, common and preferred stocks, convertible securities, warrants, rights, and options, in keeping with the Fund's overall investment objective. From time to time, MW Post may take short equity positions as a hedge against selected high yield bond positions.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. Since the Fund invests in lower-quality debt
securities considered speculative in nature, this risk will be substantial.
HIGH YIELD SECURITIES RISK
Investing in junk bonds generally involves significantly greater risks of loss of your money than an investment in investment grade bonds. Compared with issuers of investment grade bonds, junk bonds are more likely to encounter financial difficulties and to be materially affected by these difficulties. Rising interest rates may compound these difficulties and reduce an issuer's ability to repay principal and interest obligations. Issuers of lower-rated securities also have a greater risk of default or bankruptcy.
MARKET RISK
Market risk involves the possibility that the value of the Fund's investments
will decline due to drops in the overall high yield bond market. Changes in the
eco-
Prospectus 25 About the Funds
AMERICAN AADVANTAGE
nomic climate, investor perceptions, and stock market volatility can cause the prices of the Fund's investments to decline, regardless of the financial conditions of the issuers held by the Fund.
FOREIGN INVESTING RISK
Investing in foreign securities carries potential risks not associated with
domestic investments. Such risks include, but are not limited to: (1) currency
exchange rate fluctuations, (2) political and financial instability, (3) less
liquidity and greater volatility of foreign investments, (4) lack of uniform
accounting, auditing and financial reporting standards, (5) less government
regulation and supervision of foreign stock exchanges, brokers and listed
companies, (6) increased price volatility, (7) delays in transaction settlement
in some foreign markets, and (8) adverse impact of the euro conversion on the
business or financial condition of companies in which the Fund is invested.
LIQUIDITY RISK
High yield bonds tend to be less liquid than higher-rated bonds. This means that
the Fund may experience difficulty selling the Fund's investments at favorable
prices. In addition, valuation of the Fund's investments may become more
difficult if objective market prices are unavailable.
HEDGING RISK
Gains or losses from positions in hedging instruments, such as options or short
sales, may be much greater than the instrument's original cost. The counterparty
may be unable to honor its financial obligation to the Fund. In addition, the
investment adviser may be unable to close the transaction at the time it would
like or at the price it believes the security is currently worth.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper High Current Yield Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... 8.99% 02.......................................................... 7.19% |
Highest Quarterly Return: 6.83% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -4.04% (1/1/01 through 12/31/02) (3rd Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
SINCE INCEPTION
1 YEAR (12/29/00)
------ ---------------
RETURN BEFORE TAXES 7.19% 8.06%
RETURN AFTER TAXES ON
DISTRIBUTIONS 3.92% 4.70%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES 2.57% 3.43%
------------------------------------------------------------
SSB High Yield Cash Pay
Index(1) -0.58% 3.11%
Lipper High Current Yield
Index -2.41% -1.72%
|
(1) The Salomon Smith Barney High Yield Cash Pay Index is an unmanaged index of below investment grade, cash-pay bonds with remaining maturities of at least one year and a minimum amount outstanding of $100 million.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
About the Funds 26 Prospectus
AMERICAN AADVANTAGE
This table describes the fees and expenses that you may pay if you buy and hold shares of the High Yield Bond Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.67%
Distribution (12b-1) Fees 0.00
Other Expenses 0.31
----
Total Annual Fund Operating Expenses 0.98%
====
Fee Waiver and/or Expense Reimbursement 0.08%(1)
NET EXPENSES 0.90%
|
(1) The Manager and MW Post have each contractually agreed to waive a portion of their fees and the Manager has agreed to reimburse the Fund for Other Expenses through October 31, 2003 to the extent that Total Annual Fund Operating Expenses exceed 0.90%.
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 expense remain the same. Because the Manager and MW Post have contractually agreed to waive fees through October 31, 2003, Net Expenses were used to calculate the cost in year one, and Total Annual Fund Operating Expenses were used to calculate costs for years two through ten. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR ................................. $92 3 YEARS................................. $304 5 YEARS................................. $534 10 YEARS................................ $1,194 |
Prospectus 27 About the Funds
AMERICAN AADVANTAGE
Income and capital appreciation.
The Fund invests in 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; mortgage-backed securities; asset-backed securities; and Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances and other notes. The Fund seeks capital appreciation by investing in corporate issues whose relative value is expected to increase over time.
The Manager currently allocates the Fund's assets, generally on an equal basis, between itself and Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow").
The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating the securities (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). No more than 25% of total assets may be invested in securities rated in the fourth highest rating category. The Fund, at the discretion of the applicable investment adviser, may retain a security that has been downgraded below the initial investment criteria.
In determining which securities to buy and sell, the Manager employs a top-down fixed income investment strategy, as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
Barrow uses a bottom-up fixed income investment strategy in determining which securities to buy and sell, as follows:
- Search for eligible securities with a yield to maturity advantage versus a U.S. Government security with a similar maturity.
- Evaluate credit quality of the securities.
- Perform an analysis of the expected price volatility of the securities to changes in interest rates by examining actual price volatility between U.S. Government and non-U.S. Government securities.
Under normal circumstances, the Fund seeks to maintain a duration of three to seven years. Duration is a measure of price sensitivity relative to changes in interest rates. Portfolios with longer durations are typically more sensitive to changes in interest rates. Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK
The Fund's investments in asset-backed and mortgage-backed securities are
subject to the risk that the principal amount of the underlying collateral may
be repaid prior to the bond's maturity date. If this occurs, no additional
interest will be paid on the investment and the Fund may have to invest at a
lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result
About the Funds 28 Prospectus
AMERICAN AADVANTAGE
in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Intermediate Investment Grade Debt Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. The Fund's performance includes the effects of a favorable accounting adjustment which occurred during the processing of a large shareholder redemption on July 6, 2000. In the absence of this adjustment, the Fund's performance would have been less than depicted. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
98.......................................................... 8.57% 99.......................................................... -2.15% 00.......................................................... 12.36% 01.......................................................... 8.13% 02.......................................................... 8.35% |
Highest Quarterly Return: 4.69% (1/1/98 through 12/31/02) (3rd Quarter 2001) Lowest Quarterly Return: -1.26% (1/1/98 through 12/31/02) (2nd Quarter 1999) |
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (9/15/97)
------ ------- ---------
RETURN BEFORE TAXES 8.35% 6.94% 7.39%
RETURN AFTER TAXES ON
DISTRIBUTIONS 6.34% 4.41% 4.85%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES 5.07% 4.83% 4.64%
------------------------------------------------------------
Lehman Bros. Aggregate
Index(2) 10.27% 7.54% 7.93%(1)
Lipper Intermediate
Investment Grade Debt
Index 8.31% 6.72% 7.00%()
|
(1) The Since Inception return is shown from 8/31/97.
(2) The Lehman Brothers Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
Prospectus 29 About the Funds
AMERICAN AADVANTAGE
This table describes the fees and expenses that you may pay if you buy and hold shares of the Intermediate Bond Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees 0.00
Other Expenses 0.31
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.56%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Intermediate Bond Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $57 3 YEARS................................... $179 5 YEARS................................... $313 10 YEARS.................................. $701 |
About the Funds 30 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
The Fund invests in 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; mortgage-backed securities; asset-backed securities; and Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances and other notes. The Fund seeks capital appreciation by investing in corporate issues whose relative value is expected to increase over time.
Currently, the Manager is the sole investment adviser to the Fund.
The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating the securities (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). No more than 25% of total assets may be invested in securities rated in the fourth highest rating category. The Fund, at the discretion of the Manager, may retain a security that has been downgraded below the initial investment criteria.
In determining which securities to buy and sell, the Manager employs a top-down fixed income investment strategy, as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
Under normal circumstances, the Fund seeks to maintain a duration of one to three years. Duration is a measure of price sensitivity relative to changes in interest rates. Portfolios with longer durations are typically more sensitive to changes in interest rates. Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK
The Fund's investments in mortgage-backed securities are subject to the risk
that the principal amount of the underlying mortgage may be repaid prior to the
bond's maturity date. If this occurs, no additional interest will be paid on the
investment and the Fund may have to invest at a lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
Prospectus 31 About the Funds
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Linked Lipper Investment Grade Debt Averages, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 6.50% 94.......................................................... 1.15% 95.......................................................... 9.90% 96.......................................................... 3.76% 97.......................................................... 6.71% 98.......................................................... 5.30% 99.......................................................... 2.92% 00.......................................................... 7.70% 01.......................................................... 8.32% 02.......................................................... 4.81% |
Highest Quarterly Return: 3.33% (1/1/93 through 12/31/02) (3rd Quarter 2001) Lowest Quarterly Return: -0.63% (1/1/93 through 12/31/02) (1st Quarter 1996) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
RETURN BEFORE TAXES 4.81% 5.79% 5.68%
RETURN AFTER TAXES ON
DISTRIBUTIONS 2.80% 3.33% 3.15%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES 2.92% 3.90% 3.72%
------------------------------------------------------------
Merrill Lynch 1-3 Yr
Gov./Corp. Index(1) 6.09% 6.61% 6.18%
Linked Lipper Investment
Grade Debt Averages(2) 4.36% 5.45% 5.30%
|
(1) The Merrill Lynch 1-3 Year Gov./Corp. Index is a market value weighted performance benchmark for government and corporate fixed-rate debt securities with maturities between one and three years.
(2) The Linked Lipper Investment Grade Debt Averages includes the Lipper Short-Term Investment Grade Debt Average prior to 1/1/96, the Lipper Short-Intermediate Investment Grade Debt Average from 1/1/96 through 7/31/96 and the Lipper Short-Term Investment Grade Debt Average since 8/1/96.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Short-Term Bond Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees 0.00
Other Expenses 0.19
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.44%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Short-Term Bond Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $45 3 YEARS................................... $141 5 YEARS................................... $246 10 YEARS.................................. $555 |
About the Funds 32 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the Money Market Portfolio of the AMR Trust.
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.
Currently, the Manager is the sole investment adviser to the Fund.
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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase.
- 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 pursuant to guidelines approved by the Board of Trustees.
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.
- 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.
- Because the Fund concentrates its assets in the banking industry, factors affecting that industry could have a significant impact on the performance of the Fund.
- 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 a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. Past performance is not necessarily indicative of how the Fund will perform in the future. You may call 1-800-388-3344 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.28% 94.......................................................... 4.22% 95.......................................................... 6.04% 96.......................................................... 5.50% 97.......................................................... 5.64% 98.......................................................... 5.56% 99.......................................................... 5.18% 00.......................................................... 6.45% 01.......................................................... 4.15% 02.......................................................... 1.67% |
Highest Quarterly Return: 1.65% (1/1/93 through 12/31/02) (3rd & 4th Quarter 2000) Lowest Quarterly Return: 0.36% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
1.67% 4.59% 4.76%
|
Prospectus 33 About the Funds
AMERICAN AADVANTAGE
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)
Management Fees 0.10%
Distribution (12b-1) Fees 0.00
Other Expenses 0.14
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.24%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Money Market Portfolio of the AMR Trust.
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 ................................... $25 3 YEARS................................... $77 5 YEARS................................... $135 10 YEARS.................................. $306 |
About the Funds 34 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the Municipal Money Market Portfolio of the AMR Trust.
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. Most of the 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.
Currently, the Manager is the sole investment adviser to the Fund.
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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase,
- 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 pursuant to guidelines approved by the Board of Trustees.
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.
- 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 a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. Past performance is not necessarily indicative of how the Fund will perform in the future. You may call 1-800-388-3344 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
94.......................................................... 2.66% 95.......................................................... 3.81% 96.......................................................... 3.51% 97.......................................................... 3.55% 98.......................................................... 3.37% 99.......................................................... 3.00% 00.......................................................... 3.93% 01.......................................................... 2.52% 02.......................................................... 1.21% |
Highest Quarterly Return: 1.03% (1/1/94 through 12/31/02) (4th Quarter 2000) Lowest Quarterly Return: 0.27% (1/1/94 through 12/31/02) (1st Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (11/10/93)
------ ------- ----------
1.21% 2.80% 3.05%
|
Prospectus 35 About the Funds
AMERICAN AADVANTAGE
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)
Management Fees 0.10%
Distribution (12b-1) Fees 0.00
Other Expenses 0.20
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.30%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Municipal Money Market Portfolio of the AMR Trust.
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 ................................... $31 3 YEARS................................... $97 5 YEARS................................... $169 10 YEARS.................................. $381 |
About the Funds 36 Prospectus
The Funds have retained AMR Investment Services, Inc. to serve as their Manager. The Manager, located at 4151 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, 2002, the Manager had approximately $29.6 billion of assets under management, including approximately $16.8 billion under active management and $12.8 billion as named fiduciary or financial adviser. Approximately $14.2 billion of the Manager's total assets under management were 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,
- selects and changes investment advisers (subject to requisite approvals),
- allocates assets among investment advisers,
- monitors the investment advisers' investment programs and results,
- coordinates the investment activities of the investment advisers to ensure compliance with regulatory restrictions,
- oversees each Fund's securities lending activities and actions taken by the securities lending agent, and
- with the exception of the Emerging Markets, International Equity, High Yield Bond, S&P 500 Index, Small Cap Index and International Equity Index Funds, invests the portion of Fund assets that the investment advisers determine should be allocated to high quality short-term debt obligations.
As compensation for providing management services, the Manager receives an annualized advisory fee that is calculated and accrued daily, equal to the sum of:
- 0.25% of the net assets of the Manager's portion of the Intermediate Bond Fund,
- 0.25% of the net assets of the Short-Term Bond Fund, plus
- 0.10% of the net assets of all other Funds, except the Index Funds.
The Manager receives a fee of 0.10% of the net assets of the Balanced Fund (as noted above) plus a fee of 0.15% of the Fund's net fixed income assets under its management. In addition, the Balanced, Large Cap Value, Large Cap Growth, Small Cap Value, International Equity, Emerging Markets, Intermediate Bond and High Yield Bond Funds pay the Manager the amounts due to their respective investment advisers. The Manager then remits these amounts to the investment advisers.
The Manager also may receive up to 25% of the net annual interest income or up to 25% of loan fees in regards to securities lending activities. Currently, the Manager receives 10% of the net annual interest income from the investment of cash collateral or 10% of the loan fees posted by borrowers. The Securities and Exchange Commission ("SEC") has granted exemptive relief that permits the Funds to invest cash collateral received from securities lending transactions in shares of one or more private or registered investment companies managed by the Manager.
The management fees paid by the Funds for the fiscal year ended October 31, 2002, net of reimbursements and shown as a percentage of average net assets, were as follows:
MANAGEMENT
FUND FEES
---- ----------
Balanced............................. 0.29%
Large Cap Value...................... 0.31%
Large Cap Growth..................... 0.63%
Small Cap Value...................... 0.53%
Intermediate Bond.................... 0.25%
International Equity................. 0.37%
Emerging Markets..................... 0.99%
Short-Term Bond...................... 0.25%
High Yield Bond...................... 0.67%
|
The management fees paid by the Funds for the fiscal year ended December 31, 2002, net of reimbursements and shown as a percentage of average net assets, were as follows:
MANAGEMENT
FUND FEES
---- ----------
Money Market......................... 0.10%
Municipal Money Market............... 0.10%
|
William F. Quinn and Nancy A. Eckl have primary responsibility for the day-to-day operations of the Balanced, Large Cap Value, Large Cap Growth, Small Cap Value, International Equity, Emerging Markets, Intermediate Bond and High Yield Bond Funds, except as indicated otherwise below. These responsibilities include oversight of the investment advisers, regular review of each investment adviser's performance and asset allocations among multiple investment advisers. Mr. Quinn has served as President of the Manager since its inception in 1986. Ms. Eckl has served as Vice President-Trust Investments of the Manager since May 1995.
Michael W. Fields oversees the team responsible for the portfolio management of the Short-Term Bond Fund and a portion of the fixed income assets of the Balanced Fund. Mr. Fields has been with the Manager since it was founded in 1986 and serves as Vice President-Fixed Income Investments.
The S&P 500 Index Fund invests all of its investable assets in the State Street Equity 500 Index Portfolio, which is managed by SSgA. SSgA is located at Two International Place, Boston, Massachusetts 02110. As of December 31, 2002, SSgA managed approximately $60 billion in assets and, together with its affiliates, which comprise State Street Global Advisors, the investment management business of State Street Corporation, managed approximately $762 billion in assets. SSgA
Prospectus 37 About the Funds
serves as investment adviser, and State Street Bank and Trust Company ("State Street") serves as administrator, custodian and transfer agent to the State Street Equity 500 Index Portfolio. As compensation for SSgA's services as investment adviser and State Street's services as administrator, custodian and transfer agent (and for assuming ordinary operating expenses of the Portfolio, including ordinary audit and legal expenses), State Street receives an advisory fee at an annual rate of 0.045% of the average daily net assets of the Portfolio.
The Small Cap Index and International Equity Index Funds invest all of their investable assets in corresponding portfolios of the Quantitative Master Series Trust ("Index Trust") with similar names and identical investment objectives. The Index Trust is managed by Fund Asset Management, L.P. ("FAM"), a Delaware limited partnership, the partners of which are Merrill Lynch & Co., a financial services holding company and the parent of Merrill Lynch, and Princeton Services. FAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Assets under management as of January 31, 2003 were approximately $450 billion. FAM serves as investment adviser and administrator to the Index Trust. As compensation for providing investment advisory services (and for assuming ordinary operating expenses), FAM receives an annualized fee of 0.08% of the average daily net assets of the Master Small Cap Index Series and 0.01% of the average daily net assets of the International Index Series. However, FAM has contractually agreed to waive the fee for the Master Small Cap Index Series down to 0.01%, as long as the administrative fee of the Merrill Lynch Fund, which also invests in the Master Small Cap Index Series, is maintained at 0.29%. The Master Small Cap Index Series and the Master International Index Series are managed by the Merrill Lynch Investment Managers Index Management Team.
Set forth below is a brief description of the investment advisers for the Funds. The Manager is the sole investment adviser to the Money Market Funds and the Short-Term Bond Fund. Except for these Funds, each Fund's assets are allocated among one or more investment advisers by the Manager. The assets of the Intermediate Bond Fund are allocated by the Manager between the Manager and another investment adviser. The assets of the Balanced Fund are allocated by the Manager among the Manager and three other investment advisers. Each investment adviser has discretion to purchase and sell securities for its segment of a Fund's assets in accordance with the Fund's objectives, policies, restrictions and more specific strategies provided by the Manager. Pursuant to an exemptive order issued by the SEC, the Manager is permitted to enter into new or modified investment advisory agreements with existing or new investment advisers without approval of a Fund's shareholders, but subject to approval of the Funds' Board of Trustees ("Board") and for those Funds that invest their assets in the AMR Trust, approval of the AMR Trust Board. The Prospectus will be supplemented if additional investment advisers are retained or the contract with any existing investment adviser is terminated.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("BARROW"), 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204, is a professional investment counseling firm which has been providing investment advisory services since 1979. The firm is a subsidiary of Old Mutual Asset Managers (US) LLC, which is a subsidiary of Old Mutual plc, an international financial services group. As of December 31, 2002, Barrow had discretionary investment management authority with respect to approximately $24.5 billion of assets, including approximately $1.3 billion of assets of AMR Corporation and its subsidiaries and affiliated entities. Barrow serves as an investment adviser to the Balanced, Large Cap Value, Intermediate Bond and Short-Term Bond Funds, although the Manager does not presently intend to allocate any of the assets in the Short-Term Bond Fund to Barrow.
BRANDYWINE ASSET MANAGEMENT, LLC ("BRANDYWINE"), 201 North Walnut Street, Wilmington, Delaware 19801, is a professional investment counseling firm founded in 1986. Brandywine is a wholly owned subsidiary of Legg Mason, Inc. As of December 31, 2002, Brandywine had assets under management totaling approximately $8.0 billion, including approximately $1.0 billion of assets of AMR Corporation and its subsidiaries and affiliated entities. Brandywine serves as an investment adviser to the Balanced, Large Cap Value and Small Cap Value Funds.
CAUSEWAY CAPITAL MANAGEMENT LLC ("CAUSEWAY"), 11111 Santa Monica Blvd., Suite 1550, Los Angeles, California 90025, is a professional international and global equity asset management firm. Causeway began operations in June 2001 and was founded by the key international value equity management personnel at the Hotchkis and Wiley division of Merrill Lynch Investment Managers, L.P., the previous investment adviser to the International Equity Fund. As of December 31, 2002, Causeway had approximately $2.3 billion in assets under management, including approximately $763 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Causeway serves as an investment adviser to the International Equity Fund.
GOLDMAN SACHS ASSET MANAGEMENT ("GSAM"), 32 Old Slip, New York, New York 10005, is a business unit of the Investment Management Division ("IMD") of Goldman, Sachs & Co. As of December 31, 2002, GSAM, along with other units of IMD, managed over $329.6 billion in assets, including approximately $16.5 million of assets of AMR Corporation and its subsidiaries and affiliated entities. GSAM serves as an investment adviser to the Large Cap Growth Fund.
HOTCHKIS AND WILEY CAPITAL MANAGEMENT, LLC ("HOTCHKIS"), 725 South Figueroa Street, 39th Floor, Los Angeles, California 90017, is a professional domestic equity management firm. Hotchkis was formed in October 2001 from the key domestic equity management personnel at Merrill Lynch Investment Managers, L.P., previously an investment adviser to the
About the Funds 38 Prospectus
Funds. As of December 31, 2002, Hotchkis had approximately $4.9 billion in assets under management, including approximately $638 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Hotchkis serves as an investment adviser to the Balanced, Large Cap Value and Small Cap Value Funds.
INDEPENDENCE INVESTMENT LLC ("INDEPENDENCE"), 53 State Street, Boston, Massachusetts 02109, is a professional investment counseling firm which was founded in 1982. The firm is a wholly owned subsidiary of John Hancock Financial Services. Assets under management as of December 31, 2002, including funds managed for its parent company and its affiliate Independence Fixed Income LLC, were approximately $18.9 billion, which included approximately $306 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Independence serves as an investment adviser to the International Equity Fund.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. MORGAN"), 522 Fifth Avenue, New York, New York 10036, is a direct subsidiary of J.P. Morgan Chase & Co. As of December 31, 2002, J.P. Morgan and its affiliates had approximately $515 billion in assets under management, including approximately $985 million of assets of AMR Corporation and its subsidiaries and affiliated entities. J.P. Morgan serves as an investment adviser to the Large Cap Growth Fund.
LAZARD ASSET MANAGEMENT LLC ("LAZARD"), 30 Rockefeller Plaza, New York, New York 10112, is a subsidiary of Lazard Freres & Co. LLC, a registered investment adviser and member of the New York, American and Chicago Stock Exchanges, providing its clients with a wide variety of investment banking, brokerage and related services. Lazard and its affiliates provide investment management services to client discretionary accounts with assets totaling approximately $55.9 billion as of December 31, 2002, including approximately $571 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Lazard serves as an investment adviser to the International Equity Fund.
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC ("METWEST CAPITAL"), 610 Newport Center Drive, Suite 1000, Newport Beach, California 92660, is a professional investment management firm founded in 1997. The firm is minority owned by Metropolitan West Financial, LLC. It is also an affiliate of Metropolitan West Securities, LLC and MW Post Advisory Group, LLC. As of December 31, 2002, MetWest Capital had approximately $1.7 billion of assets under management, which included approximately $159 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MetWest Capital serves as an investment adviser to the Large Cap Value Fund.
METROPOLITAN WEST SECURITIES, LLC ("METWEST SECURITIES"), 11440 San Vicente Blvd., 3rd Floor, Los Angeles, California 90049, is a subsidiary of Metropolitan West Financial, LLC and an affiliate of MW Post Advisory Group, LLC and Metropolitan West Capital Management, LLC. As of December 31, 2002, MetWest Securities had approximately $30 billion in assets under management. MetWest Securities serves as investment adviser to the High Yield Bond Fund for the sole purpose of lending the Fund's securities.
MORGAN STANLEY INVESTMENT MANAGEMENT INC. ("MSIM INC."), 1221 Avenue of the Americas, New York, New York 10020, is a direct subsidiary of Morgan Stanley. As of December 31, 2002, MSIM Inc., together with its affiliated institutional asset management companies, managed assets of approximately $376.2 billion, including approximately $137 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MSIM Inc. serves as an investment adviser to the Emerging Markets Fund.
MW POST ADVISORY GROUP, LLC ("MW POST"), 11766 Wilshire Blvd., Suite 1660, Los Angeles, California 90025, is a professional investment management firm that has been providing advisory services under its current name and its predecessor, Post Advisory Group, Inc., since 1992. MW Post is jointly owned by the principals of the firm (directly and indirectly) and Metropolitan West Financial, LLC. As of December 31, 2002, MW Post had assets under management totaling approximately $2.0 billion, including approximately $134 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MW Post serves as investment adviser to the High Yield Bond Fund.
TEMPLETON INVESTMENT COUNSEL, LLC ("TEMPLETON"), 500 East Broward Blvd., Suite 2100, Fort Lauderdale, Florida 33394, is an indirect wholly owned subsidiary of Franklin Resources, Inc., a global investment organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management services, through its Franklin, Templeton, Mutual Series and Fiduciary Trust subsidiaries. The San Mateo, CA-based company has over 50 years of investment experience and more than $252 billion in assets under management as of December 31, 2002. Of this amount, approximately $560 million are assets of AMR Corporation and its subsidiaries and affiliated entities. Templeton serves as an investment adviser to the International Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, LLC ("THE BOSTON COMPANY"), One Boston Place, Boston, Massachusetts 02108, is a subsidiary of Mellon Financial Corporation. Assets under management as of December 31, 2002 were $21.1 billion, including approximately $142 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Certain of the assets managed by The Boston Company are managed as dual officers of affiliated entities. The Boston Company serves as an investment adviser to the Emerging Markets Fund.
All other assets of American Airlines, Inc. and its affiliates under management by each respective investment adviser (except assets managed by Barrow under the HALO Bond Program) are considered when calculating the fees for each investment adviser other than State Street. Including these assets lowers the investment advisory fees for each applicable Fund.
Prospectus 39 About the Funds
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. Equity securities are valued based on market value. 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. Securities are valued at fair value, as determined in good faith and pursuant to procedures approved by a Fund's or Portfolio's applicable Board of Trustees, under certain limited circumstances. For example, fair valuation would be used if market quotations are not readily available or a material event occurs after the close of the exchange that may affect the security's value. The price of a security determined through fair valuation may differ from the price quoted or published by other sources. Securities held by the Money Market Funds are valued in accordance with the amortized cost method, which is designed to enable those Funds to maintain a stable NAV of $1.00 per share.
The NAV of Institutional Class shares will be determined based on a pro rata allocation of the Fund's or Portfolio's (as applicable) 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 it is open for business, or such other time as designated by a Money Market Fund, if in its discretion, the Fund accepts orders on days when the Exchange is closed. In addition to the days the Exchange is closed, the Money Market Funds are also not open and no NAV is calculated on Columbus Day and Veterans Day. In certain limited circumstances, a Money Market Fund, in its discretion, may designate other days as a business day on which it will accept purchases and redemptions (but typically not exchanges between a Money Market Fund and other American AAdvantage Fund). Because the International Equity, Emerging Markets, and International Equity Index Funds (the "International Funds") invest in securities primarily listed on foreign exchanges that trade on days when the Funds do not price their shares, the NAV per share of these Funds may change on days when shareholders will not be able to purchase or redeem the Funds' shares.
Institutional Class shares are offered without a sales charge to investors who make an initial investment of at least $2 million, including:
- agents or fiduciaries acting on behalf of their clients (such as employee benefit plans, personal trusts and other accounts for which a trust company or financial advisor acts as agent or fiduciary);
- endowment funds and charitable foundations;
- employee welfare plans which are tax-exempt under Section 501(c)(9) of the Internal Revenue Code of 1986, as amended ("Code");
- qualified pension and profit sharing plans;
- cash and deferred arrangements under Section 401(k) of the Code;
- corporations; and
- other investors who make an initial investment of at least $2 million.
The Manager may allow a reasonable period of time after opening an account for an investor to meet the initial investment requirement. In addition, for investors such as trust companies and financial advisors who make investments for a group of clients, the minimum initial investment can be met through an aggregated purchase order for more than one client.
No sales charges are assessed on the purchase or sale of Fund shares. Shares of the Funds are offered and purchase orders are typically accepted until the deadlines listed below on each day on which the Exchange is open for trading. In addition, shares of the Money Market Funds are not offered and orders are not accepted on Columbus Day and Veterans Day.
PURCHASE ORDER DEADLINE
FUND (EASTERN TIME)*:
---- -----------------------
Municipal Money Market 11:45 a.m.
All other Funds 4:00 p.m.
|
*or the close of the Exchange (whichever comes first)
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.
A completed, signed application is required to open an account. You may request an application form by:
- calling (800) 967-9009, or
- visiting the Funds' website at www.aafunds.com and downloading an account application.
Complete the application, sign it and
Mail to:
American AAdvantage Funds
P.O. Box 619003
DFW Airport, TX 75261-9003
or Fax to:
(817) 931-8803
About Your Investment 40 Prospectus
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, minus a redemption fee, if
applicable. For assistance with completing a redemption request, please call
(800) 658-5811. Except for the Money Market Funds, wire proceeds from redemption
orders received by 4:00 p.m. Eastern Time generally are transmitted to
shareholders on the next day that the Funds are open for business. Proceeds from
redemptions requested for the Money Market Funds by the following deadlines will
generally be wired to shareholders on the same day.
SAME DAY WIRE
FUND REDEMPTION ORDER DEADLINE:
---- --------------------------
Money Market 2:00 p.m. Eastern Time*
Municipal Money Market 11:45 a.m. Eastern Time*
|
*or the close of the Exchange (whichever comes first)
In any event, proceeds from a redemption order for any Fund will typically 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.
A redemption fee of 2% will be deducted from your redemption amount when you sell shares of the International Equity Fund or Emerging Markets Fund that you have owned for less than 30 days or 90 days, respectively. The redemption fee is paid to the Fund and is intended to offset the trading costs, market impact and other costs associated with short-term trading activity in and out of the Fund. If you purchased shares on multiple dates, the shares you have held the longest will be redeemed first for purposes of assessing the redemption fee. The following are exempt from the redemption fee: shares acquired through the reinvestment of distributions, shares held in retirement plans, and shares redeemed through pre-authorized automatic redemption. Third parties who offer shares of the International Equity and Emerging Markets Funds may or may not charge the redemption fee to their customers for the benefit of these Funds.
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 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 or its corresponding portfolio. Unpaid dividends credited to an account up to the date of redemption of all shares of a Money Market Fund generally will be paid at the time of redemption.
HOW TO PURCHASE SHARES
To Make an Initial Purchase To Add to an Existing Account
By Wire
If your account has been established, you may call (800) Call (800) 658-5811 or visit www.aafunds.com to purchase
658-5811 or visit www.aafunds.com (select My Account) to shares by wire. Send a bank wire to State Street Bank and
purchase shares by wire. Send a bank wire to State Street Trust Co. with these instructions:
Bank and 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-Institutional Class, - Attn: American AAdvantage Funds-Institutional Class,
- the Fund name and Fund number, and - the Fund name and Fund number, and
- shareholder's account number and registration. - shareholder's account number and registration.
By Check
- Make check payable to American AAdvantage Funds. - Include the shareholder's account number, Fund name and
- Include the Fund name, Fund number and "Institutional Fund number on the check.
Class" on the check. - Mail the check to:
- Mail the check to:
American AAdvantage Funds
American AAdvantage Funds P.O. Box 219643
P.O. Box 219643 Kansas City, MO 64121-9643
Kansas City, MO 64121-9643
By Exchange
Shares of a Fund may be purchased by exchange from another American AAdvantage Fund if the shareholder has owned
Institutional Class shares of the other American AAdvantage Fund for at least 15 days. Send a written request to the address
above or call (800) 658-5811 to exchange shares.
|
Prospectus 41 About Your Investment
HOW TO REDEEM SHARES
Method Additional Information
By Telephone
Call (800) 658-5811 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 for estates,
- the Fund name and Fund number, trusts, guardianships, custodians, corporations, and
- shareholder account number, welfare, pension and profit sharing plans. Call (800)
- shares or dollar amount to be redeemed, and 658-5811 for instructions.
- authorized signature(s) of all persons required to sign - Proceeds will only be mailed to the account address of
for the account. record or transmitted by wire to a commercial bank
account designated on the account application form.
Mail to: - A signature guarantee is required for redemption orders:
- with a request to send the proceeds to an address or
American AAdvantage Funds commercial bank account other than the address or
P.O. Box 219643 commercial bank account designated on the account
Kansas City, MO 64121-9643 application, or
- for an account requesting payment by check whose address
has changed within the last 30 days.
By Exchange
Shares of a Fund may be redeemed in exchange for another American AAdvantage Fund -- Institutional Class if the shareholder
has owned Institutional Class shares of the Fund for at least 15 days. Send a written request to the address above or call
(800) 658-5811 to exchange shares.
Via My Account on www.aafunds.com
If you have established bank instructions for your account, you may request a redemption by selecting My Account on
www.aafunds.com. To establish bank instructions, please call (800) 658-5811.
|
If a shareholder's account balance in any Fund falls below $100,000, the shareholder may be asked to increase the balance. If the account balance remains below $100,000 after 45 days, the 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,
- terminate the exchange privilege of any shareholder who makes more than one exchange in and out of a Fund (other than the Money Market Funds) during any three month period, and
- seek reimbursement from the shareholder for any related loss incurred if payment for the purchase of Fund shares by check does not clear the shareholder's bank.
In order to discourage short-term trading of the Funds' shares, the Funds will not accept more than one exchange in and out of any Fund (except for the Money Market Funds) within any three-month period. If the Manager determines that a shareholder is investing in a Fund to profit from day-to-day fluctuations in the Fund's net asset value, also known as market timing, the Fund may reject any order or terminate the exchange privilege of that shareholder.
About Your Investment 42 Prospectus
Third parties who offer Fund shares, such as banks, broker-dealers and 401(k) plan providers, may charge transaction fees and may set different minimum investments or limitations on purchasing or redeeming shares.
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 and gains from foreign currency transactions. Unless the account application instructs otherwise, distributions will be reinvested in additional Fund shares. Monthly distributions are paid to shareholders on the first business day of the following month.
Distributions are paid as follows:
OTHER
DISTRIBUTIONS
FUND DIVIDENDS PAID PAID
---- -------------- -------------
Balanced Annually Annually
Large Cap Value Annually Annually
Large Cap Growth Annually Annually
Small Cap Value Annually Annually
International Equity Annually Annually
Emerging Markets Annually Annually
S&P 500 Index April, July, October Annually
and December
Small Cap Index Annually Annually
International Equity Annually Annually
Index
High Yield Bond Monthly Annually
Intermediate Bond Monthly Annually
Short-Term Bond Monthly Annually
Money Market Monthly Monthly
Municipal Money Market Monthly Monthly
|
Usually, dividends received from a Fund (except the Municipal Money Market Fund) are taxable as ordinary income, regardless of whether dividends are reinvested. However, the portion of a Fund's dividends derived from its investments in certain direct U.S. Government obligations may be exempt from state and local income taxes. Distributions by a Fund of realized net short-term capital gains and gains from certain foreign currency transactions are similarly taxed as ordinary income. Distributions by the Funds of realized net long-term capital gains are taxable to their shareholders as long-term capital gains regardless of how long an investor has been a shareholder.
Some foreign countries may impose taxes on dividends paid to and gains realized by the International Funds. An International Fund may treat these taxes as a deduction or, under certain conditions, "flow the tax through" to its shareholders. In the latter event, a shareholder may either deduct the taxes or use them to calculate a credit against his or her federal income tax.
A portion of the dividends paid by the Balanced Fund, the Large Cap Value Fund, the Large Cap Growth Fund, the Small Cap Value Fund, the S&P 500 Index Fund, the Small Cap Index Fund, and the High Yield Bond Fund is eligible for the dividends-received deduction allowed to corporations. The eligible portion for any Fund may not exceed its aggregate dividends received from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction may be subject indirectly to the federal alternative minimum tax ("AMT"). An International Fund's dividends most likely will not qualify for the dividends-received deduction because none of the dividends it receives are expected to be paid by U.S. corporations.
The Municipal Money Market Fund expects to designate most of its distributions as "exempt-interest dividends," which may be excluded from gross income. If the Fund earns taxable income from any of its investments, that income will be distributed as a taxable dividend. If the Fund invests in private activity obligations, its 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 the 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 Fund's exempt-interest income by state.
Shareholders may realize a taxable gain or loss when redeeming or exchanging shares (other than shares of the Money Market Funds). That gain or loss may be treated as a short-term or long-term gain, depending on how long the sold or exchanged shares were held.
This is only a summary of some of the important 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.
The Funds do not incur any direct distribution expenses related to Institutional Class shares. However, the Funds have adopted a Distribution Plan in accordance with Rule 12b-1 under the Investment Company Act of 1940 which authorizes the use of any fees received by the Manager in accordance with the Administrative Services and Management Agreements, and any fees received by the investment advisers pursuant to their Advisory Agreements with the Manager, to be used for the sale and distribution of Fund shares. In the event the Funds begin to incur distribution expenses, distribution fees may be paid out of Fund assets, possibly causing the cost of your investment to increase over time and resulting in costs higher than other types of sales charges.
Prospectus 43 Additional Information
Under a master-feeder structure, a "feeder" fund 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:
Structure Chart
Each Master-Feeder 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. A change in a portfolio's fundamental objective, policies and restrictions, which is not approved by the shareholders of its corresponding Fund, could require that Fund to redeem its interest in the portfolio. Any such redemption could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the portfolio. Should such a distribution occur, that Fund could incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for that Fund and could affect adversely the liquidity of the Fund. If a Master-Feeder Fund withdraws its investment in its corresponding portfolio, the Fund's assets will be invested directly in investment securities or in another master fund, according to the investment policies and restrictions described in this Prospectus.
Prior to March 1, 2002, the Balanced, Large Cap Value, Small Cap Value, Emerging Markets, Intermediate Bond, and Short-Term Bond Funds invested all of their investable assets in a corresponding portfolio of the AMR Investment Services Trust with a similar name and identical investment objective. On March 1, 2002, the master-feeder structure of these Funds was discontinued, and each Fund now directly purchases securities for investment in accordance with its respective investment objective.
The financial highlights tables are intended to help you understand each Fund's financial performance for the past five fiscal years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in each Fund's table represent the rate that an investor would have earned (or lost) on an investment in that Fund (assuming reinvestment of all dividends and distributions). Each Fund's financial highlights were audited by Ernst & Young LLP, independent auditors. The financial highlights of the S&P 500 Index Fund were audited by PricewaterhouseCoopers LLP, independent auditors, through the end of 1999. The report of Ernst & Young LLP, along with the Funds' financial statements, is found in the Funds' Annual Report, which you may obtain upon request.
Additional Information 44 Prospectus
BALANCED FUND-INSTITUTIONAL CLASS
-----------------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------------
2002 2001(D E) 2000(B) 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------ --------- -------- -------- --------
Net asset value, beginning of period........................ $12.07 $ 12.27 $ 13.01 $ 14.56 $ 16.18
------ -------- -------- -------- --------
Income from investment operations:
Net investment income(A C)............................... 0.11(G) 0.51 0.58 0.50 0.51
Net gains (losses) on securities (both realized and
unrealized)(C)......................................... (0.69)(G) (0.03) (0.03) (0.39) 0.76
------ -------- -------- -------- --------
Total income from investment operations..................... (0.58) 0.48 0.55 0.11 1.27
------ -------- -------- -------- --------
Less distributions:
Dividends from net investment income..................... (0.44) (0.68) (0.51) (0.49) (0.63)
Distributions from net realized gains on securities...... (0.08) -- (0.78) (1.17) (2.26)
------ -------- -------- -------- --------
Total distributions......................................... (0.52) (0.68) (1.29) (1.66) (2.89)
------ -------- -------- -------- --------
Net asset value, end of period.............................. $10.97 $ 12.07 $ 12.27 $ 13.01 $ 14.56
====== ======== ======== ======== ========
Total return................................................ (5.14)% 4.07% 5.13% 0.53% 9.04%
====== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................. $8,994 $157,775 $260,880 $139,519 $145,591
Ratios to average net assets (annualized):
Expenses(C).......................................... 0.62% 0.62% 0.61% 0.59% 0.59%
Net investment income(C)............................. 3.12%(G) 3.56% 4.39% 3.55% 3.54%
Portfolio turnover rate(F)............................... 84% 122% 121% 90% 87%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) GSB Investment Management, Inc. was removed as an investment adviser to the Balanced Fund on March 1, 2000.
(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 the AMR Investment Services Balanced Portfolio through February 28, 2002.
(D) On September 7, 2001, AMR Investment Services, Inc. assumed management of the fixed income portion of the Balanced Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(E) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the equity portion of the Balanced Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(F) The American AAdvantage Balanced Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(G) Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements (see Annual Report dated October 31, 2002), these amounts would have been:
Net investment income....................................... $ 0.13 Net gains (losses) on securities (both realized and unrealized)............................................... $(0.71) Net investment income ratio................................. 3.21% |
Prospectus 45 Additional Information
LARGE CAP VALUE FUND-INSTITUTIONAL CLASS
----------------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------------
2002 2001(B G) 2000(E) 1999(D) 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- --------- ------- ------- --------
Net asset value, beginning of period.............. $ 14.51 $ 15.83 $18.69 $ 20.93 $ 21.63
------- ------- ------ ------- --------
Income from investment operations:
Net investment income(A C)..................... 0.27 0.28 0.47 0.38 0.40
Net gains (losses) on securities (both realized
and unrealized)(C)........................... (1.76) (0.61) 0.06 0.04 0.89
------- ------- ------ ------- --------
Total income from investment operations........... (1.49) (0.33) 0.53 0.42 1.29
------- ------- ------ ------- --------
Less distributions:
Dividends from net investment income........... (0.30) (0.50) (0.34) (0.40) (0.41)
Distributions from net realized gains on
securities................................... (0.17) (0.49) (3.05) (2.26) (1.58)
------- ------- ------ ------- --------
Total distributions............................... (0.47) (0.99) (3.39) (2.66) (1.99)
------- ------- ------ ------- --------
Net asset value, end of period.................... $ 12.55 $ 14.51 $15.83 $ 18.69 $ 20.93
======= ======= ====== ======= ========
Total return...................................... (10.83)% (2.21)% 4.81% 1.72% 6.28%
======= ======= ====== ======= ========
Ratios and supplemental data:
Net assets, end of period (in thousands)....... $21,589 $10,081 $7,594 $45,039 $216,548
Ratios to average net assets (annualized):
Expenses(C).................................. 0.61% 0.64% 0.53% 0.59% 0.57%
Net investment income(C)..................... 1.82% 1.76% 3.71% 1.94% 1.86%
Portfolio turnover rate(F ).................... 34% 60% 58% 33% 40%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the Large Cap Value Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(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 the AMR Investment Services Large Cap Value Portfolio through February 28, 2002.
(D) Prior to March 1, 1999, the Large Cap Value Fund was known as the Growth and Income Fund.
(E) GSB Investment Management, Inc. was removed as an investment advisor to the Large Cap Value Fund on March 1, 2000.
(F) The American AAdvantage Large Cap Value Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(G) Metropolitan West Capital Management, LLC replaced Independence Investment LLC as an investment advisor to the Large Cap Value Fund on December 1, 2000.
LARGE CAP GROWTH FUND-
INSTITUTIONAL CLASS
-----------------------------------
YEAR ENDED
OCTOBER 31, JULY 31 TO
--------------------- OCTOBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ----------- -----------
Net asset value, beginning of period........................ $ 5.66 $ 9.54 $10.00
------- ------- ------
Income from investment operations:
Net investment income (loss)(A)......................... 0.03 (0.01) --
Net losses on securities (both realized and
unrealized)(A)......................................... (1.16) (3.86) (0.46)
------- ------- ------
Total from investment operations............................ (1.13) (3.87) (0.46)
------- ------- ------
Less distributions:
Dividends from net investment income.................... -- (0.01) --
------- ------- ------
Total distributions......................................... -- (0.01) --
------- ------- ------
Net asset value, end of period.............................. $ 4.53 $ 5.66 $ 9.54
======= ======= ======
Total return................................................ (19.96)% (40.62)% (4.60)%(C)
======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 1 $ 1 $ 1
Ratios to average net assets (annualized)(A):
Expenses............................................ 0.87% 0.99% 0.99%
Net investment income (loss)........................ 0.06% (0.26)% --
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A)............ -- 0.02% 0.29%
Portfolio turnover rate(B).............................. 135% 85% 9%(C)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Large Cap Growth Portfolio through February 28, 2001.
(B) Prior to March 1, 2001, the American AAdvantage Large Cap Growth Fund invested all of its investable assets in its corresponding Portfolio. Portfolio turnover rate through February 28, 2001 was that of the Portfolio.
(C) Not annualized.
Additional Information 46 Prospectus
SMALL CAP VALUE FUND-
INSTITUTIONAL CLASS
---------------------------------------------
YEAR ENDED DECEMBER 31,
OCTOBER 31, 1998 TO
------------------------------ OCTOBER 31,
2002 2001(C) 2000 1999
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------ ------------
Net asset value, beginning of period........................ $ 11.69 $10.08 $ 9.07 $10.00
------- ------ ------ ------
Income from investment operations:
Net investment income (loss)(A)......................... (0.01) 0.16 0.21 0.07
Net gains (losses) on securities (both realized and
unrealized)(A)......................................... 0.47 1.81 1.01 (1.00)
------- ------ ------ ------
Total income from investment operations..................... 0.46 1.97 1.22 (0.93)
------- ------ ------ ------
Less distributions:
Dividends from net investment income.................... (0.11) (0.19) (0.04) --
Distributions from net realized gains on securities..... (0.76) (0.17) (0.17) --
------- ------ ------ ------
Total distributions......................................... (0.87) (0.36) (0.21) --
------- ------ ------ ------
Net asset value, end of period.............................. $ 11.28 $11.69 $10.08 $ 9.07
======= ====== ====== ======
Total return................................................ 3.29% 20.16% 13.78% (9.30)%(D)
======= ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $21,936 $2,364 $1,955 $2,117
Ratios to average net assets (annualized):
Expenses(A)........................................... 0.82% 0.89% 0.92% 0.96%
Net investment income(A).............................. 0.81% 1.38% 1.62% 0.84%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A)............. -- -- 0.06% 1.23%
Portfolio turnover rate(B).............................. 81% 93% 63% 31%(D)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Small Cap Value Portfolio through February 28, 2002.
(B) The American AAdvantage Small Cap Value Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the Small Cap Value Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(D) Not annualized.
Prospectus 47 Additional Information
INTERNATIONAL EQUITY FUND-INSTITUTIONAL CLASS
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2002 2001(E) 2000 1999(B) 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- -------- --------
Net asset value, beginning of period........................ $ 13.77 $ 17.95 $ 19.36 $ 16.93 $ 17.08
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(AD)................................ 0.21 0.24 0.36 0.35 0.33
Net gains (losses) on securities (both realized and
unrealized)(D).......................................... (1.62) (2.96) 0.18 2.92 0.34
-------- -------- -------- -------- --------
Total income from investment operations..................... (1.41) (2.72) 0.54 3.27 0.67
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income..................... (0.26) (0.22) (0.31) (0.35) (0.34)
Distributions from net realized gains on securities...... -- (1.24) (1.64) (0.49) (0.48)
-------- -------- -------- -------- --------
Total distributions......................................... (0.26) (1.46) (1.95) (0.84) (0.82)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 12.10 $ 13.77 $ 17.95 $ 19.36 $ 16.93
======== ======== ======== ======== ========
Total return................................................ (10.51)% (16.54)% 2.36% 19.98% 4.19%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................. $537,476 $519,151 $587,869 $601,923 $408,581
Ratios to average net assets (annualized):
Expenses(D)........................................... 0.75% 0.78% 0.72% 0.64% 0.80%
Net investment income(D).............................. 1.56% 1.54% 1.64% 2.00% 2.05%
Portfolio turnover rate(C)............................... 43% 36% 45% 63% 24%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) Morgan Stanley Asset Management, Inc. was replaced by Lazard Asset Management and Independence Investment LLC. as investment advisor to the International Equity Fund on March 1, 1999,
(C) The American AAdvantage International Equity Fund invests all of its investable assets in its corresponding Portfolio. Portfolio turnover rate is that of the Portfolio.
(D) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services International Equity Portfolio.
(E) Causeway Capital Management LLC replaced Merrill Lynch Investment Managers, L.P. as investment advisor to the International Equity Fund on August 31, 2001.
EMERGING MARKETS FUND-
INSTITUTIONAL CLASS
-----------------------------------
YEAR ENDED
OCTOBER 31, JULY 31, TO
-------------------- OCTOBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- -----------
Net asset value, beginning of period........................ $ 6.64 $ 8.17 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income(A)................................ 0.09 0.11 --
Net gains (losses) on securities (both realized and
unrealized)(A)......................................... 0.56 (1.62) (1.83)
------- ------- -------
Total income from investment operations..................... 0.65 (1.51) (1.83)
------- ------- -------
Less distributions:
Dividends from net investment income.................... (0.09) (0.01) --
Distributions from net realized gains on securities..... -- (0.01) --
------- ------- -------
Total distributions......................................... (0.09) (0.02) --
------- ------- -------
Net asset value, end of period.............................. $ 7.20 $ 6.64 $ 8.17
======= ======= =======
Total return................................................ 9.80% (18.52)% (18.30)%(C)
======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 1,769 $ 1,495 $ 1
Ratios to average net assets (annualized):
Expenses(A)......................................... 1.51% 1.43% 1.87%
Net investment income (loss)(A)..................... 1.11% 2.07% (0.47)%
Portfolio turnover rate(B).............................. 94% 95% 23%(C)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Emerging Markets Portfolio through February 28, 2002.
(B) The American AAdvantage Emerging Markets Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
Additional Information 48 Prospectus
S&P 500 INDEX FUND-INSTITUTIONAL CLASS
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2002 2001 2000(B) 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- -------- --------
Net asset value, beginning of period........................ $ 15.62 $ 17.99 $ 20.05 $ 16.78 $ 13.16
-------- -------- -------- -------- --------
Income from investment operations(A):
Net investment income................................... 0.20 0.20 0.23 0.19 0.16
Net gains (losses) on securities (both realized and
unrealized)........................................... (3.66) (2.38) (2.05) 3.27 3.62
-------- -------- -------- -------- --------
Total from investment operations............................ (3.46) (2.18) (1.82) 3.46 3.78
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income.................... (0.20) (0.19)(C) (0.24)(C) (0.19) (0.16)
-------- -------- -------- -------- --------
Total distributions......................................... (0.20) (0.19) (0.24) (0.19) (0.16)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 11.96 $ 15.62 $ 17.99 $ 20.05 $ 16.78
======== ======== ======== ======== ========
Total return................................................ (22.27)% (12.12)% (9.15)% 20.70% 28.87%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $195,368 $254,289 $321,805 $568,645 $100,870
Ratios to average net assets (annualized)(A):
Net investment income............................... 1.47% 1.22% 1.09% 1.28% 1.41%
Expenses............................................ 0.14% 0.15% 0.16% 0.17% 0.20%
Decrease reflected in above expense ratio due to
absorption of expenses by State Street, Bankers
Trust and the Manager............................. -- -- -- -- 0.06%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the BT Equity 500 Index Portfolio prior to March 1, 2000 and the State Street Equity 500 Index Portfolio thereafter.
(B) On March 1, 2000, the S&P 500 Index Fund invested all of its investable assets in the State Street Equity 500 Index Portfolio. Prior to March 1, 2000, the S&P 500 Index Fund invested all of its investable assets in the BT Equity 500 Index Portfolio.
(C) Includes a tax return of capital distribution which amounts to less than $0.01 per share.
SMALL CAP INDEX FUND-
INSTITUTIONAL CLASS
---------------------------------
YEAR ENDED
DECEMBER 31, JULY 31 TO
------------------ DECEMBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------------
Net asset value, beginning of period........................ $ 9.79 $ 9.69 $10.00
------- ------- ------
Income from investment operations(A):
Net investment income................................... 0.11 0.09 0.05
Net gains (losses) on securities (both realized and
unrealized)............................................ (2.10) 0.11 (0.31)
------- ------- ------
Total from investment operations............................ (1.99) 0.20 (0.26)
------- ------- ------
Less distributions:
Dividends from net investment income.................... (0.10) (0.09) (0.05)
Tax return of capital................................... -- (0.01) --
------- ------- ------
Total distributions......................................... (0.10) (0.10) (0.05)
------- ------- ------
Net asset value, end of period.............................. $ 7.70 $ 9.79 $ 9.69
======= ======= ======
Total return................................................ (20.37)% 2.07% (2.59)%(B)
======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $11,227 $11,803 $4,120
Ratios to average net assets (annualized)(A):
Net investment income............................... 1.13% 1.36% 1.61%
Expenses............................................ 0.20% 0.19% 0.50%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager............... -- -- 0.46%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the Master Small Cap Index Series.
(B) Not annualized.
Prospectus 49 Additional Information
INTERNATIONAL
EQUITY INDEX FUND-
INSTITUTIONAL CLASS
------------------------------------------
YEAR ENDED DECEMBER 31, JULY 31 TO
--------------------------- DECEMBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------------ ------------ ------------
Net asset value, beginning of period........................ $ 7.07 $ 9.21 $10.00
------- ------- ------
Income from investment operations(A):
Net investment income................................... 0.11 0.10 0.02
Net gains (losses) on securities (both realized and
unrealized)........................................... (1.23) (2.12) (0.72)
------- ------- ------
Total from investment operations............................ (1.12) (2.02) (0.70)
------- ------- ------
Less distributions:
Dividends from net investment income.................... (0.09) (0.09) (0.03)
Tax return of capital................................... -- (0.03) (0.01)
Distributions from net realized gains on securities..... -- -- (0.05)
------- ------- ------
Total distributions......................................... (0.09) (0.12) (0.09)
------- ------- ------
Net asset value, end of period.............................. $ 5.86 $ 7.07 $ 9.21
======= ======= ======
Total return................................................ (15.65)% (22.14)% (7.03)%(B)
======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 4,912 $ 3,773 $3,542
Ratios to average net assets (annualized)(A):
Net investment income............................... 1.97% 1.49% 0.63%
Expenses............................................ 0.25% 0.29% 0.60%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager............. -- -- 1.52%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the Master International Index Series.
(B) Not annualized.
HIGH YIELD BOND FUND-
INSTITUTIONAL CLASS
--------------------------
DECEMBER 29,
2000
YEAR ENDED TO
OCTOBER 31, OCTOBER 31,
2002 2001
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ----------- ------------
Net asset value, beginning of period........................ $ 9.82 $ 10.00
-------- -------
Income from investment operations:
Net investment income................................... 0.80 0.71
Net gains (losses) on securities (both realized and
unrealized)............................................ (0.19) (0.18)
-------- -------
Total income from investment operations..................... 0.61 0.53
-------- -------
Less distributions:
Dividends from net investment income.................... (0.80) (0.71)
-------- -------
Total distributions......................................... (0.80) (0.71)
-------- -------
Net asset value, end of period.............................. $ 9.63 $ 9.82
======== =======
Total return................................................ 6.28% 5.33%(A)
======== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $104,813 $53,275
Ratios to average net assets (annualized):
Expenses............................................ 0.90% 0.90%
Net investment income............................... 8.02% 8.48%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager............... 0.08% 0.17%
Portfolio turnover rate................................. 163% 145%(A)
|
(A) Not annualized.
Additional Information 50 Prospectus
INTERMEDIATE BOND FUND-INSTITUTIONAL CLASS
---------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------
2002 2001 2000 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- ------- -------- --------
Net asset value, beginning of period........................ $ 10.51 $ 9.72 $ 9.58 $ 10.50 $ 10.17
-------- -------- ------- -------- --------
Income from investment operations:
Net investment income(A)................................ 0.51 0.57 0.59 0.56 0.59
Net gains (losses) on securities (both realized and
unrealized)(A)........................................ (0.09) 0.79 0.14 (0.63) 0.34
-------- -------- ------- -------- --------
Total income from investment operations..................... (0.42) 1.36 0.73 (0.07) 0.93
-------- -------- ------- -------- --------
Less distributions:
Dividends from net investment income.................... (0.51) (0.57) (0.59) (0.56) (0.59)
Distributions from net realized gains on securities..... -- -- -- (0.29) (0.01)
-------- -------- ------- -------- --------
Total distributions......................................... (0.51) (0.57) (0.59) (0.85) (0.60)
-------- -------- ------- -------- --------
Net asset value, end of period.............................. $ 10.42 $ 10.51 $ 9.72 $ 9.58 $ 10.50
======== ======== ======= ======== ========
Total return................................................ 4.21% 14.36% 7.89% (0.83)% 9.37%
======== ======== ======= ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 74,919 $ 60,842 $ 115 $205,218 $178,840
Ratios to average net assets (annualized):
Expenses(A)......................................... 0.56% 0.54% 0.59% 0.55% 0.57%
Net investment income(A)............................ 4.99% 5.55% 6.31% 5.62% 5.74%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A).......... -- -- -- -- --
Portfolio turnover rate(B).............................. 185% 164% 102% 123% 181%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Intermediate Bond Portfolio through February 28, 2002.
(B) The American AAdvantage Intermediate Bond Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
SHORT-TERM BOND FUND-INSTITUTIONAL CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2002 2001 2000 1999 1998(A)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------ ------- ------ ------ -------
Net asset value, beginning of period........................ $ 9.62 $ 9.21 $ 9.30 $ 9.63 $ 9.63
------ ------- ------ ------ -------
Income from investment operations:
Net investment income(C)................................ 0.42(D) 0.57 0.62 0.53 0.62
Net gains (losses) on securities (both realized and
unrealized)(C)........................................ (0.11)(D) 0.41 (0.10) (0.29) --
------ ------- ------ ------ -------
Total income from investment operations..................... 0.31 0.98 0.52 0.24 0.62
------ ------- ------ ------ -------
Less distributions:
Dividends from net investment income.................... (0.48) (0.57) (0.61) (0.57) (0.62)
------ ------- ------ ------ -------
Total distributions......................................... (0.48) (0.57) (0.61) (0.57) (0.62)
------ ------- ------ ------ -------
Net asset value, end of period.............................. $ 9.45 $ 9.62 $ 9.21 $ 9.30 $ 9.63
====== ======= ====== ====== =======
Total return................................................ 3.37% 10.98% 5.83% 2.56% 6.60%
====== ======= ====== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $8,396 $ 4,226 $3,687 $5,034 $18,453
Ratios to average net assets (annualized):
Expenses(C)......................................... 0.44% 0.51% 0.58% 0.62% 0.65%
Net investment income(C)............................ 4.47%(D) 6.06% 6.61% 5.92% 6.43%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(C).......... -- -- -- -- --
Portfolio turnover rate(B).............................. 63% 104% 89% 115% 74%
|
(A) Prior to March 1, 1998, the American AAdvantage Short-Term Bond Fund was known as the American AAdvantage Limited-Term Income Fund.
(B) The American AAdvantage Short-Term Bond Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(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 the AMR Investment Services Short-Term Bond Portfolio through February 28, 2002.
(D) Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements (see Annual Report dated October 31, 2002), these amounts would have been:
Net investment income....................................... $ 0.47 Net gains (losses) on securities (both realized and unrealized)............................................... $(0.16) Net investment income ratio................................. 5.07% |
Prospectus 51 Additional Information
MONEY MARKET FUND-INSTITUTIONAL CLASS
--------------------------------------------------------------------------
TWO MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED OCTOBER 31,
------------------------------ DECEMBER 31, -----------------------
2002 2001 2000 1999 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- ------------ ---------- ----------
Net asset value, beginning of period................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- ---------- ---------- ----------
Net investment income(A).......................... 0.02 0.04 0.06 0.01 0.05 0.06
Less dividends from net investment income......... (0.02) (0.04) (0.06) (0.01) (0.05) (0.06)
-------- -------- -------- ---------- ---------- ----------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ========== ========== ==========
Total return......................................... 1.67% 4.15% 6.45% 0.94%(B) 5.09% 5.63%
======== ======== ======== ========== ========== ==========
Ratios and supplemental data:
Net assets, end of period (in thousands).......... $474,922 $805,843 $886,608 $1,978,123 $1,652,323 $1,241,999
Ratios to average net assets (annualized):(A)
Expenses...................................... 0.24% 0.25% 0.24% 0.23% 0.24% 0.23%
Net investment income......................... 1.68% 4.13% 6.17% 5.65% 4.99% 5.49%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Money Market Portfolio.
(B) Not annualized.
MUNICIPAL MONEY MARKET FUND-INSTITUTIONAL CLASS
---------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
------------------------ DECEMBER 31, ---------------
2002 2001 2000 1999 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------ ------ ------ ------------ ------ ------
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ ------
Net investment income(A)................................. 0.01 0.03 0.04 0.01 0.03 0.03
Less dividends from net investment income................ (0.01) (0.03) (0.04) (0.01) (0.03) (0.03)
------ ------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== ======
Total return................................................ 1.21% 2.52% 3.93% 0.58%(B) 2.92% 3.46%
====== ====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................. $1,131 $ 799 $ 779 $ 750 $ 745 $ 847
Ratios to average net assets (annualized):(A)
Expenses............................................. 0.30% 0.31% 0.31% 0.35% 0.39% 0.33%
Net investment income................................ 1.17% 2.49% 3.87% 3.49% 2.91% 3.35%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Municipal Money Market Portfolio.
(B) Not annualized.
Additional Information 52 Prospectus
-- Notes --
ADDITIONAL INFORMATION ABOUT THE FUNDS IS FOUND IN THE DOCUMENTS LISTED BELOW. REQUEST A FREE COPY OF THESE DOCUMENTS BY CALLING (800) 658-5811.
ANNUAL REPORT/SEMI-ANNUAL REPORT STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The Funds' Annual and Semi-Annual Reports list each The SAI contains more details about the Funds and their
Fund's actual investments as of the report's date. They investment policies. The SAI is incorporated in this
also include a discussion by the Manager of market Prospectus by reference (it is legally part of this
conditions and investment strategies that significantly Prospectus). A current SAI is on file with the
affected the Funds' performance. The report of the Securities and Exchange Commission (SEC).
Funds' independent auditors is included in the Annual
Report.
|
TO REDUCE EXPENSES, YOUR FINANCIAL INSTITUTION MAY MAIL ONLY ONE COPY OF THE PROSPECTUS, ANNUAL REPORT, AND SEMI-ANNUAL REPORT TO THOSE ADDRESSES SHARED BY TWO OR MORE ACCOUNTS. IF YOU WISH TO RECEIVE INDIVIDUAL COPIES OF THESE DOCUMENTS, PLEASE CONTACT YOUR FINANCIAL INSTITUTION. THEY WILL BEGIN SENDING YOU INDIVIDUAL COPIES THIRTY DAYS AFTER RECEIVING YOUR REQUEST.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
LOGO LOGO LOGO LOGO
BY TELEPHONE: BY MAIL: BY E-MAIL: ON THE INTERNET:
Call (800) 658-5811 American AAdvantage Funds american _ aadvantage.funds@aa.com Visit our website at www.aafunds.com
P.O. Box 619003 Visit the SEC website at www.sec.gov
DFW Airport, TX 75261-9003
|
The SAI and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic mail to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, 450 5th Street NW, Washington, D.C. 20549-0102. The SAI and other information about the Funds may also be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at (202) 942-8090.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR STATE STREET BANK NATIONAL FINANCIAL ERNST & YOUNG LLP SWS FINANCIAL AND TRUST DATA SERVICES Dallas, Texas SERVICES Boston, Kansas City, Dallas, Texas Massachusetts Missouri |
[AMERICAN AADVANTAGE FUNDS LOGO]
SEC File Number 811-4984
American Airlines is not responsible for investments made in the American AAdvantage Funds. American AAdvantage Funds is a registered service mark of AMR Corporation. American AAdvantage Money Market Fund is a registered service mark of AMR Investment Services, Inc. American AAdvantage Balanced Fund, American AAdvantage Large Cap Value Fund, American AAdvantage Large Cap Growth Fund, American AAdvantage International Equity Fund, American AAdvantage Emerging Markets Fund, American AAdvantage High Yield Bond Fund, American AAdvantage Intermediate Bond Fund, American AAdvantage Short-Term Bond Fund, American AAdvantage Small Cap Value Fund, American AAdvantage Small Cap Index Fund, American AAdvantage International Equity Index Fund, and American AAdvantage Municipal Money Market Fund are service marks of AMR Investment Services, Inc.
PLANAHEAD CLASS(R)
[LOGO]
PRIVACY POLICY
AND
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO]
- LARGE CAP VALUE FUND
- SMALL CAP VALUE FUND
- INTERNATIONAL EQUITY FUND
- EMERGING MARKETS FUND
- INTERMEDIATE BOND FUND
- U.S. GOVERNMENT MONEY MARKET FUND
- MUNICIPAL MONEY MARKET FUND
MANAGED BY AMR INVESTMENT SERVICES, INC. This page is not part of the Prospectus. |
[EAGLE LOGO]
[GLOBE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO]
PRIVACY POLICY
The American AAdvantage Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards.
This page is not part of the Prospectus.
PLANAHEAD CLASS(R)
[LOGO]
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO]
- LARGE CAP VALUE FUND
- SMALL CAP VALUE FUND
- INTERNATIONAL EQUITY FUND
- EMERGING MARKETS FUND
- INTERMEDIATE BOND FUND
- U.S. GOVERNMENT MONEY MARKET FUND
- MUNICIPAL MONEY MARKET FUND
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
MANAGED BY AMR INVESTMENT SERVICES, INC. offense.
|
[EAGLE LOGO]
[GLOBE LOGO]
[AMERICAN AADVANTAGE FUNDS P.A. CLASS LOGO]
TABLE OF CONTENTS
About the Funds Overview......................................... 2 Balanced Fund.................................... 3 Large Cap Value Fund............................. 6 Small Cap Value Fund............................. 9 International Equity Fund........................ 12 Emerging Markets Fund............................ 15 S&P 500 Index Fund............................... 18 High Yield Bond Fund............................. 21 Intermediate Bond Fund........................... 24 Short-Term Bond Fund............................. 27 Money Market Fund................................ 29 U.S. Government Money Market Fund................ 31 Municipal Money Market Fund...................... 33 The Manager...................................... 35 SSgA............................................. 35 The Investment Advisers.......................... 36 Valuation of Shares.............................. 37 About Your Investment Purchase and Redemption of Shares................ 38 Distributions and Taxes.......................... 41 Additional Information Distribution of Fund Shares...................... 42 Master-Feeder Structure.......................... 42 Financial Highlights............................. 42 Additional Information.......................Back Cover |
Overview
The American AAdvantage Funds (the "Funds") are managed by AMR Investment Services, Inc. (the "Manager"), a wholly owned subsidiary of AMR Corporation.
The International Equity, S&P 500 Index, Money Market, U.S. Government Money Market, and Municipal Money Market Funds operate under a master-feeder structure (the "Master-Feeder Funds"). Each Master-Feeder Fund, except for the S&P 500 Index 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. The AMR Trust is managed by the Manager. The S&P 500 Index Fund invests all of its investable assets in the State Street Equity 500 Index Portfolio, which is a separate investment company with an identical investment objective, managed by SSgA Funds Management, Inc. ("SSgA"), a subsidiary of State Street Corp. and an affiliate of State Street Bank and Trust Company.
Throughout this Prospectus, statements regarding investments by a Master-Feeder 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 Master-Feeder Fund or its portfolio, unless stated otherwise. See "Master-Feeder Structure".
About the Funds 2 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
Ordinarily, between 50% and 70% of the Fund's total assets are invested in equity securities and between 30% and 50% of the Fund's total assets are invested in debt securities.
The Fund's equity investments may include common stocks, preferred stocks, securities convertible into common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets among four investment advisers:
AMR Investment Services, Inc.
Barrow, Hanley, Mewhinney & Strauss, Inc.
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
The Fund's equity assets are allocated, generally on an equal basis, among Barrow, Hanley, Mewhinney & Strauss, Inc., Brandywine Asset Management, LLC and Hotchkis and Wiley Capital Management, LLC. The Fund's fixed income assets are allocated, generally on an equal basis, among AMR Investment Services, Inc., Barrow, Hanley, Mewhinney & Strauss, Inc. and Brandywine Asset Management, LLC.
The Fund's investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the Fund's investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
The Fund's investments in debt securities may include: obligations of the U.S. Government, its agencies and instrumentalities; U.S. corporate debt securities, such as notes and bonds; mortgage-backed securities; asset-backed securities; master-demand notes; Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances, commercial paper and other notes; and other debt securities. The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). Obligations rated in the fourth highest rating category are limited to 25% of the Fund's total assets. The Fund, at the discretion of the applicable investment adviser, may retain a security that has been downgraded below the initial investment criteria.
In determining which debt securities to buy and sell, the investment advisers generally use a "top-down" or "bottom-up" investment strategy, or a combination of both strategies.
The top-down fixed income investment strategy is implemented as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
The bottom-up fixed income investment strategy is implemented as follows:
- Search for eligible securities with a yield to maturity advantage versus a U.S. Government security with a similar maturity.
- Evaluate credit quality of the securities.
- Perform an analysis of the expected price volatility of the securities to changes in interest rates by examin-
Prospectus 3 About the Funds
AMERICAN AADVANTAGE
ing actual price volatility between U.S. Government and non-U.S. Government securities.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
MARKET RISK (STOCKS)
Since this Fund invests a substantial portion of its assets in stocks, it is
subject to stock market risk. Market risk involves the possibility that the
value of the Fund's investments in stocks will decline due to drops in the stock
market. In general, the value of the Fund will move in the same direction as the
overall stock market, which will vary from day to day in response to the
activities of individual companies and general market and economic conditions.
VALUE STOCKS RISK (STOCKS)
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
INTEREST RATE RISK (BONDS)
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK (BONDS)
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK (BONDS)
The Fund's investments in asset-backed and mortgage-backed securities are
subject to the risk that the principal amount of the underlying collateral may
be repaid prior to the bond's maturity date. If this occurs, no additional
interest will be paid on the investment and the Fund may have to invest at a
lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
This Fund may be suitable for investors who:
- need to fund a long-term objective, such as a child's college education or a comfortable retirement,
- seek a convenient way to invest in value-oriented stocks and investment grade bonds in a single, professionally managed portfolio,
- desire long-term performance from an investment style that may help to minimize volatility and downside risk,
- require investment income, or
- want to take advantage of the investment expertise of value-oriented investment advisers.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to three broad-based market indices and the Lipper Balanced Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market indices do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on July 17, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past per-
About the Funds 4 Prospectus
AMERICAN AADVANTAGE
formance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 14.46% 94.......................................................... -1.92% 95.......................................................... 28.32% 96.......................................................... 13.67% 97.......................................................... 19.45% 98.......................................................... 8.00% 99.......................................................... -4.01% 00.......................................................... 10.43% 01.......................................................... 5.35% 02.......................................................... -7.56% |
Highest Quarterly Return: 9.90% (1/1/93 through 12/31/02) (2nd Quarter 1997) Lowest Quarterly Return: -10.75% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
RETURN BEFORE TAXES -7.56% 2.20% 8.11%
RETURN AFTER TAXES ON
DISTRIBUTIONS -8.95% -0.01% 5.27%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -4.64% 0.95% 5.54%
-----------------------------------------------------------
S&P 500/Barra Value
Index(1) -20.85% -0.85% 9.39%
S&P 500 Index(2) -22.10% -0.59% 9.34%
Lehman Bros. Aggregate
Index(3) 10.27% 7.54% 7.51%
Lipper Balanced Index -10.69% 2.11% 7.53%
|
(1) The S&P 500/Barra Value Index is a market value weighted index of stocks with book-to-price ratios in the top 50% of the S&P 500 Index.
(2) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
(3) The Lehman Brothers Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Balanced Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.29%
Distribution (12b-1) Fees 0.00
Other Expenses 0.61
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.90%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Balanced Portfolio of the AMR Trust through February 28, 2002.
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.................................. $92 3 YEARS................................. $287 5 YEARS................................. $498 10 YEARS................................ $1,108 |
Prospectus 5 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation and current income.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of large market capitalization U.S. companies. These companies generally have market capitalizations similar to the market capitalization of the companies in the Russell 1000(R) Index(1) at the time of investment. The Russell 1000 Index measures the performance of the 1,000 largest U.S. companies based on total market capitalization. The Fund's investments may include common stocks, preferred stocks, securities convertible into U.S. common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, among four investment advisers:
Barrow, Hanley, Mewhinney & Strauss, Inc.
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
Metropolitan West Capital Management, LLC
The Fund's investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the Fund's investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
VALUE STOCKS RISK
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
(1) The Russell 1000 (R) Index is a service mark of Frank Russell Company.
About the Funds 6 Prospectus
AMERICAN AADVANTAGE
This Fund may be suitable for investors who:
- need to fund a long-term objective, such as a child's college education or a comfortable retirement,
- seek a U.S. stock mutual fund that invests in fundamentally strong companies,
- require total returns including income, or
- want to take advantage of the expertise of value-oriented investment advisers.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to two broad-based market indices and the Lipper Multi-Cap Value Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market indices do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on July 17, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 15.74% 94.......................................................... -1.26% 95.......................................................... 33.69% 96.......................................................... 20.74% 97.......................................................... 26.08% 98.......................................................... 5.88% 99.......................................................... -4.99% 00.......................................................... 11.22% 01.......................................................... 1.88% 02.......................................................... -16.18% |
Highest Quarterly Return: 13.98% (1/1/93 through 12/31/02) (2nd Quarter 1997) Lowest Quarterly Return: -18.68% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
RETURN BEFORE TAXES -16.18% -0.91% 8.31%
RETURN AFTER TAXES ON
DISTRIBUTIONS -16.82% -3.18% 5.78%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -9.93% -1.14% 6.12%
------------------------------------------------------------
S&P 500/Barra Value Index(1) -20.85% -0.85% 9.39%
S&P 500 Index(2) -22.10% -0.59% 9.34%
Lipper Multi-Cap Value Index -17.61% 0.64% 8.99%
|
(1) The S&P 500/Barra Value Index is a market value weighted index of stocks with book-to-price ratios in the top 50% of the S&P 500 Index.
(2) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Large Cap Value Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.31%
Distribution (12b-1) Fees 0.00
Other Expenses 0.62
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.93%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly. the expense table and the Example below reflect the expenses of both the Fund and the Large Cap Value Portfolio of the AMR Trust through February 28, 2002.
Prospectus 7 About the Funds
AMERICAN AADVANTAGE
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 ................................. $95 3 YEARS................................. $296 5 YEARS................................. $515 10 YEARS................................ $1,143 |
About the Funds 8 Prospectus
AMERICAN AADVANTAGE
Long-term capital appreciation and current income.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of U.S. companies with market capitalizations of $2 billion or less at the time of investment. The Fund's investments may include common stocks, preferred stocks, securities convertible into common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively, "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
The investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
SMALL CAPITALIZATION COMPANIES RISK
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies, since smaller companies may have
limited operating history, product lines, and financial resources, and the
securities of these companies may lack sufficient market liquidity.
VALUE STOCKS RISK
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
Prospectus 9 About the Funds
AMERICAN AADVANTAGE
- need to fund a long-term objective, such as a child's education or a comfortable retirement,
- seek a U.S. stock mutual fund that invests in small, less well-known companies,
- want to take advantage of the expertise of value-oriented investment advisers, or
- are willing to accept the increased risks of small stock investing.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Small Cap Value Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on March 1, 1999. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on January 1, 1999. In the chart and table below, performance results before March 1, 1999 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
99.......................................................... -5.01% 00.......................................................... 19.03% 01.......................................................... 27.24% 02.......................................................... -6.92% |
Highest Quarterly Return: 22.21% (1/1/99 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -20.90% (1/1/99 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (12/31/98)
------- ---------------
RETURN BEFORE TAXES -6.92% 7.57%
RETURN AFTER TAXES ON
DISTRIBUTIONS -8.13% 6.07%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -4.25% 5.45%
------------------------------------------------------------
Russell 2000(R) Value Index(1) -11.43% 5.14%
Lipper Small Cap Value Index -11.21% 5.18%
|
(1) The Russell 2000 Value Index is an unmanaged index of those stocks in the Russell 2000 Index with below-average price-to-book ratios and below-average forecasted growth values. Russell 2000 (R) Value Index is a service mark of the Frank Russell Company.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Small Cap Value Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.53%
Distribution (12b-1) Fees 0.00
Other Expenses 0.58
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.11%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Small Cap Value Portfolio of the AMR Trust through February 28, 2002.
About the Funds 10 Prospectus
AMERICAN AADVANTAGE
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 ................................. $113 3 YEARS................................. $353 5 YEARS................................. $612 10 YEARS................................ $1,352 |
Prospectus 11 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation.
The Fund seeks its investment objective by investing all of its investable assets in the International Equity Portfolio of the AMR Trust.
Ordinarily, at least 80% of the Fund's total assets are invested in common stocks and securities convertible into common stocks (collectively, "stocks") of issuers based in at least three different countries located outside the United States. The Fund will primarily invest in countries comprising the Morgan Stanley Capital International Europe Australasia Far East Index ("EAFE Index"). The EAFE Index is comprised of equity securities of companies from various industrial sectors whose primary trading markets are located outside the United States. Companies included in the EAFE Index are selected from among the larger capitalization companies in these markets.
The Manager currently allocates the Fund's assets among four investment advisers:
Causeway Capital Management LLC
Independence Investment LLC ("Independence")
Lazard Asset Management LLC
Templeton Investment Counsel, LLC
Approximately 10% of the Fund's assets are allocated to Independence, and the remainder are allocated, generally on an equal basis, among the other three investment advisers.
The investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
The investment advisers may also consider potential changes in currency exchange rates when choosing stocks. Each of the investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk. The Fund may trade forward foreign currency contracts or currency futures to hedge currency fluctuations of underlying stock positions when it is believed that a foreign currency may suffer a decline against the U.S. dollar.
Independence utilizes an "amplified alpha" approach in determining which equity securities to buy and sell. This approach attempts to amplify the outperformance expected from the best ideas of the other investment advisers by concentrating assets in those stocks that are overweighted in the aggregate of the advisers' portfolios when compared to a relevant market index.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of that country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations; (2) political and financial instability; (3) less liquidity
and greater volatility of foreign investments; (4) lack of uniform accounting,
auditing and financial reporting standards; (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies; (6)
increased price volatility; (7) delays in transaction settlement in some foreign
markets; and (8) adverse impact of the euro conversion on the business or
financial condition of companies in which the Fund is invested.
About the Funds 12 Prospectus
AMERICAN AADVANTAGE
DERIVATIVES RISK
The Fund may use derivatives, such as futures contracts, foreign currency
forward contracts and options on futures as a hedge against foreign currency
fluctuations. There can be no assurance that any strategy used will succeed. If
one of the investment advisers incorrectly forecasts currency exchange rates in
utilizing a derivatives strategy for the Fund, the Fund could lose money.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
- need to fund a long-term objective that requires growth of capital, such as a child's college education or a comfortable retirement,
- seek to complement U.S. stock holdings with an international stock mutual fund that invests in large, well-capitalized foreign companies,
- want to take advantage of the expertise of leading international equity investment advisers, or
- are willing to accept the increased risks of international investing, including currency and exchange rate risks, accounting differences and political risks.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper International Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on August 7, 1991. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 42.33% 94.......................................................... 0.76% 95.......................................................... 17.20% 96.......................................................... 19.33% 97.......................................................... 9.26% 98.......................................................... 11.52% 99.......................................................... 26.52% 00.......................................................... -4.36% 01.......................................................... -15.75% 02.......................................................... -14.10% |
Highest Quarterly Return: 15.15% (1/1/93 through 12/31/02) (4th Quarter 1998) Lowest Quarterly Return: -22.51% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
RETURN BEFORE TAXES -14.10% -0.47% 7.91%
RETURN AFTER TAXES ON
DISTRIBUTIONS -14.54% -1.72% 6.43%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -8.31% -0.39% 6.26%
------------------------------------------------------------
EAFE Index(1) -15.94% -2.89% 4.00%
Lipper International Index -13.84% -1.65% 5.55%
|
(1) The EAFE Index is an unmanaged index of international stock investment performance.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
Prospectus 13 About the Funds
AMERICAN AADVANTAGE
This table describes the fees and expenses that you may pay if you buy and hold shares of the International Equity Fund.(1)
Shareholder Fees
(fees paid directly from your investment)
Redemption Fee (as a percentage of amount redeemed, if applicable) 2.00%(2) |
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.37%
Distribution (12b-1) Fees 0.00
Other Expenses 0.67
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.04%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the International Equity Portfolio of the AMR Trust.
(2) Fee applies to the proceeds of shares that are redeemed within 30 days of their purchase. A $10 fee may also apply if redemption proceeds are sent by wire.
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 ................................. $106 3 YEARS................................. $331 5 YEARS................................. $574 10 YEARS................................ $1,271 |
About the Funds 14 Prospectus
AMERICAN AADVANTAGE
EMERGING MARKETS FUND(SM)
Investment Objective
Long-term capital appreciation.
Principal Strategies
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of issuers that:
- are primarily listed on the trading market of an emerging market country;
- are headquartered in an emerging market country; or
- derive 50% or more of their revenues from, or have 50% or more of their assets in, an emerging market country.
An emerging market country is one that:
- has an emerging stock market as defined by the International Finance Corporation ("IFC");
- has a low- to middle-income economy according to the World Bank;
- is included in the IFC Investable Index or the Morgan Stanley Capital International Emerging Markets "Free" Index; or
- has a per-capita gross national product of $10,000 or less.
The Fund's investments may include common stocks, preferred stocks, securities convertible into common stocks, rights, warrants, and depositary receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Morgan Stanley Investment Management Inc. ("MSIM Inc.")
The Boston Company Asset Management, LLC
("The Boston Company")
MSIM Inc. combines a top-down country allocation investment approach with bottom-up stock selection. MSIM Inc. first allocates its portion of the Fund's assets among emerging market countries based on relative economic, political and social fundamentals, stock valuations and investor sentiment. MSIM Inc. then selects individual securities within these countries on the basis of attractive growth characteristics, reasonable valuations and company managements with a strong shareholder value orientation. To manage risk, MSIM Inc. emphasizes thorough macroeconomic and fundamental research.
The Boston Company utilizes a bottom-up investment strategy that is value-oriented and research-driven. This style is both quantitative and fundamentally based, focusing first on stock selection then enhanced by broadly diversified country allocation.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
Principal Risk Factors
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock market risk. Market risk involves the possibility that the value of the Fund's investment in stocks of a particular county will decline due to drops in that country's stock market. In general, the value of the Fund will move in the same direction as the international stock markets in which it invests, which will vary from day to day in response to the activities of individual companies and general market, economic and political conditions of each country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic investments. Such risks include, but are not limited to: (1) currency exchange rate fluctuations, (2) political and financial instability, (3) less liquidity and greater volatility of foreign investments, (4) lack of uniform accounting, auditing and financial reporting standards, (5) less government regulation and supervision of foreign stock exchanges, brokers and listed companies, (6) increased price volatility, (7) delays in transaction settlement in some foreign markets, and (8) adverse impact of the euro conversion on the business or financial condition of companies in which the Fund is invested.
Prospectus 15 About the Funds
AMERICAN AADVANTAGE
EMERGING MARKETS FUND(SM) -- (CONTINUED)
EMERGING MARKETS RISK
The risks of foreign investing mentioned above are heightened when investing in emerging markets. In addition, the economies and political environments of emerging market countries tend to be more unstable than those of developed countries, resulting in more volatile rates of return than the developed markets and substantially greater risk to investors.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your shares of the Fund, they could be worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
Historical Performance
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Emerging Markets Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on October 1, 2002. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on July 31, 2000. In the chart and table below, performance results before October 1, 2002 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... 2.59% 02.......................................................... -3.79% |
Highest Quarterly Return: 25.88% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -20.38% (1/1/01 through 12/31/02) (3rd Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
RETURN BEFORE TAXES -3.79% -11.03%
RETURN AFTER TAXES ON
DISTRIBUTIONS -4.13% -11.37%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -2.32% -8.83%
------------------------------------------------------------
Lipper Emerging Markets Index -4.63% -12.04%
MSCI Emerging Markets Free
Index(1) -6.17% -12.43%
|
(1) The MSCI Emerging Markets Free Index is a market capitalization weighted index composed of companies that are representative of the market structure of developing countries in Latin America, Asia, Eastern Europe, the Middle East and Africa.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
About the Funds 16 Prospectus
AMERICAN AADVANTAGE
EMERGING MARKETS FUND(SM) -- (CONTINUED)
Fees and Expenses
The following table describes the fees and expenses that you may pay if you buy and hold shares of the Emerging Markets Fund.
Shareholder Fees
(fees paid directly from your investment)
Redemption Fee (as a percentage of amount redeemed, if applicable) 2.00%(1) |
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.99%
Distribution (12b-1) Fees 0.00
Other Expenses 0.88
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.87%
====
|
(1) Fee applies to the proceeds of shares that are redeemed within 90 days of their purchase. A $10 fee may also apply if redemption proceeds are sent by wire.
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 ................................. $190 3 YEARS................................. $588 5 YEARS................................. $1,011 10 YEARS................................ $2,190 |
Prospectus 17 About the Funds
AMERICAN AADVANTAGE
To replicate as closely as possible, before expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index" or "Index").
The Fund seeks its investment objective by investing all of its investable assets in the State Street Equity 500 Index Portfolio.
The Fund uses a passive management strategy designed to track the performance of the S&P 500 Index. The S&P 500 Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States.
The Fund is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgement. Instead, the Fund, using a "passive" or "indexing" investment approach, attempts to replicate, before expenses, the performance of the S&P 500 Index. SSgA seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation.
The Fund intends to invest in all 500 stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all 500 stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by SSgA to replicate generally the performance of the Index as a whole. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index.
In addition, the Fund may at times purchase or sell futures contracts on the Index, or options on those futures, in lieu of investment directly in the stocks making up the Index. The Fund might do so, for example, in order to increase its investment exposure pending investment of cash in the stocks comprising the Index. Alternatively, the Fund might use futures or options on futures to reduce its investment exposure in situations where it intends to sell a portion of the stocks in its portfolio but the sale has not yet been completed. The Fund may also enter into other derivatives transactions, including the purchase or sale of options or enter into swap transactions, to assist in replicating the performance of the Index.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index, and incurs costs in buying and selling securities. The Fund may not
be fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the fund to meet redemptions. The return on the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return on the Index.
DERIVATIVES RISK
The use of these instruments to pursue the S&P 500 Index returns requires
special skills, knowledge and investment techniques that differ from those
required for normal portfolio management. Gains or losses from positions in a
derivative instrument may be much greater than the derivative's original cost.
ADDITIONAL RISKS
An investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be
(1) S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed for use. "Standard and Poor's (R)," "S&P (R)," "Standard & Poor's 500," "S&P 500 (R)" and "500" are all trademarks of The McGraw-Hill Companies, Inc. and have been licensed for use by State Street Bank and Trust Company. The S&P 500 Index Fund is not sponsored, sold or promoted by Standard & Poor's, and Standard & Poor's makes no representation regarding the advisability of investing in this Fund.
About the Funds 18 Prospectus
AMERICAN AADVANTAGE
worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
This Fund may be appropriate for investors who:
- need to fund a long-term objective, such as a child's college education or a comfortable retirement,
- seek a stock mutual fund that reflects the performance of publicly traded U.S. stocks in general, or
- want to take advantage of a "passive," indexing investment approach.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper S&P 500 Index, a composite of funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on March 1, 1998. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on January 1, 1997. In the chart and table below, performance results before March 1, 1998 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Prior to March 1, 2000, the Fund invested all of its investable assets in the BT Equity 500 Index Portfolio, a separate investment company managed by Bankers Trust Company. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
97.......................................................... 33.09% 98.......................................................... 28.58% 99.......................................................... 20.24% 00.......................................................... -9.38% 01.......................................................... -12.48% 02.......................................................... -22.59% |
Highest Quarterly Return: 21.15% (1/1/97 through 12/31/02) (4th Quarter 1998) Lowest Quarterly Return: -17.46% (1/1/97 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
------------------------------
AS OF 12/31/02
------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (12/31/96)
------- ------- ----------
RETURN BEFORE TAXES -22.59% -1.04% 3.97%
RETURN AFTER TAXES ON
DISTRIBUTIONS -22.91% -1.44% 3.55%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES -13.85% -0.98% 3.06%
------------------------------------------------------------
S&P 500 Index(1) -22.10% -0.59% 4.40%
Lipper S&P 500 Index -22.30% -0.86% 4.13%
|
(1) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the S&P 500 Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees(2) 0.045%
Distribution (12b-1) Fees 0.000
Other Expenses 0.585
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.630%
=====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the State Street Equity 500 Index Portfolio.
(2) This fee represents the total fees paid by the State Street Equity 500 Index Portfolio to State Street Bank and Trust Company for its service as administrator, custodian and transfer agent and SSgA's service as investment adviser.
Prospectus 19 About the Funds
AMERICAN AADVANTAGE
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 ................................... $64 3 YEARS................................... $202 5 YEARS................................... $351 10 YEARS.................................. $786 |
About the Funds 20 Prospectus
AMERICAN AADVANTAGE
High current income and capital appreciation.
This Fund seeks to maximize current income by investing in a diversified portfolio of public and private issue debt securities that are rated below investment grade (such as BB or lower by Standard & Poor's Ratings Services and/or Ba or lower by Moody's Investors Service, Inc.) or deemed to be below investment grade by the investment adviser. These types of securities are commonly referred to as "junk bonds." The Fund seeks capital appreciation by investing in issues whose relative value is expected to increase over time.
The Manager currently allocates all of the Fund's assets to MW Post Advisory Group, LLC ("MW Post"). The Manager, with the approval of the Fund's Board of Trustees, has appointed Metropolitan West Securities, LLC as an investment adviser to the Fund for the sole purpose of lending the Fund's securities. Metropolitan West Securities will also have the responsibility for investing the cash collateral received in connection with securities loans, in accordance with guidelines approved by the Board.
The Fund seeks its investment objective by investing, under normal circumstances, at least 80% of its total assets in a diversified portfolio of domestic and foreign high yield bonds. High yield issuers are generally those which have below investment grade ratings because they are relatively small in size, relatively young in years, relatively leveraged financially (perhaps borrowing heavily to finance expansion or due to a leveraged buyout), or formerly "blue chip" companies that have encountered some financial difficulties.
The weighted average maturity of the Fund's debt securities is generally expected to be from six to eight years. In selecting investments, MW Post relies heavily on internal research and credit analysis. MW Post will adjust the Fund's overall credit rating and average maturity based on its judgment of the economic climate, industry dynamics, and values in the high yield market.
MW Post expects to make, to a lesser extent, other investments including foreign securities, common and preferred stocks, convertible securities, warrants, rights, and options, in keeping with the Fund's overall investment objective. From time to time, MW Post may take short equity positions as a hedge against selected high yield bond positions.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. Since the Fund invests in lower-quality debt
securities considered speculative in nature, this risk will be substantial.
HIGH YIELD SECURITIES RISK
Investing in junk bonds generally involves significantly greater risks of loss of your money than an investment in investment grade bonds. Compared with issuers of investment grade bonds, junk bonds are more likely to encounter financial difficulties and to be materially affected by these difficulties. Rising interest rates may compound these difficulties and reduce an issuer's ability to repay principal and interest obligations. Issuers of lower-rated securities also have a greater risk of default or bankruptcy.
MARKET RISK
Market risk involves the possibility that the value of the Fund's investments
will decline due to drops in the overall high yield bond market. Changes in the
eco-
Prospectus 21 About the Funds
AMERICAN AADVANTAGE
nomic climate, investor perceptions, and stock market volatility can cause the prices of the Fund's investments to decline, regardless of the financial conditions of the issuers held by the Fund.
FOREIGN INVESTING RISK
Investing in foreign securities carries potential risks not associated with
domestic investments. Such risks include, but are not limited to: (1) currency
exchange rate fluctuations, (2) political and financial instability, (3) less
liquidity and greater volatility of foreign investments, (4) lack of uniform
accounting, auditing and financial reporting standards, (5) less government
regulation and supervision of foreign stock exchanges, brokers and listed
companies, (6) increased price volatility, (7) delays in transaction settlement
in some foreign markets, and (8) adverse impact of the euro conversion on the
business or financial condition of companies in which the Fund is invested.
LIQUIDITY RISK
High yield bonds tend to be less liquid than higher-rated bonds. This means that
the Fund may experience difficulty selling the Fund's investments at favorable
prices. In addition, valuation of the Fund's investments may become more
difficult if objective market prices are unavailable.
HEDGING RISK
Gains or losses from positions in hedging instruments, such as options or short
sales, may be much greater than the instrument's original cost. The counterparty
may be unable to honor its financial obligation to the Fund. In addition, the
investment adviser may be unable to close the transaction at the time it would
like or at the price it believes the security is currently worth.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper High Current Yield Index, a composite of mutual funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. PlanAhead Class shares of the Fund were not offered prior to March 1, 2002. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on December 29, 2000. In the chart and table below, performance results are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... 8.99% 02.......................................................... 6.21% |
Highest Quarterly Return: 6.83% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -4.04% (1/1/01 through 12/31/02) (3rd Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (12/29/00)
------ ---------------
RETURN BEFORE TAXES 6.21% 7.57%
RETURN AFTER TAXES ON
DISTRIBUTIONS 3.38% 4.42%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES 2.23% 3.26%
-----------------------------------------------------------
SSB High Yield Cash Pay
Index(1) -0.58% 3.11%
Lipper High Current Yield
Index -2.41% -1.72%
|
(1) The Salomon Smith Barney High Yield Cash Pay Index is an unmanaged index of below investment grade, cash-pay bonds with remaining maturities of at least one year and a minimum amount outstanding of $100 million.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some
About the Funds 22 Prospectus
AMERICAN AADVANTAGE
cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold shares of the High Yield Bond Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.67%
Distribution (12b-1) Fees 0.00
Other Expenses 0.60
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.27%
====
|
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 expense remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR ................................. $129 3 YEARS................................. $403 5 YEARS................................. $697 10 YEARS................................ $1,534 |
Prospectus 23 About the Funds
AMERICAN AADVANTAGE
Income and capital appreciation.
The Fund invests in 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; mortgage-backed securities; asset-backed securities; and Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances and other notes. The Fund seeks capital appreciation by investing in corporate issues whose relative value is expected to increase over time.
The Manager currently allocates the Fund's assets, generally on an equal basis, between itself and Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow").
The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating the securities (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). No more than 25% of total assets may be invested in securities rated in the fourth highest rating category. The Fund, at the discretion of the applicable investment adviser, may retain a security that has been downgraded below the initial investment criteria.
In determining which securities to buy and sell, the Manager employs a top-down fixed income investment strategy, as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
Barrow uses a bottom-up fixed income investment strategy in determining which securities to buy and sell, as follows:
- Search for eligible securities with a yield to maturity advantage versus a U.S. Government security with a similar maturity.
- Evaluate credit quality of the securities.
- Perform an analysis of the expected price volatility of the securities to changes in interest rates by examining actual price volatility between U.S. Government and non-U.S. Government securities.
Under normal circumstances, the Fund seeks to maintain a duration of three to seven years. Duration is a measure of price sensitivity relative to changes in interest rates. Portfolios with longer durations are typically more sensitive to changes in interest rates. Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK
The Fund's investments in asset-backed and mortgage-backed securities are
subject to the risk that the principal amount of the underlying collateral may
be repaid prior to the bond's maturity date. If this occurs, no additional
interest will be paid on the investment and the Fund may have to invest at a
lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
About the Funds 24 Prospectus
AMERICAN AADVANTAGE
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
- seek regular monthly income for retirement or other current expenses,
- want the relative stability of investment grade bonds,
- can benefit from a diversified portfolio of fixed income securities, or
- wish to complement their equity holdings.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
98.......................................................... 8.32% 99.......................................................... -2.39% 00.......................................................... 10.07% 01.......................................................... 7.73% 02.......................................................... 8.20% |
Highest Quarterly Return: 4.66% (1/1/98 through 12/31/02) (3rd Quarter 2001) Lowest Quarterly Return: -1.41% (1/1/98 through 12/31/02) (2nd Quarter 1999) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------------
AS OF 12/31/02
----------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (9/15/97)
------ ------- ---------------
RETURN BEFORE TAXES 8.20% 6.29% 6.77%
RETURN AFTER TAXES ON
DISTRIBUTIONS 6.32% 3.90% 4.36%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE
OF FUND SHARES 4.98% 4.30% 4.21%
-------------------------------------------------------------
Lehman Bros. Aggregate
Index(2) 10.27% 7.54% 7.93%(1)
Lipper Intermediate
Investment Grade Debt
Index 8.31% 6.72% 7.00%
|
(1) The since inception return is shown from 8/31/97.
(2) The Lehman Brothers Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees 0.00
Other Expenses 0.61
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.86%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Intermediate Bond Portfolio of the AMR Trust through February 28, 2002.
Prospectus 25 About the Funds
AMERICAN AADVANTAGE
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 ................................. $88 3 YEARS................................. $274 5 YEARS................................. $477 10 YEARS................................ $1,061 |
About the Funds 26 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
Currently, the Manager is the sole investment adviser to the Fund.
The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating the securities (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). No more than 25% of total assets may be invested in securities rated in the fourth highest rating category. The Fund, at the discretion of the Manager, may retain a security that has been downgraded below the initial investment criteria.
In determining which securities to buy and sell, the Manager employs a top-down fixed income investment strategy, as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
Under normal circumstances, the Fund seeks to maintain a duration of one to three years. Duration is a measure of price sensitivity relative to changes in interest rates. Portfolios with longer durations are typically more sensitive to changes in interest rates. Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK
The Fund's investments in mortgage-backed securities are subject to the risk
that the principal amount of the underlying mortgage may be repaid prior to the
bond's maturity date. If this occurs, no additional interest will be paid on the
investment and the Fund may have to invest at a lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
This Fund may be appropriate for investors who:
- seek regular monthly income for retirement or other current expenses,
- want the relative stability of investment grade bonds,
Prospectus 27 About the Funds
AMERICAN AADVANTAGE
- can benefit from a diversified portfolio of fixed income securities, or
- wish to complement their equity holdings.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Linked Lipper Investment Grade Debt Averages, a composite of funds with the same investment objective as the Fund. The returns of the broad-based market index do not reflect fees, expenses or taxes. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on December 3, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead Class of the Fund would have realized in the same period. Past performance (before and after taxes) is not necessarily indicative of how the Fund will perform in the future.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.............................. 6.50% 94.............................. 1.04% 95.............................. 9.65% 96.............................. 3.50% 97.............................. 6.45% 98.............................. 5.19% 99.............................. 2.56% 00.............................. 7.43% 01.............................. 8.00% 02.............................. 4.72% |
Highest Quarterly Return: 3.23% (1/1/93 through 12/31/02) (2nd Quarter 1995) Lowest Quarterly Return: -0.59% (1/1/93 through 12/31/02) (1st Quarter 1996) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
RETURN BEFORE TAXES 4.72% 5.56% 5.47%
RETURN AFTER TAXES ON
DISTRIBUTIONS 2.83% 3.20% 3.03%
RETURN AFTER TAXES ON
DISTRIBUTIONS AND SALE OF
FUND SHARES 2.86% 3.74% 3.58%
------------------------------------------------------------
Merrill Lynch 1-3 Yr.
Gov./Corp. Index(1) 6.09% 6.61% 6.18%
Linked Lipper Investment
Grade Debt Averages(2) 4.36% 5.45% 5.30%
|
(1) The Merrill Lynch 1-3 Yr. Gov./Corp. Index is a market value weighted performance benchmark for government and corporate fixed-rate debt securities with maturities between one and three years.
(2) The Linked Lipper Investment Grade Debt Averages includes the Lipper Short-Term Investment Grade Debt Average prior to 1/1/96, the Lipper Short-Intermediate Investment Grade Debt Average from 1/1/96 through 7/31/96 and the Lipper Short-Term Investment Grade Debt Average since 8/1/96.
After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. In some cases, the Return After Taxes on Distributions and Sale of Fund Shares may be higher than the other returns for the same period. This occurs when a capital loss is realized upon redemption, resulting in a tax deduction that benefits the shareholder. Actual after-tax returns depend on an investor's tax situation and may differ from those shown. If you hold your Fund shares through a tax-deferred arrangement, such as an IRA or a 401(k), the after-tax returns do not apply to your situation.
This table describes the fees and expenses that you may pay if you buy and hold
shares of the Short-Term Bond Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees 0.00
Other Expenses 0.52
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.77%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Short-Term Bond Portfolio of the AMR Trust through February 28, 2002.
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 ................................. $79 3 YEARS................................. $246 5 YEARS................................. $428 10 YEARS................................ $954 |
About the Funds 28 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the Money Market Portfolio of the AMR Trust.
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.
Currently, the Manager is the sole investment adviser to the Fund.
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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase,
- 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 pursuant to guidelines approved by the Board of Trustees.
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.
- 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.
- Because the Fund concentrates its assets in the banking industry, factors affecting that industry could have a significant impact on the performance of the Fund.
- 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 a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
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 investment vehicle for cash when making long-term investment decisions, or
- seek a rate of return that is potentially higher than certificates of deposit or savings accounts.
Prospectus 29 About the Funds
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on September 1, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead 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. You may call 1-800-388-3344 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.28% 94.......................................................... 4.02% 95.......................................................... 5.70% 96.......................................................... 5.15% 97.......................................................... 5.32% 98.......................................................... 5.24% 99.......................................................... 4.87% 00.......................................................... 6.14% 01.......................................................... 3.83% 02.......................................................... 1.37% |
Highest Quarterly Return: 1.58% (1/1/93 through 12/31/02) (3rd & 4th Quarter 2000) Lowest Quarterly Return: 0.30% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
1.37% 4.28% 4.48%
|
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)
Management Fees 0.10%
Distribution (12b-1) Fees 0.00
Other Expenses 0.44
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.54%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Money Market Portfolio of the AMR Trust.
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 ................................... $55 3 YEARS................................... $173 5 YEARS................................... $302 10 YEARS.................................. $677 |
About the Funds 30 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the U.S. Government Money Market Portfolio of the AMR Trust.
The Fund invests exclusively in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, repurchase agreements that are collateralized by such obligations and other investment companies that limit their investments to the foregoing securities. 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).
Currently, the Manager is the sole investment adviser to the Fund.
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.
The Fund has a policy of investing exclusively in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
- 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 a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
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 investment vehicle for cash when making long-term investment decisions, or
- seek a rate of return that is potentially higher than certificates of deposit or savings accounts.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on March 2, 1992. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead 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. You may call 1-800-388-3344 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.05% 94.......................................................... 3.89% 95.......................................................... 5.27% 96.......................................................... 4.88% 97.......................................................... 5.13% 98.......................................................... 5.04% 99.......................................................... 4.66% 00.......................................................... 5.95% 01.......................................................... 3.79% 02.......................................................... 1.30% |
Highest Quarterly Return: 1.54% (1/1/93 through 12/31/02) (3rd Quarter 2000) Lowest Quarterly Return: 0.25% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
1.30% 4.13% 4.29%
|
Prospectus 31 About the Funds
AMERICAN AADVANTAGE
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)
Management Fees 0.10%
Distribution (12b-1) Fees 0.00
Other Expenses 0.45
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.55%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the U.S. Government Money Market Portfolio of the AMR Trust.
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 ................................... $56 3 YEARS................................... $176 5 YEARS................................... $307 10 YEARS.................................. $689 |
About the Funds 32 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the Municipal Money Market Portfolio of the AMR Trust.
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. Most of the 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.
Currently, the Manager is the sole investment adviser to the Fund.
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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase,
- 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 pursuant to guidelines approved by the Board of Trustees.
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.
- 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 a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
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 investment vehicle for cash when making long-term investment decisions, or
- seek an after-tax rate of return that is potentially higher than certificates of deposit or savings accounts.
Prospectus 33 About the Funds
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The PlanAhead Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on November 10, 1993. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had lower expenses, its performance was better than the PlanAhead 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. You may call 1-800-388-3344 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
(GRAPH)
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
94.......................................................... 2.52% 95.......................................................... 3.47% 96.......................................................... 3.18% 97.......................................................... 3.26% 98.......................................................... 3.08% 99.......................................................... 2.74% 00.......................................................... 3.61% 01.......................................................... 2.25% 02.......................................................... 0.93% |
Highest Quarterly Return: 0.96% (1/1/94 through 12/31/02) (4th Quarter 2000) Lowest Quarterly Return: 0.20% (1/1/94 through 12/31/02) (1st Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-------------------------------
AS OF 12/31/02
-------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (11/10/93)
------ ------- ----------
0.93% 2.52% 2.77%
|
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)
Management Fees 0.10%
Distribution (12b-1) Fees 0.00
Other Expenses 0.47
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.57%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Municipal Money Market Portfolio of the AMR Trust.
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 ................................... $58 3 YEARS................................... $183 5 YEARS................................... $318 10 YEARS.................................. $714 |
About the Funds 34 Prospectus
The Funds have retained AMR Investment Services, Inc. to serve as their Manager. The Manager, located at 4151 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, 2002, the Manager had approximately $29.6 billion of assets under management, including approximately $16.8 billion under active management and $12.8 billion as named fiduciary or financial adviser. Approximately $14.2 billion of the Manager's total assets under management were 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,
- selects and changes investment advisers (subject to requisite approvals),
- allocates assets among investment advisers,
- monitors the investment advisers' investment programs and results,
- coordinates the investment activities of the investment advisers to ensure compliance with regulatory restrictions,
- oversees each Fund's securities lending activities and actions taken by the securities lending agent, and
- with the exception of the International Equity, High Yield Bond and S&P 500 Index Funds, invests the portion of Fund assets which the investment advisers determine should be allocated to high quality short-term debt obligations.
As compensation for providing management services, the Manager receives an annualized advisory fee that is calculated and accrued daily, equal to the sum of:
- 0.25% of the net assets of the Manager's portion of the Intermediate Bond Fund,
- 0.25% of the net assets of the Short-Term Bond Fund, plus
- 0.10% of the net assets of all other Funds, except the S&P 500 Index Fund.
The Manager receives a fee of 0.10% of the net assets of the Balanced Fund (as noted above) plus a fee of 0.15% of the Fund's net fixed income assets under its management. In addition, the Balanced, Large Cap Value, Small Cap Value, International Equity, Emerging Markets, High Yield Bond, and Intermediate Bond Funds pay the Manager the amounts due to their respective investment advisers. The Manager then remits these amounts to the investment advisers.
The Manager also may receive up to 25% of the net annual interest income or up to 25% of loan fees in regards to securities lending activities. Currently, the Manager receives 10% of the net annual interest income from the investment of cash collateral or 10% of the loan fees posted by borrowers. The Securities and Exchange Commission ("SEC") has granted exemptive relief that permits the Funds to invest cash collateral received from securities lending transactions in shares of one or more private or registered investment companies managed by the Manager.
The management fees paid by the Funds for the fiscal year ended October 31, 2002, net of reimbursements and shown as a percentage of average net assets, were as follows:
MANAGEMENT
FUND FEES
---- ----------
Balanced............................. 0.29%
Large Cap Value...................... 0.31%
Small Cap Value...................... 0.53%
Intermediate Bond.................... 0.25%
International Equity................. 0.37%
Emerging Markets..................... 0.99%
Short-Term Bond...................... 0.25%
High Yield Bond...................... 0.67%
|
The management fees paid by the Funds for the fiscal year ended December 31, 2002, net of reimbursements and shown as a percentage of average net assets, were as follows:
MANAGEMENT
FUND FEES
---- ----------
Money Market......................... 0.10%
U.S. Government Money Market......... 0.10%
Municipal Money Market............... 0.10%
|
William F. Quinn and Nancy A. Eckl have primary responsibility for the day-to-day operations of the Balanced, Large Cap Value, Small Cap Value, International Equity, Emerging Markets, High Yield Bond and Intermediate Bond Funds, except as indicated otherwise below. These responsibilities include oversight of the investment advisers, regular review of each investment adviser's performance and asset allocations among multiple investment advisers. Mr. Quinn has served as President of the Manager since its inception in 1986. Ms. Eckl has served as Vice President-Trust Investments of the Manager since May 1995.
Michael W. Fields oversees the team responsible for the portfolio management of the Short-Term Bond Fund and a portion of the fixed income assets of the Balanced Fund. Mr. Fields has been with the Manager since it was founded in 1986 and serves as Vice President-Fixed Income Investments.
The S&P 500 Index Fund invests all of its investable assets in the State Street Equity 500 Index Portfolio, which is managed by SSgA. SSgA is located at Two International Place, Boston, Massachusetts 02110. As of December 31, 2002, SSgA managed approximately $60 billion in assets and, together with its affiliates, which comprise State Street Global Advisors, the investment management business of State Street Corporation, managed approximately $762 billion in assets. SSgA serves as investment adviser, and State Street Bank and
Prospectus 35 About the Funds
Trust Company ("State Street") serves as administrator, custodian and transfer agent to the State Street Equity 500 Index Portfolio. As compensation for SSgA's services as investment adviser and State Street's service as administrator, custodian and transfer agent (and for assuming ordinary operating expenses of the Portfolio, including ordinary legal and audit expenses), State Street receives an advisory fee at an annual rate of 0.045% of the average daily net assets of the Portfolio.
Set forth below is a brief description of the investment advisers for the Funds. The Manager is the sole investment adviser to the Money Market Funds and the Short-Term Bond Fund. Except for these Funds, each Fund's assets are allocated among one or more investment advisers by the Manager. The assets of the Intermediate Bond Fund are allocated by the Manager between the Manager and another investment adviser. The assets of the Balanced Fund are allocated by the Manager among the Manager and three other investment advisers. Each investment adviser has discretion to purchase and sell securities for its segment of a Fund's assets in accordance with the Fund's objectives, policies, restrictions and more specific strategies provided by the Manager. Pursuant to an exemptive order issued by the SEC, the Manager is permitted to enter into new or modified investment advisory agreements with existing or new investment advisers without approval of a Fund's shareholders, but subject to approval of the Funds' Board of Trustees ("Board") and for those Funds that invest their assets in the AMR Trust, approval of the AMR Trust Board. The Prospectus will be supplemented if additional investment advisers are retained or the contract with any existing investment adviser is terminated.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC., ("BARROW"), 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204, is a professional investment counseling firm which has been providing investment advisory services since 1979. The firm is a subsidiary of Old Mutual Asset Managers (US) LLC, which is a subsidiary of Old Mutual plc, an international financial services group. As of December 31, 2002, Barrow had discretionary investment management authority with respect to approximately $24.5 billion of assets, including approximately $1.3 billion of assets of AMR Corporation and its subsidiaries and affiliated entities. Barrow serves as an investment adviser to the Balanced, Large Cap Value, Intermediate Bond and Short-Term Bond Funds, although the Manager does not presently intend to allocate any of the assets in the Short-Term Bond Fund to Barrow.
BRANDYWINE ASSET MANAGEMENT, LLC ("BRANDYWINE"), 201 North Walnut Street, Wilmington, Delaware 19801, is a professional investment counseling firm founded in 1986. Brandywine is a wholly owned subsidiary of Legg Mason, Inc. As of December 31, 2002, Brandywine had assets under management totaling approximately $8.0 billion, including approximately $1.0 billion of assets of AMR Corporation and its subsidiaries and affiliated entities. Brandywine serves as an investment adviser to the Balanced, Large Cap Value and Small Cap Value Funds.
CAUSEWAY CAPITAL MANAGEMENT LLC ("CAUSEWAY"), 11111 Santa Monica Blvd., Suite 1550, Los Angeles, California 90025, is a professional international and global equity asset management firm. Causeway began operations in June 2001 and was founded by the key international value equity management personnel at the Hotchkis and Wiley division of Merrill Lynch Investment Managers, L.P., the previous investment adviser to the International Equity Fund. As of December 31, 2002, Causeway had approximately $2.3 billion in assets under management, including approximately $763 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Causeway serves as an investment adviser to the International Equity Fund.
HOTCHKIS AND WILEY CAPITAL MANAGEMENT, LLC ("HOTCHKIS"), 725 South Figueroa Street, 39th Floor, Los Angeles, California 90017, is a professional domestic equity management firm. Hotchkis was formed in October 2001 from the key domestic equity management personnel at Merrill Lynch Investment Managers, L.P., previously an investment adviser to the Funds. As of December 31, 2002, Hotchkis had approximately $4.9 billion in assets under management, including approximately $638 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Hotchkis serves as an investment adviser to the Balanced, Large Cap Value and Small Cap Value Funds.
INDEPENDENCE INVESTMENT LLC ("INDEPENDENCE"), 53 State Street, Boston, Massachusetts 02109, is a professional investment counseling firm which was founded in 1982. The firm is a wholly owned subsidiary of John Hancock Financial Services. Assets under management as of December 31, 2002, including funds managed for its parent company and its affiliate Independence Fixed Income LLC, were approximately $18.9 billion, which included approximately $306 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Independence serves as an investment adviser to the International Equity Fund.
LAZARD ASSET MANAGEMENT LLC ("LAZARD"), 30 Rockefeller Plaza, New York, New York 10112, is a subsidiary of Lazard Freres & Co. LLC, a registered investment adviser and a member of the New York, American and Chicago Stock Exchanges, providing its clients with a wide variety of investment banking, brokerage and related services. Lazard and its affiliates provide investment management services to client discretionary accounts with assets totaling approximately $55.9 billion as of December 31, 2002, including approximately $571 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Lazard serves as an investment adviser to the International Equity Fund.
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC ("METWEST CAPITAL"), 610 Newport Center Drive, Suite 1000, Newport Beach, California 92660, is a professional investment management firm founded in 1997. The firm is minority owned by Metropolitan West Finan-
About the Funds 36 Prospectus
cial, LLC. It is also an affiliate of Metropolitan West Securities, LLC and MW Post Advisory Group, LLC. As of December 31, 2002, MetWest Capital had approximately $1.7 billion of assets under management, which included approximately $159 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MetWest Capital serves as an investment adviser to the Large Cap Value Fund.
METROPOLITAN WEST SECURITIES, LLC ("METWEST SECURITIES"), 11440 San Vicente Blvd., 3rd Floor, Los Angeles, California 90049, is a subsidiary of Metropolitan West Financial, LLC and an affiliate of MW Post Advisory Group, LLC and Metropolitan West Capital Management, LLC. As of December 31, 2002, MetWest Securities had approximately $30 billion in assets under management. MetWest Securities serves as investment adviser to the High Yield Bond Fund for the sole purpose of lending the Fund's securities.
MORGAN STANLEY INVESTMENT MANAGEMENT INC. ("MSIM INC."), 1221 Avenue of the Americas, New York, New York 10020, is a direct subsidiary of Morgan Stanley. As of December 31, 2002, MSIM Inc., together with its affiliated institutional asset management companies, managed assets of approximately $376.2 billion, including approximately $137 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MSIM Inc. serves as an investment adviser to the Emerging Markets Fund.
MW POST ADVISORY GROUP, LLC ("MW POST"), 11766 Wilshire Blvd., Suite 1660, Los Angeles, California 90025, is a professional investment management firm that has been providing advisory services under its current name and its predecessor, Post Advisory Group, Inc., since 1992. MW Post is jointly owned by the principals of the firm (directly and indirectly) and Metropolitan West Financial, LLC. As of December 31, 2002, MW Post had assets under management totaling approximately $2.0 billion, including approximately $134 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MW Post serves as investment adviser to the High Yield Bond Fund.
TEMPLETON INVESTMENT COUNSEL, LLC ("TEMPLETON"), 500 East Broward Blvd., Suite 2100, Fort Lauderdale, Florida 33394, is an indirect wholly owned subsidiary of Franklin Resources, Inc., a global investment organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management services, through its Franklin, Templeton, Mutual Series and Fiduciary Trust subsidiaries. The San Mateo, CA-based company has over 50 years of investment experience and more than $252 billion in assets under management as of December 31, 2002. Of this amount, approximately $560 million are assets of AMR Corporation and its subsidiaries and affiliated entities. Templeton serves as an investment adviser to the International Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, LLC ("THE BOSTON COMPANY"), One Boston Place, Boston, Massachusetts 02108, is a subsidiary of Mellon Financial Corporation. Assets under management as of December 31, 2002 were $21.1 billion, including approximately $142 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Certain of the assets managed by The Boston Company are managed as dual officers of affiliated entities. The Boston Company serves as an investment adviser to the Emerging Markets Fund.
All other assets of American Airlines, Inc. and its affiliates under management by each respective investment adviser (except assets managed by Barrow under the HALO Bond Program) are considered when calculating the fees for each investment adviser other than State Street. Including these assets lowers the investment advisory fees for each applicable Fund.
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. Equity securities are valued based on market value. 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. Securities are valued at fair value, as determined in good faith and pursuant to procedures approved by a Fund's or Portfolio's applicable Board of Trustees, under certain limited circumstances. For example, fair valuation would be used if market quotations are not readily available or a material event occurs after the close of the exchange that may affect a security's value. The price of a security determined through fair valuation may differ from the price quoted or published by other sources. Securities held by the Money Market Funds are valued in accordance with the amortized cost method, which is designed to enable those Funds to maintain a stable NAV of $1.00 per share.
The NAV of PlanAhead Class shares will be determined based on a pro rata allocation of the Fund's or Portfolio's (as applicable) 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 it is open for business, or such other time as designated by a Money Market Fund, if in its discretion, the Fund accepts orders on days when the Exchange is closed. In addition to the days the Exchange is closed, the Money Market Funds are also not open and no NAV is calculated on Columbus Day and Veterans Day. In certain limited circumstances, a Money Market Fund, in its discretion, may designate other days as a business day on which it will accept purchases and redemptions (but typically not exchanges between a Money Market Fund and other American AAdvantage Fund). Because the International Equity Fund invests in securities primarily listed on foreign exchanges that trade on days when the Fund does not price its shares, the NAV per share of the Fund may
Prospectus 37 About the Funds
change on days when shareholders will not be able to purchase or redeem the Fund's shares.
No sales charges are assessed on the purchase or sale of Fund shares. Shares of the Funds are offered and purchase orders are typically accepted until the deadlines listed below on each day on which the Exchange is open for trading. In addition, shares of the Money Market Funds are not offered and orders are not accepted on Columbus Day and Veterans Day.
PURCHASE ORDER DEADLINE
FUND (EASTERN TIME):*
---- -----------------------
Municipal Money Market 11:45 a.m.
All other Funds 4:00 p.m.
|
*or the close of the Exchange (whichever comes first)
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. The Funds will not accept "starter" checks, credit card checks or third party checks.
A completed, signed application is required to open an account. You may request an application form by:
- calling (800) 388-3344, or
- visiting the Funds' web site at www.aafunds.com and downloading an account application.
Complete the application, sign it and
Mail to:
American AAdvantage Funds
P.O. Box 219643
Kansas City, MO 64121-9643
Shares of any Fund may be redeemed by telephone, by pre-authorized automatic
redemption, via the Funds' web site, or by mail on any day that Fund is open for
business. The redemption price will be the NAV next determined after a
redemption order is received in good order, minus a redemption fee, if
applicable. For assistance with completing a redemption request, please call
(800) 388-3344. Except for the Money Market Funds, wire proceeds from redemption
orders received by 4:00 p.m. Eastern Time generally are transmitted to
shareholders on the next day that the Funds are open for business. Proceeds from
redemptions requested for the Money Market Funds by the following deadlines will
generally be wired to shareholders on the same day.
SAME DAY WIRE
FUND REDEMPTION ORDER DEADLINE:*
---- ---------------------------
Money Market and U.S.
Government Money
Market 2:00 p.m. Eastern Time
Municipal Money Market 11:45 a.m. Eastern Time
|
*or the close of the Exchange (whichever comes first)
In any event, proceeds from a redemption order for any Fund will typically 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 or pre-authorized automatic investment may be delayed until the funds have cleared, which may take up to 15 days.
A redemption fee of 2% will be deducted from your redemption amount when you sell shares of the International Equity Fund or Emerging Markets Fund that you have owned for less than 30 days or 90 days, respectively. The redemption fee is paid to the Fund and is intended to offset the trading costs, market impact and other costs associated with short-term trading activity in and out of the Fund. If you purchased shares on multiple dates, the shares you have held the longest will be redeemed first for purposes of assessing the redemption fee. The following are exempt from the redemption fee: shares acquired through the reinvestment of distributions, shares held in retirement plans, and shares redeemed through pre-authorized automatic redemption. Third parties who offer shares of the International Equity and Emerging Markets Funds may or may not charge the redemption fee to their customers for the benefit of these Funds.
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 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 Fund or the Fund's corresponding portfolio. Unpaid dividends credited to an account up to the date of redemption of all shares of a Money Market Fund generally will be paid at the time of redemption.
About Your Investment 38 Prospectus
HOW TO PURCHASE SHARES
To Add to an Existing Account
To Make an Initial Purchase
By Check
- Make check payable to the American AAdvantage Include the shareholder's account number, Fund
Funds. name, and Fund number on the check. Mail check
- Include the Fund name, Fund number and ($50 minimum) to:
"PlanAhead Class" on the check. American AAdvantage Funds
- Mail check ($2,500 minimum or $2,000 for IRAs) P.O. Box 219643
to: Kansas City, MO 64121-9643
American AAdvantage Funds
P.O. Box 219643
Kansas City, MO 64121-9643
By Wire
If your account has been established, you may Call (800) 388-3344 to purchase shares by wire.
call (800) 388-3344 to purchase shares by wire. Send a bank wire ($500 minimum) to State Street
Send a bank wire ($2,500 minimum or $2,000 for Bank and Trust Co. with these instructions:
IRAs) to State Street Bank and Trust Co. with - ABA# 0110-0002-8; AC-9905-342-3,
these instructions: - Attn: American AAdvantage Funds-PlanAhead
- ABA# 0110-0002-8; AC-9905-342-3, Class,
- Attn: American AAdvantage Funds-PlanAhead - the Fund name and Fund number, and
Class, - shareholder's account number and registration.
- the Fund name and Fund number, and
- shareholder's account number and registration.
Via My Account on www.aafunds.com
- Funds will be transferred automatically from - The minimum amount for each additional
your bank account via Automated Clearing House purchase is $50.
("ACH") if valid bank instructions were
included on your application. If not, please
call (800) 388-3344 to establish bank
instructions prior to the purchase.
- A $2,500 minimum ($2,000 for IRAs) is required
to establish a new account.
By Pre-Authorized Automatic Investment
- The minimum account size of $2,500 ($2,000 for - Funds will be transferred automatically from
IRAs) must be met before establishing an your bank account via ACH on or about the 5th
automatic investment plan. day of each month or quarter, depending upon
- Fill in required information on the account which periods you specify. If you establish
application, including amount of automatic your automatic investment plan through
investment ($50 minimum). Attach a voided www.aafunds.com, you can choose the date and
check to the account application. frequency of transfer.
- An automatic investment plan may also be
established through www.aafunds.com.
By Exchange
- Send a written request to the address above, - You may purchase shares of a Fund by
call (800) 388-3344 or visit www.aafunds.com. exchanging shares from the PlanAhead Class of
- A $2,500 minimum ($2,000 for IRAs) is required another American AAdvantage Fund if you have
to establish a new account in the PlanAhead owned shares of the other American AAdvantage
Class of another American AAdvantage Fund by Fund for at least 15 days.
making an exchange. - The minimum amount for each exchange is $50.
|
Prospectus 39 About Your Investment
HOW TO REDEEM SHARES
Method Additional Information
By Telephone
Call (800) 388-3344 to request a redemption. - Telephone redemption orders are limited to $50,000 within
any 30 day period.
- Proceeds will generally be mailed only to the account
address of record or transmitted by wire ($500 minimum
and $10 fee) to a commercial bank account designated on
the account application form.
By Mail
Write a letter of instruction including: - Proceeds will only be mailed to the account address of
- the Fund name and Fund number, record or transmitted by wire ($500 minimum and $10 fee)
- shareholder account number, to a commercial bank account designated on the account
- shares or dollar amount to be redeemed, and application form.
- authorized signature(s) of all persons required to sign A signature guarantee is required for redemption orders:
for the account. - in amounts of $50,000 or more,
- with a request to send the proceeds to an address or
Mail to: commercial bank account other than the address or
commercial bank account designated on the account
American AAdvantage Funds application, or
P.O. Box 219643 - for an account whose address has changed within the last
Kansas City, MO 64121-9643 30 days if proceeds are sent by check.
Via My Account on www.aafunds.com
- Please call (800) 388-3344 to establish bank - Proceeds will only be mailed to the account address of
instructions, if you wish to receive redemption proceeds record, transmitted by wire to a commercial bank account
via wire or ACH. designated on the account application form or transferred
via ACH to your bank account.
- The minimum amount is $500 for a wire and $50 for a check
or ACH.
- A $10 fee is charged for each wire.
By Shareholder Draft
(Money Market Funds' shareholders only) - Minimum check amount is $100.
Choose the check writing feature on the account application - A $2 service fee per check is charged for check copies.
or establish via www.aafunds.com.
By Pre-Authorized Automatic Redemption
- Fill in required information on the account application - Proceeds will be transferred automatically from your Fund
or establish via www.aafunds.com ($50 minimum). account to your bank account via ACH on or about the 15th
day of each month. If you establish automatic redemption
through www.aafunds.com, you can choose the date and
frequency of transfer.
By Exchange
- Send a written request to the address above, call (800) - You may sell shares of a Fund in exchange for shares of
388-3344 to exchange shares through the Automated Voice the PlanAhead Class of another American AAdvantage Fund
Response System or visit www.aafunds.com. if you have owned shares of the Fund for at least 15
- A $2,500 minimum ($2,000 for IRAs) is required to days.
establish a new account in the PlanAhead Class of another - The minimum amount for each exchange is $50.
American AAdvantage Fund by making an exchange.
|
About Your Investment 40 Prospectus
If a shareholder's account balance in any Fund falls below $2,500 ($2,000 for IRAs), the shareholder may be asked to increase the balance. If the account balance remains below $2,500 ($2,000 for IRAs) after 45 days, the Funds reserve the right to close the account and send the proceeds to the shareholder. The Manager reserves the right to charge an annual account fee of $12 (to offset the costs of servicing accounts with low balances) if an account balance falls below certain asset levels.
The following policies apply to instructions you may provide to the 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,
- terminate the exchange privilege of any shareholder who makes more than one exchange in and out of a Fund (other than the Money Market Funds) during any three month period, 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.
In order to discourage short-term trading of the Funds' shares, the Funds will not accept more than one exchange in and out of any Fund (except for the Money Market Funds) within any three-month period. If the Manager determines that a shareholder is investing in a Fund to profit from day-to-day fluctuations in the Fund's net asset value, also known as market timing, the Fund may reject any order or terminate the exchange privilege of that shareholder.
Third parties, such as banks, broker-dealers and 401(k) plan providers who offer Fund shares, may charge transaction fees and may set different minimum investments or limitations on buying or selling shares.
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 and gains from foreign currency transactions. Unless the account application instructs otherwise, distributions will be reinvested in additional Fund shares. Monthly distributions are paid to shareholders on the first business day of the following month. Distributions are paid as follows:
OTHER
DISTRIBUTIONS
FUND DIVIDENDS PAID PAID
---- -------------- -------------
Balanced Annually Annually
Large Cap Value Annually Annually
Small Cap Value Annually Annually
International Equity Annually Annually
S&P 500 Index April, July, October Annually
and December
High Yield Bond Monthly Annually
Intermediate Bond Monthly Annually
Short-Term Bond Monthly Annually
Money Market Monthly Monthly
U.S. Government Money Monthly Monthly
Market
Municipal Money Market Monthly Monthly
|
Usually, any dividends (except those paid by the Municipal Money Market Fund) and distributions of net realized gains are taxable events. However, the portion of a Fund's dividends derived from its investments in certain direct U.S. Government obligations may be exempt from state and local income taxes. Shareholders may realize a taxable gain or loss when redeeming or exchanging shares (other than shares of the Money Market Funds). That gain or loss may be treated as a short-term or long-term capital gain or loss, depending on how long the sold or exchanged shares were held. The following table outlines the typical tax liabilities for transactions in taxable accounts:
TYPE OF TRANSACTION TAX STATUS
------------------- ----------
Dividends from net investment Ordinary income
income*
Distributions of realized net Ordinary income
short-term capital gains*
Distributions of gains from certain Ordinary income
foreign currency transactions*
Distributions of realized net Long-term capital
long-term capital gains* gains
Sales or exchanges of shares owned Long-term capital
for more than one year gains or losses
Sales or exchanges of shares owned Net gains are treated
for one year or less as ordinary income;
net losses are
subject to special
rules
|
*whether reinvested or taken in cash
Some foreign countries may impose taxes on dividends paid to and gains realized by the International Equity Fund. The Fund may treat these taxes as a deduction or, under certain conditions, "flow the tax through" to its shareholders. In the latter event, a shareholder may either deduct the taxes or use them to calculate a credit against his or her federal income tax.
A portion of the dividends paid by the Balanced Fund, the Large Cap Value Fund, the Small Cap Value Fund, the S&P 500 Index Fund, and the High Yield Bond Fund is eligible for the dividends-received deduction allowed to corporations. The eligible portion for any Fund may
not exceed its aggregate dividends received from U.S. corporations. However, dividends received by a corporate shareholder and deducted by it pursuant to the dividends-received deduction may be subject indirectly to the federal alternative minimum tax ("AMT"). The International Equity Fund's dividends most likely will not qualify for the dividends-received deduction because none of the dividends it receives are expected to be paid by U.S. corporations.
The Municipal Money Market Fund expects to designate most of its distributions as "exempt-interest dividends," which may be excluded from gross income. If the Fund earns taxable income from any of its investments, that income will be distributed as a taxable dividend. If the Fund invests in private activity obligations, its 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 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 Fund's 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.
The Funds do not incur any direct distribution expenses related to PlanAhead Class shares. However, the Funds have adopted a Distribution Plan in accordance with Rule 12b-1 under the Investment Company Act of 1940 which authorizes the use of any fees received by the Manager in accordance with the Administrative Services and Management Agreements, and any fees received by the investment advisers pursuant to their Advisory Agreements with the Manager, to be used for the sale and distribution of Fund shares. In the event the Funds begin to incur distribution expenses, distribution fees may be paid out of Fund assets, possibly causing the cost of your investment to increase over time and resulting in costs higher than other types of sales charges.
Under a master-feeder structure, a "feeder" fund 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:
(GRAPH)
Each Master-Feeder 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. A change in a portfolio's fundamental objective, policies and restrictions, which is not approved by the shareholders of its corresponding Fund, could require that Fund to redeem its interest in the portfolio. Any such redemption could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the portfolio. Should such a distribution occur, that Fund could incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for that Fund and could affect adversely the liquidity of the Fund. If a Master-Feeder Fund withdraws its investment in its corresponding portfolio, the Fund's assets will be invested directly in investment securities or in another master fund, according to the investment policies and restrictions described in this Prospectus.
Prior to March 1, 2002, the Balanced, Large Cap Value, Small Cap Value, Intermediate Bond, and Short-Term Bond Funds invested all of their investable assets in a corresponding portfolio of the AMR Investment Services Trust with a similar name and identical investment objective. On March 1, 2002, the master-feeder structure of these Funds was discontinued, and each Fund now directly purchases securities for investment in accordance with its respective investment objective.
The financial highlights tables are intended to help you understand each Fund's financial performance for the past five fiscal years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in each Fund's table represent the rate that an investor would have earned (or lost) on an investment in that Fund (assuming reinvestment of all dividends and distributions). Each Fund's financial highlights were audited by Ernst & Young LLP, independent auditors. The financial highlights of the S&P 500 Index Fund were audited by PricewaterhouseCoopers LLP, independent auditors, through the end of 1999. The report of Ernst & Young LLP, along with the Funds' financial statements, is found in the Funds' Annual Report, which you may obtain upon request.
Additional Information 42 Prospectus
BALANCED FUND-PLANAHEAD CLASS
------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------
2002 2001(DE) 2000(B) 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- -------- ------- ------- -------
Net asset value, beginning of period........................ $ 11.88 $ 12.08 $ 12.79 $ 14.35 $ 16.03
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(AC)................................. 0.41(G) 0.51 0.53 0.44 0.47
Net gains (losses) on securities (realized and
unrealized)(C).......................................... (0.99)(G) (0.06) -- (0.39) 0.75
------- ------- ------- ------- -------
Total from investment operations............................ (0.58) 0.45 0.53 0.05 1.22
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.41) (0.65) (0.46) (0.44) (0.64)
Distributions from net realized gains on securities....... (0.08) -- (0.78) (1.17) (2.26)
------- ------- ------- ------- -------
Total distributions......................................... (0.49) (0.65) (1.24) (1.61) (2.90)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 10.81 $ 11.88 $ 12.08 $ 12.79 $ 14.35
======= ======= ======= ======= =======
Total return................................................ (5.18)% 3.84% 4.88% 0.22% 8.73%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $10,561 $12,176 $11,643 $22,753 $40,717
Ratios to average net assets (annualized):
Expenses(C)......................................... 0.90% 0.84% 0.90% 0.90% 0.89%
Net investment income(C)............................ 2.83%(G) 3.29% 4.01% 3.21% 3.23%
Portfolio turnover rate(F).............................. 84% 122% 121% 90% 87%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) GSB Investment Management, Inc. was removed as an investment advisor to the Balanced Fund on March 1, 2000.
(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 the AMR Investment Services Balanced Portfolio through February 28, 2002.
(D) On September 7, 2001, AMR Investment Services, Inc. assumed management of the fixed income portion of the Balanced Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(E) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the equity portion of the Balanced Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(F) The American AAdvantage Balanced Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(G) Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements (see Annual Report dated October 31, 2002), these amounts would have been:
Net investment income....................................... $ 0.42 Net gains (losses) on securities (both realized and unrealized)............................................... $(1.00) Net investment income ratio................................. 2.92% |
Prospectus 43 Additional Information
LARGE CAP VALUE FUND-PLANAHEAD CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2002 2001(B G) 2000(E) 1999(D) 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- --------- ------- ------- -------
Net asset value, beginning of period........................ $ 14.00 $ 15.40 $ 18.41 $ 20.67 $ 21.38
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(AC)............................... 0.25 0.26 0.60 0.35 0.35
Net gains (losses) on securities (realized and
unrealized)(C)........................................ (1.74) (0.62) (0.13) 0.01 0.86
------- ------- ------- ------- -------
Total from investment operations............................ (1.49) (0.36) 0.47 0.36 1.21
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income.................... (0.25) (0.55) (0.43) (0.36) (0.34)
Distributions from net realized gains on securities..... (0.17) (0.49) (3.05) (2.26) (1.58)
------- ------- ------- ------- -------
Total distributions......................................... (0.42) (1.04) (3.48) (2.62) (1.92)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 12.09 $ 14.00 $ 15.40 $ 18.41 $ 20.67
======= ======= ======= ======= =======
Total return................................................ (11.13)% (2.47)% 4.56% 1.41% 5.94%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $15,941 $12,280 $11,507 $20,095 $40,907
Ratios to average net assets (annualized):
Expenses(C)......................................... 0.93% 0.89% 0.84% 0.90% 0.86%
Net investment income(C)............................ 1.53% 1.54% 2.51% 1.62% 1.58%
Portfolio turnover rate(F).............................. 34% 60% 58% 33% 40%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the Large Cap Value Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(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 the AMR Investment Services Large Cap Value Portfolio through February 28, 2002.
(D) Prior to March 1, 1999, the Large Cap Value Fund was known as the Growth and Income Fund.
(E) GSB Investment Management, Inc. was removed as an investment advisor to the Large Cap Value Fund on March 1, 2000.
(F) The American AAdvantage Large Cap Value Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(G) Metropolitan West Capital Management, LLC replaced Independence Investment LLC as an investment advisor to the Large Cap Value Fund on December 1, 2000.
Additional Information 44 Prospectus
SMALL CAP VALUE FUND-
PLANAHEAD CLASS
-----------------------------------------
YEAR ENDED MARCH 1
OCTOBER 31, TO
--------------------------- OCTOBER 31,
2002 2001(C) 2000 1999
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------ -----------
Net asset value, beginning of period........................ $ 11.64 $10.08 $ 9.05 $ 9.13
------- ------ ------ ------
Income from investment operations:
Net investment income(A)................................ 0.06 0.15 0.08 0.02
Net gains (losses) on securities (both realized and
unrealized)(A)......................................... 0.36 1.76 1.14 (0.10)
------- ------ ------ ------
Total from investment operations............................ 0.42 1.91 1.22 (0.08)
------- ------ ------ ------
Less distributions:
Dividends from net investment income.................... (0.08) (0.18) (0.02) --
Distributions from net realized gains on securities..... (0.76) (0.17) (0.17) --
------- ------ ------ ------
Total distributions......................................... (0.84) (0.35) (0.19) --
------- ------ ------ ------
Net asset value, end of period.............................. $ 11.22 $11.64 $10.08 $ 9.05
======= ====== ====== ======
Total return................................................ 2.99% 19.58% 13.76% (0.88)%(D)
======= ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $16,190 $1,197 $ 440 $ 74
Ratios to average net assets (annualized):
Expenses(A)......................................... 1.11% 1.17% 1.18% 1.28%
Net investment income(A)............................ 0.52% 1.06% 1.71% 0.57%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A)............ -- -- 0.06% 0.18%
Portfolio turnover rate(B).............................. 81% 93% 63% 31%(D)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Small Cap Value Portfolio through February 28, 2002.
(B) The American AAdvantage Small Cap Value Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the Small Cap Value Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(D) Not annualized.
INTERNATIONAL EQUITY FUND-PLANAHEAD CLASS
----------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------
2002 2001(E) 2000 1999(B) 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- -------- ------- ------- -------
Net asset value, beginning of period........................ $ 13.58 $ 17.72 $ 19.13 $ 16.75 $ 16.92
------- -------- ------- ------- -------
Income from investment operations:
Net investment income(AD)............................... 0.15 0.19 0.31 0.30 0.31
Net gains (losses) on securities (both realized and
unrealized)(D)........................................ (1.56) (2.92) 0.18 2.89 0.31
------- -------- ------- ------- -------
Total from investment operations............................ (1.41) (2.73) 0.49 3.19 0.62
------- -------- ------- ------- -------
Less distributions:
Dividends from net investment income.................... (0.22) (0.17) (0.26) (0.32) (0.31)
Distributions from net realized gains on securities..... -- (1.24) (1.64) (0.49) (0.48)
------- -------- ------- ------- -------
Total distributions......................................... (0.22) (1.41) (1.90) (0.81) (0.79)
------- -------- ------- ------- -------
Net asset value, end of period.............................. $ 11.95 $ 13.58 $ 17.72 $ 19.13 $ 16.75
======= ======== ======= ======= =======
Total return................................................ (10.57)% (16.79)% 2.08% 19.68% 3.94%
======= ======== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $99,636 $113,948 $85,680 $60,602 $46,242
Ratios to average net assets (annualized):
Expenses(D)......................................... 1.04% 1.10% 1.01% 0.93% 1.08%
Net investment income(D)............................ 1.35% 1.22% 1.43% 1.71% 1.72%
Portfolio turnover rate(C).............................. 43% 36% 45% 63% 24%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) Morgan Stanley Asset Management, Inc. was replaced by Lazard Asset Management and Independence Investment LLC as investment advisor to the International Equity Fund on March 1, 1999.
(C) The American AAdvantage International Equity Fund invests all of its investable assets in its corresponding Portfolio. Portfolio turnover rate is that of the Portfolio.
(D) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services International Equity Portfolio.
(E) Causeway Capital Management, LLC replaced Merrill Lynch Investment Managers, L.P. as investment advisor to the International Equity Fund on August 31, 2001.
Prospectus 45 Additional Information
EMERGING
MARKETS FUND-
PLANAHEAD CLASS
---------------
OCTOBER 1, TO
OCTOBER 31,
2002
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ---------------
Net asset value, beginning of period........................ $ 6.86
-------
Income from investment operations:
Net investment income(A)................................ --
Net gains (losses) on securities (both realized and
unrealized)(A)......................................... 0.33
-------
Total income from investment operations..................... 0.33
-------
Less distributions:
Dividends from net investment income.................... --
Distributions from net realized gains on securities..... --
-------
Total distributions......................................... --
-------
Net asset value, end of period.............................. $ 7.19
=======
Total return................................................ 4.81%(C)
=======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 1
Ratios to average net assets (annualized):
Expenses(A)........................................... 1.87%
Net investment income (loss)(A)....................... (0.25)%
Portfolio turnover rate(B).............................. 94%(D)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Emerging Markets Portfolio through February 28, 2002.
(B) The American AAdvantage Emerging Markets Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
(D) Portfolio turnover rate is for the period November 1, 2001 through October 31, 2002.
S&P 500 INDEX FUND-PLANAHEAD CLASS
------------------------------------------------------------
YEAR ENDED DECEMBER 31, MARCH 1, TO
--------------------------------------------- DECEMBER 31,
2002 2001 2000(B) 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------- ------ ------------
Net asset value, beginning of period........................ $ 15.49 $ 17.99 $20.12 $16.83 $14.27
------- ------- ------ ------ ------
Income from investment operations(A):
Net investment income................................... 0.14 0.14 0.13 0.15 0.08
Net gains (losses) on securities (both realized and
unrealized)........................................... (3.64) (2.39) (2.00) 3.25 2.56
------- ------- ------ ------ ------
Total from investment operations............................ (3.50) (2.25) (1.87) 3.40 2.64
------- ------- ------ ------ ------
Less distributions:
Dividends from net investment income.................... (0.14) (0.25)(C) (0.26)(C) (0.11) (0.08)
------- ------- ------ ------ ------
Total distributions......................................... (0.14) (0.25) (0.26) (0.11) (0.08)
------- ------- ------ ------ ------
Net asset value, end of period.............................. $ 11.85 $ 15.49 $17.99 $20.12 $16.83
======= ======= ====== ====== ======
Total return................................................ (22.59)% (12.48)% (9.38)% 20.24% 18.58%(D)
======= ======= ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $24,885 $32,284 $5,143 $6,173 $1,963
Ratios to average net assets (annualized)(A):
Net investment income............................... 1.06% 0.89% 0.66% 0.91% 1.04%
Expenses............................................ 0.55% 0.56% 0.54% 0.55% 0.55%
Decrease reflected in above expense ratio due to
absorption of expenses by State Street, Bankers
Trust and the Manager............................. 0.08% 0.05% 0.16% 0.17% 0.24%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the BT Equity 500 Index Portfolio prior to March 1, 2000 and the State Street Equity 500 Index Portfolio thereafter.
(B) On March 1, 2000, the S&P 500 Index Fund invested all of its investable assets in the State Street Equity 500 Index Portfolio. Prior to March 1, 2000, the S&P 500 Index Fund invested all of its investable assets in the BT Equity 500 Index Portfolio.
(C) Includes a tax return of capital distribution which amounts to less than $0.01 per share.
(D) Not annualized.
HIGH YIELD BOND FUND-
PLANAHEAD CLASS
---------------------
MARCH 1, TO
OCTOBER 31,
2002
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ---------------------
Net asset value, beginning of period........................ $10.10
------
Income from investment operations:
Net investment income................................... 0.50
Net gains (losses) on securities (both realized and
unrealized)............................................ (0.47)
------
Total income from investment operations..................... 0.03
------
Less distributions:
Dividends from net investment income.................... (0.50)
------
Total distributions......................................... (0.50)
------
Net asset value, end of period.............................. $ 9.63
======
Total return................................................ (0.26)%(A)
======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $4,029
Ratios to average net assets (annualized):
Expenses.............................................. 1.27%
Net investment income................................. 7.20%
Portfolio turnover rate................................. 163%(B)
|
(A) Not annualized.
(B) Portfolio turnover rate is for the period November 1, 2001 through October 31, 2002.
INTERMEDIATE BOND FUND-PLANAHEAD CLASS
---------------------------------------------------
MARCH 2
YEAR ENDED OCTOBER 31, TO
------------------------------------ OCTOBER 31,
2002 2001 2000 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------ ------ ------ ------ -----------
Net asset value, beginning of period........................ $10.34 $ 9.57 $ 9.63 $10.55 $10.25
------ ------ ------ ------ ------
Income from investment operations:
Net investment income(A)................................ 0.48 0.53 0.59 0.53 0.37
Net gains (losses) on securities (both realized and
unrealized)(A)........................................ (0.07) 0.77 (0.06) (0.63) 0.30
------ ------ ------ ------ ------
Total from investment operations............................ 0.41 1.30 0.53 (0.10) 0.67
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income.................... (0.48) (0.53) (0.59) (0.53) (0.37)
Distributions from net realized gains on securities..... -- -- -- (0.29) --
------ ------ ------ ------ ------
Total distributions......................................... (0.48) (0.53) (0.59) (0.82) (0.37)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $10.27 $10.34 $ 9.57 $ 9.63 $10.55
====== ====== ====== ====== ======
Total return................................................ 4.10% 13.91% 5.76% (0.98)% 6.63%(C)
====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $1,691 $ 300 $ 102 $1,545 $ 30
Ratios to average net assets (annualized):
Expenses(A)......................................... 0.86% 0.83% 0.87% 0.85% 0.86%
Net investment income(A)............................ 4.60% 5.04% 6.07% 5.32% 5.21%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A).......... -- 0.01% 0.02% -- --
Portfolio turnover rate(B).............................. 185% 164% 102% 123% 181%(D)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Intermediate Bond Portfolio through February 28, 2002.
(B) The American AAdvantage Intermediate Bond Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
(D) Portfolio turnover rate is for the period November 1, 1997 through October 31, 1998.
Prospectus 47 Additional Information
SHORT-TERM BOND FUND-PLANAHEAD CLASS
----------------------------------------------------
YEAR ENDED OCTOBER 31,
----------------------------------------------------
2002 2001 2000 1999 1998(A)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------ ------ ------ ------ -------
Net asset value, beginning of period........................ $ 9.62 $ 9.21 $ 9.30 $ 9.64 $ 9.63
------ ------ ------ ------ ------
Income from investment operations:
Net investment income(C)................................ 0.43(D) 0.55 0.59 0.54 0.60
Net gains (losses) on securities (both realized and
unrealized)(C)........................................ (0.14)(D) 0.41 (0.09) (0.33) 0.01
------ ------ ------ ------ ------
Total from investment operations............................ 0.29 0.96 0.50 0.21 0.61
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income.................... (0.46) (0.55) (0.59) (0.55) (0.60)
------ ------ ------ ------ ------
Total distributions......................................... (0.46) (0.55) (0.59) (0.55) (0.60)
------ ------ ------ ------ ------
Net asset value, end of period.............................. $ 9.45 $ 9.62 $ 9.21 $ 9.30 $ 9.64
====== ====== ====== ====== ======
Total return................................................ 3.16% 10.69% 5.56% 2.21% 6.50%
====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $3,520 $1,257 $ 489 $1,638 $3,722
Ratios to average net assets (annualized):
Expenses(C)......................................... 0.73% 0.75% 0.84% 0.84% 0.85%
Net investment income(C)............................ 4.16% 5.76% 6.29% 5.75% 6.24%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(C).......... 0.04%(D) -- 0.10% 0.09% 0.08%
Portfolio turnover rate(B).............................. 63% 104% 89% 115% 74%
|
(A) Prior to March 1, 1998, the American AAdvantage Short-Term Bond Fund was known as the American AAdvantage Limited-Term Income Fund.
(B) The American AAdvantage Short-Term Bond Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(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 the AMR Investment Services Short-Term Bond Portfolio through February 28, 2002.
(D) Without the adoption of the changes in amortization method as discussed in Note 1 in the Notes to Financial Statements (see Annual Report dated October 31, 2002), these amounts would have been:
Net investment income....................................... $ 0.46 Net gains (losses) on securities (both realized and unrealized)............................................... $(0.17) Net investment income ratio................................. 4.75% |
MONEY MARKET FUND-PLANAHEAD CLASS
------------------------------------------------------------------------
TWO MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED OCTOBER 31,
-------------------------------- DECEMBER 31, --------------------
2002 2001 2000 1999 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- ------------ -------- --------
Net asset value, beginning of period................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income(A)........................... 0.01 0.04 0.06 0.01 0.05 0.05
Less dividends from net investment income.......... (0.01) (0.04) (0.06) (0.01) (0.05) (0.05)
-------- -------- -------- -------- -------- --------
Net asset value, end of period......................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return........................................... 1.37% 3.83% 6.14% 0.89%(B) 4.79% 5.31%
======== ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $155,535 $163,825 $299,304 $262,748 $343,532 $288,759
Ratios to average net assets (annualized)(A):
Expenses....................................... 0.54% 0.55% 0.54% 0.55% 0.53% 0.53%
Net investment income.......................... 1.36% 3.83% 5.95% 5.32% 4.69% 5.18%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Money Market Portfolio.
(B) Not annualized
Additional Information 48 Prospectus
U.S. GOVERNMENT MONEY MARKET FUND-PLANAHEAD CLASS
-----------------------------------------------------------------
TWO MONTHS YEAR ENDED
YEAR ENDED DECEMBER 31, ENDED OCTOBER 31,
----------------------------- DECEMBER 31, ------------------
2002 2001 2000 1999 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- ------- ------- ------------ ------- -------
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ------- ------- ------- ------- -------
Net investment income(A)................................ 0.01 0.04 0.06 0.01 0.05 0.05
Less dividends from net investment income............... (0.01) (0.04) (0.06) (0.01) (0.05) (0.05)
-------- ------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======= ======= ======= ======= =======
Total return................................................ 1.30% 3.79% 5.95% 0.86%(B) 4.56% 5.13%
======== ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $175,115 $78,934 $65,795 $59,560 $59,960 $99,869
Ratios to average net assets (annualized)(A):
Expenses............................................ 0.55% 0.55% 0.60% 0.64% 0.56% 0.57%
Net investment income............................... 1.25% 3.59% 5.81% 5.15% 4.45% 5.01%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services U.S. Government Money Market Portfolio.
(B) Not annualized.
MUNICIPAL MONEY MARKET FUND-PLANAHEAD CLASS()
------------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
------------------------- DECEMBER 31, -----------------
2002 2001 2000 1999 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------ ------ ------ ------------ ------ -------
Net asset value, beginning of period........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------ -------
Net investment income(A)................................ 0.01 0.02 0.04 0.01 0.03 0.03
Less dividends from net investment income............... (0.01) (0.02) (0.04) (0.01) (0.03) (0.03)
------ ------ ------ ------ ------ -------
Net asset value, end of period.............................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ====== =======
Total return................................................ 0.93% 2.25% 3.61% 0.52%(B) 2.68% 3.17%
====== ====== ====== ====== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $7,346 $3,669 $5,175 $7,479 $9,795 $13,474
Ratios to average net assets (annualized)(A):
Expenses............................................ 0.57% 0.58% 0.63% 0.73% 0.65% 0.64%
Net investment income............................... 0.94% 2.30% 3.48% 3.09% 2.61% 3.07%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Municipal Money Market Portfolio.
(B) Not annualized.
-- Notes --
-- Notes --
-- Notes --
-- Notes --
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 STATEMENT OF ADDITIONAL INFORMATION ("SAI")
The Funds' Annual and Semi-Annual Reports list each The SAI contains more details about the Funds and their
Fund's actual investments as of the report's date. They investment policies. The SAI is incorporated in this
also include a discussion by the Manager of market Prospectus by reference (it is legally part of this
conditions and investment strategies that significantly Prospectus). A current SAI is on file with the
affected the Funds' performance. The report of the Securities and Exchange Commission (SEC).
Funds' independent auditors is included in the Annual
Report.
|
TO REDUCE EXPENSES, YOUR FINANCIAL INSTITUTION MAY MAIL ONLY ONE COPY OF THE PROSPECTUS, ANNUAL REPORT, AND SEMI-ANNUAL REPORT TO THOSE ADDRESSES SHARED BY TWO OR MORE ACCOUNTS. IF YOU WISH TO RECEIVE INDIVIDUAL COPIES OF THESE DOCUMENTS, PLEASE CONTACT YOUR FINANCIAL INSTITUTION. THEY WILL BEGIN SENDING YOU INDIVIDUAL COPIES THIRTY DAYS AFTER RECEIVING YOUR REQUEST.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS OR TO REQUEST A COPY OF THE DOCUMENTS LISTED ABOVE:
[LOGO] [LOGO] [LOGO] [LOGO]
BY TELEPHONE: BY MAIL: BY E-MAIL: ON THE INTERNET:
Call (800) 388-3344 American AAdvantage Funds american -aadvantage.funds@aa.com Visit our website at www.aafunds.com
P.O. Box 619003 Visit the SEC website at www.sec.gov
DFW Airport, TX 75261-9003
|
The SAI and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic mail to publicinfo@sec.gov, or by writing to the SEC's Public Reference Section, 450 5th Street NW, Washington, D.C. 20549-0102. The SAI and other information about the Funds may also be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at (202) 942-8090.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR STATE STREET BANK NATIONAL FINANCIAL ERNST & YOUNG LLP SWS FINANCIAL SERVICES AND TRUST DATA SERVICES Dallas, Texas Dallas, Texas Boston, Massachusetts Kansas City, Missouri |
[AMERICAN AADVANTAGE FUNDS LOGO]
SEC File Number 811-4984
American Airlines is not responsible for investments made in the American AAdvantage Funds. American AAdvantage Funds is a registered service mark of AMR Corporation. PlanAhead Class and American AAdvantage Money Market Fund are registered service marks of AMR Investment Services, Inc. American AAdvantage Balanced Fund, American AAdvantage Large Cap Value Fund, American AAdvantage International Equity Fund, American AAdvantage Emerging Markets Fund, American AAdvantage High Yield Bond Fund, American AAdvantage Intermediate Bond Fund, American AAdvantage Short-Term Bond Fund, American AAdvantage Small Cap Value Fund, American AAdvantage Municipal Money Market Fund, and American AAdvantage U.S. Government Money Market Fund are service marks of AMR Investment Services, Inc.
[AMERICAN AADVANTAGE FUNDS LOGO]
[LOGO]
PRIVACY POLICY
AND
PROSPECTUS
MARCH 1, 2003
- LARGE CAP VALUE FUND
- LARGE CAP GROWTH FUND
- SMALL CAP VALUE FUND
- INTERNATIONAL EQUITY FUND
- EMERGING MARKETS FUND
- INTERMEDIATE BOND FUND
- SMALL CAP INDEX FUND
- INTERNATIONAL EQUITY INDEX FUND
MANAGED BY AMR INVESTMENT SERVICES, INC. This page is not part of the Prospectus. |
[EAGLE LOGO]
[GLOBE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO]
PRIVACY POLICY
The American AAdvantage Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards.
This page is not part of the Prospectus.
[AMERICAN AADVANTAGE FUNDS LOGO]
[LOGO]
PROSPECTUS
MARCH 1, 2003
- LARGE CAP VALUE FUND
- LARGE CAP GROWTH FUND
- SMALL CAP VALUE FUND
- INTERNATIONAL EQUITY FUND
- EMERGING MARKETS FUND
- INTERMEDIATE BOND FUND
- SMALL CAP INDEX FUND
- INTERNATIONAL EQUITY INDEX FUND
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
MANAGED BY AMR INVESTMENT SERVICES, INC. offense.
|
[EAGLE LOGO]
[GLOBE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO]
TABLE OF CONTENTS
About the Funds Overview......................................... 2 Balanced Fund.................................... 3 Large Cap Value Fund............................. 6 Large Cap Growth Fund............................ 8 Small Cap Value Fund............................. 10 International Equity Fund........................ 12 Emerging Markets Fund............................ 14 S&P 500 Index Fund............................... 16 Small Cap Index Fund............................. 18 International Equity Index Fund.................. 20 Intermediate Bond Fund........................... 23 Short-Term Bond Fund............................. 25 The Manager...................................... 27 SSgA and Fund Asset Management................... 27 The Investment Advisers.......................... 28 Valuation of Shares.............................. 29 About Your Investment Purchase and Redemption of Shares................ 30 Distributions and Taxes.......................... 31 Additional Information Distribution of Fund Shares...................... 32 Master-Feeder Structure.......................... 32 Financial Highlights............................. 32 Additional Information.......................Back Cover |
Overview
The American AAdvantage Funds (the "Funds") are managed by AMR Investment Services, Inc. (the "Manager"), a wholly owned subsidiary of AMR Corporation.
The International Equity, S&P 500 Index, Small Cap Index, and International Equity Index Funds operate under a master-feeder structure (the "Master-Feeder Funds"). Each Master-Feeder Fund seeks its investment objective by investing all of its investable assets in a corresponding portfolio with a similar name and identical investment objective.
- The International Equity Fund invests all of its investable assets in a corresponding portfolio of the AMR Investment Services Trust ("AMR Trust"). The AMR Trust is managed by the Manager.
- The S&P 500 Index Fund invests all of its investable assets in the State Street Equity 500 Index Portfolio. The State Street Equity 500 Index Portfolio is managed by SSgA Funds Management, Inc. ("SSgA"), a subsidiary of State Street Corp. and an affiliate of State Street Bank and Trust Company.
- The Small Cap Index and International Equity Index Funds invest all of their investable assets in corresponding portfolios of the Quantitative Master Series Trust ("Index Trust"). The Index Trust is managed by Fund Asset Management, L.P. ("FAM"), a Delaware limited partnership wholly owned by Merrill Lynch & Co., Inc.
Throughout this Prospectus, statements regarding investments by a Master-Feeder 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".
About the Funds 2 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
Ordinarily, between 50% and 70% of the Fund's total assets are invested in equity securities and between 30% and 50% of the Fund's total assets are invested in debt securities.
The Fund's equity investments may include common stocks, preferred stocks, securities convertible into common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets among four investment advisers:
AMR Investment Services, Inc.
Barrow, Hanley, Mewhinney & Strauss, Inc.
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
The Fund's equity assets are allocated, generally on an equal basis, among Barrow, Hanley, Mewhinney & Strauss, Inc., Brandywine Asset Management, LLC and Hotchkis and Wiley Capital Management, LLC. The Fund's fixed income assets are allocated, generally on an equal basis, among AMR Investment Services, Inc., Barrow, Hanley, Mewhinney & Strauss, Inc. and Brandywine Asset Management, LLC.
The Fund's investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the Fund's investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
The Fund's investments in debt securities may include: obligations of the U.S. Government, its agencies and instrumentalities; U.S. corporate debt securities, such as notes and bonds; mortgage-backed securities; asset-backed securities; master-demand notes; Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances, commercial paper and other notes; and other debt securities. The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). Obligations rated in the fourth highest rating category are limited to 25% of the Fund's total assets. The Fund, at the discretion of the applicable investment adviser, may retain a security that has been downgraded below the initial investment criteria.
In determining which debt securities to buy and sell, the investment advisers generally use a "top-down" or "bottom-up" investment strategy or a combination of both strategies.
The top-down fixed income investment strategy is implemented as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
The bottom-up fixed income investment strategy is implemented as follows:
- Search for eligible securities with a yield to maturity advantage versus a U.S. Government security with a similar maturity.
- Evaluate credit quality of the securities.
- Perform an analysis of the expected price volatility of the securities to changes in interest rates by examin-
Prospectus 3 About the Funds
AMERICAN AADVANTAGE
ing actual price volatility between U.S. Government and non-U.S. Government securities.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
MARKET RISK (STOCKS)
Since this Fund invests a substantial portion of its assets in stocks, it is
subject to stock market risk. Market risk involves the possibility that the
value of the Fund's investments in stocks will decline due to drops in the stock
market. In general, the value of the Fund will move in the same direction as the
overall stock market, which will vary from day to day in response to the
activities of individual companies and general market and economic conditions.
VALUE STOCKS RISK (STOCKS)
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
INTEREST RATE RISK (BONDS)
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK (BONDS)
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK (BONDS)
The Fund's investments in asset-backed and mortgage-backed securities are
subject to the risk that the principal amount of the underlying collateral may
be repaid prior to the bond's maturity date. If this occurs, no additional
interest will be paid on the investment and the Fund may have to invest at a
lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to three broad-based market indices and the Lipper Balanced Index, a composite of mutual funds with the same investment objective as the Fund. The AMR Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus, has been offered since July 17, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had slightly higher expenses, its performance was slightly lower than the AMR 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.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 14.46% 94.......................................................... -1.74% 95.......................................................... 29.35% 96.......................................................... 14.04% 97.......................................................... 20.23% 98.......................................................... 8.50% 99.......................................................... -3.33% 00.......................................................... 10.91% 01.......................................................... 5.88% 02.......................................................... -7.09% |
Highest Quarterly Return: 10.02% (1/1/93 through 12/31/02) (2nd Quarter 1997) Lowest Quarterly Return: -10.61% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
About the Funds 4 Prospectus
AMERICAN AADVANTAGE
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
BALANCED FUND -7.09% 2.73% 8.60%
S&P 500/Barra Value Index(1) -20.85% -0.85% 9.39%
S&P 500 Index(2) -22.10% -0.59% 9.34%
Lehman Bros. Aggregate
Index(3) 10.27% 7.54% 7.51%
Lipper Balanced Index -10.69% 2.11% 7.53%
|
(1) The S&P 500/Barra Value Index is a market-value weighted index of stocks with book-to-price ratios in the top 50% of the S&P 500 Index.
(2) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
(3) The Lehman Brothers Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Balanced Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.29%
Distribution (12b-1) Fees 0.00
Other Expenses 0.06
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.35%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Balanced Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $36 3 YEARS................................... $113 5 YEARS................................... $197 10 YEARS.................................. $443 |
Prospectus 5 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation and current income.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of large market capitalization U.S. companies. These companies generally have market capitalizations similar to the market capitalization of the companies in the Russell 1000(R) Index(1) at the time of investment. The Russell 1000 Index measures the performance of the 1,000 largest U.S. companies based on total market capitalization. The Fund's investments may include common stocks, preferred stocks, securities convertible into U.S. common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, among four investment advisers:
Barrow, Hanley, Mewhinney & Strauss, Inc.
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
Metropolitan West Capital Management, LLC
The Fund's investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the Fund's investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
VALUE STOCKS RISK
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be
(1) The Russell 1000(R) Index is a service mark of the Frank Russell Company.
About the Funds 6 Prospectus
AMERICAN AADVANTAGE
worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to two broad-based market indices and the Lipper Multi-Cap Value Index, a composite of mutual funds with the same investment objective as the Fund. The AMR Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus has been offered since July 17, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had slightly higher expenses, its performance was slightly lower than the AMR 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.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 15.74% 94.......................................................... -1.04% 95.......................................................... 34.81% 96.......................................................... 21.41% 97.......................................................... 26.78% 98.......................................................... 6.51% 99.......................................................... -4.44% 00.......................................................... 11.69% 01.......................................................... 2.41% 02.......................................................... -15.69% |
Highest Quarterly Return: 14.21% (1/1/93 through 12/31/02) (2nd Quarter 1997) Lowest Quarterly Return: -18.59% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------- -------- --------
LARGE CAP VALUE FUND -15.69% -0.37% 8.84%
S&P 500/Barra Value Index(1) -20.85% -0.85% 9.39%
S&P 500 Index(2) -22.10% -0.59% 9.34%
Lipper Multi-Cap Value Index -17.61% 0.64% 8.99%
|
(1) The S&P 500/Barra Value Index is a market-value weighted index of stocks with book-to-price ratios in the top 50% of the S&P 500 Index.
(2) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Large Cap Value Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.31%
Distribution (12b-1) Fees 0.00
Other Expenses 0.05
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.36%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Large Cap Value Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $37 3 YEARS................................... $116 5 YEARS................................... $202 10 YEARS.................................. $456 |
Prospectus 7 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of large market capitalization U.S. companies. These companies generally have market capitalizations similar to the market capitalization of the companies in the Russell 1000(R) Index(1) at the time of investment. The Russell 1000 Index measures the performance of the 1,000 largest U.S. companies based on total market capitalization. The Fund's investments may include common stocks, preferred stocks, securities convertible into U.S. common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively referred to as "stocks") that the investment advisers believe have above-average growth potential.
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Goldman Sachs Asset Management ("GSAM")
J.P. Morgan Investment Management Inc.
("J.P. Morgan")
GSAM utilizes quantitative techniques and fundamental research in seeking to maximize its portion of the Fund's expected return, while maintaining risk, style, capitalization and industry characteristics similar to the Russell 1000(R) Growth Index(1). GSAM attempts to structure a portfolio that seeks attractively-valued stocks with positive momentum.
J.P. Morgan attempts to allocate its portion of the Fund's assets across industries in weightings similar to those of the Russell 1000 Growth Index. Within each industry, J.P. Morgan modestly overweights stocks that it determines to be undervalued or fairly valued, while modestly underweighting or not holding stocks that appear overvalued.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
GROWTH COMPANIES RISK
Growth companies are expected to increase their earnings at a certain rate. When
these expectations are not met, the prices of these stocks may go down, even if
earnings showed an absolute increase. Growth company stocks also typically lack
the dividend yield that can cushion stock prices in market downturns.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
(1) Russell 1000(R) Index and Russell 1000(R) Growth Index are service marks of the Frank Russell Company.
About the Funds 8 Prospectus
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Large Cap Growth Index, a composite of mutual funds with the same investment objective as the Fund. Past performance is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... -20.89% 02.......................................................... -28.87% |
Highest Quarterly Return: 14.87% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -21.86% (1/1/01 through 12/31/02) (1st Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
LARGE CAP GROWTH FUND -28.87% -28.55%
Lipper Large Cap Growth Index -28.11% -28.30%
Russell 1000(R) Growth Index(1) -27.88% -28.42%
|
(1) The Russell 1000 Growth Index is an unmanaged index of those stocks in the Russell 1000 Index with above-average price-to-book ratios and above-average forecasted growth values.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Large Cap Growth Fund.
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.63%
Distribution (12b-1) Fees 0.00
Other Expenses 0.04
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.67%
====
|
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 ................................... $68 3 YEARS................................... $214 5 YEARS................................... $373 10 YEARS.................................. $835 |
Prospectus 9 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation and current income.
Ordinarily, at least 80% of the total assets of the Fund are invested in equity securities of U.S. companies with market capitalizations of $2 billion or less at the time of investment. The Fund's investments may include common stocks, preferred stocks, securities convertible into common stocks, and U.S. dollar-denominated American Depositary Receipts (collectively, "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Brandywine Asset Management, LLC
Hotchkis and Wiley Capital Management, LLC
The investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
Each of the investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
SMALL CAPITALIZATION COMPANIES RISK
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies, since smaller companies may have
limited operating history, product lines, and financial resources, and the
securities of these companies may lack sufficient market liquidity.
VALUE STOCKS RISK
Value stocks are subject to the risk that their intrinsic value may never be
realized by the market or that their prices may go down. While the Fund's
investments in value stocks may limit its downside risk over time, the Fund may
produce more modest gains than riskier stock funds as a trade-off for this
potentially lower risk.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
About the Funds 10 Prospectus
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Small Cap Value Index, a composite of mutual funds with the same investment objective as the Fund. The AMR Class of the Fund began offering its shares on March 1, 1999. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on January 1, 1999. In the chart and table below, performance results before March 1, 1999 are for the older class. Because the other class had lower expenses, its performance was better than the AMR 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.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
99.......................................................... -5.22% 00.......................................................... 19.63% 01.......................................................... 28.19% 02.......................................................... -6.44% |
Highest Quarterly Return: 22.35% (1/1/99 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -20.79% (1/1/99 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (12/31/98)
------- ---------------
SMALL CAP VALUE FUND -6.44% 8.13%
Russell 2000(R) Value Index(1) -11.43% 5.14%
Lipper Small Cap Value Index -11.21% 5.18%
|
(1) The Russell 2000 Value Index is an unmanaged index of those stocks in the Russell 2000 Index with below-average price-to-book ratios and below-average forecasted growth values. The Russell 2000(R) Value Index is a service mark of the Frank Russell Company.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Small Cap Value Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.53%
Distribution (12b-1) Fees 0.00
Other Expenses 0.03
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.56%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Small Cap Value Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $57 3 YEARS................................... $179 5 YEARS................................... $313 10 YEARS.................................. $701 |
Prospectus 11 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation.
The Fund seeks its investment objective by investing all of its investable assets in the International Equity Portfolio of the AMR Trust.
Ordinarily, at least 80% of the Fund's total assets are invested in common stocks and securities convertible into common stocks (collectively, "stocks") of issuers based in at least three different countries located outside the United States. The Fund will primarily invest in countries comprising the Morgan Stanley Capital International Europe Australasia Far East Index ("EAFE Index"). The EAFE Index is comprised of equity securities of companies from various industrial sectors whose primary trading markets are located outside the United States. Companies included in the EAFE Index are selected from among the larger capitalization companies in these markets.
The Manager currently allocates the Fund's assets among four investment advisers:
Causeway Capital Management LLC
Independence Investment LLC ("Independence")
Lazard Asset Management LLC
Templeton Investment Counsel, LLC
Approximately 10% of the Fund's assets are allocated to Independence, and the remainder are allocated, generally on an equal basis, among the other three investment advisers.
The investment advisers select stocks which, in their opinion, have most or all of the following characteristics:
- above-average earnings growth potential,
- below-average price to earnings ratio,
- below-average price to book value ratio, and
- above-average dividend yields.
The investment advisers may also consider potential changes in currency exchange rates when choosing stocks. Each of the investment advisers determines the earnings growth prospects of companies based upon a combination of internal and external research using fundamental analysis and considering changing economic trends. The decision to sell a stock is typically based on the belief that the company is no longer considered undervalued or shows deteriorating fundamentals, or that better investment opportunities exist in other stocks. The Manager believes that this strategy will help the Fund outperform other investment styles over the longer term while minimizing volatility and downside risk. The Fund may trade forward foreign currency contracts or currency futures to hedge currency fluctuations of underlying stock positions when it is believed that a foreign currency may suffer a decline against the U.S. dollar.
Independence utilizes an "amplified alpha" approach in determining which equity securities to buy and sell. This approach attempts to amplify the outperformance expected from the best ideas of the other investment advisers by concentrating assets in those stocks that are overweighted in the aggregate of the advisers' portfolios when compared to a relevant market index.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of that country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity
and greater volatility of foreign investments, (4) lack of uniform accounting,
auditing and financial reporting standards, (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies, (6)
increased price volatility, (7) delays in transaction settlement in some foreign
markets, and (8) adverse impact of the euro conversion on the business or
financial condition of companies in which the Fund is invested.
About the Funds 12 Prospectus
AMERICAN AADVANTAGE
DERIVATIVES RISK
The Fund may use derivatives, such as futures contracts, foreign currency
forward contracts and options on futures as a hedge against foreign currency
fluctuations. There can be no assurance that any strategy used will succeed. If
one of the investment advisers incorrectly forecasts currency exchange rates in
utilizing a derivatives strategy for the Fund, the Fund could lose money.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 42.33% 94.......................................................... 1.09% 95.......................................................... 18.01% 96.......................................................... 20.06% 97.......................................................... 9.88% 98.......................................................... 12.07% 99.......................................................... 27.21% 00.......................................................... -3.91% 01.......................................................... -15.20% 02.......................................................... -13.93% |
Highest Quarterly Return: 15.30% (1/1/93 through 12/31/02) (4th Quarter 1998) Lowest Quarterly Return: -22.36% (1/1/93 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
1 YEAR 5 YEARS 10 YEARS
------- ------- --------
INTERNATIONAL EQUITY FUND -13.93% 0.00% 8.40%
EAFE Index(1) -15.94% -2.89% 4.00%
Lipper International Index -13.84% -1.65% 5.55%
|
(1) The EAFE Index is an unmanaged index of international stock investment performance.
This table describes the fees and expenses that you may pay if you buy and hold shares of the International Equity Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.37%
Distribution (12b-1) Fees 0.00
Other Expenses 0.12
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.49%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the International Equity Portfolio of the AMR Trust.
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 ................................... $50 3 YEARS................................... $157 5 YEARS................................... $274 10 YEARS.................................. $616 |
Prospectus 13 About the Funds
AMERICAN AADVANTAGE
Long-term capital appreciation.
Ordinarily, at least 80% of the total assets of this Fund are invested in equity securities of issuers that:
- are primarily listed on the trading market of an emerging market country;
- are headquartered in an emerging market country; or
- derive 50% or more of their revenues from, or have 50% or more of their assets in, an emerging market country.
An emerging market country is one that:
- has an emerging stock market as defined by the International Finance Corporation ("IFC");
- has a low- to middle-income economy according to the World Bank;
- is included in the IFC Investable Index or the Morgan Stanley Capital International Emerging Markets "Free" Index; or
- has a per-capita gross national product of $10,000 or less.
The Fund's investments may include common stocks, preferred stocks, securities convertible into common stocks, rights, warrants, and depositary receipts (collectively referred to as "stocks").
The Manager currently allocates the Fund's assets, generally on an equal basis, between two investment advisers:
Morgan Stanley Investment Management Inc. ("MSIM Inc.")
The Boston Company Asset Management, LLC
("The Boston Company")
MSIM Inc. combines a top-down country allocation investment approach with bottom-up stock selection. MSIM Inc. first allocates its portion of the Fund's assets among emerging market countries based on relative economic, political and social fundamentals, stock valuations and investor sentiment. MSIM Inc. then selects individual securities within these countries on the basis of attractive growth characteristics, reasonable valuations and company managements with a strong shareholder value orientation. To manage risk, MSIM Inc. emphasizes thorough macroeconomic and fundamental research.
The Boston Company utilizes a bottom-up investment strategy that is value-oriented and research-driven. This style is both quantitative and fundamentally based, focusing first on stock selection then enhanced by broadly diversified country allocation.
Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term obligations. Investment grade obligations include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all nationally recognized statistical rating organizations rating that security (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
As noted above, the Fund has a policy of investing at least 80% of its assets in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of each country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity
and greater volatility of foreign investments, (4) lack of uniform accounting,
auditing and financial reporting standards, (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies, (6)
increased price volatility, (7) delays in transaction settlement in some foreign
markets, and (8) adverse impact of the euro conversion on the business or
financial condition of companies in which the Fund is invested.
About the Funds 14 Prospectus
AMERICAN AADVANTAGE
EMERGING MARKETS RISK
The risks of foreign investing mentioned above are heightened when investing in emerging markets. In addition, the economies and political environments of emerging market countries tend to be more unstable than those of developed countries, resulting in more volatile rates of return than the developed markets and substantially greater risk to investors.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Emerging Markets Index, a composite of mutual funds with the same investment objective as the Fund. Past performance is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01.......................................................... 2.87% 02.......................................................... -3.41% |
Highest Quarterly Return: 26.03% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -20.36% (1/1/01 through 12/31/02) (3rd Quarter 2001) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------ ---------------
EMERGING MARKETS FUND -3.41% -10.73%
Lipper Emerging Markets Index -4.63% -12.04%
MSCI Emerging Markets Free
Index(1) -6.17% -12.43%
|
(1) The MSCI Emerging Markets Free Index is a market capitalization-weighted index composed of companies that are representative of the market structure of developing countries in Latin America, Asia, Eastern Europe, the Middle East and Africa.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Emerging Markets Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.99%
Distribution (12b-1) Fees 0.00
Other Expenses 0.27
----
TOTAL ANNUAL FUND OPERATING EXPENSES 1.26%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Emerging Markets Portfolio of the AMR Trust through February 28, 2002.
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 ................................. $128 3 YEARS................................. $400 5 YEARS................................. $692 10 YEARS................................ $1,523 |
Prospectus 15 About the Funds
AMERICAN AADVANTAGE
To replicate as closely as possible, before expenses, the performance of the Standard & Poor's 500 Composite Stock Price Index ("S&P 500 Index" or "Index").
The Fund seeks its investment objective by investing all of its investable assets in the State Street Equity 500 Index Portfolio.
The Fund uses a passive management strategy designed to track the performance of the S&P 500 Index. The S&P Index is a well-known stock market index that includes common stocks of 500 companies from several industrial sectors representing a significant portion of the market value of all stocks publicly traded in the United States.
The Fund is not managed according to traditional methods of "active" investment management, which involve the buying and selling of securities based upon economic, financial and market analysis and investment judgement. Instead, the Fund, using a "passive" or "indexing" investment approach, attempts to replicate, before expenses, the performance of the S&P 500 Index. SSgA seeks a correlation of 0.95 or better between the Fund's performance and the performance of the Index; a figure of 1.00 would represent perfect correlation.
The Fund intends to invest in all 500 stocks comprising the Index in proportion to their weightings in the Index. However, under various circumstances, it may not be possible or practicable to purchase all 500 stocks in those weightings. In those circumstances, the Fund may purchase a sample of the stocks in the Index in proportions expected by SSgA to replicate generally the performance of the Index as a whole. In addition, from time to time stocks are added to or removed from the Index. The Fund may sell stocks that are represented in the Index, or purchase stocks that are not yet represented in the Index, in anticipation of their removal from or addition to the Index.
In addition, the Fund may at times purchase or sell futures contracts on the Index, or options on those futures, in lieu of investment directly in the stocks making up the Index. The Fund might do so, for example, in order to increase its investment exposure pending investment of cash in the stocks comprising the Index. Alternatively, the Fund might use futures or options on futures to reduce its investment exposure in situations where it intends to sell a portion of the stocks in its portfolio but the sale has not yet been completed. The Fund may also enter into other derivatives transactions, including the purchase or sale of options or enter into swap transactions, to assist in replicating the performance of the Index.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index, and incurs costs in buying and selling securities. The Fund may not
be fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the Fund to meet redemptions. The return on the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return on the Index.
DERIVATIVES RISK
The use of these instruments to pursue the S&P 500 Index returns requires
special skills, knowledge and investment techniques that differ from those
required for normal portfolio management. Gains or losses from positions in a
derivative instrument may be much greater than the derivative's original cost.
ADDITIONAL RISKS
An investment in the Fund is not a deposit with a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be
(1) S&P is a trademark of The McGraw-Hill Companies, Inc. and has been licensed
for use. "Standard and Poor's(R)," "S&P(R)," "Standard & Poor's 500," "S&P
500(R)" and "500" are all trademarks of The McGraw-Hill Companies, Inc. and
have been licensed for use by State Street Bank and Trust Company. The S&P
500 Index Fund is not sponsored, sold or promoted by Standard & Poor's, and
Standard & Poor's makes no representation regarding the advisability of
investing in this Fund.
About the Funds 16 Prospectus
AMERICAN AADVANTAGE
worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper S&P 500 Index, a composite of funds with the same investment objective as the Fund. The Fund began offering its shares on January 1, 1997. Prior to March 1, 1998, the Fund's shares were offered as AMR Class shares. On March 1, 1998, AMR Class shares of the Fund were designated Institutional Class shares. Prior to March 1, 2000, the Fund invested all of its investable assets in the BT Equity 500 Index Portfolio, a separate investment company managed by Bankers Trust Company. Past performance is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
97.......................................................... 33.09% 98.......................................................... 28.87% 99.......................................................... 20.70% 00.......................................................... -9.15% 01.......................................................... -12.12% 02.......................................................... -22.27% |
Highest Quarterly Return: 21.32% (1/1/97 through 12/31/02) (4th Quarter 1998) Lowest Quarterly Return: -17.43% (1/1/97 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------------
AS OF 12/31/02
-----------------------------------
SINCE INCEPTION
1 YEAR 5 YEARS (12/31/96)
------- ------- ---------------
S&P 500 INDEX FUND -22.27% -0.70% 4.26%
S&P 500 Index(1) -22.10% -0.59% 4.40%
Lipper S&P 500 Index -22.30% -0.86% 4.13%
|
(1) The S&P 500 Index is an unmanaged index of common stocks publicly traded in the United States.
This table describes the fees and expenses that you may pay if you buy and hold shares of the S&P 500 Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees(2) 0.045%
Distribution (12b-1) Fees 0.000
Other Expenses 0.095
-----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.140%
=====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the State Street Equity 500 Index Portfolio.
(2) This fee represents the total fees paid by the State Street Equity 500 Index Portfolio to State Street Bank and Trust Company for its service as administrator, custodian and transfer agent and SSgA's service as investment adviser.
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 ................................... $14 3 YEARS................................... $45 5 YEARS................................... $79 10 YEARS.................................. $179 |
Prospectus 17 About the Funds
AMERICAN AADVANTAGE
To match the performance of the Russell 2000(R) Index(1) (the "Russell 2000" or "Index") as closely as possible before the deduction of Fund expenses.
The Fund seeks its investment objective by investing all of its investable assets in the Master Small Cap Index Series of the Index Trust. The investment objective of the Master Small Cap Index Series may be changed without shareholder approval.
The Fund employs a "passive" management approach, attempting to invest in a portfolio of assets whose performance is expected to match approximately the performance of the Russell 2000. The Russell 2000 is composed of the common stocks of the 1,001st through the 3,000th largest U.S. companies weighted by market capitalization, as determined by the Frank Russell Company. As of June 30, 2002, the median market capitalization of the Russell 2000 was approximately $490 million. The Fund will be substantially invested in securities in the Russell 2000, and will invest at least 80% of its assets in securities or other financial instruments, which are components of or correlated with, the Russell 2000. The Fund is also a non-diversified fund.
The Fund invests in a statistically selected sample of stocks included in the Russell 2000 and in derivative instruments linked to the Russell 2000. The Fund may not invest in all of the common stocks in the Russell 2000, or in the same weightings as in the Russell 2000. The Fund chooses investments so that the market capitalizations, industry weightings and other fundamental characteristics of the stocks and derivative instruments chosen are similar to the Russell 2000 as a whole.
The Fund may invest in derivative instruments, and may invest a substantial portion of its assets in options and futures contracts linked to the performance of the Russell 2000. Derivatives allow the Fund to increase or decrease its exposure to the Russell 2000 quickly and at less cost than buying or selling stocks. The Fund will invest in options and futures and other derivative instruments in order to gain market exposure quickly in the event of subscriptions, to maintain liquidity in the event of redemptions and to keep trading costs low. In connection with the use of derivative instruments, the Fund may enter into short sales in order to adjust the weightings of particular securities represented in a derivative to more accurately reflect the securities' weightings in the Index. The Fund may engage in securities lending, which involves the risk that the borrower may fail to return the Fund's securities in a timely manner or at all.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks will decline due to drops in the stock market. In general,
the value of the Fund will move in the same direction as the overall stock
market, which will vary from day to day in response to the activities of
individual companies and general market and economic conditions.
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index, and incurs costs in buying and selling securities. The Fund may not
be fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the Fund to meet redemptions. The return on the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return on the Index.
NON-DIVERSIFICATION RISK
The Fund is non-diversified, which means that it may invest a high percentage of
its assets in a limited number of securities. Since the Fund is non-diversified,
its net asset value and total return may fluctuate more or fall greater in times
of weaker markets than a diversified mutual fund.
SMALL CAPITALIZATION COMPANIES RISK
Investing in the securities of small capitalization companies involves greater
risk and the possibility of greater price volatility than investing in larger
capitalization and more established companies, since smaller companies may have
limited operating history, product lines, and financial resources, and the
securities of these companies may lack sufficient market liquidity.
DERIVATIVES RISK
Gains or losses from positions in a derivative instrument may be much greater
than the derivative's original cost. The counterparty to the transaction may be
unable to honor its financial obligation to the Fund. In addition, a derivative
may be difficult or impossible to sell at the time the investment adviser would
like or at the price
(1) The Russell 2000 (R) Index is a service mark of the Frank Russell Company.
About the Funds 18 Prospectus
AMERICAN AADVANTAGE
the investment adviser believes the security is currently worth.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Small Cap Core Index, a composite of mutual funds with the same investment objective as the Fund. Past performance is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01............................. 2.07% 02............................. -20.37% |
Highest Quarterly Return: 21.11% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -21.33% (1/1/01 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
SMALL CAP INDEX FUND -20.37% -9.21%
Lipper Small Cap Core Index -19.24% -5.17%
Russell 2000 Index(1) -20.48% -9.17%
|
(1) The Russell 2000 Index is an unmanaged index comprised of approximately 2,000 smaller-capitalization stocks from various industrial sectors.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Small Cap Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.08%(2)
Distribution (12b-1) Fees 0.00
Other Expenses 0.19
----
Total Annual Fund Operating Expenses 0.27%
====
Fee Waiver 0.07%(2)
NET EXPENSES 0.20%
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Master Small Cap Index Series.
(2) FAM has contractually agreed to waive a portion of its investment advisory fee through December 31, 2003. After such waiver, the Management Fee is 0.01%.
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. Because FAM has contractually agreed to waive fees through December 31, 2003, Net Expenses were used to calculate the cost in year one, and Total Annual Fund Operating Expenses were used to calculate costs for years two through ten. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR.................................... $20 3 YEARS................................... $80 5 YEARS................................... $145 10 YEARS.................................. $336 |
Prospectus 19 About the Funds
AMERICAN AADVANTAGE
To match the performance of the Morgan Stanley Capital International EAFE Index (the "EAFE Index" or "Index") as closely as possible before the deduction of Fund expenses.
The Fund seeks its investment objective by investing all of its investable assets in the Master International Index Series of the Index Trust. The investment objective of the Master International Index Series may be changed without shareholder approval.
The Fund employs a "passive" management approach, attempting to invest in a portfolio of assets whose performance is expected to match approximately the performance of the EAFE Index(1). The EAFE Index is composed of equity securities of companies from various industrial sectors whose primary trading markets are located outside the United States. Companies included in the EAFE Index are selected from among the larger capitalization companies in these markets. The weighting of the countries in the Index is based upon each country's relative market capitalization, and not its gross domestic product. This means that the Index contains more companies from countries with the largest capital markets (like Japan and the United Kingdom), which in turn, will have the most effect on the Index's performance.
The Fund will be substantially invested in securities in the Index, and will invest at least 80% of its assets in securities or other financial instruments, which are components of or correlated with, the Index. The Fund is also a non-diversified fund.
The Fund invests in a statistically selected sample of equity securities included in the EAFE Index and in derivative instruments linked to the EAFE Index. The Fund will, under normal circumstances, invest in all of the countries represented in the EAFE Index. The Fund may not, however, invest in all of the companies within a country, represented in the EAFE Index, or in the same weightings as in the EAFE Index. The Fund will choose investments so that the market capitalizations, industry weightings and other fundamental characteristics of the stocks and derivative instruments chosen are similar to the EAFE Index as a whole.
The Fund may invest in derivative instruments, and will normally invest a substantial portion of its assets in options and futures contracts correlated with market indices or countries included within the EAFE Index. Derivatives allow the Fund to increase or decrease its exposure to the EAFE Index quickly and at less cost than buying or selling stocks. The Fund will invest in options and futures and other derivative instruments in order to gain market exposure quickly in the event of subscriptions, to maintain liquidity in the event of redemptions and to keep trading costs low. In connection with the use of derivative instruments, the Fund may enter into short sales in order to adjust the weightings of particular securities represented in a derivative to more accurately reflect the securities' weightings in the Index. The Fund may engage in securities lending, which involves the risk that the borrower may fail to return the Fund's securities in a timely manner or at all.
MARKET RISK
Since this Fund invests most of its assets in stocks, it is subject to stock
market risk. Market risk involves the possibility that the value of the Fund's
investments in stocks of a particular country will decline due to drops in that
country's stock market. In general, the value of the Fund will move in the same
direction as the international stock markets in which it invests, which will
vary from day to day in response to the activities of individual companies and
general market, economic and political conditions of each country.
FOREIGN INVESTING RISK
Overseas investing carries potential risks not associated with domestic
investments. Such risks include, but are not limited to: (1) currency exchange
rate fluctuations, (2) political and financial instability, (3) less liquidity
and greater volatility of foreign investments, (4) lack of uniform accounting,
auditing and financial reporting standards, (5) less government regulation and
supervision of foreign stock exchanges, brokers and listed companies, (6)
increased price volatility, (7) delays in transaction settlement in some foreign
markets, and (8) adverse impact of the euro conversion on the busi-
(1) Effective June 1, 2002, Morgan Stanley Capital International ("MSCI") made significant changes to the way it calculated the EAFE Index. As part of the implementation of these changes, MSCI introduced the MSCI Provisional EAFE Index. As of October 1, 2001, the Fund began to track the MSCI Provisional EAFE Index. As of June 1, 2002, all changes had been implemented, and accordingly, the EAFE Index returned as the Fund's benchmark.
About the Funds 20 Prospectus
ness or financial condition of companies in which the Fund is invested.
TRACKING ERROR RISK
The Fund's return may not match the return of the Index for a number of reasons.
For example, the Fund incurs a number of operating expenses not applicable to
the Index and incurs costs in buying and selling securities. The Fund may not be
fully invested at times, either as a result of cash flows into the Fund or
reserves of cash held by the Fund to meet redemptions. The return of the sample
of stocks purchased by the Fund, or futures or other derivative positions taken
by the Fund, to replicate the performance of the Index may not correlate
precisely with the return of the Index.
NON-DIVERSIFICATION RISK
The Fund is non-diversified, which means that it may invest a high percentage of
its assets in a limited number of securities. Since the Fund is non-diversified,
its net asset value and total return may fluctuate more or fall greater in times
of weaker markets than a diversified mutual fund.
DERIVATIVES RISK
Gains or losses from positions in a derivative instrument may be much greater
than the derivative's original cost. The counterparty to the transaction may be
unable to honor its financial obligation to the Fund. In addition, a derivative
may be difficult or impossible to sell at the time the investment adviser would
like or at the price the investment adviser believes the security is currently
worth.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper International Index, a composite of mutual funds with the same investment objective as the Fund. Past performance is not necessarily indicative of how the Fund will perform in the future.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
01............................. -22.14% 02............................. -15.65% |
Highest Quarterly Return: 6.53% (1/1/01 through 12/31/02) (4th Quarter 2001) Lowest Quarterly Return: -19.77% (1/1/01 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
---------------------------
AS OF 12/31/02
---------------------------
SINCE INCEPTION
1 YEAR (7/31/00)
------- ---------------
INTERNATIONAL EQUITY INDEX FUND -15.65% -18.46%
EAFE Index(1) -15.63% -18.05%
Lipper International Index -13.84% -16.93%
|
(1) Performance is that of the EAFE Index from inception through September 30, 2001 and from June 1, 2002 through December 31, 2002. Performance from October 1, 2001 through May 31, 2002 is that of the Provisional EAFE Index.
Prospectus 21 About the Funds
This table describes the fees and expenses that you may pay if you buy and hold shares of the International Equity Index Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.01%
Distribution (12b-1) Fees 0.00
Other Expenses 0.24
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.25%
====
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Master International Index Series.
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.................................... $26 3 YEARS................................... $80 5 YEARS................................... $141 10 YEARS.................................. $318 |
About the Funds 22 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
The Fund invests in 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; mortgage-backed securities; asset-backed securities; and Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances and other notes. The Fund seeks capital appreciation by investing in corporate issues whose relative value is expected to increase over time.
The Manager currently allocates the Fund's assets, generally on an equal basis, between itself and Barrow, Hanley, Mewhinney & Strauss, Inc. ("Barrow").
The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating the securities (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). No more than 25% of total assets may be invested in securities rated in the fourth highest rating category. The Fund, at the discretion of the applicable investment adviser, may retain a security that has been downgraded below the initial investment criteria.
In determining which securities to buy and sell, the Manager employs a top-down fixed income investment strategy, as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
Barrow uses a bottom-up fixed income investment strategy in determining which securities to buy and sell, as follows:
- Search for eligible securities with a yield to maturity advantage versus a U.S. Government security with a similar maturity.
- Evaluate credit quality of the securities.
- Perform an analysis of the expected price volatility of the securities to changes in interest rates by examining actual price volatility between U.S. Government and non-U.S. Government securities.
Under normal circumstances, the Fund seeks to maintain a duration of three to seven years. Duration is a measure of price sensitivity relative to changes in interest rates. Portfolios with longer durations are typically more sensitive to changes in interest rates. Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK
The Fund's investments in asset-backed and mortgage-backed securities are
subject to the risk that the principal amount of the underlying collateral may
be repaid prior to the bond's maturity date. If this occurs, no additional
interest will be paid on the investment and the Fund may have to invest at a
lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
Prospectus 23 About the Funds
AMERICAN AADVANTAGE
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Lipper Intermediate Investment Grade Debt Index, a composite of mutual funds with the same investment objective as the Fund. The AMR Class of the Fund began offering its shares on March 1, 1999. However, another class of shares of the Fund not offered in this Prospectus has been offered since September 15, 1997. In the chart and table below, performance results before March 1, 1999 are for the other class. Because the other class had slightly higher expenses, its performance was slightly lower 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.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
98.......................................................... 8.57% 99.......................................................... -2.34% 00.......................................................... 10.74% 01.......................................................... 8.45% 02.......................................................... 8.59% |
Highest Quarterly Return: 4.72% (1/1/98 through 12/31/02) (3rd Quarter 2001) Lowest Quarterly Return: -1.64% (1/1/98 through 12/31/02) (1st Quarter 1999) |
AVERAGE ANNUAL TOTAL RETURN
----------------------------
AS OF 12/31/02
----------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (9/15/97)
------ ------- ---------
INTERMEDIATE BOND FUND 8.59% 6.70% 7.16%
Lehman Bros. Aggregate
Index(2) 10.27% 7.54% 7.93%(1)
Lipper Intermediate Investment
Grade Debt Index 8.31% 6.72% 7.00%
|
(1) The Since Inception return is shown from 8/31/97.
(2) The Lehman Brothers Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Intermediate Bond Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees 0.00
Other Expenses 0.05
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.30%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Intermediate Bond Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $31 3 YEARS................................... $97 5 YEARS................................... $169 10 YEARS.................................. $381 |
About the Funds 24 Prospectus
AMERICAN AADVANTAGE
Income and capital appreciation.
The Fund invests in 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; mortgage-backed securities; asset-backed securities; and Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances and other notes. The Fund seeks capital appreciation by investing in corporate issues whose relative value is expected to increase over time.
Currently, the Manager is the sole investment adviser to the Fund.
The Fund will only buy debt securities that are investment grade at the time of purchase. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating the securities (such as Standard & Poor's Ratings Services or Moody's Investors Service, Inc.). No more than 25% of total assets may be invested in securities rated in the fourth highest rating category. The Fund, at the discretion of the Manager, may retain a security that has been downgraded below the initial investment criteria.
In determining which securities to buy and sell, the Manager employs a top-down fixed income investment strategy, as follows:
- Develop an overall investment strategy, including a portfolio duration target, by examining the current trend in the U.S. economy.
- Set desired portfolio maturity structure by comparing the differences between corporate and U.S. Government securities of similar duration to judge their potential for optimal return in accordance with the target duration benchmark.
- Determine the weightings of each security type by analyzing the difference in yield spreads between corporate and U.S. Government securities.
- Select specific debt securities within each security type.
- Review and monitor portfolio composition for changes in credit, risk-return profile and comparisons with benchmarks.
Under normal circumstances, the Fund seeks to maintain a duration of one to three years. Duration is a measure of price sensitivity relative to changes in interest rates. Portfolios with longer durations are typically more sensitive to changes in interest rates. Under adverse market conditions, the Fund may, for temporary defensive purposes, invest up to 100% of its assets in cash or cash equivalents, including investment grade short-term debt obligations. To the extent that the Fund invokes this strategy, its ability to achieve its investment objective may be affected adversely.
INTEREST RATE RISK
The Fund is subject to the risk that the market value of the bonds it holds will
decline due to rising interest rates. When interest rates rise, the prices of
most bonds go down. The price of a bond is also affected by its maturity. Bonds
with longer maturities generally have greater sensitivity to changes in interest
rates.
CREDIT RISK
The Fund is subject to the risk that the issuer of a bond will fail to make
timely payment of interest or principal. A decline in an issuer's credit rating
can cause its price to go down. This risk is somewhat minimized by the Fund's
policy of only investing in bonds that are considered investment grade at the
time of purchase.
PREPAYMENT RISK
The Fund's investments in mortgage-backed securities are subject to the risk
that the principal amount of the underlying mortgage may be repaid prior to the
bond's maturity date. If this occurs, no additional interest will be paid on the
investment and the Fund may have to invest at a lower rate.
SECURITIES SELECTION RISK
Securities selected by an investment adviser for the Fund may not perform to expectations. This could result in the Fund's underperformance compared to other funds with similar investment objectives.
ADDITIONAL RISKS
An investment in the Fund is not a deposit of a bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. When you sell your shares of the Fund, they could be worth less than
what you paid for them. Therefore, you may lose money by investing in the Fund.
Prospectus 25 About the Funds
AMERICAN AADVANTAGE
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. The table shows how the Fund's performance compares to a broad-based market index and the Linked Lipper Investment Grade Debt Averages, a composite of mutual funds with the same investment objective as the Fund. The AMR Class of the Fund began offering its shares on August 1, 1994. However, another class of shares of the Fund not offered in this Prospectus has been offered since December 3, 1987. In the chart and table below, performance results before August 1, 1994 are for the older class. Because the other class had slightly higher expenses, its performance was slightly lower than the AMR 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.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 6.50% 94.......................................................... 1.15% 95.......................................................... 10.18% 96.......................................................... 4.04% 97.......................................................... 7.00% 98.......................................................... 5.63% 99.......................................................... 3.07% 00.......................................................... 7.97% 01.......................................................... 8.49% 02.......................................................... 5.06% |
Highest Quarterly Return: 4.66% (1/1/93 through 12/31/02) (4th Quarter 1991) Lowest Quarterly Return: -0.53% (1/1/93 through 12/31/02) (1st Quarter 1992) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
SHORT-TERM BOND FUND 5.06% 6.02% 5.88%
Merrill Lynch 1-3 Yr Gov./
Corp. Index(1) 6.09% 6.61% 6.18%
Linked Lipper Investment
Grade Debt Averages(2) 4.36% 5.45% 5.30%
|
(1) The Merrill Lynch 1-3 Yr. Gov./Corp. Index is a market value weighted performance benchmark for government and corporate fixed-rate debt securities with maturities between one and three years.
(2) The Linked Lipper Investment Grade Debt Averages includes the Lipper Short-Term Investment Grade Debt Average prior to 1/1/96, the Lipper Short-Intermediate Investment Grade Debt Average from 1/1/96 through 7/31/96 and the Lipper Short-Term Investment Grade Debt Average since 8/1/96.
This table describes the fees and expenses that you may pay if you buy and hold shares of the Short-Term Bond Fund.(1)
Annual Fund Operating Expenses
(expenses that are deducted from Fund assets)
Management Fees 0.25%
Distribution (12b-1) Fees 0.00
Other Expenses 0.05
----
TOTAL ANNUAL FUND OPERATING EXPENSES 0.30%
====
|
(1) Prior to March 1, 2002, the Fund invested all of its investable assets in a corresponding portfolio of the AMR Trust. Accordingly, the expense table and the Example below reflect the expenses of both the Fund and the Short-Term Bond Portfolio of the AMR Trust through February 28, 2002.
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 ................................... $31 3 YEARS................................... $97 5 YEARS................................... $169 10 YEARS.................................. $381 |
About the Funds 26 Prospectus
The Funds have retained AMR Investment Services, Inc. to serve as their Manager. The Manager, located at 4151 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, 2002, the Manager had approximately $29.6 billion of assets under management, including approximately $16.8 billion under active management and $12.8 billion as named fiduciary or financial adviser. Approximately $14.2 billion of the Manager's total assets under management were 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,
- selects and changes investment advisers (subject to requisite approvals),
- allocates assets among investment advisers,
- monitors the investment advisers' investment programs and results,
- coordinates the investment activities of the investment advisers to ensure compliance with regulatory restrictions,
- oversees each Fund's securities lending activities and actions taken by the securities lending agent, and
- with the exception of the Emerging Markets, International Equity, S&P 500 Index, Small Cap Index, and International Equity Index Funds, invests the portion of Fund assets that the investment advisers determine should be allocated to high quality short-term debt obligations.
As compensation for providing management services, the Manager receives an annualized advisory fee that is calculated and accrued daily, equal to the sum of:
- 0.25% of the net assets of the Manager's portion of the Intermediate Bond Fund,
- 0.25% of the net assets of the Short-Term Bond Fund, plus
- 0.10% of the net assets of all other Funds, except the Index Funds.
The Manager receives a fee of 0.10% of the net assets of the Balanced Fund (as noted above) plus a fee of 0.15% of the Fund's net fixed income assets under its management. In addition, the Balanced, Large Cap Value, Large Cap Growth, Small Cap Value, International Equity, Emerging Markets, and Intermediate Bond Funds pay the Manager the amounts due to their respective investment advisers. The Manager then remits these amounts to the investment advisers.
The Manager also may receive up to 25% of the net annual interest income or up to 25% of loan fees in regards to securities lending activities. Currently, the Manager receives 10% of the net annual interest income from the investment of cash collateral or 10% of the loan fees posted by borrowers. The Securities and Exchange Commission ("SEC") has granted exemptive relief that permits the Funds to invest cash collateral received from securities lending transactions in shares of one or more private or registered investment companies managed by the Manager.
The management fees paid for the Funds for the fiscal year ended October 31, 2002, net of reimbursements and shown as a percentage of average net assets, were as follows:
MANAGEMENT
FUND FEES
---- ----------
Balanced................................ 0.29%
Large Cap Value......................... 0.31%
Large Cap Growth........................ 0.63%
Small Cap Value......................... 0.53%
Intermediate Bond....................... 0.25%
International Equity.................... 0.37%
Emerging Markets........................ 0.99%
Short-Term Bond......................... 0.25%
|
William F. Quinn and Nancy A. Eckl have primary responsibility for the day-to-day operations of the Balanced, Large Cap Value, Large Cap Growth, Small Cap Value, International Equity, Emerging Markets, and Intermediate Bond Funds, except as indicated otherwise below. These responsibilities include oversight of the investment advisers, regular review of each investment adviser's performance and asset allocations among multiple investment advisers. Mr. Quinn has served as President of the Manager since its inception in 1986. Ms. Eckl has served as Vice President-Trust Investments of the Manager since May 1995.
Michael W. Fields oversees the team responsible for the portfolio management of the Short-Term Bond Fund and a portion of the fixed income assets of the Balanced Fund. Mr. Fields has been with the Manager since it was founded in 1986 and serves as Vice President-Fixed Income Investments.
The S&P 500 Index Fund invests all of its investable assets in the State Street Equity 500 Index Portfolio, which is managed by SSgA. SSgA is located at Two International Place, Boston, Massachusetts 02110. As of December 31, 2002, SSgA managed approximately $60 billion in assets and, together with its affiliates, which comprise State Street Global Advisors, the investment management business of State Street Corporation, managed approximately $762 billion in assets. SSgA serves as investment adviser, and State Street Bank and Trust Company ("State Street") serves as administrator, custodian and transfer agent to the State Street Equity 500 Index Portfolio. As compensation for SSgA's services as investment adviser and State Street's services as administrator, custodian and transfer agent (and for assuming ordinary operating expenses of the Portfolio, including ordinary audit and legal expenses), State Street receives an advisory fee at an annual rate of 0.045% of the average daily net assets of the Portfolio.
Prospectus 27 About the Funds
The Small Cap Index and International Equity Index Funds invest all of their investable assets in corresponding portfolios of the Quantitative Master Series Trust ("Index Trust") with similar names and identical investment objectives. The Index Trust is managed by Fund Asset Management, L.P. ("FAM"), a Delaware limited partnership, the partners of which are Merrill Lynch & Co., a financial services holding company and the parent of Merrill Lynch, and Princeton Services. FAM is located at 800 Scudders Mill Road, Plainsboro, New Jersey 08536. Assets under management as of January 31, 2003 were approximately $450 billion. FAM serves as investment adviser and administrator to the Index Trust. As compensation for providing investment advisory services (and for assuming ordinary operating expenses), FAM receives an annualized fee of 0.08% of the average daily net assets of the Master Small Cap Index Series and 0.01% of the average daily net assets of the Master International Index Series. However, FAM has contractually agreed to waive the fee for the Master Small Cap Index Series down to 0.01%, as long as the administrative fee of the Merrill Lynch Fund, which also invests in the Master Small Cap Index Series, is maintained at 0.29%. The Master Small Cap Index Series and the Master International Index Series are managed by the Merrill Lynch Investment Managers Index Management Team.
Set forth below is a brief description of the investment advisers for the Funds. The Manager is the sole investment adviser to the Short-Term Bond Fund. Except for this Fund, each Fund's assets are allocated among one or more investment advisers by the Manager. The assets of the Intermediate Bond Fund are allocated by the Manager between the Manager and another investment adviser. The assets of the Balanced Fund are allocated by the Manager among the Manager and three other investment advisers. Each investment adviser has discretion to purchase and sell securities for its segment of a Fund's assets in accordance with the Fund's objectives, policies, restrictions and more specific strategies provided by the Manager. Pursuant to an exemptive order issued by the SEC, the Manager is permitted to enter into new or modified investment advisory agreements with existing or new investment advisers without approval of a Fund's shareholders, but subject to approval of the Funds' Board of Trustees ("Board") and for those Funds that invest their assets in the AMR Trust, approval of the AMR Trust Board. The Prospectus will be supplemented if additional investment advisers are retained or the contract with any existing investment adviser is terminated.
BARROW, HANLEY, MEWHINNEY & STRAUSS, INC. ("BARROW"), 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204, is a professional investment counseling firm which has been providing investment advisory services since 1979. The firm is a subsidiary of Old Mutual Asset Managers (US) LLC, which is a subsidiary of Old Mutual plc, an international financial services group. As of December 31, 2002, Barrow had discretionary investment management authority with respect to approximately $24.5 billion of assets, including approximately $1.3 billion of assets of AMR Corporation and its subsidiaries and affiliated entities. Barrow serves as an investment adviser to the Balanced, Large Cap Value, Intermediate Bond and Short-Term Bond Funds, although the Manager does not presently intend to allocate any of the assets in the Short-Term Bond Fund to Barrow.
BRANDYWINE ASSET MANAGEMENT, LLC ("BRANDYWINE"), 201 North Walnut Street, Wilmington, Delaware 19801, is a professional investment counseling firm founded in 1986. Brandywine is a wholly owned subsidiary of Legg Mason, Inc. As of December 31, 2002, Brandywine had assets under management totaling approximately $8.0 billion, including approximately $1.0 billion of assets of AMR Corporation and its subsidiaries and affiliated entities. Brandywine serves as an investment adviser to the Balanced, Large Cap Value and Small Cap Value Funds.
CAUSEWAY CAPITAL MANAGEMENT LLC ("CAUSEWAY"), 11111 Santa Monica Blvd., Suite 1550, Los Angeles, California 90025, is a professional international and global equity asset management firm. Causeway began operations in June 2001 and was founded by the key international value equity management personnel at the Hotchkis and Wiley division of Merrill Lynch Investment Managers, L.P., the previous investment adviser to the International Equity Fund. As of December 31, 2002, Causeway had approximately $2.3 billion in assets under management, including approximately $763 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Causeway serves as an investment adviser to the International Equity Fund.
GOLDMAN SACHS ASSET MANAGEMENT ("GSAM"), 32 Old Slip, New York, New York 10005, is a business unit of the Investment Management Division ("IMD") of Goldman, Sachs & Co. As of December 31, 2002, GSAM, along with other units of IMD, managed over $329.6 billion in assets, including approximately $16.5 million of assets of AMR Corporation and its subsidiaries and affiliated entities. GSAM serves as an investment adviser to the Large Cap Growth Fund.
HOTCHKIS AND WILEY CAPITAL MANAGEMENT, LLC ("HOTCHKIS"), 725 South Figueroa Street, 39th Floor, Los Angeles, California 90017, is a professional domestic equity management firm. Hotchkis was formed in October 2001 from the key domestic equity management personnel at Merrill Lynch Investment Managers, L.P., previously an investment adviser to the Funds. As of December 31, 2002, Hotchkis had approximately $4.9 billion in assets under management, including approximately $638 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Hotchkis serves as an investment adviser to the Balanced, Large Cap Value and Small Cap Value Funds.
INDEPENDENCE INVESTMENT LLC ("INDEPENDENCE"), 53 State Street, Boston, Massachusetts 02109, is a professional investment counseling firm which was founded in 1982. The firm is a wholly owned subsidiary of John Hancock Financial Services. Assets under management as of December 31, 2002, including funds man-
About the Funds 28 Prospectus
aged for its parent company and its affiliate Independence Fixed Income LLC, were approximately $18.9 billion, which included approximately $306 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Independence serves as an investment adviser to the International Equity Fund.
J.P. MORGAN INVESTMENT MANAGEMENT INC. ("J.P. MORGAN"), 522 Fifth Avenue, New York, New York 10036, is a direct subsidiary of J.P. Morgan Chase & Co. As of December 31, 2002, J.P. Morgan and its affiliates had approximately $515 billion in assets under management, including approximately $985 million of assets of AMR Corporation and its subsidiaries and affiliated entities. J.P. Morgan serves as an investment adviser to the Large Cap Growth Fund.
LAZARD ASSET MANAGEMENT LLC ("LAZARD"), 30 Rockefeller Plaza, New York, New York 10112, is a subsidiary of Lazard Freres & Co. LLC, a registered investment adviser and member of the New York, American and Chicago Stock Exchanges, providing its clients with a wide variety of investment banking, brokerage and related services. Lazard and its affiliates provide investment management services to client discretionary accounts with assets totaling approximately $55.9 billion as of December 31, 2002, including approximately $571 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Lazard serves as an investment adviser to the International Equity Fund.
METROPOLITAN WEST CAPITAL MANAGEMENT, LLC ("METWEST CAPITAL"), 610 Newport Center Drive, Suite 1000, Newport Beach, California 92660, is a professional investment management firm founded in 1997. The firm is minority owned by Metropolitan West Financial, LLC. It is also an affiliate of Metropolitan West Securities, LLC and MW Post Advisory Group, LLC. As of December 31, 2002, MetWest Capital had approximately $1.7 billion of assets under management, which included approximately $159 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MetWest Capital serves as an investment adviser to the Large Cap Value Fund.
MORGAN STANLEY INVESTMENT MANAGEMENT INC. ("MSIM INC."), 1221 Avenue of the Americas, New York, New York 10020, is a direct subsidiary of Morgan Stanley. As of December 31, 2002, MSIM Inc., together with its affiliated institutional asset management companies, managed assets of approximately $376.2 billion, including approximately $137 million of assets of AMR Corporation and its subsidiaries and affiliated entities. MSIM Inc. serves as an investment adviser to the Emerging Markets Fund.
TEMPLETON INVESTMENT COUNSEL, LLC ("TEMPLETON"), 500 East Broward Blvd., Suite 2100, Fort Lauderdale, Florida 33394, is an indirect wholly owned subsidiary of Franklin Resources, Inc., a global investment organization operating as Franklin Templeton Investments. Franklin Templeton Investments provides global and domestic investment management services, through its Franklin, Templeton, Mutual Series and Fiduciary Trust subsidiaries. The San Mateo, CA-based company has over 50 years of investment experience and more than $252 billion in assets under management as of December 31, 2002. Of this amount, approximately $560 million are assets of AMR Corporation and its subsidiaries and affiliated entities. Templeton serves as an investment adviser to the International Equity Fund.
THE BOSTON COMPANY ASSET MANAGEMENT, LLC ("THE BOSTON COMPANY"), One Boston Place, Boston, Massachusetts 02108, is a subsidiary of Mellon Financial Corporation. Assets under management as of December 31, 2002 were $21.1 billion, including approximately $142 million of assets of AMR Corporation and its subsidiaries and affiliated entities. Certain of the assets managed by The Boston Company are managed as dual officers of affiliated entities. The Boston Company serves as an investment adviser to the Emerging Markets Fund.
All other assets of American Airlines, Inc. and its affiliates under management by each respective investment adviser (except assets managed by Barrow under the HALO Bond Program) are considered when calculating the fees for each investment adviser other than State Street. Including these assets lowers the investment advisory fees for each applicable Fund.
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. Equity securities are valued based on market value. 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. Securities are valued at fair value, as determined in good faith and pursuant to procedures approved by a Fund's or Portfolio's applicable Board of Trustees, under certain limited circumstances. For example, fair valuation would be used if market quotations are not readily available or a material event occurs after the close of the Exchange which may affect the security's value. The price of a security determined through fair valuation may differ from the price quoted or published by other sources.
The NAV of AMR and Institutional Class shares will be determined based on a pro rata allocation of the Fund's or Portfolio's (as applicable) 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 it is open for business. Because the International Equity, Emerging Markets, and International Equity Index Funds (the "International Funds") invest in securities primarily listed on foreign exchanges that trade on days when the Funds do not price their shares, the NAV per share of these Funds may change on days when shareholders will not be able to purchase or redeem the Fund's shares.
Prospectus 29 About the Funds
AMR Class shares are offered only to investors in the tax-exempt retirement and benefit plans of AMR Corporation and its affiliates.
No sales charges are assessed on the purchase or sale of Fund shares. Shares of the Funds are offered and purchase orders are typically accepted until 4:00 p.m. Eastern Time or the close of the Exchange (whichever comes first) on each day on which the Exchange is open for trading. If a purchase order is received in good order prior to the deadline, the purchase price will be the NAV per share next determined on that day. If a purchase order is received in good order after the deadline, the purchase price will be the NAV of the following day that the Fund is open for business.
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. For assistance with completing a
redemption request, please call (800) 492-9063 (for the Index Funds, please call
(800) 658-5811). Proceeds from redemption orders received by 4:00 p.m. Eastern
Time or the close of the Exchange (whichever comes first) generally are
transmitted to shareholders on the next day that the Funds are open for
business.
In any event, proceeds from a redemption order for any Fund will typically be transmitted to a shareholder by no later than seven days after the receipt of a redemption request in good order.
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 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 or its corresponding portfolio.
HOW TO PURCHASE SHARES To Make an Initial Purchase To Add to an Existing Account By Wire Call (800) 492-9063 to purchase shares by wire. Send a bank Call (800) 492-9063 to purchase shares by wire. Send a bank wire to State Street Bank and Trust Co. with these wire to State Street Bank and Trust Co. with these instructions: instructions: - ABA# 0110-0002-8; AC-0002-888-6, - ABA# 0110-0002-8; AC-0002-888-6, - Attn: American AAdvantage Funds-AMR Class, - Attn: American AAdvantage Funds-AMR Class, - the Fund name and number, and - the Fund name and Fund number, and - shareholder's account number and registration. - shareholder's account number and registration. By Exchange Shares of a Fund may be purchased by exchange from another American AAdvantage Fund if the shareholder has owned AMR Class shares of the other American AAdvantage Fund for at least 15 days. Send a written request to the address above or call (800) 492-9063 to exchange shares. |
About Your Investment 30 Prospectus
HOW TO REDEEM SHARES
Method Additional Information
By Mail
Write a letter of instruction including Proceeds will only be mailed to the account address of
- the Fund name and number, record or transmitted by wire to a commercial bank account
- shareholder account number, designated on the account application form.
- shares or dollar amount to be redeemed, and
- authorized signature.
Mail to:
State Street Bank and Trust Co.
P.O. Box 1978
Boston, MA 02105-1978
Attn: American AAdvantage Funds
By Telephone
Call (800) 492-9063 to request a redemption. Proceeds from redemptions placed by telephone will
generally be transmitted by wire only, as instructed on the
application form.
By Exchange
Shares of a Fund may be redeemed in exchange for another American AAdvantage Fund if the shareholder has owned AMR Class
shares of the Fund for at least 15 days. Send a written request to the address above or call (800) 492-9063 to exchange
shares.
|
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 the shareholder for any related loss incurred if payment for the purchase of Fund shares by check does not clear the shareholder's bank.
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 and gains from foreign currency transactions. Unless the account application instructs otherwise, distributions will be reinvested in additional Fund shares. Monthly distributions are paid to shareholders on the first business day of the following month. Distributions are paid as follows:
OTHER
DISTRIBUTIONS
FUND DIVIDENDS PAID PAID
---- -------------- -------------
Balanced Annually Annually
Large Cap Value Annually Annually
Large Cap Growth Annually Annually
Small Cap Value Annually Annually
International Equity Annually Annually
Emerging Markets Annually Annually
S&P 500 Index April, July, October Annually
and December
Small Cap Index Annually Annually
International Equity
Index Annually Annually
Intermediate Bond Monthly Annually
Short-Term Bond Monthly Annually
|
The qualified retirement and benefit plans of AMR Corporation and its affiliates ("Plans") pay no federal income tax. Individual participants in the Plans should consult the Plans' governing documents and their own tax advisers for information on the tax consequences associated with participating in the Plans.
Prospectus 31 About Your Investment
The Funds do not incur any direct distribution expenses related to AMR Class or Institutional Class shares. However, the Funds have adopted a Distribution Plan in accordance with Rule 12b-1 under the Investment Company Act of 1940 which authorizes the use of any fees received by the Manager in accordance with the Administrative Services and Management Agreements, and any fees received by the investment advisers pursuant to their Advisory Agreements with the Manager, to be used for the sale and distribution of Fund shares. In the event the Funds begin to incur distribution expenses, distribution fees may be paid out of Fund assets, possibly causing the cost of your investment to increase over time and resulting in costs higher than other types of sales charges.
Under a master-feeder structure, a "feeder" fund 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 CHART]
Each Master-Feeder 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. A change in a Portfolio's fundamental objective, policies and restrictions, which is not approved by the shareholders of its corresponding Fund could require that Fund to redeem its interest in the Portfolio. Any such redemption could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the Portfolio. Should such a distribution occur, that Fund could incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for that Fund and could affect adversely the liquidity of the Fund. If a Master-Feeder Fund withdraws its investment in its corresponding portfolio, the Fund's assets will be invested directly in investment securities or in another master fund, according to the investment policies and restrictions described in this Prospectus.
Prior to March 1, 2002, the Balanced, Large Cap Value, Small Cap Value, Emerging Markets, Intermediate Bond, and Short-Term Bond Funds invested all of their investable assets in a corresponding portfolio of the AMR Investment Services Trust with a similar name and identical investment objective. On March 1, 2002, the master-feeder structure of these Funds was discontinued, and each Fund now directly purchases securities for investment in accordance with its respective investment objective.
The financial highlights tables are intended to help you understand each Fund's financial performance for the past five fiscal years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in each Fund's table represent the rate that an investor would have earned (or lost) on an investment in that Fund (assuming reinvestment of all dividends and distributions). Each Fund's financial highlights were audited by Ernst & Young LLP, independent auditors. The financial highlights of the S&P 500 Index Fund were audited by PricewaterhouseCoopers LLP, independent auditors, through the end of 1999. The report of Ernst & Young LLP, along with the Funds' financial statements, is found in the Funds' Annual Report, which you may obtain upon request.
Additional Information 32 Prospectus
BALANCED FUND-AMR CLASS
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2002 2001(D)(E) 2000(B) 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- ---------- -------- -------- --------
Net asset value, beginning of period........................ $ 12.06 $ 12.27 $ 13.02 $ 14.57 $ 16.23
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(A) (C).............................. 0.48(G) 0.56 0.61 0.54 0.55
Net gains (losses) on securities (both realized and
unrealized)(C).......................................... (1.01)(G) (0.05) (0.03) (0.39) 0.76
-------- -------- -------- -------- --------
Total income from investment operations..................... (0.53) 0.51 0.58 0.15 1.31
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income...................... (0.47) (0.72) (0.55) (0.53) (0.71)
Distributions from net realized gains on securities....... (0.08) -- (0.78) (1.17) (2.26)
-------- -------- -------- -------- --------
Total distributions......................................... (0.55) (0.72) (1.33) (1.70) (2.97)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 10.98 $ 12.06 $ 12.27 $ 13.02 $ 14.57
======== ======== ======== ======== ========
Total return................................................ (4.71)% 4.38% 5.37% 0.83% 9.34%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $487,526 $526,405 $525,040 $840,935 $886,908
Ratios to average net assets (annualized):
Expenses(C)............................................. 0.35% 0.36% 0.35% 0.34% 0.33%
Net investment income(C)................................ 3.39%(G) 3.77% 4.54% 3.81% 3.79%
Portfolio turnover rate(F)................................ 84% 122% 121% 90% 87%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) GSB Investment Management, Inc. was removed as an investment advisor to the Balanced Fund on March 1, 2000.
(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 the AMR Investment Services Balanced Portfolio through February 28, 2002.
(D) On September 7, 2001, AMR Investment Services, Inc. assumed management of the fixed income portion of the Balanced Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(E) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the equity portion of the Balanced Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(F) The American AAdvantage Balanced Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(G) Without the adoption of the change in amortization method as discussed in Note 1 in the Notes to Financial Statements (see Annual Report dated October 31, 2002), these amounts would have been:
Net investment income....................................... $ 0.49 Net gains (losses) on securities (both realized and unrealized)............................................... $(1.02) Net investment income ratio................................. 3.48% |
Prospectus 33 Additional Information
LARGE CAP VALUE FUND-AMR CLASS
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2002 2001(BG) 2000(E) 1999(D) 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- ---------- ----------
Net asset value, beginning of period........................ $ 14.34 $ 15.75 $ 18.77 $ 21.03 $ 21.70
-------- -------- -------- ---------- ----------
Income from investment operations:
Net investment income(A)(C)............................... 0.31 0.34 0.65 0.49 0.46
Net gains (losses) on securities (both realized and
unrealized)(C).......................................... (1.75) (0.63) (0.09) (0.02) 0.89
-------- -------- -------- ---------- ----------
Total income from investment operations..................... (1.44) (0.29) 0.56 0.47 1.35
-------- -------- -------- ---------- ----------
Less distributions:
Dividends from net investment income...................... (0.33) (0.63) (0.53) (0.47) (0.44)
Distributions from net realized gains on securities....... (0.17) (0.49) (3.05) (2.26) (1.58)
-------- -------- -------- ---------- ----------
Total distributions......................................... (0.50) (0.97) (3.58) (2.73) (2.02)
-------- -------- -------- ---------- ----------
Net asset value, end of period.............................. $ 12.40 $ 14.34 $ 15.75 $ 18.77 $ 21.03
======== ======== ======== ========== ==========
Total return................................................ (10.62)% (1.98)% 5.08% 1.97% 6.56%
======== ======== ======== ========== ==========
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $511,287 $654,239 $737,111 $1,384,358 $1,614,432
Ratios to average net assets (annualized):
Expenses(C)............................................. 0.36% 0.36% 0.34% 0.34% 0.31%
Net investment income(C)................................ 2.06% 2.09% 3.07% 2.17% 2.12%
Portfolio turnover rate(F)................................ 34% 60% 58% 33% 40%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the Large Cap Value Fund's assets previously managed by Merrill Lynch Investment Managers, L.P.
(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 the AMR Investment Services Large Cap Value Portfolio through February 28, 2002.
(D) Prior to March 1, 1999, the Large Cap Value Fund was known as the Growth and Income Fund.
(E) GSB Investment Management, Inc. was removed as an investment advisor to the Large Cap Value Fund on March 1, 2000.
(F) The American AAdvantage Large Cap Value Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(G) Metropolitan West Capital Management, LLC replaced Independence Investment LLC as investment advisor to the Large Cap Value Fund on December 1, 2000.
LARGE CAP GROWTH FUND-AMR CLASS
-----------------------------------
YEAR ENDED
OCTOBER 31, JULY 31 TO
------------------- OCTOBER 31,
2002 2001 2000(A)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- -----------
Net asset value, beginning of period........................ $ 5.67 $ 9.55 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income(A).................................. 0.02 0.01 0.01
Net losses on securities (both realized and
unrealized)(A).......................................... (1.14) (3.87) (0.46)
------- ------- -------
Total income from investment operations..................... (1.12) (3.86) (0.46)
------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.01) (0.02) --
------- ------- -------
Total distributions......................................... (0.01) (0.02) --
------- ------- -------
Net asset value, end of period.............................. $ 4.54 $ 5.67 $ 9.55
======= ======= =======
Total return................................................ (19.85)% (40.51)% (4.50)%(C)
======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $28,017 $23,804 $19,505
Ratios to average net assets (annualized)(A):
Expenses................................................ 0.67% 0.70% 0.74%
Net investment income................................... 0.30% 0.08% 0.25%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A)............... -- 0.02% 0.14%
Portfolio turnover rate(B)................................ 135% 85% 9%(C)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Large Cap Growth Portfolio through February 28, 2001.
(B) Prior to March 1, 2001, the Large Cap Growth Fund invested all of its investable assets in its corresponding Portfolio. Portfolio turnover rate through February 28, 2001 was that of the Portfolio.
(C) Not annualized.
Additional Information 34 Prospectus
SMALL CAP VALUE FUND-AMR CLASS
----------------------------------------------
YEAR ENDED OCTOBER 31, MARCH 1 TO
------------------------------- OCTOBER 31,
2002 2001(C) 2000 1999
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- ------- -----------
Net asset value, beginning of period........................ $ 11.71 $ 10.10 $ 9.08 $ 9.13
-------- -------- ------- -------
Income from investment operations:
Net investment income(A).................................. 0.15 0.15 0.22 0.04
Net gains (losses) on securities (both realized and
unrealized)(A).......................................... 0.34 1.85 1.04 (0.09)
-------- -------- ------- -------
Total income from investment operations..................... 0.49 2.00 1.26 (0.05)
-------- -------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.14) (0.22) (0.07) --
Distributions from net realized gains on securities....... (0.76) (0.17) (0.17) --
-------- -------- ------- -------
Total distributions......................................... (0.90) (0.39) (0.24) --
-------- -------- ------- -------
Net asset value, end of period.............................. $ 11.30 $ 11.71 $ 10.10 $ 9.08
======== ======== ======= =======
Total return................................................ 3.54% 20.52% 14.19% (0.55)%(D)
======== ======== ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $181,180 $137,811 $53,715 $64,662
Ratios to average net assets (annualized):
Expenses(A)............................................. 0.56% 0.64% 0.68% 0.70%
Net investment income(A)................................ 1.09% 1.55% 1.89% 1.14%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A).............. -- -- 0.06% 0.24%
Portfolio turnover rate(B)................................ 81% 93% 63% 31%(D)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Small Cap Value Portfolio through February 28, 2002.
(B) The Small Cap Value Fund invested all of its investable assets in a corresponding Portfolio of the AMR Trust through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) On October 9, 2001, Hotchkis and Wiley Capital Management, LLC assumed management of the Small Cap Value Fund's assets previously managed by Merrill Lynch Investment Managers, L.P. (D) Not annualized.
INTERNATIONAL EQUITY FUND-AMR CLASS
------------------------------------------------------------
YEAR ENDED OCTOBER 31,
------------------------------------------------------------
2002 2001(E) 2000 1999(B) 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- -------- --------
Net asset value, beginning of period........................ $ 13.86 $ 18.07 $ 19.46 $ 17.01 $ 17.15
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(A)(D)............................... 0.24 0.28 0.41 0.39 0.37
Net gains (losses) on securities (both realized and
unrealized)(D).......................................... (1.62) (2.98) 0.20 2.94 0.34
-------- -------- -------- -------- --------
Total income from investment operations..................... (1.38) (2.70) 0.61 3.33 0.71
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income...................... (0.30) (0.27) (0.36) (0.39) (0.37)
Distributions from net realized gains on securities....... -- (1.24) (1.64) (0.49) (0.48)
-------- -------- -------- -------- --------
Total distributions......................................... (0.30) (1.51) (2.00) (0.88) (0.85)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 12.18 $ 13.86 $ 18.07 $ 19.46 $ 17.01
======== ======== ======== ======== ========
Total return................................................ (10.26)% (16.35)% 2.69% 20.27% 4.44%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $264,579 $301,762 $428,329 $602,593 $496,040
Ratios to average net assets (annualized):
Expenses(D)............................................. 0.49% 0.52% 0.46% 0.39% 0.53%
Net investment income(D)................................ 1.81% 1.78% 1.92% 2.25% 2.26%
Portfolio turnover rate(C)................................ 43% 36% 45% 63% 24%
|
(A) Class expenses per share were subtracted from net investment income per share for the Fund before class expenses to determine net investment income per share.
(B) Morgan Stanley Asset Management, Inc. was replaced by Lazard Asset Management and Independence Investment LLC as investment advisor to the International Equity Fund on March 1, 1999.
(C) The American AAdvantage International Equity Fund invests all of its investable assets in its corresponding Portfolio. Portfolio turnover rate is that of the Portfolio.
(D) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services International Equity Portfolio.
(E) Causeway Capital Management LLC replaced Merrill Lynch Investment Managers, L.P. as investment advisor to the International Equity Fund on August 31, 2001.
Prospectus 35 Additional Information
EMERGING MARKETS FUND-AMR CLASS
-----------------------------------
YEAR ENDED
OCTOBER 31, JULY 31, TO
------------------- OCTOBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- -----------
Net asset value, beginning of period........................ $ 6.65 $ 8.18 $ 10.00
------- ------- -------
Income from investment operations:
Net investment income(A).................................. 0.09 0.13 --
Net gains (losses) on securities (both realized and
unrealized)(A).......................................... 0.59 (1.63) (1.82)
------- ------- -------
Total income from investment operations..................... 0.68 (1.50) (1.82)
------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.11) (0.02) --
Distributions from net realized gains on securities....... -- (0.01) --
------- ------- -------
Total distributions......................................... (0.11) (0.03) --
------- ------- -------
Net asset value, end of period.............................. $ 7.22 $ 6.65 $ 8.18
======= ======= =======
Total return................................................ 10.10% (18.40)% (18.20)%(C)
======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $32,731 $20,660 $17,308
Ratios to average net assets (annualized):
Expenses(A)............................................. 1.26% 1.30% 1.60%
Net investment income (loss)(A)......................... 1.35% 1.76% (0.19)%
Portfolio turnover rate(B)................................ 94% 95% 23%(C)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Emerging Markets Portfolio through February 28, 2002.
(B) The American AAdvantage Emerging Markets Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
S&P 500 INDEX FUND-INSTITUTIONAL CLASS
------------------------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------------------------------------
2002 2001 2000(B) 1999 1998
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- -------- -------- -------- --------
Net asset value, beginning of period........................ $ 15.62 $ 17.99 $ 20.05 $ 16.78 $ 13.16
-------- -------- -------- -------- --------
Income from investment operations(A):
Net investment income..................................... 0.20 0.20 0.23 0.19 0.16
Net gains (losses) on securities (both realized and
unrealized)............................................. (3.66) (2.38) (2.05) 3.27 3.62
-------- -------- -------- -------- --------
Total from investment operations............................ (3.46) (2.18) (1.82) 3.46 3.78
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income...................... (0.20) (0.19)(C) (0.24)(C) (0.19) (0.16)
-------- -------- -------- -------- --------
Total distributions......................................... (0.20) (0.19) (0.24) (0.19) (0.16)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 11.96 $ 15.62 $ 17.99 $ 20.05 $ 16.78
======== ======== ======== ======== ========
Total return................................................ (22.27)% (12.12)% (9.15)% 20.70% 28.87%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $195,368 $254,289 $321,805 $568,645 $100,870
Ratios to average net assets (annualized)(A):
Net investment income................................... 1.47% 1.22% 1.09% 1.28% 1.41%
Expenses................................................ 0.14% 0.15% 0.16% 0.17% 0.20%
Decrease reflected in above expense ratio due to
absorption of expenses by State Street, Bankers Trust
and the Manager....................................... -- -- -- -- 0.06%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the BT Equity 500 Index Portfolio prior to March 1, 2000 and the State Street Equity 500 Index Portfolio thereafter.
(B) On March 1, 2000, the S&P 500 Index Fund invested all of its investable assets in the State Street Equity 500 Index Portfolio. Prior to March 1, 2000, the S&P 500 Index Fund invested all of its investable assets in the BT Equity 500 Index Portfolio.
(C) Includes a tax return of capital distribution which amounts to less than $0.01 per share.
Additional Information 36 Prospectus
SMALL CAP INDEX FUND-
INSTITUTIONAL CLASS
----------------------------------
YEAR ENDED
DECEMBER 31, JULY 31 TO
------------------ DECEMBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------------
Net asset value, beginning of period........................ $ 9.79 $ 9.69 $10.00
------- ------- ------
Income from investment operations(A):
Net investment income..................................... 0.11 0.09 0.05
Net gains (losses) on securities (both realized and
unrealized)............................................. (2.10) 0.11 (0.31)
------- ------- ------
Total from investment operations............................ (1.99) 0.20 (0.26)
------- ------- ------
Less distributions:
Dividends from net investment income...................... (0.10) (0.09) (0.05)
Tax return of capital..................................... -- (0.01) --
------- ------- ------
Total distributions......................................... (0.10) (0.10) (0.05)
------- ------- ------
Net asset value, end of period.............................. $ 7.70 $ 9.79 $ 9.69
======= ======= ======
Total return................................................ (20.37)% 2.07% (2.59)%(B)
======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $11,227 $11,803 $4,120
Ratios to average net assets (annualized)(A):
Net investment income................................... 1.13% 1.36% 1.61%
Expenses................................................ 0.20% 0.19% 0.50%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager.................. -- -- 0.46%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the Master Small Cap Index Series.
(B) Not annualized.
INTERNATIONAL EQUITY INDEX FUND-
INSTITUTIONAL CLASS
----------------------------------
YEAR ENDED
DECEMBER 31, JULY 31 TO
------------------ DECEMBER 31,
2002 2001 2000
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------------
Net asset value, beginning of period........................ $ 7.07 $ 9.21 $10.00
------- ------- ------
Income from investment operations(A):
Net investment income..................................... 0.11 0.10 0.02
Net gains (losses) on securities (both realized and
unrealized)............................................. (1.23) (2.12) (0.72)
------- ------- ------
Total from investment operations............................ (1.12) (2.02) (0.70)
------- ------- ------
Less distributions:
Dividends from net investment income...................... (0.09) (0.09) (0.03)
Tax return of capital..................................... -- (0.03) (0.01)
Distributions from net realized gains on securities....... -- -- (0.05)
------- ------- ------
Total distributions......................................... (0.09) (0.12) (0.09)
------- ------- ------
Net asset value, end of period.............................. $ 5.86 $ 7.07 $ 9.21
======= ======= ======
Total return................................................ (15.65)% (22.14)% (7.03)%(B)
======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $ 4,912 $ 3,773 $3,542
Ratios to average net assets (annualized)(A):
Net investment income................................... 1.97% 1.49% 0.63%
Expenses................................................ 0.25% 0.29% 0.60%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager.................. -- -- 1.52%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the Master International Index Series.
(B) Not annualized.
Prospectus 37 Additional Information
INTERMEDIATE BOND FUND-AMR CLASS
------------------------------------------------
MARCH 1
YEAR ENDED OCTOBER 31, TO
-------------------------------- OCTOBER 31,
2002 2001 2000 1999
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: -------- ------- ------- -----------
Net asset value, beginning of period........................ $ 10.30 $ 9.53 $ 9.58 $ 9.95
-------- ------- ------- -------
Income from investment operations:
Net investment income(A).................................. 0.53 0.58 0.64 0.39
Net gains (losses) on securities (both realized and
unrealized)(A).......................................... (0.08) 0.77 (0.05) (0.37)
-------- ------- ------- -------
Total income from investment operations..................... 0.45 1.35 0.59 0.02
-------- ------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.53) (0.58) (0.64) (0.39)
Distributions from net realized gains on securities....... -- -- -- --
-------- ------- ------- -------
Total distributions......................................... (0.53) (0.58) (0.64) (0.39)
-------- ------- ------- -------
Net asset value, end of period.............................. $ 10.22 $ 10.30 $ 9.53 $ 9.58
======== ======= ======= =======
Total return................................................ 4.57% 14.58% 6.39% (0.17)%(C)
======== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $144,098 $95,820 $40,555 $46,655
Ratios to average net assets (annualized):
Expenses(A)............................................. 0.30% 0.30% 0.39% 0.30%
Net investment income(A)................................ 5.23% 5.84% 6.72% 6.12%
Portfolio turnover rate(B)................................ 185% 164% 102% 123%(D)
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Intermediate Bond Portfolio through February 28, 2002.
(B) The Intermediate Bond Fund invested all of its investable assets in a corresponding Portfolio of the AMR Trust through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(C) Not annualized.
(D) Portfolio turnover rate is for the period November 1, 1998 through October 31, 1999.
SHORT-TERM BOND FUND-AMR CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2002 2001 2000 1999 1998(A)
FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD: ------- ------- ------- ------- -------
Net asset value, beginning of period........................ $ 9.60 $ 9.20 $ 9.29 $ 9.62 $ 9.62
------- ------- ------- ------- -------
Income from investment operations:
Net investment income(C).................................. 0.44(D) 0.59 0.63 0.59 0.65
Net gains (losses) on securities (both realized and
unrealized)(C).......................................... (0.11)(D) 0.40 (0.09) (0.33) --
------- ------- ------- ------- -------
Total income from investment operations..................... 0.33 0.99 0.54 0.26 0.65
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income...................... (0.49) (0.59) (0.63) (0.59) (0.65)
------- ------- ------- ------- -------
Total distributions......................................... (0.49) (0.59) (0.63) (0.59) (0.65)
------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 9.44 $ 9.60 $ 9.38 $ 9.29 $ 9.62
======= ======= ======= ======= =======
Total return................................................ 3.60% 11.07% 6.09% 2.83% 6.93%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands).................. $89,932 $81,370 $56,714 $66,767 $95,056
Ratios to average net assets (annualized):
Expenses(C)............................................. 0.30% 0.33% 0.33% 0.35% 0.34%
Net investment income(C)................................ 4.63%(D) 6.26% 6.88% 6.26% 6.71%
Portfolio turnover rate(B)................................ 63% 104% 89% 115% 74%
|
(A) Prior to March 1, 1998, the Short-Term Bond Fund was known as the Limited-Term Income Fund.
(B) The American AAdvantage Short-Term Bond Fund invested all of its investable assets in its corresponding Portfolio through February 28, 2002. Portfolio turnover rate through February 28, 2002 was that of the Portfolio.
(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 the AMR Investment Services Short-Term Bond Portfolio through February 28, 2002.
(D) Without the adoption of the changes in amortization method as discussed in Note 1 in the Notes to Financial Statements (see Annual Report dated October 31, 2002), these amounts would have been:
Net investment income....................................... $ 0.49 Net gains (losses) on securities (both realized and unrealized)............................................... $(0.16) Net investment income ratio................................. 5.23% |
-- Notes --
-- Notes --
-- Notes --
ADDITIONAL INFORMATION ABOUT THE FUNDS IS FOUND IN THE DOCUMENTS LISTED BELOW. REQUEST A FREE COPY OF THESE DOCUMENTS BY CALLING (800) 345-2345.
ANNUAL REPORT/SEMI-ANNUAL REPORT STATEMENT OF ADDITIONAL INFORMATION (SAI) The Funds' Annual and Semi-Annual Reports list each The SAI contains more details about the Funds and their Fund's actual investments as of the report's date. They investment policies. The SAI is incorporated in this also include a discussion by the Manager of market Prospectus by reference (it is legally part of this conditions and investment strategies that significantly Prospectus). A current SAI is on file with the affected the Funds' performance. The report of the Securities and Exchange Commission (SEC). Funds' independent auditors is included in the Annual Report. |
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS OR TO REQUEST A COPY OF THE DOCUMENTS LISTED ABOVE:
[LOGO] [LOGO] [LOGO] [LOGO]
BY TELEPHONE: BY MAIL: BY E-MAIL: ON THE INTERNET:
Call (800) 345-2345 American AAdvantage Funds american -aadvantage.funds@aa.com Visit our website at www.aafunds.com
P.O. Box 619003 Visit the SEC website at www.sec.gov
DFW Airport, TX 75261-9003
|
The SAI and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic mail to publicinfo@sec.gov, or by writing to: SEC's Public Reference Section, 450 5th Street NW, Washington, D.C. 20549-0102. The SAI and other information about the Funds may also be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC's Public Reference Room may be obtained by calling the SEC at (202) 942-8090.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK STATE STREET BANK ERNST & YOUNG LLP SWS FINANCIAL SERVICES
AND TRUST AND TRUST (AMR CLASS) Dallas, Texas Dallas, Texas
Boston, Massachusetts Boston, Massachusetts
NATIONAL FINANCIAL
DATA SERVICES
(INSTITUTIONAL CLASS)
Kansas City, Missouri
|
[AMERICAN AADVANTAGE FUNDS LOGO]
SEC File Number 811-4984
American Airlines is not responsible for investments made in the American AAdvantage Funds. American AAdvantage Funds is a registered service mark of AMR Corporation. American AAdvantage Balanced Fund, American AAdvantage Large Cap Value Fund, American AAdvantage Large Cap Growth Fund, American AAdvantage International Equity Fund, American AAdvantage Emerging Markets Fund, American AAdvantage Small Cap Index Fund, American AAdvantage International Equity Index Fund, American AAdvantage Intermediate Bond Fund, American AAdvantage Short-Term Bond Fund and American AAdvantage Small Cap Value Fund are service marks of AMR Investment Services, Inc.
PLATINUM CLASS(SM)
[LOGO]
PRIVACY POLICY
AND
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO] - MONEY MARKET FUND
- MUNICIPAL MONEY MARKET FUND
- U.S. GOVERNMENT MONEY MARKET FUND
[AMERICAN AADVANTAGE MILEAGE FUNDS LOGO] - MONEY MARKET MILEAGE FUND
- MUNICIPAL MONEY MARKET MILEAGE FUND
- U.S. GOVERNMENT MONEY MARKET MILEAGE
FUND
|
MANAGED BY AMR INVESTMENT SERVICES, INC. This page is not part of the Prospectus. |
[EAGLE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO] [AMERICAN AADVANTAGE MILEAGE FUNDS LOGO] |
PRIVACY POLICY
The American AAdvantage Funds and the American AAdvantage Mileage Funds recognize and respect the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards.
This page is not part of the Prospectus.
PLATINUM CLASS(SM)
[LOGO]
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO] - MONEY MARKET FUND
- MUNICIPAL MONEY MARKET FUND
- U.S. GOVERNMENT MONEY MARKET FUND
[AMERICAN AADVANTAGE MILEAGE FUNDS LOGO] - MONEY MARKET MILEAGE FUND
- MUNICIPAL MONEY MARKET MILEAGE FUND
- U.S. GOVERNMENT MONEY MARKET MILEAGE
FUND
|
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
MANAGED BY AMR INVESTMENT SERVICES, INC. criminal offense.
|
[EAGLE LOGO]
About the Funds Overview.................................................... 3 Investment Objective........................................ 4 Principal Strategies........................................ 4 Principal Risk Factors...................................... 6 Investor Profile............................................ 7 Historical Performance...................................... 7 Fees and Expenses........................................... 14 Examples.................................................... 15 The Manager................................................. 15 Valuation of Shares......................................... 16 About Your Investment Purchase and Redemption of Shares........................... 17 Distributions and Taxes..................................... 24 AAdvantage(R) Miles......................................... 24 Additional Information Distribution of Fund Shares................................. 27 Master-Feeder Structure..................................... 27 Financial Highlights........................................ 28 Additional Information.................................Back Cover |
About the Funds 2 Prospectus
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 in this
Prospectus (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.
Prospectus 3 About the Funds
Money Market Funds ("Taxable Funds")
INVESTMENT OBJECTIVE Current income, liquidity and the maintenance of
-------------------- a stable price of $1.00 per share.
(All Funds)
PRINCIPAL STRATEGIES Each Taxable Fund invests exclusively in high
-------------------- quality variable or fixed rate, U.S.
(Taxable Funds) 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.
|
Each Taxable 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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase,
- 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 pursuant to guidelines approved by that Fund's Board of Trustees.
About the Funds 4 Prospectus
Each Taxable 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, a Taxable Fund may not maintain this concentration.
Securities purchased by each Taxable 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 each Taxable Fund will not exceed 90 days.
(Municipal Funds) Under normal market conditions, each Municipal 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. Most of the securities purchased by
each Municipal 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.
|
Each Municipal 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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase,
- 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 pursuant to guidelines approved by that Fund's Board of Trustees.
Securities purchased by each Municipal Fund generally have remaining maturities of 397 days or less, although
Prospectus 5 About the Funds
instruments subject to repurchase agreements and certain variable and floating rate obligations may bear longer final maturities. The average dollar-weighted maturity of each Municipal Fund will not exceed 90 days.
(Government Funds) Each Government Fund invests exclusively in
obligations issued or guaranteed by the U.S.
Government, its agencies or instrumentalities,
repurchase agreements that are collateralized by
such obligations and other investment companies
that limit their investments to the foregoing
securities. 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 each Government 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 each Government Fund will not exceed 90 days.
Each Government Fund has a policy of investing exclusively in securities that are consistent with the Fund's name. If a Government Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
PRINCIPAL RISK FACTORS - The yield paid by each Fund is subject to
---------------------- changes in interest rates. As a result, there
(All Funds) is risk that a decline in short-term interest
rates would lower its yield and the overall
return on your investment.
|
- Although each 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 a Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
About the Funds 6 Prospectus
(Taxable and
Municipal Funds) - As with any money market fund, there is the risk
that the issuers or guarantors of securities
owned by each Fund will default on the payment of
principal or interest or the obligation to
repurchase securities from each Fund.
(Taxable Funds) - Because the Taxable Funds concentrate their
assets in the banking industry, factors affecting
that industry could have a significant impact on
the performance of the Taxable Funds.
|
INVESTOR PROFILE All of the Funds may be suitable for investors
---------------- who:
(All Funds) - seek the preservation of capital and to avoid
fluctuations in principal,
|
- desire regular, monthly income from a highly
liquid investment,
- require a short-term investment vehicle for cash
when making long-term investment decisions, or
- seek a rate of return that is potentially higher
than certificates of deposit or savings accounts.
(Municipal Funds) The Municipal Funds may be suitable for investors
who:
- desire regular, monthly income that is generally
exempt from Federal income tax or
- seek an after-tax rate of return that is
potentially higher than certificates of deposit
or savings accounts.
(Mileage Funds) The Mileage Funds may be suitable for investors who
desire to receive miles in the American Airlines
AAdvantage(R) program.
|
HISTORICAL PERFORMANCE
---------------------- The bar charts and tables below provide an
indication of risk by showing how each Fund's
performance has varied from year to year. Past
performance is not necessarily indicative of how
each Fund will perform in the future. You may call
1-800-388-3344 or visit the Funds' website at
www.aafunds.com to obtain each Fund's current
seven-day yield.
|
Prospectus 7 About the Funds
(American AAdvantage
Money Market Fund(R)) 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.
|
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.28% 94.......................................................... 4.22% 95.......................................................... 5.93% 96.......................................................... 4.77% 97.......................................................... 4.90% 98.......................................................... 4.82% 99.......................................................... 4.41% 00.......................................................... 5.69% 01.......................................................... 3.45% 02.......................................................... 0.98% |
Highest Quarterly Return: 1.52% (1/1/93 through 12/31/02) (2nd Quarter 1995) Lowest Quarterly Return: 0.18% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
MONEY MARKET FUND.......................................... 0.98% 3.86% 4.24%
|
(American AAdvantage
Money Market Mileage
Fund(sm)) The Fund's performance, as shown in the chart and
table below, is derived from a combination of the
Fund's performance and that of another fund (the
"Companion Fund") not offered in this Prospectus.
The Companion Fund has been managed by the Manager
since its inception on September 1, 1987. Like the
Fund, the Companion Fund invests all of its
investable assets in the Money Market Portfolio of
the AMR Trust. The
|
About the Funds 8 Prospectus
performance results through October 31, 1995 are for the Companion Fund's Mileage Class of shares. The Fund began offering its shares on November 1, 1995. Performance results shown below from that date through January 28, 1996 are for the initial class of Fund shares. The Platinum Class of the Fund began offering its shares on January 29, 1996. Thus, performance results from that date through December 31, 2002 are for the Platinum Class of Fund shares. Because the Companion Fund and the Fund's initial class had lower expenses, their performance was better than the Fund would have realized in the same period.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.28% 94.......................................................... 4.22% 95.......................................................... 5.93% 96.......................................................... 4.56% 97.......................................................... 4.74% 98.......................................................... 4.67% 99.......................................................... 4.30% 00.......................................................... 5.57% 01.......................................................... 3.32% 02.......................................................... 0.81% |
Highest Quarterly Return: 1.45% (1/1/93 through 12/31/02) (3rd Quarter 2000) Lowest Quarterly Return: 0.13% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
MONEY MARKET MILEAGE FUND.................................. 0.81% 3.72% 4.06%
|
Prospectus 9 About the Funds
(American AAdvantage
Municipal Money Market
Fund(sm)) 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.
|
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
94.......................................................... 2.66% 95.......................................................... 3.71% 96.......................................................... 2.78% 97.......................................................... 2.83% 98.......................................................... 2.64% 99.......................................................... 2.34% 00.......................................................... 3.21% 01.......................................................... 1.82% 02.......................................................... 0.51% |
Highest Quarterly Return: 1.00% (1/1/94 through 12/31/02) (2nd Quarter 1995) Lowest Quarterly Return: 0.10% (1/1/94 through 12/31/02) (1st Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-------------------------------
AS OF 12/31/02
-------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (11/10/93)
------ ------- ----------
MUNICIPAL MONEY MARKET FUND.............................. 0.51% 2.10% 2.49%
|
(American AAdvantage
Municipal Money Market
Mileage Fund(sm)) The Fund's performance, as shown in the chart and
table below, is derived from a combination of the
Fund's performance and that of another fund (the
"Companion Fund") not offered in this Prospectus.
The Companion Fund has been managed by the Manager
since its inception on November 10, 1993. Like the
Fund, the Companion Fund invests all of its
investable assets in the Municipal Money Market
Portfolio of the
|
About the Funds 10 Prospectus
AMR Trust. The performance results from inception through October 31, 1995 are those of the Companion Fund's Mileage Class of shares. The Fund began offering its shares on November 1, 1995. Performance results shown below from that date through October 31, 1999 are for the initial class of Fund shares. The Platinum Class of the Fund began offering its shares on November 1, 1999. Thus, performance results from that date through December 31, 2002 are for the Platinum Class of Fund shares. Because the Companion Fund and the Fund's initial class had lower expenses, their performance was better than the Fund would have realized in the same period.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
94.......................................................... 2.37% 95.......................................................... 3.48% 96.......................................................... 3.09% 97.......................................................... 3.23% 98.......................................................... 3.06% 99.......................................................... 2.69% 00.......................................................... 3.05% 01.......................................................... 1.72% 02.......................................................... 0.35% |
Highest Quarterly Return: 0.91% (1/1/94 through 12/31/02) (2nd Quarter 1995) Lowest Quarterly Return: 0.07% (1/1/94 through 12/31/02) (3rd Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-------------------------------
AS OF 12/31/02
-------------------------------
SINCE
INCEPTION
1 YEAR 5 YEARS (11/10/93)
------ ------- ----------
MUNICIPAL MONEY MARKET MILEAGE FUND...................... 0.35% 2.17% 2.54%
|
Prospectus 11 About the Funds
(American AAdvantage
U.S. Government Money
Market Fund(sm)) 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.
|
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.05% 94.......................................................... 4.09% 95.......................................................... 5.62% 96.......................................................... 4.51% 97.......................................................... 4.65% 98.......................................................... 4.62% 99.......................................................... 4.20% 00.......................................................... 5.53% 01.......................................................... 3.37% 02.......................................................... 0.90% |
Highest Quarterly Return: 1.44% (1/1/93 through 12/31/02) (3rd Quarter 2000) Lowest Quarterly Return: 0.15% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
U.S. GOVERNMENT MONEY MARKET FUND........................ 0.90% 3.71% 4.04%
|
(American AAdvantage
U.S. Government Money
Market Mileage Fund(sm)) The Fund's performance, as shown in the chart and
table below, is derived from a combination of the
Fund's performance and that of another fund (the
"Companion Fund") not offered in this Prospectus.
The Companion Fund has been managed by the Manager
since its inception on March 2, 1992. Like the
Fund, the Companion Fund invests all of its
investable assets in the U.S. Government Money
Market Portfolio of the AMR Trust. The performance
results through Octo-
|
About the Funds 12 Prospectus
ber 31, 1995 are those of the Companion Fund. (Results through October 31, 1993 are for the Companion Fund's Institutional Class of shares and from November 1, 1993 through October 31, 1995 are for the Companion Fund's Mileage Class of shares.) The Fund began offering its shares on November 1, 1995. Performance results shown below from that date through October 31, 1999 are for the initial class of Fund shares. The Platinum Class of the Fund began offering its shares on November 1, 1999. Thus, performance results from that date through December 31, 2002 are for the Platinum Class of Fund shares. Because the Companion Fund and the Fund's initial class had lower expenses, their performance was better than the Fund would have realized in the same period.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.00% 94.......................................................... 3.79% 95.......................................................... 5.37% 96.......................................................... 4.91% 97.......................................................... 5.04% 98.......................................................... 5.04% 99.......................................................... 4.55% 00.......................................................... 5.47% 01.......................................................... 3.22% 02.......................................................... 0.69% |
Highest Quarterly Return: 1.42% (1/1/93 through 12/31/02) (3rd Quarter 2000) Lowest Quarterly Return: 0.09% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND.................. 0.69% 3.78% 4.10%
|
Prospectus 13 About the Funds
FEES AND EXPENSES
----------------- This table describes the fees and expenses that you
may pay if you buy and hold shares of each Fund.
The expense table and the Examples below reflect
the expenses of each Fund and its corresponding
portfolio.
|
U.S.
MUNICIPAL U.S. GOVERNMENT
MONEY MUNICIPAL MONEY GOVERNMENT MONEY
MONEY MARKET MONEY MARKET MONEY MARKET
MARKET MILEAGE MARKET MILEAGE MARKET MILEAGE
------ ------- --------- --------- ---------- ----------
Management Fees...................................... 0.10% 0.10% 0.10% 0.10% 0.10% 0.10%
Distribution (12b-1) Fees............................ 0.25% 0.25% 0.25% 0.25% 0.25% 0.25%
Other Expenses....................................... 0.59% 0.75% 0.66% 0.88% 0.63% 0.86%
----- ----- ----- ----- ----- -----
Total Annual Fund Operating Expenses................. 0.94%(3) 1.10% 1.01% 1.23% 0.98%(3) 1.21%
===== ===== ===== ===== ===== =====
Fee Waiver and/or Expense Reimbursement.............. -- -- 0.02%(1) 0.03%(2) -- 0.01%(2)
NET EXPENSES......................................... 0.94% 1.10% 0.99% 1.20% 0.98% 1.20%
|
(1) The Manager has contractually agreed to waive a portion of Distribution Fees for the Municipal Money Market Fund through December 31, 2003 to the extent that the Fund's Total Annual Fund Operating Expenses exceed 0.99%. The contractual fee waiver can be changed by a majority vote of the Fund's Board of Trustees.
(2) The Manager has contractually agreed to waive a portion of the Fund's Distribution Fees through December 31, 2003 to the extent that the Fund's Total Annual Fund Operating Expenses exceed 1.20%. The contractual fee waiver can be changed by a majority vote of the Fund's Board of Trustees.
(3) The Manager has contractually agreed to waive a portion of the Fund's Distribution Fees through December 31, 2003, if the Fund's Total Annual Fund Operating Expenses exceed 0.99%. The contractual fee waiver can be changed by a majority vote of the Fund's Board of Trustees.
About the Funds 14 Prospectus
EXAMPLES
-------- These examples are intended to help you compare the cost
of investing in each Fund with the cost of investing in
other mutual funds. The examples assume that you invest
$10,000 in each Fund for the time periods indicated and
then redeem all of your shares at the end of those
periods. The examples also assume that your investment
has a 5% return each year and that each 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 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Money Market............................ $ 96 $300 $520 $1,155
Money Market Mileage.................... $112 $350 $606 $1,340
Municipal Money Market*................. $101 $320 $556 $1,234
Municipal Money Market Mileage*......... $122 $387 $673 $1,486
U.S. Government Money Market............ $100 $312 $542 $1,201
U.S. Government Money Market Mileage*... $122 $383 $664 $1,465
|
* The Manager has contractually agreed to waive fees only through December 31, 2003. Therefore, net expenses are used to calculate the costs in the first year, and total fund expenses are used to calculate costs in the remaining nine years.
THE MANAGER
----------- The Funds have retained AMR Investment Services, Inc. to
serve as their Manager. The Manager, located at 4151 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, 2002, the Manager had approximately
$29.6 billion of assets under management, including
approximately $16.8 billion under active management and
$12.8 billion as named fiduciary or financial adviser.
Approximately $14.2 billion of the Manager's total assets
under management were 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 compensa-
|
Prospectus 15 About the Funds
tion 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.
The Manager also may receive up to 25% of the net annual interest income or up to 25% of loan fees in regards to securities lending activities. However, the Manager does not anticipate that the Funds will engage in securities lending at this time. The Securities and Exchange Commission ("SEC") has granted exemptive relief that permits the Funds to invest cash collateral received from securities lending transactions in shares of one or more private or registered investment companies managed by the Manager.
The Manager has discretion to purchase and sell securities for the Funds in accordance with each Fund's objectives, policies, and restrictions. Pursuant to an exemptive order issued by the SEC, the Manager is permitted to enter into new or modified investment advisory agreements with existing or new investment advisers without approval of a Fund's shareholders, but subject to approval by the Boards of Trustees of the AAdvantage Funds, the Mileage Funds and the AMR Trust (the "Boards"). The Prospectus will be supplemented if additional investment advisers are retained or the contract with the Manager is terminated.
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 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. Securities
for which market quotations are not readily availa-
|
About the Funds 16 Prospectus
ble are valued at fair value, as determined in good faith and pursuant to procedures approved by the Boards.
The NAV of Platinum Class shares will be determined based on a pro rata allocation of the Fund's 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, or such other time as designated by a Fund, if in its discretion, the Fund accepts orders on days when the Exchange is closed. In addition to the days the Exchange is closed, the Funds are closed and no NAV is calculated on Columbus Day and Veterans Day. In certain limited circumstances, a Fund, in its discretion, may designate other days as a business day on which it will accept purchases, redemptions and exchanges.
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 are typically 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.
|
PURCHASE ORDER DEADLINE
FUND (EASTERN TIME):*
---- -----------------------
Money Market and
Government Funds 4:00 p.m.
Municipal Funds 11:45 a.m.
* or the close of the Exchange (whichever comes
first)
|
Prospectus 17 About Your Investment
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.
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) 882-8880 or by
visiting www.aa.com. You may request a Fund application
form by calling (800) 967-9009.
Complete the application, sign it and:
Mail to:
American AAdvantage Funds-Platinum Class
P.O. Box 619003
DFW Airport, TX 75261-9003
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. Proceeds from redemptions requested by
the following deadlines will generally be wired to
shareholders on the same day.
|
SAME DAY
WIRE REDEMPTION
ORDER DEADLINE
FUND (EASTERN TIME)*:
---- ----------------
Money Market and
Government Funds 2:00 p.m.
Municipal Funds 11:45 a.m.
* or the close of the Exchange (whichever
comes first)
|
About Your Investment 18 Prospectus
In any event, proceeds from a redemption order for any Fund will typically 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 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.
Prospectus 19 About Your Investment
HOW TO PURCHASE SHARES
To Make an Initial Purchase To Add to an Existing Account
--------------------------------------------------------------------------------
By Check
- Make check payable to "American Include the shareholder's account
AAdvantage Funds". number and Fund name and Fund number
- Include the Fund name, Fund number on the check. Mail check to:
and "Platinum Class" on the check.
- Mail check to: American AAdvantage Funds
P.O. Box 219643
American AAdvantage Funds Kansas City, MO 64121-9643
P.O. Box 219643
Kansas City, MO 64121-9643
By Wire
If your account has been established, Call (800) 388-3344 to purchase shares
you may call (800) 388-3344 to by wire. Send a bank wire to State
purchase shares by wire. Send a bank Street Bank and Trust Co. with these
wire to State Street Bank and Trust instructions:
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, and
- the Fund name and Fund number, and - account number and registration.
- account number and registration.
By Exchange
Shares of an AAdvantage Fund or Shares of an AAdvantage Fund or
Mileage Fund may be purchased by Mileage Fund may be redeemed in
exchange from another American exchange for another American
AAdvantage Fund-Platinum Class or AAdvantage Fund-Platinum Class or
American AAdvantage Mileage American AAdvantage Mileage
Fund-Platinum Class, as applicable, if Fund-Platinum Class, as applicable, if
the shareholder has owned shares of the shareholder has owned shares of
the other AAdvantage Fund or Mileage the AAdvantage Fund or Mileage Fund
Fund for at least 15 days. Send a for at least 15 days. Send a written
written request to the address above request to the address above or call
or call (800) 388-3344 to exchange (800) 388-3344 to exchange shares.
shares.
|
About Your Investment 20 Prospectus
HOW TO REDEEM SHARES
Method Additional Instructions
------------------------------------------------------------------------------
By Telephone
Call (800) 388-3344 to request a Proceeds from redemptions placed by
redemption. telephone will generally be
transmitted by wire only, as
instructed on the application form.
By Mail
Write a letter of instruction - Other supporting documents may be
including: required for estates, trusts,
- the Fund name, Fund number and guardianships, custodians,
class, corporations, IRAs and welfare,
- shareholder account number, pension and profit sharing plans.
- shares or dollar amount to be Call (800) 388-3344 for
redeemed, and instructions.
- authorized signature(s) of all - Proceeds will only be mailed to the
persons required to sign for the account address of record or
account. transmitted by wire to a commercial
bank account designated on the
Mail to: account application form.
American AAdvantage Funds
P.O. Box 219643
Kansas City, MO 64121-9643
By Check
Choose the check writing feature on - Minimum check amount is $100.
the 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 Proceeds will be transferred
through which you purchased Fund automatically from your Fund account
shares. to your bank account via ACH on or
about the 15th day of each month ($100
minimum).
|
Prospectus 21 About Your Investment
HOW TO REDEEM SHARES (CONT.)
Method Additional Instructions ------------------------------------------------------------------------ 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. |
About Your Investment 22 Prospectus
General Policies 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 23 About Your Investment
DISTRIBUTIONS 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. Except for "exempt-interest
dividends" (see below) paid by the Municipal Funds,
dividends and distributions of net realized gains
are usually taxable as ordinary income. However,
the portion of a Fund's dividends derived from its
investments in certain direct U.S. Government
obligations may be exempt from state and local
income taxes. Unless the account application
instructs otherwise, distributions will be
reinvested in additional Fund shares. Distributions
are paid to shareholders monthly on the first
business day of the following month.
Each Municipal Fund expects to designate most of
its distributions as "exempt-interest dividends,"
which may be excluded from gross income. If a
Municipal Fund earns taxable income from any of its
investments, that income will be distributed as a
taxable dividend. If a Municipal Fund invests in
private activity obligations, its 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. 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 each Municipal Fund's
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 its members 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
|
About Your Investment 24 Prospectus
AAdvantage program, call American Airlines at (800) 882-8880 or visit www.aa.com.
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 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, in its discretion, change the AAdvantage program rules, regulations, travel awards,
Prospectus 25 About Your Investment
and special offers at any time with or without notice. This means that the accumulation of mileage credit does not entitle members to any vested rights with respect to such mileage credits, awards or program benefits. In accumulating mileage or awards, members may not rely upon the continued availability of any award or award level, and members may not be able to obtain all offered awards for all destinations or on all flights. Any award may be withdrawn or subject to increased mileage requirements or new restrictions at any time. American Airlines may, among other things, (i) withdraw, limit, modify, or cancel any award; (ii) change program benefits, mileage levels, participant affiliations, conditions of participation, rules for earning, redeeming, retaining or forfeiting mileage credit, or rules for the use of travel awards; or (iii) add travel embargo dates, limit the number of seats available for award travel (including, but not limited to, allocating no seats on certain flights) or otherwise restrict the continued availability of travel awards or special offers. American may make any one or more of these changes at any time even though such changes may affect your ability to use the mileage credit or awards that you have already accumulated. American Airlines reserves the right to end the AAdvantage program with six months notice. AAdvantage travel awards, accrued mileage credits and special offers are subject to government regulations. American Airlines is not responsible for products and services offered by other participating companies. Any departure fee, immigration fee, tax liability or passenger facility charge is the responsibility of the passenger and/or the AAdvantage member.
About Your Investment 26 Prospectus
DISTRIBUTION OF
FUND 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, 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 Fund 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 and result in costs higher
than 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
applicable Board determines that it is in the best
interest of the Fund and its shareholders to do so.
A change in a portfolio's fundamental objective,
policies and restrictions, which is
|
Prospectus 27 Additional Information
not approved by the shareholders of its corresponding Fund could require that Fund to redeem its interest in the portfolio. Any such redemption could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the portfolio. Should such a distribution occur, that Fund could incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified portfolio of investments for that Fund and could affect adversely the liquidity of the Fund. If a Fund withdraws its investment in its corresponding portfolio, the Fund's assets will be invested directly in investment securities or in another master fund, according to the investment policies and restrictions described in this Prospectus.
FINANCIAL HIGHLIGHTS
-------------------- The financial highlights tables are intended to help you
understand each Fund's financial performance for the past
five fiscal 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 each Fund's table
represent the rate that an investor would have earned (or
lost) on an investment in that Fund (assuming
reinvestment of all dividends and distributions). Each
Fund's financial highlights were audited by Ernst & Young
LLP, independent auditors, whose report, along with the
Fund's financial statements, is found in the Funds'
Annual Report, which you may obtain upon request.
|
Additional Information 28 Prospectus
MONEY MARKET FUND
-----------------------------------------------------------------------
PLATINUM CLASS
-----------------------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
------------------------------ DECEMBER 31, -------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE 2002 2001 2000 1999 1999 1998
PERIOD: -------- -------- -------- ------------ -------- --------
Net asset value, beginning of period.... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- --------
Net investment income(A)............... 0.01 0.03 0.06 0.01 0.04 0.05
Less dividends from net investment
income............................... (0.01) (0.03) (0.06) (0.01) (0.04) (0.05)
-------- -------- -------- -------- -------- --------
Net asset value, end of period.......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ========
Total return............................ 0.98% 3.45% 5.69% 0.82%(B) 4.33% 4.89%
======== ======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in
thousands)........................... $913,240 $868,395 $800,196 $866,041 $841,653 $744,226
Ratios to average net assets
(annualized)(A):
Expenses............................. 0.93% 0.93% 0.97% 1.00% 0.97% 0.94%
Net investment income................ 0.97% 3.36% 5.54% 4.87% 4.24% 4.78%
Decrease reflected in above expense
ratio due to absorption of expenses
by the Manager..................... 0.01% -- -- -- -- --
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Money Market Portfolio.
(B) Not annualized.
Prospectus 29 Additional Information
MONEY MARKET MILEAGE FUND
--------------------------------------------------------------------------------------
PLATINUM CLASS
--------------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
-------------------------------------- DECEMBER 31, ----------------------
FOR A SHARE OUTSTANDING THROUGHOUT 2002 2001 2000 1999 1999 1998
THE PERIOD: -------- -------- -------- ------------ -------- -------
Net asset value, beginning of period..... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- -------- -------
Income from investment operations:
Net investment income(A)................ 0.01 0.03 0.05 0.01 0.04 0.05
Less dividends from net investment
income................................ (0.01) (0.03) (0.05) (0.01) (0.04) (0.05)
-------- -------- -------- -------- -------- -------
Net asset value, end of period........... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== =======
Total return............................. 0.81% 3.32% 5.57% 0.80%(B) 4.22% 4.74%
======== ======== ======== ======== ======== =======
Ratios and supplemental data:
Net assets, end of period (in
thousands)............................ $554,242 $678,026 $643,693 $442,218 $342,192 $73,875
Ratios to average net assets
(annualized)(A):
Expenses.............................. 1.10% 1.06% 1.08% 1.09% 1.09% 1.09%
Net investment income................. 0.82% 3.26% 5.46% 4.80% 4.17% 4.64%
Decrease reflected in above expense
ratio due to absorption of expenses
by the Manager...................... -- -- -- 0.01% -- 0.03%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Money Market Portfolio.
(B) Not annualized.
Additional Information 30 Prospectus
MUNICIPAL MONEY MARKET FUND
----------------------------------------------------------------------------------
PLATINUM CLASS
----------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
----------------------------------- DECEMBER 31, ---------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE 2002 2001 2000 1999 1999 1998
PERIOD: ------- ------- ------- ------------ ------- -------
Net asset value, beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net investment income(A).................... -- 0.02 0.03 0.01 0.02 0.03
Less dividends from net investment income... -- (0.02) (0.03) (0.01) (0.02) (0.03)
------- ------- ------- ------- ------- -------
Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return................................. 0.51% 1.82% 3.21% 0.47%(B) 2.27% 2.75%
======= ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands).... $71,132 $59,427 $89,602 $76,076 $81,118 $87,852
Ratios to average net assets
(annualized)(A):
Expenses.................................. 0.99% 1.00% 1.02% 1.05% 1.04% 1.04%
Net investment income..................... 0.52% 1.87% 3.17% 2.77% 2.24% 2.69%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager................................. 0.02% -- -- 0.03% 0.01% 0.03%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Municipal Money Market Portfolio.
(B) Not annualized.
Prospectus 31 Additional Information
MUNICIPAL MONEY MARKET MILEAGE FUND
-------------------------------------------
PLATINUM CLASS(B)
-------------------------------------------
YEAR ENDED
DECEMBER 31, TWO MONTHS ENDED
------------------------ DECEMBER 31,
FOR A SHARE OUTSTANDING 2002 2001 2000 1999
THROUGHOUT THE PERIOD: ------ ------ ------ ----------------
Net asset value, beginning of period............ $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------
Income from investment operations:
Net investment income(A)...................... -- 0.02 0.03 0.01
Less dividends from net investment income..... -- (0.02) (0.03) (0.01)
------ ------ ------ ------
Net asset value, end of period.................. $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ======
Total return.................................... 0.35% 1.72% 3.05% 0.45%(C)
====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)...... $7,517 $8,464 $7,889 $ 1
Ratios to average net assets (annualized)(A):
Expenses.................................... 1.16% 1.10% 1.10% 1.10%
Net investment income....................... 0.34% 1.72% 3.29% 2.74%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager................................... 0.07% 0.13% 0.06% 0.17%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Municipal Money Market Portfolio.
(B) The Platinum Class of the Municipal Money Market Mileage Fund commenced active operations on November 1, 1999 and at that time the existing shares of the Fund were designated as Mileage Class shares.
(C) Not annualized.
Additional Information 32 Prospectus
U.S. GOVERNMENT MONEY MARKET FUND
------------------------------------------------------------------------------------
PLATINUM CLASS
------------------------------------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
------------------------------------- DECEMBER 31, ---------------------
FOR A SHARE OUTSTANDING THROUGHOUT THE 2002 2001 2000 1999 1999 1998
PERIOD: -------- -------- ------- ------------ ------- -------
Net asset value, beginning of period....... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------- ------- ------- -------
Net investment income(A).................. 0.01 0.03 0.05 0.01 0.04 0.05
Less dividends from net investment
income.................................. (0.01) (0.03) (0.05) (0.01) (0.04) (0.05)
-------- -------- ------- ------- ------- -------
Net asset value, end of period............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======= ======= ======= =======
Total return............................... 0.90% 3.37% 5.53% 0.80%(B) 4.09% 4.71%
======== ======== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in
thousands).............................. $119,833 $112,670 $78,857 $78,585 $84,385 $78,412
Ratios to average net assets
(annualized)(A):
Expenses................................ 0.95% 0.95% 1.00% 1.02% 1.01% 1.01%
Net investment income................... 0.88% 3.20% 5.40% 4.77% 4.01% 4.62%
Decrease reflected in above expense
ratio due to absorption of expenses by
the Manager........................... 0.03% -- -- -- -- 0.01%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services U.S. Government Money Market Portfolio.
(B) Not annualized.
Prospectus 33 Additional Information
U.S. GOVERNMENT MONEY MARKET MILEAGE FUND
---------------------------------------------
PLATINUM CLASS(B)
---------------------------------------------
YEAR ENDED
DECEMBER 31, TWO MONTHS ENDED
-------------------------- DECEMBER 31,
FOR A SHARE OUTSTANDING 2002 2001 2000 1999
THROUGHOUT THE PERIOD: ------ ------- ------- ----------------
Net asset value, beginning of period......... $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------- ------- ------
Income from investment operations:
Net investment income(A)................... 0.01 0.03 0.05 0.01
Less dividends from net investment
income................................... (0.01) (0.03) (0.05) (0.01)
------ ------- ------- ------
Net asset value, end of period............... $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======= ======= ======
Total return................................. 0.69% 3.22% 5.47% 0.80%(C)
====== ======= ======= ======
Ratios and supplemental data:
Net assets, end of period (in thousands)... $7,405 $16,903 $12,350 $ 1
Ratios to average net assets
(annualized)(A):
Expenses................................. 1.15% 1.10% 1.10% 1.10%
Net investment income.................... 0.74% 3.11% 5.55% 4.69%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager................................ 0.06% 0.08% 0.14% 0.20%
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services U.S. Government Money Market Portfolio.
(B) The Platinum Class of the U.S. Government Money Market Mileage Fund commenced active operations on November 1, 1999 and at that time the existing shares of the Fund were designated as Mileage Class shares.
(C) Not annualized.
Additional Information 34 Prospectus
-- Notes --
-- Notes --
-- Notes --
ADDITIONAL INFORMATION ABOUT THE FUNDS IS FOUND IN THE DOCUMENTS LISTED BELOW. REQUEST A FREE COPY OF THESE DOCUMENTS BY CALLING (800) 967-9009.
ANNUAL REPORT/SEMI-ANNUAL REPORT STATEMENT OF ADDITIONAL INFORMATION The Fund's Annual and Semi-Annual The SAI contains more details about Reports list the Fund's actual the Fund and its investment policies. investments as of the report's date. The SAI is incorporated in this They also include a discussion by the Prospectus by reference (it is Manager of market conditions and legally part of this Prospectus). A investment strategies that current SAI is on file with the significantly affected the Fund's Securities and Exchange Commission performance. The report of the Fund's (SEC). independent auditors is included in the Annual Report. |
TO REDUCE EXPENSES, YOUR FINANCIAL INSTITUTION MAY MAIL ONLY ONE COPY OF THE PROSPECTUS, ANNUAL REPORT, AND SEMI-ANNUAL REPORT TO THOSE ADDRESSES SHARED BY TWO OR MORE ACCOUNTS. IF YOU WISH TO RECEIVE INDIVIDUAL COPIES OF THESE DOCUMENTS, PLEASE CONTACT YOUR FINANCIAL INSTITUTION. THEY WILL BEGIN SENDING YOU INDIVIDUAL COPIES THIRTY DAYS AFTER RECEIVING YOUR REQUEST.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
[Logo] [Logo]
BY TELEPHONE: BY MAIL:
Call (800) 967-9009 American AAdvantage Funds
P.O. Box 619003
DFW Airport, TX 75261-9003
[Logo] [Logo]
BY E-MAIL: ON THE INTERNET:
american _ aadvantage.funds@aa.com Visit our website at
www.aafunds.com
Visit the SEC website at
www.sec.gov
|
The SAI and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic mail to publicinfo@sec. gov, or by writing to: SEC's Public Reference Section, 450 5th Street NW, Washington, D.C. 20549-0102. The SAI and other information about the Funds may also be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC Public Reference Room may be obtained by calling the SEC at (202) 942-8090.
[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 or the American AAdvantage Mileage Funds. American AAdvantage Funds and American AAdvantage Mileage Funds are registered service marks of AMR Corporation. American AAdvantage Money Market Fund is a registered service mark of AMR Investment Services, Inc. Platinum Class, 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.
CASH MANAGEMENT CLASS
[LOGO]
PRIVACY POLICY
AND
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO] - MONEY MARKET FUND
- U.S. GOVERNMENT MONEY MARKET FUND
|
MANAGED BY AMR INVESTMENT SERVICES, INC. This page is not part of the Prospectus. |
[EAGLE LOGO]
[AMERICAN AADVANTAGE FUNDS LOGO]
PRIVACY POLICY
The American AAdvantage Funds recognizes and respects the privacy of our shareholders. We are providing this notice to you so you will understand how shareholder information may be collected and used.
We may collect nonpublic personal information about you from one or more of the following sources:
- information we receive from you on applications or other forms;
- information about your transactions with us or our service providers; and
- information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or service providers who need to know that information to provide products or services to you. To ensure the confidentiality of your nonpublic personal information, we maintain safeguards that comply with federal standards.
This page is not part of the Prospectus.
CASH MANAGEMENT CLASS
[LOGO]
PROSPECTUS
MARCH 1, 2003
[AMERICAN AADVANTAGE FUNDS LOGO] - MONEY MARKET FUND
- U.S. GOVERNMENT MONEY MARKET FUND
|
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
MANAGED BY AMR INVESTMENT SERVICES, INC. criminal offense.
|
[EAGLE LOGO]
TABLE OF CONTENTS
About the Funds Overview.................................................... 2 Money Market Fund......................................... 3 U.S. Government Money Market Fund......................... 7 The Manager................................................. 10 Valuation of Shares......................................... 11 About Your Investment Purchase and Redemption of Shares........................... 12 Distributions and Taxes..................................... 16 Additional Information Distribution of Fund Shares................................. 17 Master-Feeder Structure..................................... 17 Financial Highlights........................................ 18 Additional Information.................................Back Cover |
The American AAdvantage Money Market Fund and the American AAdvantage U.S. Government Money Market Fund (the "Funds") are managed by AMR Investment Services, Inc. (the "Manager"), a wholly owned subsidiary of AMR Corporation. The Manager is the sole investment adviser to the Funds. Prior to December 1, 2001, the Cash Management Class of the U.S. Government Money Market Fund was known as the Institutional Class.
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 (the "AMR Trust") that has a similar name and an 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".
About the Funds 2 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the Money Market Portfolio of the AMR Trust.
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 Ratings Services and "P-1" by Moody's Investors Service, Inc., at the time of purchase,
- 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 pursuant to guidelines approved by the Board of Trustees.
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
AMERICAN AADVANTAGE
- 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.
- Because the Fund concentrates its assets in the banking industry, factors affecting that industry could have a significant impact on the performance of the Fund.
- 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 a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. Cash Management Class shares of the Fund were not offered prior to December 1, 2001. However, another class of shares of the Fund not offered in this Prospectus began offering its shares on September 1, 1987. In the chart and table below, performance results through November 30, 2001 are for the older class. Because the other class had moderately higher expenses, its performance was slightly worse than the Cash Management 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
About the Funds 4 Prospectus
AMERICAN AADVANTAGE
1-800-658-5811 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................................................... 3.28% 94.......................................................... 4.22% 95.......................................................... 6.04% 96.......................................................... 5.50% 97.......................................................... 5.64% 98.......................................................... 5.56% 99.......................................................... 5.18% 00.......................................................... 6.45% 01.......................................................... 4.16% 02.......................................................... 1.73% |
Highest Quarterly Return: 1.65% (1/1/93 through 12/31/02) (3rd & 4th Quarter 2000) Lowest Quarterly Return: 0.37% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
MONEY MARKET FUND.......................................... 1.73% 4.60% 4.77%
|
Prospectus 5 About the Funds
AMERICAN AADVANTAGE
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)
Management Fees............................................. 0.10%
Distribution (12b-1) Fees................................... 0.00
Other Expenses.............................................. 0.12
----
Total Annual Fund Operating Expenses........................ 0.22%
====
Expense Reimbursement....................................... 0.07(2)
NET EXPENSES................................................ 0.15%
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the Money Market Portfolio of the AMR Trust.
(2) The Manager has contractually agreed to reimburse the Fund for Other Expenses through December 31, 2003 to the extent that Total Annual Fund Operating Expenses exceed 0.15%. The contractual fee waiver can be changed by a majority vote of the Fund's Board of Trustees.
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. Because the Manager has contractually agreed to reimburse expenses only through December 31, 2003, Net Expenses were used to calculate the cost in year one, and Total Annual Fund Operating Expenses were used to calculate costs for years two through ten. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR ................................................. $15 3 YEARS................................................. $64 5 YEARS................................................. $117 10 YEARS................................................ $273 |
About the Funds 6 Prospectus
AMERICAN AADVANTAGE
Current income, liquidity and the maintenance of a stable price of $1.00 per share.
The Fund seeks its investment objective by investing all of its investable assets in the U.S. Government Money Market Portfolio of the AMR Trust.
The Fund invests exclusively in obligations issued or guaranteed by the U.S. Government, its agencies or instrumentalities, repurchase agreements that are collateralized by such obligations and other investment companies that limit their investments to the foregoing securities. 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.
The Fund has a policy of investing exclusively in securities that are consistent with the Fund's name. If the Fund changes this policy, a notice will be sent to shareholders at least 60 days in advance of the change and the Prospectus will be supplemented.
- 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.
Prospectus 7 About the Funds
AMERICAN AADVANTAGE
Your investment in the Fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other financial or government institution.
The bar chart and table below provide an indication of risk by showing how the Fund's performance has varied from year to year. Prior to December 1, 2001, the Cash Management Class of the Fund was known as the Institutional Class. Past performance is not necessarily indicative of how the Fund will perform in the future. Investors may call 1-800-658-5811 or visit the Funds' website at www.aafunds.com to obtain the Fund's current seven-day yield.
[GRAPH]
TOTAL RETURN FOR THE CALENDAR YEAR ENDED 12/31 OF EACH YEAR
93.......................... 3.05% 94.......................... 4.09% 95.......................... 5.72% 96.......................... 5.23% 97.......................... 5.41% 98.......................... 5.40% 99.......................... 5.06% 00.......................... 6.31% 01.......................... 4.09% 02.......................... 1.67% |
Highest Quarterly Return: 1.62% (1/1/93 through 12/31/02) (3rd Quarter 2000) Lowest Quarterly Return: 0.35% (1/1/93 through 12/31/02) (4th Quarter 2002) |
AVERAGE ANNUAL TOTAL RETURN
-----------------------------
AS OF 12/31/02
-----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
U.S. GOVERNMENT MONEY MARKET FUND.......................... 1.67% 4.49% 4.59%
|
About the Funds 8 Prospectus
AMERICAN AADVANTAGE
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)
Management Fees............................................. 0.10%
Distribution (12b-1) Fees................................... 0.00
Other Expenses.............................................. 0.13
----
Total Annual Fund Operating Expenses........................ 0.23%
====
Expense Reimbursement....................................... 0.04(2)
NET EXPENSES................................................ 0.19%
|
(1) The expense table and the Example below reflect the expenses of both the Fund and the U.S. Government Money Market Portfolio of the AMR Trust.
(2) The Manager has contractually agreed to reimburse the Fund for Other Expenses through December 31, 2003 to the extent that Total Annual Fund Operating Expenses exceed 0.19%. The contractual fee waiver can be changed by a majority vote of the Fund's Board of Trustees.
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. Because the Manager has contractually agreed to reimburse expenses only through December 31, 2003, Net Expenses were used to calculate the cost for year one, and Total Annual Fund Operating Expenses were used to calculate costs for years two through ten. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
1 YEAR ................................................. $19 3 YEARS................................................. $70 5 YEARS................................................. $125 10 YEARS................................................ $289 |
Prospectus 9 About the Funds
The Funds have retained AMR Investment Services, Inc. to serve as their Manager. The Manager, located at 4151 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, 2002, the Manager had approximately $29.6 billion of assets under management, including approximately $16.8 billion under active management and $12.8 billion as named fiduciary or financial adviser. Approximately $14.2 billion of the Manager's total assets under management were related to AMR Corporation.
The Manager provides or oversees 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 each Fund. As compensation for providing management services, each Fund pays the Manager an annualized advisory fee that is calculated and accrued daily, equal to 0.10% of its net assets.
The Manager also may receive up to 25% of the net annual interest income or up to 25% of loan fees in regards to securities lending activities. However, the Manager does not anticipate that the Funds will engage in securities lending at this time. The Securities and Exchange Commission ("SEC") has granted exemptive relief that permits the Funds to invest cash collateral received from securities lending transactions in shares of one or more private or registered investment companies managed by the Manager.
The Manager has discretion to purchase and sell securities for the Funds in accordance with each Fund's objectives, policies, and restrictions. Pursuant to an exemptive order issued by the SEC, the Manager is permitted to enter into new or modified investment advisory agreements with existing or new investment advisers without approval of a Fund's shareholders, but subject to approval by the Boards of Trustees of the AMR Trust and the Funds (the "Boards"). The Prospectus will be supplemented if additional investment advisers are retained or the contract with the Manager is terminated.
About the Funds 10 Prospectus
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 a Fund are valued in accordance with the amortized cost method, which is designed to enable the Fund to maintain a stable NAV of $1.00 per share. Debt 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. Securities for which market quotations are not readily available are valued at fair value, as determined in good faith and pursuant to procedures approved by the Boards.
The NAV of Cash Management Class shares will be determined based on a pro rata allocation of the Fund's 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 it is open for business, or such other time as designated by a Fund, if in its discretion, the Fund accepts orders on days when the Exchange is closed. In addition to the days the Exchange is closed, the Funds are not open and no NAV is calculated on Columbus Day and Veterans Day. In certain limited circumstances, a Fund, in its discretion, may designate other days as a business day on which it will accept purchases, redemptions and exchanges.
Prospectus 11 About the Funds
Cash Management Class shares are offered to institutional investors, including:
- agents or fiduciaries acting on behalf of their clients (such as employee benefit plans, trusts and other accounts for which a trust company or financial advisor acts as agent or fiduciary);
- endowment funds and charitable foundations;
- employee welfare plans which are tax-exempt under Section 501(c)(9) of the Internal Revenue Code of 1986, as amended (Code);
- qualified pension and profit sharing plans;
- corporations; and
- other investors who meet the initial investment requirement.
An initial investment of at least $25 million is required for the Money Market Fund. The U.S. Government Money Market Fund has an initial investment requirement of $2 million. The Manager may allow a reasonable period of time after opening an account for an investor to meet the initial investment requirement. In addition, for investors such as trust companies and financial advisors who make investments for a group of clients, the minimum initial investment can be met through an aggregated purchase order for more than one client.
No sales charges are assessed on the purchase or sale of Fund shares. Shares of each Fund are offered and purchase orders are typically accepted until 4:00 p.m. Eastern Time (or the close of the Exchange, if earlier) on each day on which the Exchange is open for trading. In addition, shares of the Funds are not offered and orders are not accepted on Columbus Day and Veterans Day. If a purchase order is received in good order prior to a Fund's deadline, the purchase price will be the NAV per share next determined on that day. Wire transfers to purchase shares must be drawn in U.S. dollars on a U.S. bank.
About Your Investment 12 Prospectus
A completed, signed application is required to open an account. You may request an application form by:
- calling (800) 967-9009, or
- visiting the Funds' website at www.aafunds.com and downloading an account application.
Complete the application, sign it and:
Mail to:
American AAdvantage Funds
P.O. Box 619003
DFW Airport, TX 75261-9003
or Fax to:
(817) 931-8803
Shares of each Fund may be redeemed by telephone or mail on any day that the Fund is open for business. For assistance with completing a redemption request, please call (800) 658-5811. Proceeds from redemptions requested by 2:00 p.m. Eastern Time generally will be wired to shareholders on the same day. In any event, proceeds from a redemption order typically will be transmitted to a shareholder by no later than seven days after the receipt of a redemption request in good order. The redemption price will be the NAV next determined after a redemption order is received in good order.
Each Fund reserves the right to suspend redemptions or postpone the date of payment (i) when the Exchange is closed (other than for customary weekend and holiday closings); (ii) when trading on the Exchange is restricted; (iii) when the SEC determines that an emergency exists so that disposal of the Fund's investments or determination of its NAV is not reasonably practicable; or (iv) by order of the SEC for protection of the Fund's shareholders.
Although each Fund intends 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 its corresponding portfolio. Unpaid dividends credited to an account up to the date of redemption of all shares of a Fund generally will be paid at the time of redemption.
Prospectus 13 About Your Investment
HOW TO PURCHASE SHARES
To Make an Initial Purchase To Add to an Existing Account ----------------------------------------------------------------------- By Wire If your account has been Call (800) 658-5811 or visit established, you may call (800) www.aafunds.com (select My Account) 658-5811 or visit www.aafunds.com to purchase shares by wire. Send a (select My Account) to purchase bank wire to State Street Bank and shares by wire. Send a bank wire to Trust Co. with these instructions: State Street Bank and Trust Co. - ABA# 0110-0002-8; AC-9905-342-3, with these instructions: - Attn: American AAdvantage - ABA# 0110-0002-8; AC-9905-342-3, Funds -- Cash Management Class, - Attn: American AAdvantage - the Fund name, Fund number, and Funds -- Cash Management Class, - shareholder's account number and - the Fund name, Fund number, and registration. - account number and registration. |
About Your Investment 14 Prospectus
HOW TO REDEEM SHARES
Method Additional Instructions
-----------------------------------------------------------------------
By Telephone
Call (800) 658-5811 to request a Proceeds from redemptions placed by
redemption. telephone will generally be
transmitted by wire only, as
instructed on the application form.
By Mail
Write a letter of instruction - Other supporting documents may be
including: required for estates, trusts,
- the Fund name, Fund number, guardianships, custodians,
- the shareholder account number, corporations, and welfare,
- the number of shares or dollar pension and profit sharing plans.
amount to be redeemed, Call (800) 658-5811 instructions.
- and the authorized signature(s) - Proceeds will only be mailed to
of all persons required to sign the account address of record or
for the account. transmitted by wire to a
- A signature guarantee is commercial bank account
required. designated on the account
application form.
Mail the letter to:
American AAdvantage Funds
P.O. Box 219643
Kansas City, MO 64121-9643
|
Via My Account on www.aafunds.com If you have established bank instructions for your account, you may request a redemption by selecting My Account on www.aafunds.com. To establish bank instructions, please call (800) 658-5811. |
Prospectus 15 About Your Investment
If a shareholder's account balance in either Fund falls below $100,000, the shareholder may be asked to increase the balance. If the account balance remains below $100,000 after 45 days, the Funds reserve the right to close the account and send the proceeds to the shareholder. The Funds also reserve the right to reject any order for the purchase of shares and to limit or suspend, without prior notice, the offering of shares.
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.
Third parties who offer Fund shares, such as banks, broker-dealers and 401(k) plan providers, may charge transaction fees and may set different minimum investments or limitations on purchasing or redeeming shares.
The Funds intend to distribute most or all of their net earnings in the form of monthly dividends from net investment income and distributions of realized net capital gains. Usually, any dividends and distributions of realized net short-term capital gains are taxable as ordinary income. However, the portion of a Fund's dividends derived from its investments in certain direct U.S. Government obligations may be exempt from state and local income taxes. Unless the account application instructs otherwise, distributions will be reinvested in additional Fund shares. Distributions are paid to shareholders on the first business day of the following month.
This is only a summary of some of the important federal 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.
About Your Investment 16 Prospectus
The Funds do not incur any direct distribution expenses. However, the Funds have adopted a Distribution Plan in accordance with Rule 12b-1 under the Investment Company Act of 1940, which authorizes the use of any fees received by the Manager in accordance with the Management and Administrative Services Agreements to be used for the sale and distribution of Fund shares. In the event a Fund begins to incur distribution expenses, distribution fees may be paid out of Fund assets, possibly causing the cost of your investment to increase over time and resulting in costs higher than other types of sales charges.
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 of Trustees of the Funds determines that it is in the best interest of a Fund and its shareholders to do so. A change in a portfolio's fundamental objective, policies and restrictions, which is not approved by the shareholders of its corresponding Fund could require that Fund to redeem its interest in the portfolio. Any such redemption could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) by the portfolio. Should such a distribution occur, that Fund could incur brokerage fees or other transaction costs in converting such securities to cash. In addition, a distribution in kind could result in a less diversified
Prospectus 17 Additional Information
portfolio of investments for that Fund and could affect adversely the liquidity of the Fund. If a Fund withdraws its investment in its corresponding portfolio, the Fund's assets will be invested directly in investment securities or in another master fund, according to the investment policies and restrictions described in this Prospectus.
The financial highlights tables are intended to help you understand each Fund's financial performance for the past five fiscal years (or, if shorter, the period of the Fund's operations). Certain information reflects financial results for a single Fund share. The total returns in each Fund's table represent the rate that an investor would have earned on an investment in that Fund (assuming reinvestment of all dividends and distributions). The Fund's financial highlights were audited by Ernst & Young LLP, independent auditors, whose report, along with the Funds' financial statements, is found in the Funds' Annual Report, which you may obtain upon request.
MONEY MARKET FUND-
CASH MANAGEMENT CLASS
-----------------------------------
YEAR ENDED
DECEMBER 31, ONE MONTH ENDED
FOR A SHARE OUTSTANDING 2002 DECEMBER 31, 2001(B)
THROUGHOUT THE PERIOD: ------------ --------------------
Net asset value, beginning of period.................. $ 1.00 $ 1.00
------ -------
Net investment income(A)............................ 0.02 --
Less dividends from net investment income........... (0.02) --
------ -------
Net asset value, end of period........................ $ 1.00 $ 1.00
====== =======
Total return.......................................... 1.73% 0.19%(C)
====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands)............ $6,641 $15,006
Ratios to average net assets (annualized)(A):
Expenses.......................................... 0.19% 0.19%
Net investment income............................. 1.73% 1.96%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........... 0.03% --
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services Money Market Portfolio.
(B) The Money Market Fund commenced sales of a fourth class of shares designated as "Cash Management Class" on December 1, 2001.
(C) Not annualized.
Additional Information 18 Prospectus
U.S. GOVERNMENT MONEY MARKET
FUND-CASH MANAGEMENT CLASS
----------------------------------------------------------------
YEAR ENDED TWO MONTHS YEAR ENDED
DECEMBER 31, ENDED OCTOBER 31,
----------------------------- DECEMBER 31, -----------------
FOR A SHARE OUTSTANDING 2002 2001(B) 2000 1999 1999 1998
THROUGHOUT THE PERIOD: ------- ------- ------- ------------ ------- -------
Net asset value, beginning of period........ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- ------- -------
Net investment income(A)................... 0.02 0.04 0.06 0.01 0.05 0.05
Less dividends from net investment
income................................... (0.02) (0.04) (0.06) (0.01) (0.05) (0.05)
------- ------- ------- ------- ------- -------
Net asset value, end of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= ======= =======
Total return................................ 1.67% 4.09%(C) 6.31% 0.94%(D) 4.94% 5.47%
======= ======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)... $38,310 $66,302 $36,391 $37,385 $32,427 $39,004
Ratios to average net assets
(annualized)(A):
Expenses................................. 0.19% 0.25% 0.26% 0.18% 0.19% 0.30%
Net investment income.................... 1.69% 3.74% 6.16% 5.60% 4.83% 5.34%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager................................ 0.04% -- -- -- -- --
|
(A) The per share amounts and ratios reflect income and expenses assuming inclusion of the Fund's proportionate share of the income and expenses of the AMR Investment Services U.S. Government Money Market Portfolio.
(B) Prior to December 1, 2001, the Cash Management Class of the U.S. Government Money Market Fund was known as the Institutional Class of the U.S. Government Money Market Fund.
(C) Total return for the Fund for the year ended December 31, 2001 reflects Institutional Class returns from January 1, 2001 through November 30, 2001 and returns of the Cash Management Class from December 1, 2001 (commencement of operations) through December 31, 2001. Due to the different expense structures between the classes, total return would vary from the results shown had the Cash Management Class been in operation for the entire year.
(D) Not annualized.
Prospectus 19 Additional Information
-- Notes --
-- Notes --
ADDITIONAL INFORMATION ABOUT THE FUNDS IS FOUND IN THE DOCUMENTS LISTED BELOW. REQUEST A FREE COPY OF THESE DOCUMENTS BY CALLING (800) 658-5811.
ANNUAL REPORT/SEMI-ANNUAL REPORT
The Funds' Annual and Semi-Annual Reports list the Funds' 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 Funds' performance. The report of the Funds' independent auditors is included in the Annual Report.
STATEMENT OF ADDITIONAL INFORMATION
The SAI contains more details about the Funds and their 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:
[LOGO] [LOGO]
BY TELEPHONE: BY E-MAIL:
Call (800) 658-5811 american _ aadvantage.funds@aa.com
[LOGO] [LOGO]
BY MAIL: ON THE INTERNET:
American AAdvantage Funds Visit our website at
P.O. Box 619003 www.aafunds.com
DFW Airport, TX 75261-9003 Visit the SEC website at
www.sec.gov
|
The SAI and other information about the Funds are available on the EDGAR Database on the SEC's Internet site at http://www.sec.gov. Copies of this information may be obtained, after paying a duplicating fee, by electronic mail to publicinfo@sec. gov, or by writing to: SEC's Public Reference Section, 450 5th Street NW, Washington, D.C. 20549-0102. The SAI and other information about the Funds may also be reviewed and copied at the SEC's Public Reference Room. Information on the operation of the SEC Public Reference Room may be obtained by calling the SEC at (202) 942-8090.
[AMERICAN AADVANTAGE FUNDS LOGO]
SEC File Number 811-4984
American Airlines is not responsible for investments made in the American AAdvantage Funds. American AAdvantage Funds is a service mark of AMR Corporation. American AAdvantage Money Market Fund is a registered service mark of AMR Investment Services, Inc. American AAdvantage U.S. Government Money Market Fund is a service mark of AMR Investment Services, Inc.
STATEMENT OF ADDITIONAL INFORMATION
AMERICAN AADVANTAGE FUNDS(R)
-- AMR CLASS(SM) --
-- INSTITUTIONAL CLASS --
-- PLANAHEAD CLASS(R) --
MARCH 1, 2003
Balanced Fund International Equity Index Fund S&P 500 Index Fund
Emerging Markets Fund Large Cap Growth Fund Short-Term Bond Fund
High Yield Bond Fund Large Cap Value Fund(1) Small Cap Index Fund
Intermediate Bond Fund Money Market Fund Small Cap Value Fund
International Equity Fund Municipal Money Market Fund U.S. Government Money Market Fund
|
(1) Prior to March 1, 1999, named the Growth and Income Fund.
Each Fund (collectively, the "Funds") is a separate investment portfolio of the American AAdvantage Funds (the "Trust"), a no-load, open-end management investment company organized as a Massachusetts business trust on January 16, 1987. Each Fund constitutes a separate investment portfolio with a distinct investment objective and distinct purpose and strategy. Each Fund (except the Small Cap Index Fund and International Equity Index Fund) is comprised of multiple classes of shares designed to meet the needs of different groups of investors. The Small Cap Index Fund and International Equity Index Fund only offer the Institutional Class of shares. This Statement of Additional Information ("SAI") relates to the AMR, Institutional and PlanAhead Classes of the Trust.
The International Equity, International Equity Index, Money Market, Municipal Money Market, S&P 500 Index, Small Cap Index, and U.S. Government Money Market Funds operate under a master-feeder structure (the "Master-Feeder Funds"). Each Master-Feeder Fund invests all of its investable assets in a corresponding portfolio with a similar name and identical investment objective. The International Equity Fund, Money Market Fund, Municipal Money Market Fund and U.S. Government Money Market Fund each seeks its investment objective by investing all of its investable assets in a corresponding portfolio of the AMR Investment Services Trust ("AMR Trust"), a separate investment company managed by AMR Investment Services, Inc. (the "Manager"). The S&P 500 Index Fund seeks its investment objective by investing all of its investable assets in the State Street Equity 500 Index Portfolio ("Equity 500 Index Portfolio"), a separate investment company managed by SSgA Funds Management, Inc. ("SSgA"), a subsidiary of State Street Corp. and an affiliate of State Street Bank and Trust Company ("State Street"). The International Equity Index Fund and the Small Cap Index Fund each seeks its investment objective by investing all of its investable assets in a corresponding portfolio of the Quantitative Master Series Trust ("Index Trust"), which is managed by Fund Asset Management, L.P. ("FAM"). The International Equity Index Fund invests all of its investable assets in the Master International Index Series ("International Index Series"). The Small Cap Index Fund invests all of its investable assets in the Master Small Cap Index Series ("Small Cap Index Series"). The Equity 500 Index Portfolio, the International Index Series, the Small Cap Index Series, and the portfolios of the AMR Trust are referred to herein individually as a "Portfolio" and, collectively, the "Portfolios."
This SAI should be read in conjunction with an AMR Class, an
Institutional Class or a PlanAhead Class prospectus, dated March 1, 2003,
(individually, a "Prospectus"), copies of which may be obtained without charge
by calling (800) 388-3344 for a PlanAhead or Institutional Class Prospectus or
(817) 967-3509 for an AMR Class Prospectus.
This SAI is not a prospectus and is authorized for distribution to prospective investors only if preceded or accompanied by a current Prospectus.
TABLE OF CONTENTS
Non-Principal Investment Strategies and Risks............................................................................2
Investment Restrictions..................................................................................................3
Temporary Defensive Position.............................................................................................8
Portfolio Turnover.......................................................................................................9
Trustees and Officers of the Trust and the AMR Trust.....................................................................9
Trustees and Officers of the Index Trust................................................................................13
Trustees and Officers of the Equity 500 Index Portfolio.................................................................17
Code of Ethics..........................................................................................................19
Control Persons and 5% Shareholders.....................................................................................19
Investment Advisory Agreements..........................................................................................25
Management, Administrative and Distribution Services....................................................................26
Other Service Providers.................................................................................................29
Portfolio Securities Transactions.......................................................................................29
Redemptions in Kind.....................................................................................................33
Net Asset Value.........................................................................................................33
Tax Information.........................................................................................................33
Yield and Total Return Quotations.......................................................................................37
Description of the Trust................................................................................................42
Other Information.......................................................................................................43
Financial Statements....................................................................................................59
|
NON-PRINCIPAL INVESTMENT STRATEGIES AND RISKS
In addition to the investment strategies described in the Prospectuses, the Balanced Fund, the Emerging Markets Fund, the High Yield Bond Fund, the International Equity Fund, the International Equity Index Fund, the Large Cap Growth Fund, the Large Cap Value Fund, the Small Cap Index Fund, and the Small Cap Value Fund each may:
Invest up to 20% of its total assets in debt securities that are investment grade at the time of purchase, including obligations of the U.S. Government, its agencies and instrumentalities, corporate debt securities, mortgage-backed securities, asset-backed securities, master-demand notes, Yankeedollar and Eurodollar bank certificates of deposit, time deposits, bankers' acceptances, commercial paper and other notes, and other debt securities. Investment grade securities include securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, as well as securities rated in one of the four highest rating categories by all rating organizations rating that security, such as Standard & Poor's Ratings Services ("Standard & Poor's") or Moody's Investors Service, Inc. ("Moody's"). Obligations rated in the fourth highest rating category are limited to 25% of each of these Funds' debt allocations. These Funds, at the discretion of the investment advisers, may retain a debt security that has been downgraded below the initial investment criteria. The International Equity Fund may invest up to 20% of its total assets in non-U.S. debt securities that are rated at the time of purchase in one of the three highest rating categories by any rating organization or, if unrated, are deemed to be of comparable quality by the applicable investment adviser and traded publicly on a world market. The High Yield Bond Fund may invest more than 20% in investment grade debt securities and more than 25% in obligations rated in the fourth highest rating category.
Each Fund may (except where indicated otherwise):
1. Engage in dollar rolls or purchase or sell securities on a when-issued or forward commitment basis. (The S&P 500 Index Fund, Small Cap Index Fund, and International Equity Index Fund (the "Index
Funds") will not engage in dollar rolls or purchase or sell securities on a forward commitment basis.) The purchase or sale of when-issued securities enables an investor to hedge against anticipated changes in interest rates and prices by locking in an attractive price or yield. The price of when-issued securities is fixed at the time the commitment to purchase or sell is made, but delivery and payment for the when-issued securities takes place at a later date, normally one to two months after the date of purchase. During the period between purchase and settlement, no payment is made by the purchaser to the issuer and no interest accrues to the purchaser. Such transactions therefore involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or if the value of the security to be sold increases prior to the settlement date. A sale of a when-issued security also involves the risk that the other party will be unable to settle the transaction. Dollar rolls are a type of forward commitment transaction. Purchases and sales of securities on a forward commitment basis involve a commitment to purchase or sell securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction. As with when-issued securities, these transactions involve certain risks, but they also enable an investor to hedge against anticipated changes in interest rates and prices. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued. When purchasing securities on a when-issued or forward commitment basis, a segregated account of liquid assets at least equal to the value of purchase commitments for such securities will be maintained until the settlement date.
2. Invest in other investment companies (including affiliated investment companies) to the extent permitted by the Investment Company Act of 1940 ("1940 Act") or exemptive relief granted by the Securities and Exchange Commission ("SEC").
3. 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 Fund exceeds 33 1/3% of its total assets (including the market value of collateral received). For purposes of complying with a Fund's investment policies and restrictions, collateral received in connection with securities loans is deemed an asset of the Fund to the extent required by law. For all Funds that engage in securities lending (except the Index Funds), 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 Fund continues to receive dividends or interest, as applicable, 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. The Money Market Funds do not currently engage in securities lending nor does the Manager anticipate that they will do so in the near future.
4. Enter into repurchase agreements. A repurchase agreement is an agreement under which securities are acquired by a Fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the Fund is delayed or prevented from exercising its rights to dispose of the collateral securities. However, the investment advisers, SSgA, FAM, or the Manager, as applicable, attempt to minimize this risk by entering into repurchase agreements only with financial institutions that are deemed to be of good financial standing.
5. 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 Money Market Funds will not invest
more than 10% (and the other Funds will not invest more than 15%) of
their respective net assets in Section 4(2) securities and illiquid
securities unless the investment adviser, SSgA, FAM, or the Manager, as
applicable, determines, by continuous reference to the appropriate
trading markets and pursuant to guidelines approved by the Trust's
Board of Trustees ("Board"), the AMR Trust's Board of Trustees ("AMR
Trust Board"), the Equity 500 Index Portfolio Board or the Index Trust
Board, as applicable, that any Section 4(2) securities held by such
Fund 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 another investment company or series thereof that has substantially similar investment objectives and policies:
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 and non-fundamental investment policies of each Master-Feeder Fund and its corresponding Portfolio are identical, except for the S&P 500 Index Fund and the Equity 500 Index Portfolio, as described under "Equity 500 Index Portfolio and S&P 500 Index Fund" below.
ALL FUNDS EXCEPT THE INDEX FUNDS
Although the following discusses the investment policies of each Fund (except the Index Funds) and the Board, it applies equally to each AMR Trust Portfolio and the AMR Trust Board. Future references in this section to "Fund" shall include the AMR Trust Portfolios.
In addition to the investment limitations noted in the Prospectuses, the following nine restrictions have been adopted by each Fund, and may be changed with respect to any such Fund only by the majority vote of that Fund's outstanding interests. "Majority of the outstanding voting securities" under the 1940 Act, as amended, and as used herein means, with respect to the Fund, the lesser of (a) 67% of the shares of the Fund present at the meeting if the holders of more than 50% of the shares are present and represented at the shareholders' meeting or (b) more than 50% of the shares of the Fund. Whenever a Master-Feeder Fund is requested to vote on a change in the investment restrictions of its corresponding Portfolio, that Master-Feeder Fund will hold a meeting of its shareholders and will cast its votes as instructed by its shareholders. The percentage of a Master-Feeder Fund's votes representing that Master-Feeder Fund's shareholders not voting will be voted by the Board in the same proportion as those Master-Feeder Fund shareholders who do, in fact, vote.
No Fund may:
1. Purchase or sell real estate or real estate limited partnership interests, provided, however, that a Portfolio may invest in securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein when consistent with the other policies and limitations described in the Prospectuses.
2. Purchase or sell commodities (including direct interests and/or leases in oil, gas or minerals) or commodities contracts, except with respect to forward foreign currency exchange contracts and foreign currency futures contracts when consistent with the other policies and limitations described in the Prospectuses. In addition, the Balanced Fund, Emerging Markets Fund, High Yield Bond Fund, International Equity Portfolio, Large Cap Growth Fund, Large Cap Value Fund, and Small Cap Value Fund may purchase or sell futures contracts and options on futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable.
3. Engage in the business of underwriting securities issued by others, except to the extent that, in connection with the disposition of securities, a Fund 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 Fund may lend its portfolio securities to broker-dealers or other institutional investors in accordance with the guidelines stated in this SAI.
5. Purchase from or sell portfolio securities to its officers, Trustees or other "interested persons" of the Trust, as defined in the 1940 Act, including its investment advisers and their affiliates, except as permitted by the 1940 Act and exemptive rules or orders thereunder.
6. Issue senior securities, except that a Fund may engage in when-issued and forward commitment securities transactions and the Emerging Markets Fund, International Equity Portfolio and Large Cap Growth Fund may engage in foreign currency futures and forward foreign currency contracts.
7. Borrow money, except from banks or through reverse repurchase agreements for temporary purposes. In addition, the Balanced Fund, Emerging Markets Fund, High Yield Bond Fund, International Equity Portfolio, Large Cap Growth Fund, Large Cap Value Fund, and Small Cap Value Fund may borrow money from the Manager or any of its affiliates for temporary purposes. The aggregate amount of borrowing for each Fund shall not exceed 10% of the value of the Fund's assets at the time of borrowing. Although not a fundamental policy, the Funds intend to repay any money borrowed before any additional portfolio securities are purchased. See "Other Information" for a further description of 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 a Fund's total assets; or
9. Invest more than 25% of its total assets in the securities of companies primarily engaged in any one industry, provided that: (i) this limitation does not apply to obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities; (ii) municipalities and their agencies and authorities are not deemed to be industries; and (iii) financial service companies are classified according to the end users of their services (for example, automobile finance, bank finance, and diversified finance will be considered separate industries).
The above percentage limits are based upon asset values at the time of the applicable transaction; accordingly, a subsequent change in asset values will not affect a transaction that was in compliance with the investment restrictions at the time such transaction was effected.
The following non-fundamental investment restrictions apply to each Fund and Portfolio (except where noted otherwise) and may be changed with respect to each Fund by a vote of a majority of the Board or, with respect to a Portfolio, by a vote of a majority of the AMR Trust Board. No Fund or Portfolio may:
1. Invest more than 15% (10% for the Money Market Funds) of its net assets in illiquid securities, including time deposits and repurchase agreements that mature in more than seven days; or
2. Purchase securities on margin, effect short sales or purchase or
sell call options or engage in the writing of such options, except that
(i) a Fund or Portfolio may obtain such short term credits as may be
necessary for the clearance of purchases or sales of securities, (ii)
the High Yield Bond Fund may effect short sales, and (iii) the Balanced
Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value
Fund, International Equity Portfolio, Emerging Markets Fund, and High
Yield Bond Fund may purchase or sell futures contracts and options on
futures contracts.
All Funds and Portfolios of the AMR Trust may invest up to 10% of their total assets in the securities of other investment companies to the extent permitted by law. In addition, pursuant to exemptive relief granted by the SEC, a Fund or Portfolio may invest up to 25% of its total assets in the aggregate of the Money Market Portfolio, Municipal Money Market Portfolio, and U.S. Government Money Market Portfolio. A Fund or Portfolio of the AMR Trust may incur duplicate advisory or management fees when investing in another mutual fund.
INDEX TRUST PORTFOLIOS, SMALL CAP INDEX FUND AND INTERNATIONAL EQUITY INDEX FUND
Although the following discusses the investment policies of each Index Trust Portfolio and the Index Trust Board, identical policies have been adopted by the Small Cap Index Fund and International Equity Index Fund and the Board.
The following investment restrictions are "fundamental policies" of the Index Trust Portfolios and may be changed with respect to each Portfolio or Fund only by the majority vote of the Portfolio's or Fund's outstanding interests or shares, respectively, as defined above. Whenever a Fund is requested to vote on a change in the fundamental policy of its Portfolio, the applicable Fund will hold a meeting of its shareholders and will cast its votes as instructed by its shareholders. The percentage of the Fund's votes representing Fund shareholders not voting will be voted by the Board in the same proportion as the Fund shareholders who do, in fact, vote. Neither Index Trust Portfolio may:
1. Make any investment inconsistent with the Portfolio's classification as a non-diversified company under the 1940 Act.
2. Invest more than 25% of its total assets, taken at market value, in the securities of issuers in any particular industry (excluding the U.S. Government and its agencies and instrumentalities); provided, that in replicating the weighting of a particular industry in its target index, a Portfolio may invest more than 25% of its total assets in securities of issuers in that industry when the assets of companies included in the target index that are in the industry represent more than 25% of the total assets of all companies included in the index.
3. Make investments for the purpose of exercising control or management.
4. Purchase or sell real estate, except that, to the extent permitted by law, a Portfolio may invest in securities directly or indirectly secured by real estate or interests therein or issued by companies which invest in real estate or interests therein.
5. Make loans to other persons, except that the acquisition of bonds, debentures or other corporate debt securities and investment in government obligations, commercial paper, pass-through instruments, certificates of deposit, bankers acceptances, repurchase agreements or any similar instruments shall not be deemed to be the making of a loan, and except further that a Portfolio may lend its portfolio securities, provided that the lending of portfolio securities may be made only in accordance with applicable law and the guidelines set forth in the Portfolio's SAI, as they may be amended from time to time.
6. Issue senior securities to the extent such issuance would violate applicable law.
7. Borrow money, except that (i) a Portfolio may borrow from banks (as defined in the 1940 Act) in amounts up to 33 1/3% of its total assets (including the amount borrowed), (ii) a Portfolio may borrow up to an additional 5% of its total assets for temporary purposes, (iii) a Portfolio may obtain such short term credit as may be necessary for the clearance of purchases and sales of portfolio securities and (iv) a Portfolio may purchase securities on margin to the extent permitted by applicable law. A Portfolio may not pledge its assets other than to secure such borrowings or, to the extent permitted by the Portfolio's investment policies as set forth in its Prospectus and SAI, as they may be amended from time to time, in connection with hedging transactions, short sales, forward commitment transactions and similar investment strategies.
8. Underwrite securities of other issuers except insofar as a Portfolio technically may be deemed an underwriter under the 1933 Act in selling portfolio securities.
9. Purchase or sell commodities or contracts on commodities, except to the extent that a Portfolio may do so in accordance with applicable law and the Portfolio's Prospectus and SAI, as they may be amended from time to time, and without registering as a commodity pool operator under the Commodity Exchange Act.
In addition, although each Index Trust Portfolio is classified as a non-diversified fund under the 1940 Act and is not subject to the diversification requirements of the 1940 Act, each Portfolio must comply with certain diversification requirements under the Internal Revenue Code of 1986, as amended (the "Tax Code"), to enable the Fund that invests therein to satisfy the tax diversification requirements that apply to that Fund. To ensure that the Index Trust Portfolios satisfy these requirements, the Index Trust's Declaration of Trust requires that each Index Trust Portfolio be managed in compliance with these requirements as though they were applicable to the Portfolios. Whether these requirements are satisfied will be determined at the Portfolio level and not at the Fund level, based in part upon a private letter ruling the Index Trust received from the Internal Revenue Service ("IRS") that entitles funds that invest in an Index Trust Portfolio to "look through" the shares of the Portfolio to its underlying investments for purposes of these diversification requirements.
In addition, the Index Trust has adopted non-fundamental restrictions that may be changed by the Index Trust Board without shareholder approval. Like the fundamental restrictions, none of the non-fundamental restrictions, including but not limited to restriction (a) below, shall prevent an Index Trust Portfolio from investing all of its assets in shares of another registered investment company with the same investment objective (in a master-feeder structure). Under the non-fundamental restrictions, an Index Trust Portfolio may not:
(a) Purchase securities of other investment companies, except to the extent such purchases are permitted by applicable law. As a matter of policy, however, a Portfolio will not purchase shares of any registered open-end investment company or registered unit investment trust, in reliance on Section 12(d)(1)(F) or (G) (the "fund of funds" provisions) of the 1940 Act, at any time the Portfolios' shares are owned by another investment company that is part of the same group of investment companies as the Portfolios.
(b) Make short sales of securities or maintain a short position, except to the extent permitted by applicable law and otherwise permitted by the Portfolios' prospectus or SAI.
(c) Invest in securities that cannot be readily resold because of legal or contractual restrictions or that cannot otherwise be marketed, redeemed or put to the issuer or a third party, if at the time of acquisition more than 15% of its net assets would be invested in such securities. This restriction shall not apply to securities that mature within seven days or securities that the Index Trust Board has otherwise determined to be liquid pursuant to applicable law. Securities purchased in accordance with Rule 144A under the 1933 Act (which are restricted securities that can be resold to qualified institutional buyers, but not to the general public) and determined to be liquid by the Trustees are not subject to the limitations set forth in this investment restriction.
(d) Make any additional investments if the amount of its borrowings exceeds 5% of its total assets. Borrowings do not include the use of investment techniques that may be deemed to create leverage, including, but not limited to, such techniques as dollar rolls, when-issued securities, options and futures.
(e) Change its policy of investing, under normal circumstances, at least 80% of its assets in securities or other financial instruments in, or correlated with, its target index without providing shareholders with at least 60 days prior written notice of such change.
If a percentage restriction on the investment use of assets set forth above is adhered to at the time a transaction is effected, later changes in percentages resulting from changing values will not be considered a violation.
The staff of the SEC has taken the position that purchased over-the-counter ("OTC") options and the assets used as cover for written OTC options are illiquid securities. Therefore, the Index Trust has adopted an investment policy pursuant to which neither Portfolio will purchase or sell OTC options (including OTC options on futures contracts) if, as a result of such transactions, the sum of: (i) the market value of OTC options currently outstanding that are held by such Portfolio, (ii) the market value of the underlying securities covered by OTC call options currently outstanding that were sold by the Portfolio, (iii) and margin deposits on the Portfolio's existing OTC options on futures contracts exceeds 15% of the total assets of the Portfolio taken at market value, together with all other assets of such Portfolio that are deemed to be illiquid or are not otherwise readily marketable. However, if the OTC options are sold by a Portfolio to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and if a Portfolio has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then the Portfolio will treat as illiquid such amount of the underlying securities as is equal to the repurchase price less the amount by which the option is "in-the-money" (i.e., current market value of the underlying securities minus the option's strike price). The repurchase price with the primary dealer is typically a formula price that is generally based on a multiple of the premium received for the option plus the amount by which the option is "in-the-money." This policy as to OTC options is not a fundamental policy of any Portfolio and may be amended by the Index Trust Board without the approval of the Portfolio's interest holders. However, the Index Trust Board will not change or modify this policy prior to the change or modification by the SEC staff of its position.
Index Trust Portfolio securities generally may not be purchased from, sold or loaned to FAM or its affiliates or any of their directors, trustees, general partners, officers or employees, acting as principal, unless pursuant to a rule or exemptive order under the 1940 Act. Because of the affiliation of Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") with FAM, the Index Trust Portfolios are prohibited from engaging in certain transactions involving Merrill Lynch or its affiliates, except for brokerage transactions permitted under the 1940 Act involving only usual and customary commissions or transactions pursuant to an exemptive order under the 1940 Act. See "Portfolio Securities Transactions."
EQUITY 500 INDEX PORTFOLIO AND S&P 500 INDEX FUND
The following investment restrictions are "fundamental policies" of the Equity 500 Index Portfolio and the S&P 500 Index Fund, and may be changed with respect to the Portfolio or the Fund only by the majority vote of the Portfolio's or Fund's outstanding interests or shares, respectively, as defined above. Except where noted otherwise, the fundamental investment restrictions of the Equity 500 Index Portfolio and the S&P 500 Index Fund are substantially the same. Whenever the S&P 500 Index Fund is requested to vote on a change in the fundamental policy of the Portfolio, the Fund will hold a meeting of its shareholders and will cast its votes as instructed by its shareholders. The percentage of the Fund's votes representing Fund shareholders not voting will be voted by the Board in the same proportion as the Fund shareholders who do, in fact, vote.
The Equity 500 Index Portfolio and S&P 500 Index Fund may not:
1. Borrow more than 33 1/3% of the value of its total assets less all liabilities and indebtedness (other than such borrowings). The S&P 500 Index Fund may borrow money in an amount not more than 1/3 of the current value of its net assets as a temporary measure for extraordinary or emergency purposes and enter into reverse repurchase agreements or dollar roll transactions, and it may pledge, mortgage or hypothecate not more than 1/3 of such assets to secure such borrowings (it is intended that money would be borrowed only from banks and only either to accommodate requests for the withdrawal of beneficial interests (redemption of shares) while effecting an orderly liquidation of portfolio securities or to maintain liquidity in the event of an unanticipated failure to complete a portfolio security transaction
or other similar situations) or reverse repurchase agreements, provided that collateral arrangements with respect to options and futures, including deposits of initial deposit and variation margin, are not considered a pledge of assets for purposes of this restriction and except that assets may be pledged to secure letters of credit solely for the purpose of participating in a captive insurance company sponsored by the Investment Company Institute.
2. Underwrite securities issued by other persons except to the extent that, in connection with the disposition of its portfolio investments, it may be deemed to be an underwriter under certain federal securities laws.
3. Purchase or sell real estate, although it may purchase securities of issuers which deal in real estate, securities which are secured by interests in real estate, and securities which represent interests in real estate, and it may acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt obligations secured by real estate or interests therein. The S&P 500 Index Fund may not purchase or sell interests in oil, gas or mineral leases.
4. Purchase or sell commodities or commodity contracts, except that it may purchase and sell financial futures contracts and options and may enter into foreign exchange contracts and other financial transactions not involving the direct purchase or sale of physical commodities.
5. Make loans, except by purchase of debt obligations in which the Portfolio may invest consistent with its investment policies, by entering into repurchase agreements, or by lending its portfolio securities. The S&P 500 Index Fund may not make loans to other persons except: (a) through the lending of the Fund's portfolio securities and provided that any such loans not exceed 30% of the Fund's net assets (taken at market value); (b) through the use of repurchase agreements or the purchase of short-term obligations; or (c) by purchasing a portion of an issue of debt securities of types distributed publicly or privately.
6. With respect to 75% of its total assets, invest in the securities of any issuer if, immediately after such investment, more than 5% of the total assets of the Portfolio (taken at current value) would be invested in the securities of such issuer; provided that this limitation does not apply to obligations issued or guaranteed as to interest or principal by the U.S. government or its agencies or instrumentalities.
7. With respect to 75% of its total assets, acquire more than 10% of the outstanding voting securities of any issuer.
8. Purchase securities (other than securities of the U.S. government, its agencies or instrumentalities) if, as a result of such purchase, more than 25% of the Portfolio's total assets would be invested in any one industry.
9. Issue any class of securities that is senior to the Portfolio's beneficial interests, to the extent prohibited by the Investment Company Act of 1940, as amended, provided that, for the S&P 500 Index Fund, collateral arrangements with respect to options and futures, including deposits of initial deposit and variation margin, are not considered to be the issuance of a senior security for purposes of this restriction.
In addition, it is contrary to the Portfolio's present policy, which may be changed without interest holder approval, to invest in (a) securities which are not readily marketable, (b) securities restricted as to resale (excluding securities determined by the Trustees of the Trust (or the person designated by the Trustees of the Trust to make such determinations) to be readily marketable), and (c) repurchase agreements maturing in more than seven days, if, as a result, more than 15% of the Portfolio's net assets (taken at current value) would be invested in securities described in (a), (b) and (c) above.
All percentage limitations on investments will apply at the time of the making of an investment and shall not be considered violated unless an excess or deficiency occurs or exists immediately after and as a result of such investment. Except for the investment restrictions listed above as fundamental or to the extent designated as such in the Prospectus with respect to the Portfolio, the other investment policies described in this SAI or in the Prospectus are not fundamental and may be changed by approval of the Trustees.
TEMPORARY DEFENSIVE POSITION
While assuming a temporary defensive position, a Fund or Portfolio may invest in cash or cash equivalent short-term investment grade obligations, including: obligations of the U.S. Government, its agencies and instrumentalities; corporate debt securities, such as commercial paper, master demand notes, loan participation interests, medium-term notes and funding agreements; Yankeedollar and Eurodollar bank certificates of deposit, time deposits, and bankers' acceptances; asset-backed securities; and repurchase agreements involving the foregoing obligations.
PORTFOLIO TURNOVER
High portfolio turnover can increase a Fund's transaction costs and generate additional capital gains or losses. The portfolio turnover rate for the Balanced, High Yield Bond and Intermediate Bond Funds may continue to exceed 100% due to the active style in which the portfolios are managed in response to changes in market conditions.
TRUSTEES AND OFFICERS OF THE TRUST AND THE AMR TRUST
The Board provides broad supervision over the Trust's affairs. The Manager is responsible for the management of Trust assets, and the Trust's officers are responsible for the Trust's operations. The Trustees and officers of the Trust and AMR Trust are listed below, together with their principal occupations during the past five years. Unless otherwise indicated, the address of each person listed below is 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-four funds in the fund complex that includes the AMR Trust, the American AAdvantage Funds, the American AAdvantage Mileage Funds, and the American AAdvantage Select Funds.
POSITION, TERM OF OFFICE
AND LENGTH OF TIME
NAME, AGE AND ADDRESS SERVED WITH EACH TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
--------------------- ------------------------ ---------------------------------------------------------------------
INTERESTED TRUSTEES
Term
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (55) Trustee and President President, AMR Investment Services, Inc. (1986-Present); Chairman,
of Trust since 1987 American Airlines Federal Credit Union (1989-Present); Director,
and AMR Trust since Crescent Real Estate Equities, Inc. (1994-Present); Director, MW
1995 Pritchard, Hubble & Herr, LLC (2001-Present); Director, Southern
Methodist University Endowment Fund Investment Committee
(1996-Present); Member, Southern Methodist University Cox School of
Business Advisory Board (1999-Present); Member, New York Stock
Exchange Pension Manager Committee (1997-1998, 2000-Present); Trustee,
American AAdvantage Mileage Funds (1995-Present); Trustee, American
AAdvantage Select Funds (1999-Present).
Alan D. Feld** (66) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications (1984-Present);
Trustee, CenterPoint Properties (1994-Present); Trustee, American
AAdvantage Mileage Funds (1996-Present); Trustee, American AAdvantage
Select Funds (1999-Present).
------------------------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
------------------------------------------------------------------------------------------------------------------------------------
Term
Lifetime of Trust
until removal,
resignation or
retirement*
Stephen D. O'Sullivan (67) Trustee of AAdvantage Consultant (1994-Present); Trustee, American AAdvantage Mileage Funds
Trust since 1987 and (1995-Present); Trustee, American AAdvantage Select Funds
AMR Trust since 1995 (1999-Present).
R. Gerald Turner (57) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986-Present); Director, J.C. Penney Company, Inc.
Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp.
Dallas, Texas 75275 (2001-Present); Member, United Way of Dallas Board of Directors;
Member, Salvation Army of Dallas Board of Directors; Member, Methodist
Hospital Advisory Board; Member, Knight Commission on Intercollegiate
Athletics; Member, National Association of Independent Colleges and
Universities Board of Directors; Trustee, American AAdvantage Mileage
Funds (2001-Present); Trustee, American AAdvantage Select Funds
(2001-Present).
Kneeland Youngblood (47) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court (1998-Present); Trustee, The Hockaday School (1997-Present); Director,
Suite 1740 Starwood Hotels and Resorts (2001-Present); Member, Council on Foreign
Dallas, Texas 75201 Relations (1995-Present); Director, Just For the Kids (1995-Present);
Director, L&B Realty Advisors (1998-2000); Trustee, Teachers
Retirement System of Texas (1993-1999); Director, United States
Enrichment Corporation (1993-1998); Director, Starwood Financial Trust
(1998-2001); Trustee, American AAdvantage Mileage Funds
(1996-Present); Trustee, American AAdvantage Select Funds
(1999-Present).
------------------------------------------------------------------------------------------------------------------------------------
OFFICERS
Term
One Year
Nancy A. Eckl (40) VP of AAdvantage Trust Vice President, Trust Investments, AMR Investment Services, Inc.
since 1990 and AMR (1990-Present).
Trust since 1995
------------------------------------------------------------------------------------------------------------------------------------
|
POSITION, TERM OF OFFICE
AND LENGTH OF TIME
NAME, AGE AND ADDRESS SERVED WITH EACH TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
--------------------- -------------------------- ---------------------------------------------------------------------
OFFICERS (CONTINUED)
Term
One Year
Michael W. Fields (49) VP of AAdvantage Trust Vice President, Fixed Income Investments, AMR Investment Services,
since 1989 and AMR Inc. (1988-Present).
Trust since 1995
Barry Y. Greenberg (39) VP and Assistant Vice President, Legal and Compliance, AMR Investment Services, Inc.
Secretary since 1995 (1995-Present).
Rebecca L. Harris (36) Treasurer since 1995 Vice President, Finance, AMR Investment Services, Inc. (1995-Present).
John B. Roberson (44) VP of AAdvantage Trust Vice President, Director of Sales, AMR Investment Services, Inc.
since 1989 and AMR (1991-Present).
Trust since 1995
Robert J. Zutz (50) Secretary since 1998 Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave. NW
2nd Floor
Washington, D.C. 20036
-------------------------------------------------------------------------------------------------------------------------------
|
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 70, with the exception of Mr. Quinn.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust and AMR Trust, as defined by the 1940 Act. Mr. Quinn is President of the Manager. Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump") has provided legal services within the past two years to one or more of the Trust's and AMR Trust's investment advisers.
The Trust and the AMR Trust have an Audit Committee, consisting of
Messrs. Feld, O'Sullivan, Turner, and Youngblood. Except for Mr. Feld, the
members of the committee are not "interested persons" of either Trust, as
defined by the 1940 Act. As set forth in its charter, the primary duties of each
Trust's Audit Committee are: 1) to recommend to the Board auditors to be
retained for the next fiscal year, 2) to meet with the Trust's independent
auditors as necessary, 3) to consider the effect upon each Fund of any changes
in accounting principles or practices proposed by the Manager or the auditors,
4) to review the fees charged by the auditors for audit and non-audit services,
5) to investigate improprieties or suspected improprieties in Fund operations,
6) to review the findings of SEC examinations and consult with the Manager on
appropriate responses, and 7) to report its activities to the full Board on a
regular basis and to make such recommendations with respect to the above and
other matters as the Audit Committee may deem necessary or appropriate. The
Audit Committee met twice during the fiscal years ended October 31 and December
31, 2002.
The Trust also has a Nominating Committee that is comprised of the non-interested Trustees (and Mr. Feld). The Nominating Committee's primary responsibility is to nominate Trustee candidates when there is a vacancy on the Boards. The Nominating Committee did not meet during the fiscal years ended October 31 and December 31, 2002.
The Trustees who own shares of any Fund are listed in the following table with the dollar range of their ownership in such Fund(s) and the Trust as a whole as of the calendar year ended December 31, 2002.
-------------------------------------------------------------------------------------------------------------------
INTERESTED NON-INTERESTED
QUINN FELD O'SULLIVAN TURNER YOUNGBLOOD
----- ---- ---------- ------ ----------
BALANCED Over $100,000 None None None $1-$10,000
EMERGING MARKETS None None None None None
HIGH YIELD BOND None None None $1-$10,000 None
INTERMEDIATE BOND $10,001-$50,000 None None None None
INTERNATIONAL EQUITY Over $100,000 None None None None
INTERNATIONAL EQUITY INDEX None None None None None
LARGE CAP GROWTH None None None None None
LARGE CAP VALUE Over $100,000 None None None None
MONEY MARKET None Over $100,000 None None None
MUNICIPAL MONEY MARKET $10,001-$50,000 None None None None
S&P 500 INDEX None None None None None
SHORT-TERM BOND $10,001-$50,000 None None None None
SMALL CAP INDEX None None None None None
SMALL CAP VALUE Over $100,000 None None $10,001-$50,000 None
U.S. GOV'T MONEY MARKET None None None None None
TRUST ON AN AGGREGATE BASIS Over $100,000 Over $100,000 None $10,001-$50,000 $1-$10,000
--------------------------------------------------------------------------------------------------------------------
|
During the two most recently completed calendar years, Akin, Gump provided legal services to American Airlines, Inc., an affiliate of the Manager. Mr. Feld has advised the Trust and the AMR Trust that, during this period, he had no material involvement in the services provided by Akin, Gump to American Airlines, Inc., that he received no material benefit in connection with these services, and that Akin, Gump did not provide legal services to the Manager or AMR Corporation during this period.
R. Gerald Turner is the President of Southern Methodist University. Mr. Don Carty, the CEO and Chairman of the Board of Directors of AMR Corporation, the parent company of the Manager, has served on the Southern Methodist University Board of Trustees since July 2000.
As compensation for their service to the Trust, the American AAdvantage Mileage Funds, the American AAdvantage Select Funds and the AMR Trust (collectively, the "Trusts"), the non-interested Trustees and their spouses receive free air travel from American Airlines, Inc., an affiliate of the Manager. The Trusts pay American Airlines the flight service charges incurred for these travel arrangements. The Trusts compensate each Trustee with payments in an amount equal to the Trustees' income tax on the value of this free airline travel. Mr. O'Sullivan, as a retiree of American Airlines, Inc., already receives flight benefits. From March 1, 2000 through February 28, 2002, Mr. O'Sullivan received an annual retainer of $20,000, plus $1,250 for each Board meeting attended. As of March 1, 2002, Mr. O'Sullivan receives an annual retainer of $40,000, plus $1,250 for each Board meeting attended. Trustees are also reimbursed for any expenses incurred in attending Board meetings. These amounts (excluding reimbursements) are reflected in the following table for the fiscal year ended October 31, 2002. The compensation amounts below include the flight service charges paid by the Trusts to American Airlines.
Aggregate Pension or Retirement Total Compensation
Compensation From Benefits Accrued as Part From the Trusts
Name of Trustee the Trust of the Trust's Expenses (24 funds)
--------------- ----------------- ------------------------ ------------------
----------------------------------------------------------------------------------------------------------------
INTERESTED TRUSTEES
William F. Quinn $0 $0 $ 0
Alan D. Feld $6,537 $0 $45,969
----------------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
Ben Fortson* $1,217 $0 $ 8,321
Dee J. Kelly, Jr.** $2,762 $0 $21,487
Stephen D. O' Sullivan $3,938 $0 $35,000
R. Gerald Turner $3,704 $0 $26,219
Kneeland Youngblood $3,780 $0 $26,792
----------------------------------------------------------------------------------------------------------------
|
* Mr. Fortson retired from the Trust effective February 28, 2002. He now serves as Trustee Emeritus.
** Mr. Kelly resigned from the Trusts effective February 21, 2003.
The Boards have adopted an Emeritus Trustee and Retirement Plan. The Plan provides that a Trustee who has reached the age of 70 is eligible to elect Trustee Emeritus status. Alternately, a Trustee who has served on the Board of one or more Trusts for at least 5 years may elect to retire from the Boards at an earlier age and immediately assume Trustee Emeritus status. A person may serve as a Trustee Emeritus and receive related retirement benefits for a period up to a maximum of 10 years. Only those Trustees who retire from the Boards and elect Trustee Emeritus status may receive retirement benefits under the Plan. A Trustee Emeritus must commit to provide certain ongoing services and advice to the Board members and the Trusts; however, a Trustee Emeritus does not have any voting rights at Board meetings and is not subject to election by shareholders of the Funds.
During the term that the Trustee Emeritus serves, each Trustee Emeritus and his or her spouse will receive American Airlines annual flight benefits plus reimbursement to the Trustee Emeritus of any tax liability relating to such flights during the term that such person serves as a Trustee Emeritus. Such flight benefits, including the taxes that are payable with respect to such benefits, shall not exceed a maximum annual value to the Trustee Emeritus of $40,000.
At their February 21, 2003 meeting, the Trustees considered the renewal of the existing Management Agreement between the Manager and the Funds and the Investment Advisory Agreements between the Funds and the subadvisers. As part of the renewal process, legal counsel to the Trusts and their independent Trustees sent a detailed request to the Manager and each subadviser for certain relevant information. These request letters included follow-up inquiries based upon previously identified conditions unique to the Manager or
subadviser, as well as general questions intended to elicit any developments since the last contract renewal that might have an effect on the services provided to the Funds. The Manager's and subadvisers' responses to the request letters were provided to the Trustees for their review prior to their meeting, and the Trustees were provided the opportunity to request any additional materials they felt cogent to their analysis.
The Manager and/or the subadvisers provided the following information, which the Trustees considered as part of the renewal process:
o a description of any significant changes (actual or anticipated) to principal activities, personnel, services provided to the Funds, or any other area, including how these changes might affect the Funds;
o a copy of most recent audited and unaudited financial statements as well as Part I and II of the firm's Form ADV;
o a summary of any material past, pending or anticipated litigation or regulatory proceedings involving the firm or its personnel, including the results of any regulatory examination or independent audit;
o a comparison of performance of portion of Fund assets managed by each firm with performance of other similar accounts managed by the firm, including discussion of relative performance versus a peer group average and any remedial measures if the firm's performance was below that of the peer group;
o a cost/profitability analysis of the firm and any actual or anticipated economies of scale in relation to the services it provides to the Funds, if available;
o an evaluation of benefits to the firm or Funds as a result of their relationship, if any;
o an analysis of compensation, including fees paid for last five years, any proposed changes to the fee and the effect of any fee waivers;
o a discussion regarding the firm's participation in "soft dollar" arrangements, if any, or other brokerage allocation policies with respect to Fund transactions, including the firm's methodology for obtaining the most favorable execution and the use of any affiliated broker-dealers;
o a description of trade allocation procedures among accounts managed by the firm;
o a discussion of the firm's compliance program with regard to federal, state, corporate and Fund requirements;
o information regarding the firm's code of ethics, insider trading policy, proxy voting procedures, and disaster recovery plan, including a description of any material changes thereto;
o a description of the firm's affiliation with a broker-dealer, if any;
o a discussion of any anticipated change in the firm's controlling party; and
o verification of the firm's insurance coverage with regards to the services provided to the Funds.
In addition to the foregoing, the Manager provided the following information specific to the renewal of the Management Agreement:
o a table comparing the performance of each Fund to comparable mutual funds and appropriate indices, including comments on the relative performance of 1) each subadviser and 2) each Fund versus the comparable mutual funds and indices;
o a discussion of any underperformance by a subadviser relative to its peer group and whether (and if so, why) such subadviser should have its contract renewed;
o a discussion of the Manager's standards for determining the allocation of the assets of each multi-manager Fund among its subadvisers;
o a discussion regarding the impact, if any, of the elimination of the master-feeder structure for several Funds as of March 1, 2002 upon the firm's profits;
o an analysis of total Fund fees versus comparable mutual funds;
o a chart detailing asset levels by Fund for past five years and any future expectations;
o an analysis of any material complaints received from Fund shareholders; and
o any ideas for the future growth and efficient operation of the Funds.
Legal counsel also provided the Trustees with a memorandum detailing their responsibilities and relevant litigation pertaining to the renewal of the Management and Investment Advisory Agreements. This memorandum explained the regulatory requirements surrounding the Trustees' process for evaluating investment advisers and the terms of the contracts.
At the meeting, in determining whether to approve the continuance of the Management Agreement, the Trustees considered the best interests of each Fund and its shareholders separately. To facilitate the review, responses from the Manager and the subadvisers were separated by Fund. The Trustees queried various management personnel of the Manager regarding certain key aspects of the material submitted in support of the
renewal. The Trustees and the Manager considered the foregoing information and discussed the responses, taking particular note of the following: the generally good recent and long-term performance delivered by the Manager for the Funds it manages directly; the low cost structure of the Funds in comparison to other similar mutual funds; the record of the Manager in building improved compliance, control and credit functions; the addition of new personnel to help promote the Funds; and the active role played by the Manager in monitoring and, as appropriate, recommending replacements for subadvisers. Based on the foregoing information, the Trustees unanimously approved the continuance of the Management Agreement.
Following the decision to approve the continuance of the Management Agreement, the Trustees considered the renewal of the various subadviser agreements. The Manager initiated a discussion of certain key aspects of each subadviser's written response, taking particular note of the following: its relative recent and long-term performance; the level of compensation received from the Funds; and any significant changes in the portfolio management team or firm structure. It was noted that none of the subadvisers have soft dollar arrangements with the Funds whereby brokerage research is provided to the Fund or the Manager in return for allocating Fund brokerage. Based on the foregoing information, the Trustees unanimously approved the continuance of the Investment Advisory Agreement with each subadviser.
TRUSTEES AND OFFICERS OF THE INDEX TRUST
Each non-interested Trustee is a member of the Index Trust's Audit and
Nominating Committee (the "Committee"). The principal responsibilities of the
Committee are the appointment, compensation and oversight of the Index Trust's
independent accountants, including the resolution of disagreements regarding
financial reporting between Index Trust management and such independent
accountants. The Committee's responsibilities include, without limitation, to
(i) review with the independent accountants the arrangements for and scope of
annual and special audits and any other services provided by the independent
accountants to the Index Trust, (ii) discuss with the independent accountants
certain matters relating to the Index Trust's financial statements, including
any adjustment to such financial statements recommended by such independent
accountants or any other results of any audit; (iii) ensure that the independent
accountants submit on a periodic basis a formal written statement with respect
to their independence, discuss with the independent accountants any
relationships or services disclosed in the statement that may impact the
objectivity and independence of the Index Trust's independent accountants and
recommend that the Board take appropriate action in response thereto to satisfy
itself of the independent accountants' independence; and (iv) consider the
comments of the independent accountants with respect to the quality and adequacy
of the Index Trust's accounting and financial reporting policies and practices
and internal controls and Index Trust management's responses thereto. The Board
of the Index Trust has adopted a written charter for the Committee. The
Committee also reviews and nominates candidates to serve as non-interested
Directors. The Committee generally will not consider nominees recommended by
shareholders. The Committee has retained independent legal counsel to assist
them in connection with these duties. The Committee met 4 times during the
fiscal year ended December 31, 2002.
Certain biographical and other information relating to the non-interested Trustees of the Index Trust is set forth below, including their ages, their principal occupations for at least the last five years, the length of time served, the total number of portfolios overseen in the complex of funds advised by the Investment Adviser and its affiliate, Merrill Lynch Investment Managers, L.P., ("MLIM/FAM-advised funds") and other public directorships.
NUMBER OF
TERM OF MLIM/FAM-
POSITION OFFICE** -ADVISED
HELD AND LENGTH FUNDS AND
NAME, ADDRESS* AND WITH THE OF TIME PRINCIPAL OCCUPATION(S) PORTFOLIOS
AGE OF TRUSTEE TRUST SERVED DURING PAST FIVE YEARS OVERSEEN PUBLIC DIRECTORSHIPS
------------------ -------- ---------- ---------------------- ----------- --------------------
Donald W. Burton (59) Trustee Trustee General Partner of the Burton 23 registered ITC DeltaCom Inc.
since 2002 Partnership, Limited Partnership (an investment (telecommunications);
Investment Partnership) since 1979; companies ITC Holding Company
Managing General Partner of the South consisting of Inc.
Atlantic Venture Funds since 1983; 34 portfolios (telecommunications);
Member of the Investment Advisory Knology, Inc.
Council of the Florida State Board of (telecommunications);
Administration since 2001. MainBancorp, N.A.
(bank holding
company); PriCare,
Inc. (healthcare);
Symbion, Inc.
(healthcare)
|
TERM OF NUMBER OF
POSITION OFFICE** MLIM/FAM-ADVISED
HELD AND LENGTH FUNDS AND
NAME, ADDRESS* AND WITH THE OF TIME PRINCIPAL OCCUPATION(S) PORTFOLIOS
AGE OF TRUSTEE TRUST SERVED DURING PAST FIVE YEARS OVERSEEN PUBLIC DIRECTORSHIPS
------------------ --------- ---------- --------------------------------- ----------------- --------------------
M. Colyer Crum (70) Trustee Trustee Chairman and Director, Phaeton 23 registered Cambridge Bancorp
since 1996 International, Ltd. since 1985; investment
James R. Williston Professor of companies
Investment Management Emeritus, consisting of
Harvard Business School since 34 portfolios
1996; Director of Cambridge
Bancorp since 1969.
Laurie Simon Hodrick (40) Trustee Trustee Professor of Finance and 23 registered None
since 1999 Economics, Graduate School of investment
Business, Columbia University companies
since 1998; Associate Professor of consisting of
Finance and Economics, Graduate 34 portfolios
School of Business, Columbia
University from 1996 to 1998.
Fred G. Weiss (61) Trustee Trustee Managing Director of FGW 23 registered Watson Pharmaceutical
since 1998 Associates since 1997; Director of investment Inc. (pharmaceutical
Watson Pharmaceutical, Inc. companies company)
(pharmaceutical company) since consisting of
2000; Director of BTG 34 portfolios
International PLC (global
technology commercialization
company) since 2001; Director of
the Michael J. Fox Foundation for
Parkinson's Research since 2000;
Director of the Parkinson's Action
Network since 1997.
|
* The address of each non-interested Trustee is P.O. Box 9095, Princeton, New Jersey 08543-9095.
** Each Trustee serves until his or her successor is elected and qualified, until December 31 of the year in which he or she turns 72, or until his or her death, resignation, or removal as provided in the Fund's by-laws, charter or by statute.
Certain biographical and other information regarding the Trustee who is an officer and an "interested person" of the Index Trust as defined in the 1940 Act and the other officers of the Index Trust is set forth below, including their ages, their principal occupations for at least the last five years, the length of time served, the total number of portfolios overseen in MLIM/FAM-Advised Funds and public directorships held.
TERM OF NUMBER OF
POSITION(S) OFFICE** MLIM/FAM-ADVISED
HELD AND LENGTH FUNDS AND
NAME, ADDRESS* AND WITH THE OF TIME PRINCIPAL OCCUPATION(S) PORTFOLIOS
AGE OF TRUSTEE TRUST SERVED DURING PAST FIVE YEARS OVERSEEN PUBLIC DIRECTORSHIPS
------------------ ----------- ---------- ----------------------------------- ---------------- --------------------
Terry K. Glenn** (62) President President*** President and Chairman of the 117 registered None
and Trustee and MLIM/FAM Advised Funds; Chairman investment
Trustee**** (Americas Region) of MLIM since companies
since 1999 2000 to 2002; Executive Vice consisting of
President of MLIM and FAM (which 162 portfolios
terms as used herein include their
corporate predecessors) from 1983
to 2002; President of FAM
Distributors, Inc. ("FAMD") from
1986 to 2002 and Director thereof
from 1991 to 2002; Executive Vice
President and Director of
Princeton Services, Inc.
("Princeton Services") from 1993
to 2002; President of Princeton
Administrators, L.P. from 1988 to
2002; Director of Financial Data
Services, Inc. from 1985 to 2002.
|
TERM OF NUMBER OF
POSITION(S) OFFICE** MLIM/FAM-ADVISED
HELD AND LENGTH FUNDS AND
NAME, ADDRESS* AND WITH THE OF TIME PRINCIPAL OCCUPATION(S) PORTFOLIOS
AGE OF TRUSTEE TRUST SERVED DURING PAST FIVE YEARS OVERSEEN PUBLIC DIRECTORSHIPS
------------------ --------- ---------- -------------------------------- ---------------- --------------------
Robert C. Doll, Jr. (47) Senior Senior Vice President of MLIM and FAM since 51 registered None
Vice President 2001; Co-Head (Americas Region) investment
President since 1999*** thereof from 2000 to 2001 and companies
Senior Vice President thereof from consisting of
1999 to 2001; Director of 71 portfolios
Princeton Services; Chief
Investment Officer of Oppenheimer
Funds, Inc. in 1999 and Executive
Vice President thereof from 1991
to 1999.
Donald C. Burke (42) Vice Vice First Vice President of MLIM since 117 registered None
President President 1997 and Treasurer of MLIM and FAM investment
and since 1996 since 1999; Senior Vice President companies
Treasurer and and Treasurer of Princeton consisting of
Treasurer Services since 1999; Vice 162 portfolios
since 1999*** President of FAMD since 1999; Vice
President of MLIM from 1990 to
1997; Director of Taxation of MLIM
since 1990.
Richard Vella (44) Senior Senior Vice First Vice President MLIM and 2 registered None
Vice President certain of its affiliates since investment
President since 1999*** 1999; Managing Director, Global companies
Index Funds of Bankers Trust from consisting of
1997 to 1999; Managing Director, 14 portfolios
International Index Funds of
Bankers Trust from 1995 to 1999.
Philip Green (39) Senior Senior Vice Senior Vice President of FAM and 3 registered None
Vice President certain of its affiliates since investment
President since 1999*** 1999; Managing Director and companies
Portfolio Man-ager of Global consisting of
Institutional Services at Bankers 18 portfolios
Trust from 1997 to 1999; Vice
President of Foreign Exchange and
Currency Overlay Strategies at
Bankers Trust from 1988 to 1999.
Frank Salerno (43) Senior Senior Vice Chief Operating Officer, 5 registered None
Vice President Institutional for MLIM (Americas investment
President since 1999*** Region); First Vice President of companies
FAM and certain of its affiliates consisting of
since 1999; Managing Director and 40 portfolios
Chief Investment Officer of
Structured Investments at Bankers
Trust from 1995 to 1999.
Jeffrey B. Hewson (51) Director Director since Director (Global Fixed Income) of 1 registered None
1998*** MLIM and certain of its affiliates investment
since 1998; Vice President of MLIM companies
and certain of its affiliates from consisting of
1989 to 1998; Portfolio Manager of 2 portfolios
MLIM and certain of its affiliates
since 1985.
Sidney Hoots (42) Senior Senior Vice Senior Vice President of FAM and 5 registered None
Vice President certain of its affiliates since investment
President since 1999*** 1999; Managing Director of Global companies
Institutional Services at Bankers consisting of
Trust from 1992 to 1999. 40 portfolios
Stephen M. Benham (43) Secretary Secretary Vice President (Legal Advisory) of 12 registered None
since 2002*** MLIM since 2000; Attorney with investment
Kirkpatrick & Lockhart LLP from companies
1997 to 2000. consisting of
48 portfolios
|
* The address for each officer listed is P.O. Box 9011, Princeton, New Jersey 08543-9011.
** Mr. Glenn is a director, trustee or member of an advisory board of certain other investment companies for which MLIM or FAM acts as investment adviser. Mr. Glenn is an "interested person," as defined in the 1940 Act, of the Index Trust based on his former positions with FAM, MLIM, FAMD, Princeton Services and Princeton Administrators, L.P.
*** Elected by and serves at the pleasure of the Board of Trustees of the Index Trust.
**** As a Trustee, Mr. Glenn serves until his successor is elected and qualified, until December 31 of the year in which he turns 72, or until earlier of his death, resignation, or removal as provided in the Index Portfolios' by-laws, charter or by statute.
The Index Trust pays each non-interested Trustee for service to the Index Trust an annual fee of $5,000 plus $500 per meeting attended. The Index Trust also compensates members of the Audit and Nominating Committee (the "Committee"), which consists of all of the non-interested Trustees with a fee of $1,000 per year. The Index Trust reimburses each non-interested Trustee for his or her out-of-pocket expenses relating to attendance at Board and Committee meetings. The following table reflects fees paid to the Trustees of the Index Trust for their services to the Index Trust as a whole for the year ended December 31, 2002.
Aggregate Pension or Retirement Aggregate Compensation from Index
Compensation from Benefits Accrued as Trust and MLIM/FAM Advised Funds
Name of Trustee the Index Trust Part of Index Trust Expenses Paid to Trustees(2)
--------------- ----------------- ---------------------------- ---------------------------------
INTERESTED TRUSTEE
Terry K. Glenn $0 None $0
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
NON-INTERESTED TRUSTEES
Donald W. Burton (1) $14,500 None $189,042
M. Colyer Crum $22,000 None $226,583
Laurie Simon Hodrick $20,000 None $208,917
Stephen B. Swensrud (3) $12,000 None $ 53,917
J. Thomas Touchton (3) $13,333 None $139,375
Fred G. Weiss $20,000 None $208,917
------------------------------------------------------------------------------------------------------------------
|
(1) Mr. Burton was elected as a Trustee of the Index Trust and a Director/Trustee of certain MLIM/FAM Advised Funds on April 1, 2002.
(2) The Trustees serve on the boards of MLIM/FAM Advised Funds as follows:
Mr. Burton (23 registered investment companies consisting of 34
portfolios); Mr. Crum (23 registered investment companies consisting of
34 portfolios); Ms. Hodrick (23 registered investment companies
consisting of 34 portfolios); Mr. Touchton (23 registered investment
companies consisting of 34 portfolios); and Mr. Weiss (23 registered
investment companies consisting of 34 portfolios).
(3) Mr. Swensrud retired as a Trustee effective March 15, 2002, and Mr. Touchton retired as a Trustee effective January 1, 2003.
Additional information regarding the management of the Index Portfolios may be found in the statement of additional information for the Quantitative Master Series Trust, SEC File No. 811-7885. Shareholders may access this information on the SEC's website at www.sec.gov.
TRUSTEES AND OFFICERS OF THE EQUITY 500 INDEX PORTFOLIO
The Equity 500 Index Portfolio Board is responsible for generally overseeing the Equity 500 Index Portfolio's business. The Trustees and officers of the Equity 500 Index Portfolio and their principal occupations during the past five years are set forth below. Their titles may have varied during that period.
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
NAME, ADDRESS, AND AGE HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
NON-INTERESTED TRUSTEES FUND TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
----------------------- ----------- -------------- ---------------------- ------------- -------------
Michael F. Holland
Age: 58 Trustee and Term: Indefinite Chairman, Holland & 14 Trustee, State
375 Park Avenue Chairman of Company L.L.C. (investment Street
New York, NY 10152 the Board Elected: 7/99 adviser), 1995 to present. Institutional
Investment
Trust; Director
of the Holland
Series Fund,
Inc. and The
China Fund, Inc.
William L. Boyan
Age: 67 Trustee Term: Indefinite Trustee of Old Mutual 14 Trustee, State
86 A Beacon Street South Africa Equity Trust Street
Boston, MA 02108 Elected: 7/99 1997 to present Institutional
(investments); Chairman, Investment
Children's Hospital, 1984 Trust; and
to current; Director, Trustee of Old
Boston Plan for Mutual South
Excellence, 1994 to Africa Equity
current (non-profit); Trust
|
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
NAME, ADDRESS, AND AGE FUND TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
---------------------- ----------- --------------- ---------------------- ------------- -------------
President and Chief
Operations Officer, John
Hancock Mutual Life
Insurance Company, 1959 to
1999. Mr. Boyan retired
in 1999.
Rina K. Spence
Age: 54 Trustee Term: Indefinite President of SpenceCare 14 Trustee, State
7 Acacia Street International LLC 1998 to Street
Cambridge, MA 02138 Elected: 7/99 present; Member of the Institutional
Advisory Board, Ingenium Investment
Corp., 2001 to present Trust; Director
(technology company); of Berkshire
Chief Executive Officer, Life Insurance
IEmily.com, 2000 to 2001 Company of
(internet company); Chief America; and
Executive Officer of Director,
Consensus Pharmaceutical, IEmily.com
Inc., 1998 to 1999; (internet
Founder, President and company)
Chief Executive Officer of
Spence Center for Women's
Health, 1994 to 1998; and
Trustee, Eastern
Enterprise, 1988 to 2000
(utilities).
Douglas T. Williams Trustee Term: Indefinite Executive Vice President 14 Trustee, State
Age: 62 of Chase Manhattan Bank, Street
P.O. Box 5049 Elected: 7/99 1987 to 1999. Mr. Institutional
Boston, MA 02206 Williams retired in 1999. Investment Trust
OFFICERS:
------ ------
Kathleen C. Cuocolo President Term: Indefinite Executive Vice President
Age: 51 of State Street Bank and
Two Avenue de Lafayette, Elected: 5/00 Trust Company since 2000;
Boston, MA 02111 and Senior Vice President
of State Street Bank and
Trust Company, 1982 to
2000.
Janine L. Cohen ------ ------
Age: 49 Treasurer Term: Indefinite Senior Vice President of
Two Avenue de Lafayette, State Street Bank and
Boston, MA 02111 Elected: 5/00 Trust Company since 2001;
and Vice President of
State Street Bank and
Trust Company, 1992 to
2000.
|
NUMBER OF
FUNDS IN FUND OTHER
POSITION(S) TERM OF OFFICE COMPLEX DIRECTORSHIPS
HELD WITH AND LENGTH OF PRINCIPAL OCCUPATION OVERSEEN BY HELD BY
NAME, ADDRESS, AND AGE FUND TIME SERVED DURING PAST FIVE YEARS TRUSTEE TRUSTEE
NON-INTERESTED TRUSTEES ---- ----------- ---------------------- -------- --------
-----------------------
Julie A. Tedesco ------ ------
Age: 45 Secretary Term: Indefinite Vice President and Counsel
One Federal Street of State Street Bank and
Boston, MA 02110 Elected: 5/00 Trust Company since 2000;
and Counsel of First Data
Investor Services Group,
Inc., 1994 to 2000.
|
The By-Laws of the Equity 500 Index Portfolio provide that it shall indemnify each person who is or was a Trustee of the Equity 500 Index Portfolio against all expenses, judgments, fines, settlements and other amounts actually and reasonable incurred in connection with any proceedings, if the person in good faith and reasonably believes that his or her conduct was in the Equity 500 Index Portfolio's best interest. The Equity 500 Index Portfolio, at its expense, provides liability insurance for the benefit of its Trustees and officers.
Each Trustee receives for his or her services a $20,000 retainer in addition to $2,500 for each in-person meeting and $500 for each telephonic meeting. The following table sets forth the total remuneration of Trustees and officers of the Trust for the fiscal year ended December 31, 2002.
Aggregate Pension or Retirement Estimated Annual Total Compensation from
Compensation Benefits Accrued as Part Benefits Upon Trust and Fund Complex Paid
Name/Position from Trust of Trust Expenses Retirement to Trustees
------------- ---------- ----------------- ---------- -----------
William L. Boyan, Trustee $30,000 $0 $0 $30,000
Michael F. Holland, Trustee $30,000 $0 $0 $30,000
Rina K. Spence, Trustee $30,000 $0 $0 $30,000
Douglas T. Williams, Trustee $30,000 $0 $0 $30,000
|
CODE OF ETHICS
The Manager, the Trust, SSgA, FAM and the investment advisers have each adopted a Code of Ethics ("Code") under Rule 17j-1 of the 1940 Act. Each Code significantly restricts the personal trading of all employees. For example, each Code generally requires pre-clearance of all personal securities trades (with limited exceptions) and prohibits employees from purchasing or selling a security that is being purchased or sold or being considered for purchase or sale by any Fund. Each Code is on public file with, and may be obtained from, the SEC.
CONTROL PERSONS AND 5% SHAREHOLDERS
The following persons may be deemed to control certain Funds by virtue of their ownership of more than 25% of the outstanding shares of a Fund as of January 31, 2003:
American AAdvantage Balanced Fund --------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................96% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Emerging Markets Fund ----------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................95% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Intermediate Bond Fund ------------------------------------------ Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................68% 4333 Amon Carter Boulevard Fort Worth, TX 76155 |
American AAdvantage International Equity Fund --------------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................29% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage International Equity Index Fund --------------------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies................................................100% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Large Cap Growth Fund ----------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies................................................100% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Large Cap Value Fund ---------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................93% 4333 Amon Carter Boulevard Fort Worth, TX 76155 |
American AAdvantage S&P 500 Index Fund -------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................80% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Short-Term Bond Fund ---------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................90% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Small Cap Index Fund ---------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies................................................100% 4333 Amon Carter Boulevard Fort Worth, TX 76155 American AAdvantage Small Cap Value Fund ---------------------------------------- Employee Benefit Plans of AMR Corporation and its subsidiary companies.................................................82% 4333 Amon Carter Boulevard Fort Worth, TX 76155 |
The Employee Benefit Plans of AMR Corporation and its subsidiary companies own 100% of the shares of: 1) the AMR Class of the Balanced Fund, the Emerging Markets Fund, the Intermediate Bond Fund, the International Equity Fund, the Large Cap Growth Fund, the Large Cap Value Fund, the Small Cap Value Fund, and the Short-Term Bond Fund, and 2) the Institutional Class of the International Equity Index Fund and the Small Cap Index Fund. In addition, the Employee Benefit Plans of AMR Corporation and its subsidiary companies own 91% of the shares of the Institutional Class of the S&P 500 Index Fund.
All Trustees and officers as a group own less than 1% of the outstanding shares of any of the Funds. In addition, the following persons owned 5% or more of the outstanding shares of a Fund or Class as of January 31, 2003:
Institutional PlanAhead
Balanced Fund Total Fund Class Class
------------- ---------- ----- -----
C.R. Smith Museum 39%
P.O. Box 619617 MD 808
DFW Airport, TX 75261-9617
United Way of Metropolitan Tarrant County Endowment Inc. 15%
210 E. 9th St.
Fort Worth, TX 76102
First Financial Trust NA* 12%*
Three Newton Executive Park, Ste. 306
2223 Washington Street
Newton, MA 02462
G&L Family Partners Ltd. 8%
4611 Meandering Way
Colleyville, TX 76034
Robert W. Baker 6%
17 Ashton Ct.
Dallas, TX 75230
Fidelity Investments Institutional Operations Co. Inc.* 24%*
100 Magellan Way
Covington, KY 41015
Mellon Bank as Trustee* 11%*
135 Santilli Hwy.
Everett, MA 02149
Jerry Warren, IRA Rollover 10%
1358 Calle Yucca
Thousand Oaks, CA 01360
Wells Fargo Bank Minnesota NA fbo Retirement Plan Services* 9%*
P.O. Box 1533
Minneapolis, MN 55480-1533
NABank & Co.* 5%*
P.O. Box 2180
Tulsa, OK 74101-2180
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
Emerging Markets Fund Total Fund Class Class
--------------------- ---------- ------------- ---------
Akin, Gump, Strauss, Hauer & Feld 62%
Co-Mingled Qualified Plan Partnership
1700 Pacific Ave. Ste. 4100
Dallas, TX 75201
Akin, Gump, Strauss, Hauer & Feld 27%
Non-Qualified Plan Partnership
1700 Pacific Ave. Ste. 4100
Dallas, TX 75201
William F. and Doreen J. Quinn 6%
1108 Loch Lomond Ct.
Arlington, TX 76012
|
Institutional PlanAhead
High Yield Bond Fund Total Fund Class Class
-------------------- ---------- ------------- ---------
ISTCO for Pritchard, Hubble & Herr, LLC* 47%* 89%*
P.O. Box 523
Belleville, IL 62222-0523
Charles Schwab & Co.* 8%* 17%*
101 Montgomery Street
San Francisco, CA 94104
Arrow & Co. 8%
P.O. Box 30010
Durham, NC 27702-3010
Wells Fargo Bank Minnesota NA fbo Everett Clinic PSP 8%
P.O. Box 1533
Minneapolis, MN 55480-1533
National Financial Services LLC* 8%*
200 Liberty St.
New York, NY 10281
Wells Fargo Bank Minnesota NA fbo Stoel Rives LLP 7%
P.O. Box 1533
Minneapolis, MN 55480-1533
U.S. Bank National Assoc. fbo Community Health Endowment 5%
of Lincoln, NE
P.O. Box 81309
Lincoln, NE 68501-1309
Sabre Legacy Plan* 5%*
82 Devonshire St. #21M
Boston, MA 02109
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
Intermediate Bond Fund Total Fund Class Class
---------------------- ---------- ------------- ----------
ISTCO for Pritchard, Hubble & Herr, LLC* 29%* 95%* 66%*
P.O. Box 523
Belleville, IL 62222-0523
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
International Equity Fund Total Fund Class Class
------------------------- ---------- ------------- ----------
Charles Schwab & Co.* 18%* 30%*
101 Montgomery Street
San Francisco, CA 94104
National Financial Services Corp.* 8%*
P.O. Box 3908
New York, NY 10163-3908
NABank & Co.* 6%*
P.O. Box 2180
Tulsa, OK 74101-2180
Deutsche Bank Trust Co. fbo Oklahoma Gas and Electric Co. 5%
P.O. Box 321
Oklahoma City, OK 73101-0321
|
Institutional PlanAhead
International Equity Fund Total Fund Class Class
------------------------- ---------- ----- -----
National Financial Services Corp.* 36%*
200 Liberty Street
New York, NY 10281-1003
Charles Schwab & Co.* 25%*
9601 E. Panorama Cir.
Englewood, CO 80112-3441
Fidelity Investments Institutional Operations Co. Inc.* 19%*
100 Magellan Way
Covington, KY 41015
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
Large Cap Growth Fund Total Fund Class Class
--------------------- ---------- ----- -----
AMR Investment Services, Inc. 92%
P.O. Box 619003, MD 2450
DFW Airport, TX 75261-9003
|
Institutional PlanAhead
Large Cap Value Fund Total Fund Class Class
-------------------- ---------- ----- -----
NABank & Co. fbo Bank of Oklahoma NA* 45%*
P.O. Box 2180
Tulsa, OK 74101-2180
NABank & Co.* 27%*
P.O. Box 2180
Tulsa, OK 74101-2180
Charles Schwab & Co.* 11%*
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Co.* 35%*
9601 E. Panorama Cir.
Englewood, CO 80112
Fidelity Investments Institutional Operations Co. Inc.* 13%*
100 Magellan Way
Covington, KY 41015
National Financial Services Corp.* 12%*
200 Liberty Street
New York, NY 10281
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
Money Market Fund Total Fund Class Class
----------------- ---------- ----- -----
National Investor Services Corp.* 14%* 57%*
55 Water Street, 32nd Floor
New York, NY 10041
Austin Commercial Inc. 12% 22%
P.O. Box 1590
Dallas, TX 75221-1590
Alliance Airport Authority 11% 21%
c/o Monroe & Co.
P.O. Box 160
Westerville, OH 43086-0160
ISTCO for Pritchard, Hubble & Herr, LLC* 6%* 26%*
P.O. Box 523
Belleville, IL 62222-0523
SC International Services Inc. 9%
524 E. Lamar Blvd. Ste. 110
Arlington, TX 76011
NABank & Co.* 6%*
P.O. Box 2180
Tulsa, OK 74101-2180
Aquinas Investment Advisors Inc.* 5%*
5310 Harvest Hill Rd., Suite 248
Dallas, TX 75230
|
*Denotes record owner of Fund shares only
Total Institutional PlanAhead
Municipal Money Market Fund Fund Class Class
--------------------------- ---- ----- -----
National Investor Services Corp.* 46%* 100%*
55 Water Street, 32nd Floor
New York, NY 10041
Anne H. McNamara 5% 95%
3510 Turtle Creek Blvd., Apt. 2D
Dallas, TX 75219
William F. and Doreen J. Quinn 5%
1108 Loch Lomond Ct.
Arlington, TX 76012
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
S&P 500 Index Fund Total Fund Class Class
------------------ ---------- ----- -----
National Financial Services Corp.* 8%* 67%*
200 Liberty Street
New York, NY 10281
Charles Schwab & Co.* 14%*
9601 E. Panorama Cir.
Englewood, CO 80112
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
Short-Term Bond Fund Total Fund Class Class
-------------------- ---------- ----- -----
ISTCO for Pritchard, Hubble & Herr, LLC* 46%*
P.O. Box 523
Belleville, IL 62222-0523
C.R. Smith Museum 24%
P.O. Box 619617 MD 808
DFW Airport, TX 75261-9617
First Financial Trust NA* 11%*
Three Newton Executive Park, Ste. 306
2223 Washington Street
Newton, MA 02462
Charles Schwab & Co.* 7%*
101 Montgomery Street
San Francisco, CA 94104
Charles Schwab & Co.* 37%*
9601 E. Panorama Cir.
Englewood, CO 80112
Fidelity Investments Institutional Operations Co. Inc.* 33%*
100 Magellan Way
Covington, KY 41015
U.S. Clearing* 5%*
26 Broadway
New York, NY 10004
|
*Denotes record owner of Fund shares only
Institutional PlanAhead
Small Cap Value Fund Total Fund Class Class
-------------------- ---------- ----- -----
ISTCO for Pritchard, Hubble & Herr, LLC* 8%* 53%*
P.O. Box 523
Belleville, IL 62222-0523
National Financial Services Corp.* 6%* 36%*
P.O. Box 3908
New York, NY 10163-3908
National Investor Services Corp.* 17%*
55 Water Street
New York, NY 10041
Charles Schwab & Co.* 16%*
101 Montgomery Street
San Francisco, CA 94104
|
Institutional PlanAhead
Small Cap Value Fund Total Fund Class Class
-------------------- ---------- ----- -----
Robert W. Baker 14%
17 Ashton Court
Dallas, TX 75230
Henry F. Otto 13%
4212 Dresden Street
Kensington, MD 20895
Paul R. Lesutis 13%
621 Blackgates Rd.
Wilmington, DE 19803
|
*Denotes record owner of Fund shares only
PlanAhead
U.S. Government Money Market Fund Total Fund Class
--------------------------------- ---------- -----
Transco & Co.* 68%* 86%*
105 N. Main St.
Wichita, KS 67202
Muir & Co. 10% 12%
c/o Frost National Bank
P.O. Box 2479
San Antonio, TX 78298-2479
|
*Denotes record owner of Fund shares only
INVESTMENT ADVISORY AGREEMENTS
The Funds' investment advisers are listed below with information regarding their controlling persons or entities. According to the 1940 Act, a person or entity with control with respect to an investment adviser has "the power to exercise a controlling influence over the management or policies of a company, unless such power is solely the result of an official position with such company." Persons and entities affiliated with each investment adviser are considered affiliates for the portion of Fund assets managed by that investment adviser.
Basis of Nature of Controlling
Adviser Controlling Person/Entity Control Person/Entity's Business
------- ------------------------- --------- ------------------------
Barrow, Hanley, Mewhinney & Strauss, Inc. Old Mutual Asset Managers (US) LLC Parent Co. Financial Services
Brandywine Asset Management, LLC Legg Mason, Inc. Parent Co. Financial Services
Causeway Capital Management LLC Sarah H. Ketterer and Harry W. Hartford Officers and Financial Services
Owners Financial Services
Goldman Sachs Asset Management Goldman, Sachs & Co. Parent Co. Financial Services
Hotchkis and Wiley Capital Management, LLC HWCap Holdings, LLC Majority Owner Financial Services
Stephens Group Inc. and affiliates Minority Owner Financial Services
Independence Investment LLC John Hancock Financial Services Parent Co. Financial Services
J.P. Morgan Investment Management Inc. J.P. Morgan Chase & Co. Parent Co. Financial Services
Lazard Asset Management LLC Lazard Freres & Co. LLC Parent Co. Financial Services
Metropolitan West Capital Management, LLC None N/A N/A
Metropolitan West Securities, LLC Metropolitan West Financial, LLC Parent Co. Financial Services
Morgan Stanley Investment Management Inc. Morgan Stanley Parent Co. Financial Services
MW Post Advisory Group, LLC Metropolitan West Financial, LLC Minority Owner Financial Services
Principals of MW Post Advisory Group Minority Owner Financial Services
Post Advisory Group, Inc. Minority Owner Financial Services
Templeton Investment Counsel, LLC Franklin Resources, Inc. Parent Co. Financial Services
The Boston Company Asset Management, LLC Mellon Financial Corporation Parent Co. Financial Services
|
Prior to March 1, 2002, the Balanced, Emerging Markets, Intermediate Bond, Large Cap Value, Short-Term Bond, and Small Cap Value Funds invested all of their investable assets in a corresponding Portfolio of the AMR Trust. Prior to March 1, 2001, the Large Cap Growth Fund invested all of its investable assets in a corresponding Portfolio of the AMR Trust. Accordingly, the investment advisers to these Funds received a fee on behalf of the Portfolio, and not the corresponding Fund, prior to these dates. As investment advisers to a Master-Feeder Fund, the investment advisers to the International Equity Fund receive a fee on behalf of the Portfolio, and not the corresponding Fund. The following table reflects the fees paid to the investment advisers from the Portfolios or Funds (as applicable) for the fiscal years ending October 31, 2000, 2001 and 2002:
Investment Advisory Investment Advisory Investment Advisory
Adviser Fees for 2000 Fees for 2001 Fees for 2002
------- ------------- ------------- -------------
Barrow, Hanley, Mewhinney & Strauss, Inc. $ 986,916 $ 942,681 $ 940,459
Brandywine Asset Management, LLC $ 1,253,361 $ 1,251,782 $ 1,491,479
Causeway Capital Management LLC (5) N/A $ 105,903 $ 709,845
Goldman Sachs Asset Management (1) $ 14,163 $ 60,706 $ 86,968
GSB Investment Management, Inc. (2) $ 204,049 N/A N/A
Hotchkis and Wiley Capital Management, LLC (7) N/A $ 85,938 $ 1,227,280
Independence Investment LLC (3) $ 938,011 $ 287,790 $ 265,450
J.P. Morgan Investment Management Inc. (1) $ 10,566 $ 46,812 $ 65,606
Lazard Asset Management LLC (5) $ 1,197,406 $ 938,814 $ 903,224
Merrill Lynch Investment Managers, L.P. (5)(7) $ 2,083,479 $ 1,080,588 N/A
Metropolitan West Capital Management, LLC (4) N/A $ 163,947 $ 159,557
Morgan Stanley Investment Management Inc. (1) $ 24,925 $ 114,943 $ 186,787
MW Post Advisory Group, LLC (6) N/A $ 229,090 $ 458,642
Templeton Investment Counsel, LLC $ 1,298,378 $ 1,099,693 $ 1,029,852
The Boston Company Asset Management (1) $ 19,356 $ 87,417 $ 127,034
|
(1) This firm became an investment adviser to the Funds on July 31, 2000.
(2) As of March 1, 2000, GSB Investment Management, Inc. ceased to serve as an investment adviser to the Funds.
(3) As of December 1, 2000, Independence Investment LLC ceased to serve as an investment adviser to the Balanced and Large Cap Value Funds but still serves as an investment adviser to the International Equity Fund.
(4) As of December 1, 2000, Metropolitan West Capital Management, LLC was added as an investment adviser to the Large Cap Value Fund.
(5) As of September 1, 2001, Causeway Capital Management LLC replaced Merrill Lynch Investment Managers, L.P. as an investment adviser to the International Equity Fund.
(6) As of December 29, 2000, this firm became an investment adviser to the High Yield Bond Fund.
(7) On October 9, 2001, Merrill Lynch Investment Managers, L.P. was replaced by Hotchkis and Wiley Capital Management, LLC as an investment adviser to the Balanced, Large Cap Value, and Small Cap Value Funds.
The Manager, with the approval of the Board, appointed Metropolitan
West Securities, Inc. ("MetWest") as an investment adviser to the High Yield
Bond Fund for the sole purpose of implementing the Fund's securities lending
program. In this regard, MetWest also has responsibility for investing the cash
collateral received in connection with securities loans, in accordance with
guidelines approved by the Board. MetWest receives a monthly fee equal to 25% of
1) net income from investments purchased with cash collateral and 2) loan fees.
For lending the High Yield Bond Fund's securities, MetWest earned approximately
$5,169 in investment income and loan fees for the fiscal year ended October 31,
2002.
Each Investment Advisory Agreement will automatically terminate if assigned, and may be terminated without penalty at any time by the Manager, by a vote of a majority of the Trustees or by a vote of a majority of the outstanding voting securities of the applicable Fund on no less than thirty (30) days' nor more than sixty (60) days' written notice to the investment adviser, or by the investment adviser upon sixty (60) days' written notice to the Trust. The Investment Advisory Agreements will continue in effect provided that annually such continuance is specifically approved by a vote of the Trustees, including the affirmative votes of a majority of the Trustees who are not parties to the Agreement or "interested persons" (as defined in the 1940 Act) of any such party, cast in person at a meeting called for the purpose of considering such approval, or by the vote of shareholders.
SWS Financial Services, Inc. ("SWS"), located at 1201 Elm Street, Dallas, Texas 75270, 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 the shares of the Trust, the American AAdvantage Mileage Funds and the American AAdvantage Select Funds.
MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES
THE MANAGER
The Manager is a wholly owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc., and is paid a management fee as compensation for paying investment advisory fees and for providing the Trust and the AMR Trust with advisory and asset allocation services. Pursuant to management and administrative services agreements, the Manager provides the Trust and the AMR Trust with office space, office equipment and personnel necessary to manage and administer the Trusts' operations. This includes:
o complying with reporting requirements;
o corresponding with shareholders;
o maintaining internal bookkeeping, accounting and auditing services and records; and
o supervising the provision of services to the Trusts by third parties.
In addition to its oversight of the investment advisers, the Manager invests the portion of all Fund assets that the investment advisers determine to be allocated to high quality short-term debt obligations, except for the International Equity Fund, the Emerging Markets Fund, the Index Funds, and the High Yield Bond Fund.
The Funds are responsible for expenses not otherwise assumed by the Manager, including the following: audits by independent auditors; transfer agency, custodian, dividend disbursing agent and shareholder recordkeeping services; taxes, if any, and the preparation of each Fund's tax returns; interest; costs of Trustee
and shareholder meetings; printing and mailing prospectuses and reports to existing shareholders; fees for filing reports with regulatory bodies and the maintenance of the Funds' existence; legal fees; fees to federal and state authorities for the registration of shares; fees and expenses of non-interested Trustees; insurance and fidelity bond premiums; fees paid to consultants providing reports regarding adherence by investment advisers to the investment style of a Fund; fees paid for brokerage commission analysis for the purpose of monitoring best execution practices of the investment advisers; and any extraordinary expenses of a nonrecurring nature.
The following amounts represent management fees paid to the Manager based on total Fund or Portfolio assets, including funds and classes of shares not included in this SAI, some of which are no longer operational. All of the Funds, except for the Index Funds and the Money Market Funds, have a fiscal year end of October 31st. Management fees for the Funds with fiscal years ended October 31 were approximately as follows: 2000, $11,612,000, of which approximately $7,840,000 was paid by the Manager to the other investment advisers; 2001, $10,359,000, of which approximately $7,120,000 was paid by the Manager to the other investment advisers; and 2002, $10,895,000, of which approximately $7,590,000 was paid by the Manager to the other investment advisers. Management fees in the amount of approximately $7,000, $39,500 and $32,000 were waived by the Manager during the fiscal years ended October 31, 2000, 2001 and 2002.
The following amounts represent management fees paid to the Manager based on total Portfolio assets, including funds and classes of shares not included in this SAI. The Money Market Funds have a fiscal year end of December 31st. Management fees for these Funds for the fiscal years ended December 31, 2000, 2001 and 2002 were approximately $4,677,000, $10,352,000 and $9,652,000. Because these Funds are advised solely by the Manager, the Manager retained this entire amount. No management fees were waived by the Manager in relation to these Funds.
Under the Management Agreement, the Manager presently monitors the services provided by FAM to the Index Trust Portfolios and by SSgA to the Equity 500 Index Portfolio. The Manager receives no fee for providing these monitoring services. In the event that the Board determines that it is in the best interests of the shareholders of any of the Index Funds to withdraw its investment from the corresponding Portfolio, the Manager would become responsible for directly managing the assets of that Index Fund. In such an event, the Index Fund would pay the Manager an annual fee of up to 0.10% of the Index Fund's average net assets, accrued daily and paid monthly.
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 Funds with fiscal years ended October 31 were approximately as
follows: 2000, $2,610,000; 2001, $2,426,000; and 2002, $2,710,000.
Administrative services fees for the Index Funds and the Money Market Funds for
the fiscal years ended December 31, 2000, 2001 and 2002 were approximately
$7,540,000, $6,900,000 and $7,858,000, respectively.
The Manager receives compensation for administrative and oversight functions with respect to securities lending of all of the Funds, except for the Index Funds. Fees received by the Manager from securities lending for the fiscal years ended October 31 were approximately as follows: 2000, $206,541; 2001, $309,704; and 2002, $258,780. The Money Market Portfolios do not engage in securities lending, so the Manager received no compensation for these Portfolios for the fiscal years ended December 31, 2000, 2001 and 2002.
The PlanAhead Class has adopted a Service Plan (the "Plan"). The Plan provides that each Fund's PlanAhead Class will pay 0.25% per annum of its average daily net assets to the Manager (or another entity approved by the Board). The Manager or these approved entities may spend such amounts on any activities or expenses primarily intended to result in or relate to the servicing of PlanAhead Class shares including, but not limited to, payment of shareholder service fees and transfer agency or sub-transfer agency expenses. The fees, which are included as part of a Fund's "Other Expenses" in the Table of Fees and Expenses in the PlanAhead Class Prospectus, will be payable monthly in arrears without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular month by the entity for the services provided pursuant to the Plan. The primary expenses expected to be incurred under the Plan are transfer agency fees and servicing fees paid to financial intermediaries such as plan sponsors and broker-dealers.
FAM
Under the terms of the Index Trust's investment advisory agreement with FAM, FAM provides the Index Trust with investment advisory and management services. Subject to the supervision of the Index Trust Board, FAM is responsible for the actual management of each Index Trust Portfolio and constantly reviews each Portfolio's holdings in light of its own research analysis and that from other relevant sources. The responsibility for making decisions to buy, sell or hold a particular security rests with FAM.
The investment advisory agreement obligates FAM to provide investment advisory services and to pay all compensation of and furnish office space for officers and employees of the Index Trust connected with investment and economic research, trading and investment management of the Index Trust, as well as the fees of all Trustees who are affiliated persons of FAM or any of their affiliates. The Index Trust Portfolios and their corresponding Funds each bear certain other expenses incurred in their operation, including: taxes, interest, brokerage fees and commissions, if any; fees of Trustees of the Index Trust Portfolios or Trustees of the Trust who are not officers, directors or employees of FAM, the Manager or any of their affiliates; SEC fees and state Blue Sky qualification fees; charges of custodians and transfer and dividend disbursing agents; certain insurance premiums; outside auditing and legal expenses; costs attributable to investor services, including telephone and personnel expenses; costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of shareholders, officers and Trustees of the Index Trust Portfolios or Trustees of the Trust, and any extraordinary expenses.
For the years ended December 31, 2000, 2001 and 2002, FAM earned $1,201, $3,694 and $19,219 as compensation for investment advisory services provided to the International Index Series. For the years ended December 31, 2000, 2001 and 2002, FAM earned $15,024, $19,227 and $19,128 as compensation for investment advisory services provided to the Small Cap Index Series.
Under the Index Trust's Management Agreement with FAM, the annual fee rate payable to FAM by the Small Cap Index Series is 0.08% of the average daily net assets of the Small Cap Index Series. However, FAM has entered into a contractual fee waiver with the Index Trust on behalf of the Small Cap Index Series and certain corresponding feeder funds. As a result of such fee waiver, the current annual fee payable to FAM is 0.01% of the average daily net assets of the Small Cap Index Series. The contractual fee waiver will remain in effect from year to year with respect to the Small Cap Index Series unless the parties thereto agree otherwise not less than 30 days prior to the end of the then current fiscal year.
FAM provides administrative services to the Index Trust. The Investment Advisory Agreement obligates FAM to provide certain administrative services to the Index Trust and to pay all compensation of and furnish office space for officers and employees of the Index Trust as well as the fees of all Trustees who are affiliated persons of FAM or any of their affiliates. Each Index Trust Portfolio pays all other expenses incurred in its operation, including, among other things, taxes, expenses for legal and auditing services, costs of printing proxies, stock certificates, shareholder reports and prospectuses and statements of additional information, charges of the custodian, any sub-custodian and transfer agent, expenses of portfolio transactions, expenses of redemption of shares, SEC fees, expenses of registering the shares under federal, state or foreign laws, fees and actual out-of-pocket expenses of unaffiliated Trustees, accounting and pricing costs (including the daily calculation of net asset value), insurance, interest, brokerage costs, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Index Trust Portfolios. Princeton Funds Distributor will pay certain of the expenses of the Index Trust Portfolios incurred in connection with the offering of their shares.
Pursuant to a Subadministration Agreement between FAM and the Manager, FAM provides certain other administrative services to the Manager. These services include the maintenance and provision of various records related to the Small Cap Index Series and the International Index Series. FAM receives an annualized fee of 0.08% of the average daily net assets of the Small Cap Index Fund and 0.12% of the average daily net assets of the International Equity Index Fund for administrative services. For the year ended December 31, 2002, FAM earned $1,860 as compensation under the Subadministration Agreement.
SSGA AND STATE STREET
Under the terms of the Equity 500 Index Portfolio's Investment Advisory Agreement with SSgA, SSgA manages the Equity 500 Index Portfolio subject to the supervision and direction of the Equity 500 Index Portfolio Board. Subject to such policies as the Equity 500 Index Portfolio Board may determine, SSgA furnishes a continuing investment program for the Equity 500 Index Portfolio and makes investment decisions on its behalf. SSgA places all orders for purchases and sales of the Equity 500 Index Portfolio's investments.
SSgA bears all expenses in connection with the performance of services under the Agreement. The S&P 500 Index Fund and the Equity 500 Index Portfolio each bear certain other expenses incurred in their operation, including: taxes, interest, brokerage fees and commissions, if any; fees of Trustees of the Portfolio or Trustees of the Trust who are not officers, directors or employees of SSgA, the Manager or any of their affiliates; SEC fees and state Blue Sky qualification fees; charges of custodians and transfer and dividend disbursing agents; certain insurance premiums; outside auditing and legal expenses; costs attributable to investor services, including telephone and personnel expenses; costs of preparing and printing prospectuses and statements of additional information for regulatory purposes and for distribution to existing shareholders; costs of shareholders' reports and meetings of shareholders, officers and Trustees of the Equity 500 Index Portfolio or Trustees of the Trust, and any extraordinary expenses.
For the years ended December 31, 2000, 2001 and 2002, SSgA earned $217,087, $298,783 and $171,729 as compensation for investment advisory services provided to the Equity 500 Index Portfolio. Shareholders of the S&P 500 Index Fund bear only their pro-rata portion of these fees.
State Street provides administrative services to the Equity 500 Index Portfolio. Under the Administration Agreement between the Equity 500 Index Portfolio and State Street, State Street is obligated on a continuous basis to provide such administrative services as the Equity 500 Index Portfolio Board reasonably deems necessary for the proper administration of the Portfolio. State Street generally will assist in all aspects of the Portfolio's operations; supply and maintain office facilities (which may be in State Street's own offices), statistical and research data, data processing services, clerical, accounting, bookkeeping and recordkeeping services (including without limitation the maintenance of such books and records as are required under the 1940 Act and the rules thereunder, except as maintained by other agents), internal auditing, executive and administrative services, and stationery and office supplies; prepare reports to investors; prepare and file tax returns; supply financial information and supporting data for reports to and filing with the SEC and various state Blue Sky authorities; supply supporting documentation for meetings of the Equity 500 Index Portfolio Board; provide monitoring reports and assistance regarding compliance with its Declaration of Trust, By-Laws, investment objectives and policies and with Federal and state securities laws; arrange for appropriate insurance coverage; calculate net asset values, net income and realized capital gains or losses; and negotiate arrangements with, and supervise and coordinate the activities of, agents and others to supply services.
For the years ended December 31, 2000, 2001 and 2002, State Street earned $759,804, $1,105,012 and $561,129 as compensation for administrative and other services provided to the Equity 500 Index Portfolio. Shareholders of the S&P 500 Index Fund bear only their pro-rata portion of these fees.
OTHER SERVICE PROVIDERS
State Street, located in Boston, Massachusetts, is the transfer agent for the Trust and provides transfer agency services to Fund shareholders through its affiliate National Financial Data Services, located in Kansas City, Missouri. State Street also serves as custodian for the Portfolios of the AMR Trust and the Funds. In addition to its other duties as custodian, pursuant to instructions given by the Manager, State Street invests certain excess cash balances of certain funds in various futures contracts. State Street also serves as custodian and transfer agent for the assets of the Equity 500 Index Portfolio. The J.P. Morgan Chase Bank, New York, New York, serves as custodian for the assets of the International Index Series. Merrill Lynch Trust Company, Plainsboro, New Jersey, serves as the custodian for the assets of the Small Cap Index Series. Financial Data Services, Inc., Jacksonville, Florida, is the transfer agent for the Index Trust. The independent auditor for the Funds, the AMR Trust and the Equity 500 Index Portfolio is Ernst & Young LLP, Dallas, Texas and Boston, Massachusetts. The independent auditor for the Index Trust is Deloitte & Touche LLP, Princeton, New Jersey.
PORTFOLIO SECURITIES TRANSACTIONS
In selecting brokers or dealers to execute particular transactions, the Manager, SSgA, FAM and the investment advisers are authorized to consider "brokerage and research services" (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), provision of statistical quotations (including the quotations necessary to determine a Fund or Portfolio's net asset value), the sale of Trust shares by such broker-dealer or the servicing of Trust shareholders by such broker-dealer, and other information provided to the applicable Fund or Portfolio, to the Manager, SSgA, FAM and/or to the investment advisers (or their affiliates), provided, however, that the Manager, SSgA, FAM or the investment adviser determines that it has received the best net price and execution available. The Manager, SSgA, FAM and the investment advisers are also authorized to cause a Fund or Portfolio to pay a commission (as defined in SEC interpretations) to a broker or dealer who provides such brokerage and research services for executing a portfolio transaction which is in excess of the amount of the commission another broker or dealer would have charged for effecting that transaction. The Trustees, the Manager, SSgA, FAM or the investment advisers, as appropriate, must determine in good faith, however, that such commission was reasonable in relation to the value of the brokerage and research services provided, viewed in terms of that particular transaction or in terms of all the accounts over which the Manager, SSgA, FAM or the investment adviser exercises investment discretion. The fees of the investment advisers are not reduced by reason of receipt of such brokerage and research services. However, with disclosure to and pursuant to written guidelines approved by the Board, AMR Trust Board, the Index Trust Board, or the Equity 500 Index Portfolio Board, as applicable, the Manager, FAM, SSgA, or the investment advisers (or a broker-dealer affiliated with them) may execute portfolio transactions and receive usual and customary brokerage commissions
(within the meaning of Rule 17e-1 under the 1940 Act) for doing so. Supplemental investment research obtained from such broker-dealers might be used by FAM in servicing all of its accounts, and all such research might not be used by FAM in connection with the Index Trust Portfolios. Consistent with the Conduct Rules of the National Association of Securities Dealers and policies established by Trustees, FAM may consider sales of shares of the Portfolios as a factor in the selection of brokers or dealers to execute portfolio transactions.
ALL FUNDS EXCEPT THE INDEX FUNDS
Although the following discusses transactions in each Fund and the Board, it applies equally to each AMR Trust Portfolio and the AMR Trust Board. Future references in this section to "Fund" shall include the AMR Trust Portfolios.
The Manager and each investment adviser will place its own orders to execute securities transactions that are designed to implement the applicable Fund's investment objective and policies. In placing such orders, each investment adviser will seek the best available price and most favorable execution. The full range and quality of services offered by the executing broker or dealer will be considered when making these determinations. Pursuant to written guidelines approved by the Board and the AMR Trust Board, as appropriate, an investment adviser of a Fund, or its affiliated broker-dealer, may execute portfolio transactions and receive usual and customary brokerage commissions (within the meaning of Rule 17e-1 of the 1940 Act) for doing so. A Fund's turnover rate, or the frequency of portfolio transactions, will vary from year to year depending on market conditions and the Fund's cash flows. High portfolio activity increases a Fund's transaction costs, including brokerage commissions, and may result in a greater number of taxable transactions.
The Investment Advisory Agreements provide, in substance, that in executing portfolio transactions and selecting brokers or dealers, the principal objective of each investment adviser is to seek the best net price and execution available. It is expected that securities ordinarily will be purchased in the primary markets, and that in assessing the best net price and execution available, each investment adviser shall consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer and the reasonableness of the commission, if any, for the specific transaction and on a continuing basis. Transactions with respect to the securities of small and emerging growth companies in which the Funds may invest may involve specialized services on the part of the broker or dealer and thereby may entail higher commissions or spreads than would be the case with transactions involving more widely traded securities.
The Funds and the Portfolios of the AMR Trust have established brokerage commission recapture arrangements with certain brokers or dealers. If an investment adviser chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund or Portfolio. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Funds and Portfolios. Neither the Manager nor any of the investment advisers receive any benefits from the commission recapture program. An investment adviser's participation in the brokerage commission recapture program is optional. Each investment adviser retains full discretion in selecting brokerage firms for securities transactions and is instructed to use the commission recapture program for a transaction only if it is consistent with the investment adviser's obligation to seek the best execution available.
For the fiscal years ended October 31, 2000, 2001 and 2002, the following brokerage commissions were paid by the Funds and Portfolios, as applicable:
Portfolio (or Fund) 2000 2001 2002 ------------------- ---- ---- ---- Balanced $ 436,166 $ 431,045 $ 454,914 Large Cap Value $1,174,445 $ 755,564 $ 671,897 Large Cap Growth* $ 8,100 $ 17,683 $ 40,058 Small Cap Value $ 172,193 $ 352,267 $ 755,439 International Equity $1,645,190 $1,253,698 $1,596,724 Emerging Markets* $ 58,496 $ 108,814 $ 201,636 |
* Commenced operations on July 31, 2000.
Prior to March 1, 2002, each Fund listed above, with the exception of the Large Cap Growth Fund, invested in a corresponding Portfolio of the AMR Trust. Prior to March 1, 2001, the Large Cap Growth Fund invested in a corresponding Portfolio of the AMR Trust. Accordingly, the commissions listed above were paid by the respective corresponding Portfolio of the AMR Trust prior to such dates. Shareholders of these Funds bear only their pro-rata portion of such expenses.
During the fiscal year ended October 31, 2000, the following commissions were paid to affiliated brokers:
PORTFOLIO BROKER AFFILIATED WITH COMMISSION ---------- ------- --------------- ----------- Balanced Merrill Lynch & Co. Merrill Lynch Investment Managers, L.P. $ 30,539 Large Cap Value Merrill Lynch & Co. Merrill Lynch Investment Managers, L.P. $ 70,436 Large Cap Growth Goldman, Sachs & Co. Goldman Sachs Asset Management $ 45 International Equity Merrill Lynch & Co. Merrill Lynch Investment Managers, L.P. $ 74,212 Emerging Markets Morgan Stanley Dean Witter Morgan Stanley Investment Management $ 17,628 |
The percentages of total commissions of the Balanced Portfolio, the Large Cap Value Portfolio, the Large Cap Growth Fund, the International Equity Portfolio, and the Emerging Markets Portfolio paid to affiliated brokers in 2000 were 7.00%, 6.00%, 0.56%, 4.51% and 30.14%, respectively. The transactions represented 4.29% of the Balanced Portfolio, 4.12% of the Large Cap Value Portfolio, 0.56% of the Large Cap Growth Fund, 3.61% of the International Equity Portfolio, and 33.96% of the Emerging Markets Portfolio's total dollar value of portfolio transactions for the fiscal year ended October 31, 2000.
During the fiscal year ended October 31, 2001, the following commissions were paid to affiliated brokers:
PORTFOLIO BROKER AFFILIATED WITH COMMISSION ---------- ------- --------------- ----------- Balanced Merrill Lynch & Co. Merrill Lynch Investment Managers, L.P. $ 60,095 Balanced Legg Mason Wood Walker Brandywine Asset Management LLC $ 160 Large Cap Value Merrill Lynch & Co. Merrill Lynch Investment Managers, L.P. $ 78,505 Large Cap Value Legg Mason Wood Walker Brandywine Asset Management LLC $ 290 Large Cap Growth Goldman, Sachs & Co. Goldman Sachs Asset Management $ 595 Small Cap Value Legg Mason Wood Walker Brandywine Asset Management LLC $ 7,468 International Equity Merrill Lynch & Co. Merrill Lynch Investment Managers, L.P. $ 6,105 Emerging Markets Morgan Stanley Dean Witter Morgan Stanley Investment Management $ 7,072 |
The percentages of total commissions of the Balanced Portfolio, the Large Cap Value Portfolio, the Large Cap Growth Fund, the Small Cap Value Portfolio, the International Equity Portfolio, and the Emerging Markets Portfolio paid to affiliated brokers in 2001 were 14.19%, 10.43%, 3.36%, 2.12%, 0.49%, and 6.50%, respectively. The transactions represented 10.99% of the Balanced Portfolio, 8.20% of the Large Cap Value Portfolio, 2.40% of the Large Cap Growth Fund, 1.22% of the Small Cap Value Portfolio, 0.44% of the International Equity Portfolio, and 6.08% of the Emerging Markets Portfolio's total dollar value of portfolio transactions for the fiscal year ended October 31, 2001.
During the fiscal year ended October 31, 2002, the following commissions were paid to affiliated brokers:
PORTFOLIO BROKER AFFILIATED WITH COMMISSION ---------- ------- --------------- ----------- Balanced Legg Mason Wood Walker Brandywine Asset Management LLC $ 500 Large Cap Value Legg Mason Wood Walker Brandywine Asset Management LLC $ 770 Large Cap Growth Goldman, Sachs & Co. Goldman Sachs Asset Management $ 991 Small Cap Value Legg Mason Wood Walker Brandywine Asset Management LLC $ 15,264 Emerging Markets Morgan Stanley Morgan Stanley Investment Management $ 7,388 |
The percentages of total commissions of the Balanced Fund, the Large Cap Value Fund, the Large Cap Growth Fund, the Small Cap Value Fund, and the Emerging Markets Fund paid to affiliated brokers in 2002 were 0.11%, 0.11%, 2.47%, 2.02%, and 5.94%, respectively. The transactions represented 0.10% of the Balanced Fund, 0.11% of the Large Cap Value Fund, 1.45% of the Large Cap Growth Fund, 0.92% of the Small Cap Value Fund, and 4.88% of the Emerging Markets Fund's total dollar value of portfolio transactions for the fiscal year ended October 31, 2002.
INDEX TRUST PORTFOLIOS
FAM places all orders for purchases and sales of the Index Trust Portfolios' investments. Under the 1940 Act, persons affiliated with the Index Trust and persons who are affiliated with such persons are prohibited from dealing with the Index Trust as principal in the purchase and sale of securities unless an exemptive order allowing such transactions is obtained from the SEC. Since transactions in the OTC market usually involve transactions with dealers acting as principal for their own accounts, affiliated persons of the Index Trust, including Merrill Lynch and any of its affiliates, will not serve as the Index Trust's dealer in such transactions. However, affiliated persons of the Index Trust may serve as its broker in listed or OTC transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. In addition, the Index Trust may not purchase securities during the existence of any
underwriting syndicate for such securities of which Merrill Lynch is a member or in a private placement in which Merrill Lynch serves as placement agent except pursuant to procedures adopted by the Index Trust Board that either comply with rules adopted by the SEC or with interpretations of the SEC staff.
Section 11(a) of the Securities Exchange Act of 1934 generally prohibits members of the U.S. national securities exchanges from executing exchange transactions for their affiliates and institutional accounts that they manage unless the member (i) has obtained prior express authorization from the account to effect such transactions, (ii) at least annually furnishes the account with a statement setting forth the aggregate compensation received by the member in effecting such transactions, and (iii) complies with any rules the SEC has prescribed with respect to the requirements of clauses (i) and (ii). To the extent Section 11(a) would apply to Merrill Lynch acting as a broker for the Index Trust in any of its portfolio transactions executed on any such securities exchange of which it is a member, appropriate consents have been obtained from the Index Trust and annual statements as to aggregate compensation will be provided to the Index Trust. Securities may be held by, or be appropriate investments for, the Index Trust Portfolios as well as other funds or investment advisory clients of FAM.
Because of different objectives or other factors, a particular security may be bought for one or more clients of FAM or an affiliate when one or more clients of FAM or an affiliate are selling the same security. If purchases or sales of securities arise for consideration at or about the same time that would involve the Index Trust or other clients or funds for which FAM or an affiliate acts as manager, transactions in such securities will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all. To the extent that transactions on behalf of more than one client of FAM or an affiliate during the same period may increase the demand for securities being purchased or the supply of securities being sold, there may be an adverse effect on price.
For the fiscal years ended December 31, 2000, 2001 and 2002, the Small Cap Index Series paid brokerage commissions of $47,880, $100,123 and $60,384, respectively, and paid $51 and $12 in commissions to Merrill Lynch in 2000 and 2002. For the fiscal years ended December 31, 2000, 2001 and 2002, the International Index Series paid brokerage commissions of $11,665, $72,458 and $39,313, respectively, and paid $51 in commissions to Merrill Lynch in 2002. Shareholders of the Small Cap Index and International Equity Index Funds bear only their pro-rata portion of the brokerage commissions.
EQUITY 500 INDEX PORTFOLIO
SSgA places all orders for purchases and sales of the Equity 500 Index Portfolio's investments. In selecting broker-dealers, SSgA may consider research and brokerage services furnished to it and its affiliates. Affiliates of SSgA may receive brokerage commissions from the Equity 500 Index Portfolio in accordance with procedures adopted by the Equity 500 Index Portfolio Board under the 1940 Act, which procedures require periodic review of these transactions.
In certain instances there may be securities that are suitable for the Equity 500 Index Portfolio as well as for one or more of SSgA's other clients. Investment decisions for the Equity 500 Index Portfolio and for SSgA's other clients are made with a view to achieving their respective investment objectives. It may develop that a particular security is bought or sold for only one client even though it might be held by, or bought or sold for, other clients. Likewise, a particular security may be bought for one or more clients when one or more clients are selling that same security. Some simultaneous transactions are inevitable when several clients receive investment advice from the same investment adviser, particularly when the same security is suitable for the investment objectives of more than one client. When two or more clients are simultaneously engaged in the purchase or sale of the same security, the securities are allocated among clients in a manner believed to be equitable to each. It is recognized that in some cases this system could have a detrimental effect on the price or volume of the security as far as the Equity 500 Index Portfolio is concerned. However, it is believed that the ability of the Equity 500 Index Portfolio to participate in volume transactions will produce better executions for the Portfolio.
SSgA may have deposit, loan and other commercial banking relationships with the issuers of obligations which may be purchased on behalf of the Equity 500 Index Portfolio, including outstanding loans to such issuers which could be repaid in whole or in part with the proceeds of securities so purchased. Such affiliates deal, trade and invest for their own accounts in such obligations and are among the leading dealers of various types of such obligations. SSgA has informed the Equity 500 Index Portfolio that, in making its investment decisions, it does not obtain or use material inside information in its possession or in the possession of any of its affiliates.
For the fiscal years ended December 31, 2000, 2001 and 2002, the Equity 500 Index Portfolio paid brokerage commissions in the amount of $134,182, $226,991 and $381,813. Shareholders of the S&P 500 Index Fund bear only their pro-rata portion of the brokerage commissions.
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. For the Master-Feeder Funds, redemptions in kind would be paid through distributions of 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 transaction costs.
NET ASSET VALUE
It is the policy of the Money Market Fund, the Municipal Money Market Fund and the U.S. Government Money Market Fund (collectively, the "Money Market 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 the Money Market Funds' corresponding Portfolios 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 corresponding Portfolios of the Money Market Funds 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 Trustees 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 "P-1" by Moody's and "F-1" by Fitch, and have received the next highest short-term rating by other Rating Organizations, such as "A-2" by Standard & Poor's and "P-2" by Moody's. See "Ratings of Municipal Obligations" and "Ratings of Short-Term Obligations" for further information concerning ratings.
TAX INFORMATION
TAXATION OF THE FUNDS
To continue to qualify for treatment as a regulated investment company under the Tax Code ("RIC"), 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 (in the case of the International Equity, Emerging Markets and International Equity Index Funds) foreign currencies, or certain other income, including gains from options, futures or forward contracts ("Income Requirement");
o Diversify its investments so that, at the close of each quarter of its taxable year, (1) at least 50% of the value of its total assets is represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the Fund's total asset value and that does not represent more than 10% of the issuer's outstanding voting securities and (2) not more than 25% of the value of its total assets is invested in securities (other than U.S. Government securities or securities of other RICs) of any one issuer or any two or more issuers that are controlled by the Fund and engaged in the same, similar or related businesses ("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 and, in the case of the International Equity, Emerging Markets and International Equity Index Funds, net gains from certain foreign currency transactions, all determined without regard to any deduction for dividends paid) plus, in the case of the Municipal Money Market Fund, net interest income excludable from gross income under section 103(a) of the Tax Code ("Distribution Requirement").
Each Master-Feeder Fund, as an investor in its corresponding Portfolio, is or should be 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 Master-Feeder Fund satisfies the Income and Diversification Requirements. If a Fund failed to qualify for treatment 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 -- including distributions by the non-Money Market Funds of net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) and distributions by the Municipal Money Market Fund that otherwise would qualify as "exempt-interest dividends" (as described below under "Taxation of the Funds' Shareholders") -- as taxable dividends (that is, ordinary income) to the extent of the Fund's earnings and profits.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary (taxable) income for that year and capital gain net income by the end of its fiscal year, plus certain other amounts.
See the part of the next section entitled "Taxation of Certain Investments" for a discussion of the tax consequences to each Fund of certain investments and strategies it or, in the case of a Master-Feeder Fund, its corresponding Portfolio may employ. For easier reading, the term "Portfolio" is used throughout that section to refer to both a Portfolio (the tax consequences to which generally would "flow-through" to its corresponding Master-Feeder Fund) and a non-Master-Feeder Fund (i.e., a Fund that invests directly instead of through a corresponding Portfolio).
TAXATION OF THE PORTFOLIOS
The Portfolios and their Relationship to the Master-Feeder Funds. Each Portfolio is classified as a separate partnership for federal income tax purposes and is not a "publicly traded partnership" treated as a corporation. As a result, each Portfolio is not 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, and tax preference items, without regard to whether it has received any cash distributions from the Portfolio.
Because, as noted above, each Master-Feeder 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 Master-Feeder Fund will be able to satisfy all those requirements.
Distributions to a Master-Feeder 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 Master-Feeder 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.
Taxation of Certain Investments. A Portfolio may acquire zero coupon or other securities issued with original issue discount. As an investor in a Portfolio that holds those securities, a Master-Feeder Fund would have to take into account its share of the original issue discount that accrues on the securities during the taxable year, even if the Portfolio (and, hence, the Master-Feeder Fund) receives no corresponding payment on the securities during the year. Because each Fund annually must distribute substantially all of its investment company taxable income (plus, in the case of the Municipal Money Market Fund, its net tax-exempt interest income), including any original issue discount (and, in the case of the Municipal Money Market Fund, its share of its corresponding Portfolio's accrued tax-exempt original issue discount), to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, a Fund may be required in a particular year to distribute as a dividend an amount that is greater than the total amount of cash it actually receives. Those distributions would be made from the Fund's cash assets, if any, or the proceeds of redemption of a portion of the Master-Feeder 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 the Master-Feeder Fund's investment company taxable income and/or net capital gain.
If one of the Portfolios acquires stock in a foreign corporation that is a "passive foreign investment company" ("PFIC") and holds the stock beyond the end of the year of acquisition, its corresponding Master-Feeder Fund will be subject to federal income tax on the Fund's share of a portion of any "excess distribution" received by the Portfolio on the stock or of any gain realized by the Portfolio from disposition of the stock (collectively "PFIC income"), plus interest thereon, even if the Fund distributes that share of the PFIC income as a taxable dividend to its shareholders. A Fund may avoid this tax and interest if its corresponding Portfolio elects to treat the PFIC as a "qualified electing fund;" however, the requirements for that election are difficult to satisfy. The Portfolios currently do not intend to acquire securities in issuers that are considered PFICs.
Hedging strategies, such as entering into forward contracts and selling (writing) and purchasing options and futures contracts, involve complex rules that will determine for federal income tax purposes the amount, character and timing of recognition of gains and losses the High Yield Bond Fund, Balanced Fund, Large Cap Value Fund, Small Cap Value Fund, International Equity Portfolio and Equity 500 Index Portfolio realize in connection therewith. The International Equity and International Equity Index Funds' share of their corresponding Portfolio's (1) gains from the disposition of foreign currencies (except certain gains that may be excluded by future regulations) and (2) gains from options, futures and forward contracts derived with respect to its business of investing in securities or foreign currencies will be treated as qualifying income for each Fund under the Income Requirement. Similarly, the S&P 500 Index and Small Cap Index Funds' respective shares of the Equity 500 Index Portfolio and Small Cap Index Series' income from options and futures derived with respect to their business of investing in securities will be so treated for those Funds.
Dividends and interest received by the International Equity Portfolio, the Emerging Markets Fund and the International Index Series, and gains realized thereby, may be subject to income, withholding or other taxes imposed by foreign countries and U.S. possessions that would reduce the yield and/or total return on its securities. Tax treaties between certain countries and the United States may reduce or eliminate these foreign taxes, however, and many foreign countries do not impose taxes on capital gains on investments by foreign investors. There is uncertainty regarding the collectibility of tax reclaims by these Funds due to their partnership status for federal income tax purposes. Upon determination of these Funds' entitlement to benefits under foreign tax treaties, if any, tax reclaim income will be accrued.
A Portfolio may invest in certain futures and "nonequity" options (i.e., certain listed options, such as those on a "broad-based" securities index) - and certain foreign currency options and forward contracts with respect to which it makes a particular election - that will be "section 1256 contracts." Any section 1256 contracts a Portfolio holds at the end of its taxable year generally must be "marked-to-market" (that is, treated as having been sold at that time for their fair market value) for federal income tax purposes, with the result that unrealized gains or losses will be treated as though they were realized. Sixty percent of any net gain or loss recognized on these deemed sales, and 60% of any net realized gain or loss from any actual sales of section 1256 contracts, will be treated as long-term capital gain or loss, and the balance will be treated as short-term capital gain or loss. Section 1256 contracts also may be marked-to-market for purposes of the Excise Tax. These rules may operate to increase the amount that a Master-Feeder Fund that invests in such a Portfolio must distribute to satisfy the Distribution Requirement (i.e., with respect to the portion treated as short-term capital gain), which will be taxable to its shareholders as ordinary income, and to increase the net capital gain such a Fund recognizes, without in either case increasing the cash available to it.
Section 988 of the Tax Code also may apply to a Portfolio's forward currency contracts and options on foreign currencies. Under that section, each foreign currency gain or loss generally is computed separately and treated as ordinary income or loss. These gains or losses will increase or decrease the amount of a Fund's investment company taxable income to be distributed to its shareholders as ordinary income, rather than affecting the amount of its net capital gain. If section 988 losses exceed other investment company taxable income during a taxable year, a Fund would not be able to distribute any dividends, and any distributions made during that year before the losses were realized would be recharacterized as a return of capital to shareholders, rather than as a dividend, thereby reducing each shareholder's basis in his or her Fund shares.
Offsetting positions a Portfolio enters into or holds in any actively traded option, futures or forward contract may constitute a "straddle" for federal income tax purposes. Straddles are subject to certain rules that
may affect the amount, character and timing of a Portfolio's gains and losses
with respect to positions of the straddle by requiring, among other things, that
(1) loss realized on disposition of one position of a straddle be deferred to
the extent of any unrealized gain in an offsetting position until the latter
position is disposed of, (2) a Portfolio's holding period in certain straddle
positions not begin until the straddle is terminated (possibly resulting in gain
being treated as short-term rather than long-term capital gain) and (3) losses
recognized with respect to certain straddle positions, that otherwise would
constitute short-term capital losses, be treated as long-term capital losses.
Applicable regulations also provide certain "wash sale" rules, which apply to
transactions where a position is sold at a loss and a new offsetting position is
acquired within a prescribed period, and "short sale" rules applicable to
straddles. Different elections are available, which may mitigate the effects of
the straddle rules, particularly with respect to "mixed straddles" (i.e., a
straddle of which at least one, but not all, positions are section 1256
contracts).
When a covered call option written (sold) by a Portfolio expires, it will realize a short-term capital gain equal to the amount of the premium it received for writing the option. When a Portfolio terminates its obligations under such an option by entering into a closing transaction, it will realize a short-term capital gain (or loss), depending on whether the cost of the closing transaction is less (or more) than the premium it received when it wrote the option. When a covered call option written by a Portfolio is exercised, it will be treated as having sold the underlying security, producing long-term or short-term capital gain or loss, depending on the holding period of the underlying security and whether the sum of the option price received on the exercise plus the premium received when it wrote the option is more or less than the underlying security's basis.
If a Portfolio has an "appreciated financial position" - generally, an interest (including an interest through an option, futures or forward contract or short sale) with respect to any stock, debt instrument (other than "straight debt") or partnership interest the fair market value of which exceeds its adjusted basis - and enters into a "constructive sale" of the position, the Portfolio will be treated as having made an actual sale thereof, with the result that it will recognize gain at that time. A constructive sale generally consists of a short sale, an offsetting notional principal contract or a futures or forward contract a Portfolio or a related person enters into with respect to the same or substantially identical property. In addition, if the appreciated financial position is itself a short sale or such a contract, acquisition of the underlying property or substantially identical property will be deemed a constructive sale. The foregoing will not apply, however, to any Portfolio transaction during any taxable year that otherwise would be treated as a constructive sale if the transaction is closed within 30 days after the end of that year and the Portfolio holds the appreciated financial position unhedged for 60 days after that closing (i.e., at no time during that 60-day period is the Portfolio's risk of loss regarding that position reduced by reason of certain specified transactions with respect to substantially identical or related property, such as having an option to sell, being contractually obligated to sell, making a short sale or granting an option to buy substantially identical stock or securities).
TAXATION OF THE FUNDS' SHAREHOLDERS
A dividend or other distribution a Fund declared in the last quarter of any calendar year that is payable to shareholders of record on a date in that quarter will be deemed to have been paid by the Fund and received by those shareholders on December 31 of that year if the Fund pays the distribution during the following January. Accordingly, that distribution will be reported by, and (except for "exempt-interest dividends," as defined below) taxed to, those shareholders for the taxable year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the loss will be disallowed to the extent of any exempt-interest dividends received on those shares, and any loss not disallowed will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received thereon. Investors also should be aware that if they purchase Fund shares shortly before the record date for a distribution (other than an exempt-interest dividend), they will pay full price for the shares and receive some portion of the price back as a taxable distribution.
Distributions by the Municipal Money Market Fund of the amount by which its share of the Municipal Money Market Portfolio's income on tax-exempt securities exceeds certain amounts disallowed as deductions, designated by it as "exempt-interest dividends," generally may be excluded from gross income by its shareholders. Dividends paid by the Fund will qualify as exempt-interest dividends if, at the close of each quarter of its taxable year, at least 50% of the value of its total assets (including its share of the Portfolio's total assets) consists of securities the interest on which is excludable from gross income under section 103(a) of the Tax Code. The Fund and the Portfolio intend to continue to satisfy this requirement. The aggregate dividends excludable from shareholders' gross income may not exceed the Fund's net tax-exempt income. The shareholders' treatment of dividends from the Fund under state and local income tax laws may differ from the treatment thereof under the Tax 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") should consult their tax advisers before purchasing shares of the 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.
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 Fund) plus 50% of their benefits exceeds certain base amounts. Exempt-interest dividends from the Fund 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.
If more than 50% of the value of the total assets of the International Equity Fund, Emerging Markets Fund or International Equity Index Fund (including, as applicable, the share of their corresponding Portfolio's total assets) at the close of its taxable year consists of securities of foreign corporations, that Fund will be eligible to, and may, file an election with the IRS that will enable that Fund's shareholders, in effect, to receive the benefit of the foreign tax credit with respect to that Fund's share of any foreign and U.S. possessions income taxes paid by the Portfolio. If the Fund makes this election, the Fund will treat those taxes as dividends paid to its shareholders and each shareholder will be required to (1) include in gross income, and treat as paid by him, his proportionate share of those taxes, (2) treat his share of those taxes and of any dividend paid by the Fund that represents income from foreign or U.S. possessions sources as his own income from those sources and (3) either deduct the taxes deemed paid by him in computing his taxable income or, alternatively, use the foregoing information in calculating the foreign tax credit against his federal income tax. If the election is made, the Fund will report to its shareholders shortly after each taxable year their respective share of the Portfolio's income from foreign and U.S. possessions sources and the taxes paid by the Portfolio to foreign countries and U.S. possessions. Pursuant to that election, individuals who have no more than $300 ($600 for married persons filing jointly) of creditable foreign taxes included on Forms 1099 and all of whose foreign source income is "qualified passive income" may elect each year to be exempt from the extremely complicated foreign tax credit limitation and will be able to claim a foreign tax credit without having to file the detailed Form 1116 that otherwise is required.
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.
YIELD AND TOTAL RETURN QUOTATIONS
A quotation of yield on shares of each class of the Money Market 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 corresponding Portfolios of the Money Market Funds, and the applicable class'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 Money Market 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 class of 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 class of 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
Based on these formulas, the current and effective yields were as follows for the periods and Funds indicated:
CURRENT YIELD FOR EFFECTIVE YIELD FOR
CURRENT DAILY YIELD THE 7 DAY PERIOD THE 7 DAY PERIOD
AS OF ENDED ENDED
DECEMBER 31, 2002 DECEMBER 31, 2002 DECEMBER 31, 2002
----------------- ----------------- -----------------
Institutional Class
Money Market Fund 1.25% 1.23% 1.24%
Municipal Money Market Fund 1.29% 1.27% 1.28%
PlanAhead Class
Money Market Fund 1.00% 0.98% 0.99%
Municipal Money Market Fund 1.01% 0.99% 1.00%
U.S. Government Money Market Fund 0.79% 0.83% 0.83%
|
The Municipal Money Market Fund 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 periods ended December 31, 2002 were:
Current Effective
Class Tax Equivalent Yield Tax Equivalent Yield
----- -------------------- --------------------
Institutional (based on a 35.0% corporate tax 1.95% 1.97%
rate)
PlanAhead (based on a 39.6% personal tax rate) 1.64% 1.66%
|
The advertised yields for each class of the High Yield Bond, Intermediate Bond and Short-Term Bond Funds are computed by dividing the net investment income per share earned during a 30-day (or one month) period less the aggregate fees that are charged to all shareholder accounts of the class in proportion to the 30-day (or one month) period and the weighted average size of an account in that class of a Fund by the maximum offering price per share of the class on the last day of the period, according to the following formula:
where, with respect to a particular class of a Fund, "a" is the dividends and interest earned during the period; "b" is the sum of the expenses accrued for the period (net of reimbursement, if any) and the aggregate fees that are charged to all shareholder accounts in proportion to the 30-day (or one month) period and the weighted average size of an account in the class; "c" is the average daily number of class shares outstanding during the period that were entitled to receive dividends; and "d" is the maximum offering price per class share on the last day of the period. Based on this formula, the 30-day yields for the period ended October 31, 2002 for the High Yield Bond Fund were 8.49% and 8.08% for the Institutional and PlanAhead Classes, respectively. The 30-day yields for the period ended October 31, 2002 for the Intermediate Bond Fund were 4.22%, 3.96% and 3.69%, for the AMR, Institutional and PlanAhead Classes, respectively. The 30-day yields for the period ended October 31, 2002 for the Short-Term Bond Fund were 3.84%, 3.68% and 3.10%, for the AMR, Institutional and PlanAhead Classes, respectively.
Each class of the High Yield Bond, Intermediate Bond and Short-Term Bond Funds also may advertise a
monthly distribution rate. The distribution rate gives the return of the class based solely on the dividend payout to that class if someone was entitled to the dividends for an entire month. A monthly distribution rate is calculated according to the following formula:
MONTHLY DISTRIBUTION RATE = A/P*(365/N)
where, with respect to a particular class of shares, "A" is the dividend accrual per share during the month, "P" is the share price at the end of the month and "N" is the number of days in the month. Based on this formula, the monthly distribution rates for the Institutional and PlanAhead Classes of the High Yield Bond Fund for the month of October 2002 were 8.08% and 7.70%. The monthly distribution rates for the AMR, Institutional and PlanAhead Classes of the Short-Term Bond Fund for the month of October 2002 were 4.96%, 4.81% and 4.24%, respectively. The monthly distribution rates for the AMR, Institutional and PlanAhead Classes of the Intermediate Bond Fund for the month of October 2002 were 4.57%, 4.30% and 4.02%, respectively. The "monthly distribution rate" is a non-standardized performance calculation and, when used in an advertisement, will be accompanied by the appropriate standardized SEC calculations.
The advertised total return for a class of a Fund is 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 class; "n" is the number of years involved; and "ERV" is the ending redeemable value of a hypothetical $1,000 payment made in the class at the beginning of the investment period covered.
The advertised after-tax returns for a class of a Fund are calculated by equating an initial amount invested in a class of a Fund to the ending value, according to the following formulas:
n
AFTER TAXES ON DISTRIBUTIONS: P(1 + T) = ATV
D
n
AFTER TAXES ON DISTRIBUTIONS AND REDEMPTION: P(1 + T) = ATV
DR
where "P" is a hypothetical initial payment of $1,000; "T" is the average annual total return for the class (after taxes on distributions or after taxes on distributions and redemption, as applicable); "n" is the number of years involved; "ATVD" is the ending value of a hypothetical $1,000 payment made in the class at the beginning of the investment period covered after taxes on fund distributions but not after taxes on redemption; and "ATVDR" is the ending value of a hypothetical $1,000 payment made in the class at the beginning of the investment period covered after taxes on fund distributions and redemption. After-tax returns will only be advertised for the Institutional and PlanAhead Classes of the non-Money Market Funds.
Based on these formulas, annualized total returns were as follows for the periods and Funds indicated:
ONE-YEAR FIVE-YEAR TEN-YEAR PERIOD
PERIOD PERIOD OR FROM INCEPTION
THROUGH THROUGH THROUGH
10/31/02(1) 10/31/02(1) 10/31/02(1)(3)
----------- ----------- -----------------
AMR CLASS
Balanced Fund -4.71% 2.93% 8.76%
After taxes on distributions -6.37% -0.21% 5.69%
After taxes on distributions and -2.82% 1.25% 5.95%
redemption
Emerging Markets Fund 10.10% N/A(2) -12.79%
After taxes on distributions 9.50% N/A(2) -13.06%
After taxes on distributions and 6.21% N/A(2) -10.17%
redemption
Intermediate Bond Fund 4.57% 6.67% 7.00%
After taxes on distributions 2.45% 4.04% 4.40%
After taxes on distributions and 2.78% 4.66% 4.23%
redemption
International Equity Fund -10.26% -0.64% 8.43%
After taxes on distributions -10.75% -2.22% 6.84%
After taxes on distributions and -5.99% -0.66% 6.63%
redemption
Large Cap Growth Fund -19.85% N/A(2) -29.50%
After taxes on distributions -19.88% N/A(2) -29.54%
After taxes on distributions and -12.18% N/A(2) -22.46%
redemption
Large Cap Value Fund(6) -10.62% 0.01% 9.22%
After taxes on distributions -11.57% -2.78% 6.45%
After taxes on distributions and -6.20% -0.54% 6.78%
redemption
Short-Term Bond Fund(7) 3.60% 6.07% 5.81%
After taxes on distributions 1.50% 3.47% 3.18%
After taxes on distributions and 2.22% 4.15% 3.81%
redemption
|
ONE-YEAR FIVE-YEAR TEN-YEAR PERIOD
PERIOD PERIOD OR FROM INCEPTION
THROUGH THROUGH THROUGH
10/31/02(1) 10/31/02(1) 10/31/02(1)(3)
----------- ----------- -----------------
Small Cap Value Fund 3.54% N/A(2) 6.95%
After taxes on distributions 1.21% N/A(2) 5.61%
After taxes on distributions and 2.74% N/A(2) 5.02%
redemption
INSTITUTIONAL CLASS
Balanced Fund -5.14% 2.61% 8.50%
After taxes on distributions -6.58% -0.37% 5.54%
After taxes on distributions and -2.96% 1.10% 5.80%
redemption
Emerging Markets Fund 9.80% N/A(2) -13.00%
After taxes on distributions 9.27% N/A(2) -13.23%
After taxes on distributions and 6.02% N/A(2) -10.31%
redemption
High Yield Bond Fund(5) 6.28% N/A(2) 6.32%
After taxes on distributions 2.97% N/A(2) 3.15%
After taxes on distributions and 2.07% N/A(2) 1.79%
redemption
Intermediate Bond Fund 4.21% 6.91% 7.23%
After taxes on distributions 2.20% 4.33% 4.69%
After taxes on distributions and 2.57% 4.95% 4.45%
redemption
International Equity Fund -10.51% -0.90% 8.19%
After taxes on distributions -10.90% -2.39% 6.67%
After taxes on distributions and -6.15% -0.83% 6.47%
redemption
Large Cap Growth Fund -19.96% N/A(2) -29.64%
After taxes on distributions -19.96% N/A(2) -29.65%
After taxes on distributions and -12.26% N/A(2) -22.55%
redemption
Large Cap Value Fund(6) -10.83% -0.24% 8.99%
After taxes on distributions -11.69% -2.83% 6.35%
After taxes on distributions and -6.34% -0.64% 6.65%
redemption
Short-Term Bond Fund(7) 3.37% 5.83% 5.61%
After taxes on distributions 1.32% 3.33% 3.06%
After taxes on distributions and 2.08% 3.99% 3.69%
redemption
Small Cap Value Fund 3.29% N/A(2) 6.67%
After taxes on distributions 1.06% N/A(2) 5.43%
After taxes on distributions and 2.59% N/A(2) 4.84%
redemption
|
ONE-YEAR FIVE-YEAR TEN-YEAR PERIOD
PERIOD PERIOD OR FROM INCEPTION
THROUGH THROUGH THROUGH
10/31/02(1) 10/31/02(1) 10/31/02(1)(3)
----------- ----------- --------------
PLANAHEAD CLASS
Balanced Fund -5.18% 2.39% 8.28%
After taxes on distributions -6.56% -0.53% 5.35%
After taxes on distributions and -2.99% 0.96% 5.64%
redemption
High Yield Bond Fund 5.37% N/A(2) 5.83%
After taxes on distributions 2.46% N/A(2) 2.87%
After taxes on distributions and 1.77% N/A(2) 1.64%
redemption
Intermediate Bond Fund 4.10% 6.28% 6.62%
After taxes on distributions 2.21% 3.84% 4.21%
After taxes on distributions and 2.50% 4.44% 4.03%
redemption
International Equity Fund -10.57% -1.13% 7.94%
After taxes on distributions -10.90% -2.55% 6.47%
After taxes on distributions and -6.20% -0.97% 6.27%
redemption
Large Cap Value Fund(6) -11.13% -0.53% 8.70%
After taxes on distributions -11.92% -3.16% 6.04%
After taxes on distributions and -6.52% -0.87% 6.41%
redemption
Short-Term Bond Fund(7) 3.16% 5.58% 5.41%
After taxes on distributions 1.17% 3.18% 2.94%
After taxes on distributions and 1.99% 3.82% 3.55%
redemption
Small Cap Value Fund 2.99% N/A(2) 6.39%
After taxes on distributions 0.84% N/A(2) 5.20%
After taxes on distributions and 2.41% N/A(2) 4.64%
redemption
|
ONE-YEAR FIVE-YEAR TEN-YEAR PERIOD
PERIOD PERIOD OR FROM
THROUGH THROUGH INCEPTION THROUGH
12/31/01(1) 12/31/01(1) 12/31/01(1)(3)
----------- ----------- --------------
INSTITUTIONAL CLASS
International Equity Index Fund -15.65% N/A(2) -18.46%
After taxes on distributions -16.13% N/A(2) -18.94%
After taxes on distributions and -9.61% N/A(2) -14.50%
redemption
Money Market Fund 1.67% 4.59% 4.76%
Municipal Money Market Fund 1.21% 2.80% 3.05%
S&P 500 Index Fund(4) -22.27% -0.70% 4.26%
After taxes on distributions -22.72% -1.17% 3.78%
After taxes on distributions and -13.65% -0.74% 3.27%
redemption
Small Cap Index Fund(5) -20.37% N/A(2) -9.21%
After taxes on distributions -20.75% N/A(2) -9.61%
After taxes on distributions and -12.50% N/A(2) -7.44%
redemption
PLANAHEAD CLASS
Money Market Fund 1.37% 4.28% 4.48%
Municipal Money Market Fund 0.93% 2.52% 2.77%
S&P 500 Index Fund(4) -22.59% -1.04% 3.97%
After taxes on distributions -22.91% -1.44% 3.55%
After taxes on distributions and -13.85% -0.98% 3.06%
redemption
U.S. Gov't. Money Market Fund(8) 1.30% 4.13% 4.29%
|
(1) Except for the Large Cap Growth and Emerging Markets Funds, total returns for the AMR Class of each Fund reflect Institutional Class returns from the date of commencement of operations of each of the Funds and returns of the AMR Class from the commencement of its operations through the end of each period. Total returns for the PlanAhead Class of each Fund reflect Institutional Class returns from the date of commencement of operations of each Fund and returns of the PlanAhead Class from the commencement of its operations through the end of each period. Due to the different expense structures between the classes, total returns would vary from the results shown had the classes been in operation for the entire periods.
(2) The Fund was not operational during the entire period.
(3) Inception dates are as follows:
Fund Institutional Class AMR Class PlanAhead Class ---- ------------------- --------- --------------- Balanced 7/17/87 8/1/94 8/1/94 Large Cap Value 7/17/87 8/1/94 8/1/94 Large Cap Growth 7/31/00 7/31/00 N/A Small Cap Value 12/31/98 3/1/99 3/1/99 International Equity 8/7/91 8/1/94 8/1/94 Emerging Markets 7/31/00 7/31/00 10/1/02 S&P 500 Index(4) 1/1/97 N/A 3/1/98 Small Cap Index 7/31/00 N/A N/A International Index 7/31/00 N/A N/A High Yield Bond 12/29/00 N/A 3/1/02 Intermediate Bond 9/15/97 3/1/99 3/1/98 Short-Term Bond 12/3/87 8/1/94 8/1/94 Money Market 9/1/87 N/A 8/1/94 Municipal Money Market 11/10/93 N/A 8/1/94 U.S. Government Money Market N/A N/A 8/1/94 |
(4) On March 1, 1998, the S&P 500 Index Fund-AMR Class was redesignated the S&P 500 Index Fund-Institutional Class.
(5) A portion of the Management and/or Administrative Services fees has been waived for this Fund since its inception.
(6) Prior to March 1, 1999, the Large Cap Value Fund was known as the Growth and Income Fund and operated under different investment policies.
(7) Prior to March 1, 1998, the Short-Term Bond Fund was known as the Limited-Term Income Fund.
Each class of a Fund also may use "aggregate" total return figures for various periods that represent the cumulative change in value of an investment in a class of a Fund for the specific period. Such total returns reflect changes in share prices of a class of a Fund and assume reinvestment of dividends and distributions.
Each Fund may give total returns from inception using the date when the current investment advisers began active management as the inception date. However, returns using the actual inception date of the Fund also will be provided.
In reports or other communications to shareholders or in advertising material, each class of a Fund may from time to time compare its performance or annual operating expense ratio with those of other mutual funds in rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., iMoneyNet, Inc. and other similar independent services which monitor the performance of mutual funds or publications such as the "New York Times," "Barrons" or the "Wall Street Journal." Each class of a Fund may also compare its performance with various indices prepared by BARRA, Frank Russell, Standard & Poor's, Merrill Lynch, Morgan Stanley or Lehman Brothers or to unmanaged indices that may assume reinvestment of dividends but generally do not reflect deductions for administrative and management costs. The comparison may be accompanied by a discussion of the tenets of value investing versus growth investing.
Each Fund may advertise the standard deviation of its returns for various time periods and compare its standard deviation to that of various indices. Standard deviation of returns over time is a measure of volatility. It indicates the spread of a Fund's returns about their central tendency or mean. In theory, a Fund that is more volatile should receive a higher return in exchange for taking extra risk. Standard deviation is a well-accepted statistic to gauge the riskiness of an investment strategy and measure its historical volatility as a predictor of risk, although the measure is subject to time selection bias.
Advertisements for the Funds may mention that the Funds offer a variety of investment options. They may also 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 may also compare the historical rate of return of different types of investments. Advertisements for the International Equity, Emerging Markets and International Equity Index Funds may compare the differences between domestic and foreign investments. Information concerning broker-dealers who sell the Funds may also appear in advertisements for the Funds, including their ranking as established by various publications compared to other broker-dealers. The Funds may also publish advertisements or shareholder communications that discuss the principles of diversification and asset allocation. The Funds may also discuss the benefits of diversification across investment managers, which include reduced portfolio volatility, lower overall risk, and access to multiple leading managers within one Fund. The Funds may suggest specific asset allocation models based on an investor's risk tolerance and time horizon.
From time to time, the Manager may use contests as a means of promoting the American AAdvantage Funds. Prizes may include free air travel and/or hotel accommodations. Listings for certain of the Funds may be found in newspapers under the heading "Amer AAdvant."
DESCRIPTION OF THE TRUST
The Trust is an entity of the type commonly known as a "Massachusetts business trust." Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable for its obligations. However, the Trust's Declaration of Trust contains an express disclaimer of shareholder liability for acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of Trust property for any shareholder held personally liable for the obligations of the Trust. The Declaration of Trust also provides that the Trust may maintain appropriate insurance (for example, fidelity bonding) for the protection of the Trust, its shareholders, Trustees, officers, employees and agents to cover possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss due to shareholder liability is limited to circumstances in which both inadequate insurance existed and the Trust itself was unable to meet its obligations. The Trust has not engaged in any other business.
The Trust was originally created to manage money for large institutional investors, including pension and 401(k) plans for American Airlines, Inc. The AMR Class is offered to tax-exempt retirement and benefit plans of AMR Corporation and its affiliates. The following individuals are eligible for purchasing shares of the Institutional Class with an initial investment of less than $2 million: (i) employees of the Manager, (ii) officers and directors of AMR and (iii) members of the Trust's Board of Trustees. The PlanAhead Class was created to give individuals and other smaller investors an opportunity to invest in the American AAdvantage Funds. As a result, shareholders of the PlanAhead Class benefit from the economies of scale generated by being part of a larger pool of assets.
The Balanced, Emerging Markets, High Yield Bond, Intermediate Bond, Large Cap Growth, Large Cap Value, Short-Term Bond, and Small Cap Value Funds utilize a multi-manager approach designed to reduce volatility by diversifying assets over multiple investment management firms. In addition, the International Equity Portfolio utilizes a multi-manager approach. Each investment adviser is carefully chosen by the Manager through a rigorous screening process.
OTHER INFORMATION
For easier reading, the term "Portfolio" is used throughout this section to refer to either a Fund or its Portfolio, unless stated otherwise.
American Depositary Receipts (ADRs), European Depositary Receipts (EDRs)-ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets, whereas, EDRs are in bearer form and traded in European securities markets. These securities are not denominated in the same currency as the securities into which they may be converted. Investing in ADRs and EDRs involves greater risks than are normally present in domestic investments. There is generally less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers and listed companies. In addition, such companies may use different accounting and financial standards (and certain currencies may become unavailable for transfer from a foreign currency), resulting in a Fund's possible inability to convert immediately into U.S. currency proceeds realized upon the sale of portfolio securities of the affected foreign companies.
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.
Borrowing Risks-The Portfolios may borrow for temporary purposes. Borrowing may exaggerate changes in a Fund's NAV and in its total return. Interest expense and other fees associated with borrowing may reduce a Fund's return.
Cash Equivalents-Cash equivalents include certificates of deposit, bearer deposit notes, bankers' acceptances, government obligations, commercial paper, short-term corporate debt securities and repurchase agreements.
Certificates of Deposit-Certificates of deposit are issued against funds deposited in an eligible bank (including its domestic and foreign branches, subsidiaries and agencies), are for a definite period of time, earn a specified rate of return and are normally negotiable.
Commercial Paper-Commercial paper refers to promissory notes representing an unsecured debt of a corporation or finance company with a fixed maturity of no more than 270 days. A variable amount master demand note (which is a type of commercial paper) represents a direct borrowing arrangement involving periodically fluctuating rates of interest under a letter agreement between a commercial paper issuer and an institutional lender pursuant to which the lender may determine to invest varying amounts.
Convertible Securities-Convertible securities include corporate bonds, notes, preferred stock or other securities that may be converted into or exchanged for a prescribed amount of common stock of the same or a different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or dividends paid on preferred stock until the convertible security matures or is redeemed, converted or exchanged. While no securities investment is without some risk, investments in convertible securities generally entail less risk than the issuer's common stock, although the extent to which such risk is reduced depends in large measure upon the degree to which the convertible security sells above its value as a fixed income security. The market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. While convertible securities generally offer lower interest or dividend yields than nonconvertible debt securities of similar quality, they do enable the investor to benefit from increases in the market price of the underlying common stock.
Cover-Transactions using forward contracts, futures contracts, options on futures contracts and options on indices ("Financial Instruments"), other than purchased options, expose a Portfolio to an obligation to another party. A Portfolio will not enter into any such transactions unless it owns either (1) an offsetting ("covered") position in securities, currencies, or other forward contracts, options or futures contracts, or (2) cash, receivables and liquid assets, with a value, marked-to-market daily, sufficient to cover its potential obligations to the extent not covered as provided in (1) above. Each Portfolio will comply with SEC guidelines regarding cover for these instruments and will, if the guidelines so require, set aside cash, receivables, or liquid assets in a segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the position in the corresponding Financial Instrument is open, unless they are replaced with other appropriate assets. As a result, the commitment of a large portion of a Portfolio's assets to cover or to segregated accounts could impede portfolio management or the Portfolio's ability to meet redemption requests or other current obligations.
Debentures-Debentures are unsecured debt securities. The holder of a debenture is protected only by the general creditworthiness of the issuer.
Derivatives-Generally, a derivative is a financial arrangement, the value of which is based on, or "derived" from, a traditional security, asset or market index. Some "derivatives" such as mortgage-related and other asset-backed securities are in many respects like any other investment, although they may be more volatile or less liquid than more traditional debt securities. There are, in fact, many different types of derivatives and many different ways to use them. There are a range of risks associated with those uses.
Dollar Rolls-A dollar roll is a contract to sell mortgage-backed securities as collateral against a commitment to repurchase similar, but not identical, mortgage-backed securities on a specified future date. The other party to the contract is entitled to all principal, interest, and prepayment cash flows while it holds the collateral. Each Portfolio maintains with its custodian a segregated account containing high-grade liquid securities in an amount at least equal to the forward purchase obligation.
Emerging Market Risks-The Emerging Markets Fund invests in the
securities of issuers domiciled in various countries with emerging capital
markets. Investments in the securities of issuers domiciled in countries with
emerging capital markets involve certain additional risks not involved in
investments in securities of issuers in more developed capital markets, such as
(i) low or non-existent trading volume, resulting in a lack of liquidity and
increased volatility in prices for such securities, as compared to securities of
comparable issuers in more developed capital markets, (ii) uncertain national
policies and social, political and economic instability, increasing the
potential for expropriation of assets, confiscatory taxation, high rates of
inflation or unfavorable diplomatic developments, (iii) possible fluctuations in
exchange rates, differing legal systems and the existence or possible imposition
of exchange controls, custodial restrictions or other non-U.S. or U.S.
governmental laws or restrictions
applicable to such investments, (iv) national policies that may limit the Fund's investment opportunities such as restrictions on investment in issuers or industries deemed sensitive to national interests, and (v) the lack or relatively early development of legal structures governing private and foreign investments and private property. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gain taxes on foreign investors.
Such capital markets are emerging in a dynamic political and economic environment brought about by events over recent years that have reshaped political boundaries and traditional ideologies. In such a dynamic environment, there can be no assurance that these capital markets will continue to present viable investment opportunities for the Fund. In the past, governments of such nations have expropriated substantial amounts of private property, and most claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In such event, it is possible that the Fund could lose the entire value of its investments in the affected markets.
Also, there may be less publicly available information about issuers in emerging markets than would be available about issuers in more developed capital markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which U.S. companies are subject. In certain countries with emerging capital markets, reporting standards vary widely. As a result, traditional investment measurements used in the U.S., such as price/earnings ratios, may not be applicable. Emerging market securities may be substantially less liquid and more volatile than those of mature markets, and companies may be held by a limited number of persons. This may adversely affect the timing and pricing of the Fund's acquisition or disposal of securities.
Practices in relation to settlement of securities transactions in emerging markets involve higher risks than those in developed markets, in part because the Fund will need to use brokers and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable.
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.
Foreign Debt Securities-The High Yield Bond Fund may invest in foreign
fixed and floating rate income securities (including emerging market securities)
all or a portion of which may be non-U.S. dollar denominated and which include:
(a) debt obligations issued or guaranteed by foreign national, provincial,
state, municipal or other governments with taxing authority or by their agencies
or instrumentalities, including Brady Bonds; (b) debt obligations of
supranational entities; (c) debt obligations of the U.S. Government issued in
non-dollar securities; (d) debt obligations and other fixed income securities of
foreign corporate issuers (both dollar and non-dollar denominated); and (e) U.S.
corporate issuers (both Eurodollar and non-dollar denominated). There is no
minimum rating criteria for the Fund's investments in such securities. Investing
in the securities of foreign issuers involves special considerations that are
not typically associated with investing in the securities of U.S. issuers. In
addition, emerging markets are markets that have risks that are different and
higher than those in more developed markets. See "Eurodollar and Yankeedollar
Obligations" for a further discussion of these risks.
Forward Foreign Currency Exchange Contracts-A forward foreign currency exchange contract ("forward contract") is a contract to purchase or sell a currency at a future date. The two parties to the contract set the number of days and the price. Forward contracts are used as a hedge against movements in future foreign exchange rates. The International Equity Portfolio, Emerging Markets Fund and International Equity Index Fund may enter into forward contracts to purchase or sell foreign currencies for a fixed amount of U.S. dollars or other foreign currency.
Forward contracts may serve as long hedges -- for example, a Portfolio may purchase a forward contract to lock in the U.S. dollar price of a security denominated in a foreign currency that the Portfolio intends to acquire. Forward contracts may also serve as short hedges -- for example, a Portfolio may sell a forward contract to lock in the U.S. dollar equivalent of the proceeds from the anticipated sale of a security denominated in a foreign currency or from the anticipated dividend or interest payments denominated in a
foreign currency. The investment adviser may seek to hedge against changes in the value of a particular currency by using forward contracts on another foreign currency or basket of currencies, the value of which the investment adviser believes will bear a positive correlation to the value of the currency being hedged.
The cost to a Portfolio of engaging in forward contracts varies with factors such as the currency involved, the length of the contract period and the market conditions then prevailing. Because forward contracts are usually entered into on a principal basis, no fees or commissions are involved. When a Portfolio enters into a forward contract, it relies on the contra party to make or take delivery of the underlying currency at the maturity of the contract. Failure by the contra party to do so would result in the loss of any expected benefit of the transaction.
Buyers and sellers of forward contracts can enter into offsetting closing transactions by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Secondary markets generally do not exist for forward contracts, with the result that closing transactions generally can be made for forward contracts only by negotiating directly with the contra party. Thus, there can be no assurance that the Portfolio will in fact be able to close out a forward contract at a favorable price prior to maturity. In addition, in the event of insolvency of the contra party, a Portfolio might be unable to close out a forward contract at any time prior to maturity. In either event, the Portfolio would continue to be subject to market risk with respect to the position, and would continue to be required to maintain a position in the securities or currencies that are the subject of the hedge or to maintain cash or securities in a segregated account.
The precise matching of forward currency contract amounts and the value of the securities involved generally will not be possible because the value of such securities, measured in the foreign currency, will change after the forward contract has been established. Thus, a Portfolio might need to purchase or sell foreign currencies in the spot (cash) market to the extent such foreign currencies are not covered by forward contracts. The projection of short-term currency market movements is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain.
Full Faith and Credit Obligations of the U.S. Government-Securities issued or guaranteed by the U.S. Treasury, backed by the full taxing power of the U.S. Government or the right of the issuer to borrow from the U.S. Treasury.
Futures Contracts-Futures contracts obligate a purchaser to take delivery of a specific amount of an obligation underlying the futures contract at a specified time in the future for a specified price. Likewise, the seller incurs an obligation to deliver the specified amount of the underlying obligation against receipt of the specified price. Futures are traded on both U.S. and foreign commodities exchanges. Futures contracts will be traded for the same purposes as entering into forward contracts. The use of futures contracts by the Equity 500 Index Portfolio and Index Trust Portfolios is explained further under "Index Futures Contracts and Options on Index Futures Contracts."
The purchase of futures can serve as a long hedge, and the sale of futures can serve as a short hedge.
No price is paid upon entering into a futures contract. Instead, at the inception of a futures contract a Portfolio is required to deposit "initial deposit" consisting of cash or U.S. Government Securities in an amount generally equal to 10% or less of the contract value. Margin must also be deposited when writing a call or put option on a futures contract, in accordance with applicable exchange rules. Unlike margin in securities transactions, initial margin on futures contracts does not represent a borrowing, but rather is in the nature of a performance bond or good-faith deposit that is returned to the Portfolio at the termination of the transaction if all contractual obligations have been satisfied. Under certain circumstances, such as periods of high volatility, a Portfolio may be required by a futures exchange to increase the level of its initial margin payment, and initial margin requirements might be increased generally in the future by regulatory action.
Subsequent "variation margin" payments are made to and from the futures broker daily as the value of the futures position varies, a process known as "marking-to-market." Variation margin does not involve borrowing, but rather represents a daily settlement of a Portfolio's obligations to or from a futures broker. When the Portfolio purchases or sells a futures contract, it is subject to daily variation margin calls that could be substantial in the event of adverse price movements. If a Portfolio has insufficient cash to meet daily variation margin requirements, it might need to sell securities at a time when such sales are disadvantageous.
Purchasers and sellers of futures contracts can enter into offsetting closing transactions, by selling or purchasing, respectively, an instrument identical to the instrument purchased or sold. Positions in futures contracts may be closed only on a futures exchange or board of trade that provides a secondary market. The Portfolios intend to enter into futures contracts only on exchanges or boards of trade where there appears to be a liquid secondary market. However, there can be no assurance that such a market will exist for a particular contract at a particular time. In such event, it may not be possible to close a futures contract.
Although futures contracts by their terms call for the actual delivery or acquisition of securities or currency, in most cases the contractual obligation is fulfilled before the date of the contract without having to make or take delivery of the securities or currency. The offsetting of a contractual obligation is accomplished by buying (or selling, as appropriate) on a commodities exchange an identical futures contract calling for delivery in the same month. Such a transaction, which is effected through a member of an exchange, cancels the obligation to make or take delivery of the securities or currency. Since all transactions in the futures market are made, offset or fulfilled through a clearinghouse associated with the exchange on which the contracts are traded, a Portfolio will incur brokerage fees when it purchases or sells futures contracts.
Under certain circumstances, futures exchanges may establish daily limits on the amount that the price of a futures contract can vary from the previous day's settlement price; once that limit is reached, no trades may be made that day at a price beyond the limit. Daily price limits do not limit potential losses because prices could move to the daily limit for several consecutive days with little or no trading, thereby preventing liquidation of unfavorable positions.
If a Portfolio were unable to liquidate a futures contract due to the absence of a liquid secondary market or the imposition of price limits, it could incur substantial losses. The Portfolio would continue to be subject to market risk with respect to the position. In addition, the Portfolio would continue to be required to make daily variation margin payments and might be required to maintain the position being hedged by the futures contract or option thereon or to maintain cash or securities in a segregated account.
To the extent that a Portfolio enters into futures contracts, in each case other than for bona fide hedging purposes (as defined by the Commodities Futures Trading Commission ("CFTC")), the aggregate initial margin will not exceed 5% of the liquidation value of a Portfolio's portfolio, after taking into account unrealized profits and unrealized losses on any contracts that the Portfolio has entered into. This policy does not limit to 5% the percentage of the Portfolio's assets that are at risk in futures contracts.
Futures contracts require the deposit of initial margin valued at a certain percentage of the contract and possibly adding "variation margin" should the price of the contract move in an unfavorable direction. As with forward contracts, the segregated assets must be either cash or high-grade liquid debt securities.
The ordinary spreads between prices in the cash and futures market, due to differences in the nature of those markets, are subject to distortions. First, all participants in the futures market are subject to initial deposit and variation margin requirements. Rather than meeting additional variation margin deposit requirements, investors may close futures contracts through offsetting transactions that could distort the normal relationship between the cash and futures markets. Second, the liquidity of the futures market depends on participants entering into offsetting transactions rather than making or taking delivery. To the extent participants decide to make or take delivery, liquidity in the futures market could be reduced, thus producing distortion. Third, from the point of view of speculators, the margin deposit requirements in the futures market are less onerous than margin requirements in the securities market. Therefore, increased participation by speculators in the futures market may cause temporary price distortions. Due to the possibility of distortion, a correct forecast of securities price or currency exchange rate trends by the investment adviser may still not result in a successful transaction.
In addition, futures contracts entail risks. Although an investment adviser believes that use of such contracts will benefit a particular Portfolio, if that investment adviser's investment judgment about the general direction of, for example, an index is incorrect, a Portfolio's overall performance would be worse than if it had not entered into any such contract. In addition, there are differences between the securities and futures markets that could result in an imperfect correlation between the markets, causing a given transaction not to achieve its objectives.
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 Portfolio 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. In addition, a Portfolio may get only limited information about an issuer, so it may be less able to predict a loss. A Portfolio 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.
Index Futures Contracts and Options on Index Futures Contracts-The Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value Fund, International Equity Portfolio, Emerging Markets Fund, Index Trust Portfolios, and Equity 500 Index Portfolio (the "Portfolios") may invest in index futures contracts, options on index futures contracts and options on securities indices.
Index Futures Contracts-U.S. futures contracts have been designed by exchanges which have been designated "contracts markets" by the CFTC and must be executed through a futures commission merchant, or brokerage firm, which is a member of the relevant contract market. Futures contracts trade on a number of exchange markets, and through their clearing corporations.
At the same time a futures contract on an index is purchased or sold, the Portfolio must allocate cash or securities as a deposit payment ("initial deposit"). It is expected that the initial deposit would be approximately 1-1/2% to 5% of a contract's face value. Daily thereafter, the futures contract is valued and the payment of "variation margin" may be required.
Options on Index Futures Contracts-The purchase of a call option on an index futures contract is similar in some respects to the purchase of a call option on such an index.
The writing of a call option on a futures contract with respect to an index constitutes a partial hedge against declining prices of the underlying securities that are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is below the exercise price, the Portfolio will retain the full amount of the option premium, which provides a partial hedge against any decline that may have occurred in the Portfolio's holdings. The writing of a put option on an index futures contract constitutes a partial hedge against increasing prices of the underlying securities that are deliverable upon exercise of the futures contract. If the futures price at expiration of the option is higher than the exercise price, the Portfolio will retain the full amount of the option premium, which provides a partial hedge against any increase in the price of securities that the Portfolio intends to purchase. If a put or call option the Portfolio has written is exercised, the Portfolio will incur a loss that will be reduced by the amount of the premium it receives. Depending on the degree of correlation between changes in the value of its portfolio securities and changes in the value of its futures positions, the Portfolio's losses from existing options on futures may to some extent be reduced or increased by changes in the value of portfolio securities.
The purchase of a put option on a futures contract with respect to an index is similar in some respects to the purchase of protective put options on the Index. For example, the Portfolio may purchase a put option on an index futures contract to hedge against the risk of lowering securities values.
The amount of risk a Portfolio assumes when it purchases an option on a futures contract with
respect to an index is the premium paid for the option plus related transaction costs. In addition to the correlation risks discussed above, the purchase of such an option also entails the risk that changes in the value of the underlying futures contract will not be fully reflected in the value of the option purchased.
The Equity 500 Index Portfolio Board has adopted the requirement that index futures contracts and options on index futures contracts be used as a hedge. Stock index futures may be used on a continual basis to equitize cash so that the Portfolios may maintain maximum equity exposure. Each Portfolio will not enter into any futures contracts or options on futures contracts if immediately thereafter the amount of margin deposits on all the futures contracts of the Portfolio and premiums paid on outstanding options on futures contracts owned by the Portfolio would exceed 5% of the market value of the total assets of the Portfolio.
Futures Contracts on Stock Indices-The Portfolios may enter into contracts providing for the making and acceptance of a cash settlement based upon changes in the value of an index of securities ("Futures Contracts"). This investment technique is designed only to hedge against anticipated future change in general market prices which otherwise might either adversely affect the value of securities held by the Portfolios or adversely affect the prices of securities which are intended to be purchased at a later date for the Portfolios.
In general, each transaction in Futures Contracts involves the establishment of a position that will move in a direction opposite to that of the investment being hedged. If these hedging transactions are successful, the futures positions taken for the Portfolios will rise in value by an amount that approximately offsets the decline in value of the portion of the Portfolios' investments that are being hedged. Should general market prices move in an unexpected manner, the full anticipated benefits of Futures Contracts may not be achieved or a loss may be realized.
Although Futures Contracts would be entered into for cash management purposes only, such transactions do involve certain risks. These risks could include a lack of correlation between the Futures Contract and the equity market, a potential lack of liquidity in the secondary market and incorrect assessments of market trends, which may result in worse overall performance than if a Futures Contract had not been entered into.
Brokerage costs will be incurred and "margin" will be required to be posted and maintained as a good-faith deposit against performance of obligations under Futures Contracts written into by the Portfolios. Each Portfolio may not purchase or sell a Futures Contract (or options thereon) if immediately thereafter its margin deposits on its outstanding Futures Contracts (and its premium paid on outstanding options thereon) would exceed 5% of the market value of each Portfolio's total assets.
Options on Securities Indices-The Portfolios may write (sell) covered call and put options to a limited extent on an index ("covered options") in an attempt to increase income. Such options give the holder the right to receive a cash settlement during the term of the option based upon the difference between the exercise price and the value of the index. The Portfolios may forgo the benefits of appreciation on the index or may pay more than the market price for the index pursuant to call and put options written by the Portfolios.
By writing a covered call option, the Portfolios forgo, in exchange for the premium less the commission ("net premium"), the opportunity to profit during the option period from an increase in the market value of an index above the exercise price. By writing a covered put option, the Portfolios, in exchange for the net premium received, accept the risk of a decline in the market value of the index below the exercise price.
Each Portfolio may terminate its obligation as the writer of a call or put option by purchasing an option with the same exercise price and expiration date as the option previously written.
When each Portfolio writes an option, an amount equal to the net premium received by the Portfolio is included in the liability section of the Portfolio's Statement of Assets and Liabilities as a deferred credit. The amount of the deferred credit will be subsequently marked to market to reflect the current market value of the option written. The current market value of a traded option is the last sale price or, in the absence of a sale, the mean between the closing bid and asked price. If an option expires on its stipulated expiration date or if the Portfolio enters into a closing purchase transaction, the Portfolio
will realize a gain (or loss if the cost of a closing purchase transaction exceeds the premium received when the option was sold), and the deferred credit related to such option will be eliminated.
The Portfolios have adopted certain other non-fundamental policies concerning index option transactions that are discussed above. The Portfolios' activities in index options also may be restricted by the requirements of the Tax Code, for qualification as a RIC.
The hours of trading for options on an index may not conform to the hours during which the underlying securities are traded. To the extent that the option markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying securities markets that cannot be reflected in the option markets. It is impossible to predict the volume of trading that may exist in such options, and there can be no assurance that viable exchange markets will develop or continue.
Because options on securities indices require settlement in cash, SSgA, FAM or the investment adviser may be forced to liquidate portfolio securities to meet settlement obligations.
Options on Stock Indices-A Portfolio may purchase and write put and call options on stock indices listed on stock exchanges. A stock index fluctuates with changes in the market values of the stocks included in the index. Options on stock indices generally are similar to options on stock except that the delivery requirements are different. Instead of giving the right to take or make delivery of stock at a specified price, an option on a stock index gives the holder the right to receive a cash "exercise settlement amount" equal to (a) the amount, if any, by which the fixed exercise price of the option exceeds (in the case of a put) or is less than (in the case of a call) the closing value of the underlying index on the date of exercise, multiplied by (b) a fixed "index multiplier." The writer of the option is obligated, in return for the premium received, to make delivery of this amount. The writer may offset its position in stock index options prior to expiration by entering into a closing transaction on an exchange or the option may expire unexercised.
Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, whether a Portfolio will realize a gain or loss from the purchase or writing of options on an index depends upon movements in the level of stock prices in the stock market generally or, in the case of certain indices, in an industry or market segment, rather than movements in the price of a particular stock.
Junk Bonds-Junk bonds are low-quality, high-risk corporate bonds that generally offer a high level of current income. These bonds are considered speculative by the nationally recognized statistical rating organizations ("Rating Organizations"). For example, Moody's and Standard & Poor's rates them below Baa and BBB, respectively. Please see "Ratings of Long-Term Obligations" below for an explanation of the ratings applied to junk bonds. Junk bonds are often issued as a result of corporate restructurings, such as leveraged buyouts, mergers, acquisitions, or other similar events. They may also be issued by smaller, less creditworthy companies or by highly leveraged firms, which are generally less able to make scheduled payments of interest and principal than more financially stable firms. Because of their low credit quality, junk bonds must pay higher interest to compensate investors for the substantial credit risk they assume. In order to minimize credit risk, the Fund intends to diversify its holdings among many bond issuers.
Lower-rated securities are subject to certain risks that may not be present with investments in higher-grade securities. Investors should consider carefully their ability to assume the risks associated with lower-rated securities before investing in the Fund. The lower rating of certain high yielding corporate income securities reflects a greater possibility that the financial condition of the issuer or adverse changes in general economic conditions may impair the ability of the issuer to pay income and principal. Changes by rating agencies in their ratings of a fixed income security also may affect the value of these investments. However, allocating investments in the fund among securities of different issuers should reduce the risks of owning any such securities separately. The prices of these high yielding securities tend to be less sensitive to interest rate changes than higher-rated investments, but more sensitive to adverse economic changes or individual corporate developments. During economic downturns or periods of rising interest rates, highly leveraged issuers may experience financial stress that adversely affects their ability to service principal and interest payment obligations, to meet projected business goals or to obtain additional financing, and the markets for their securities may be more volatile. If an issuer defaults, the Fund may incur additional expenses to seek recovery. Frequently, the higher yields of high-yielding securities may not reflect the value of the income stream that holders of such
securities may expect, but rather the risk that such securities may lose a substantial portion of their value as a result of their issuer's financial restructuring or default. Additionally, an economic downturn or an increase in interest rates could have a negative effect on the high yield securities market and on the market value of the high yield securities held by the Fund, as well as on the ability of the issuers of such securities to repay principal and interest on their borrowings.
Loan Participation Interests-Loan participation interests represent interests in bank loans made to corporations. The contractual arrangement with the bank transfers the cash stream of the underlying bank loan to the participating investor. Because the issuing bank does not guarantee the participations, they are subject to the credit risks generally associated with the underlying corporate borrower. In addition, because it may be necessary under the terms of the loan participation for the investor to assert through the issuing bank such rights as may exist against the underlying corporate borrower, in the event the underlying corporate borrower fails to pay principal and interest when due, the investor may be subject to delays, expenses and risks that are greater than those that would have been involved if the investor had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the investor may be regarded as a creditor of the issuing bank (rather than of the underlying corporate borrower), so that the issuer may also be subject to the risk that the issuing bank may become insolvent. Further, in the event of the bankruptcy or insolvency of the corporate borrower, the loan participation may be subject to certain defenses that can be asserted by such borrower as a result of improper conduct by the issuing bank. The secondary market, if any, for these loan participations is extremely limited and any such participations purchased by the investor are regarded as illiquid.
Loan Transactions-Loan transactions involve the lending of securities to a broker-dealer or institutional investor for its use in connection with short sales, arbitrages or other security transactions. The purpose of a qualified loan transaction is to afford a lender the opportunity to continue to earn income on the securities loaned and at the same time earn fee income or income on the collateral held by it.
Securities loans will be made in accordance with the following conditions: (1) the Portfolio must receive at least 100% collateral in the form of cash or cash equivalents, securities of the U.S. Government and its agencies and instrumentalities, and approved bank letters of credit; (2) the borrower must increase the collateral whenever the market value of the loaned securities (determined on a daily basis) rises above the level of collateral; (3) the Portfolio must be able to terminate the loan after notice, at any time; (4) the Portfolio must receive reasonable interest on the loan or a flat fee from the borrower, as well as amounts equivalent to any dividends, interest or other distributions on the securities loaned, and any increase in market value of the loaned securities; (5) the 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 Board, the AMR Trust Board, the Equity 500 Index Portfolio Board or the Index Trust Board, as appropriate, must be able to terminate the loan and vote proxies or enter into an alternative arrangement with the borrower to enable the Board, the AMR Trust Board, the Equity 500 Index Portfolio Board or the Index Trust Board, as appropriate, 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 Board, the AMR Trust Board, the Equity 500 Index Portfolio Board or the Index 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 Board, the AMR Trust Board, the Equity 500 Index Portfolio Board or the Index Trust Board, as appropriate. The Money Market Funds do not currently engage in securities lending.
Mortgage-Backed Securities-Mortgage-backed securities consist of both collateralized mortgage obligations and mortgage pass-through certificates.
Collateralized Mortgage Obligations ("CMOs")-CMOs and interests in real estate mortgage investment conduits ("REMICs") are debt securities collateralized by mortgages, or mortgage pass-through securities. CMOs divide the cash flow generated from the underlying mortgages or mortgage
pass-through securities into different groups referred to as "tranches," which are then retired sequentially over time in order of priority. The principal governmental issuers of such securities are the Federal National Mortgage Association ("FNMA"), a government sponsored corporation owned entirely by private stockholders and the Federal Home Loan Mortgage Corporation ("FHLMC"), a corporate instrumentality of the United States created pursuant to an act of Congress which is owned entirely by Federal Home Loan Banks. The issuers of CMOs are structured as trusts or corporations established for the purpose of issuing such CMOs and often have no assets other than those underlying the securities and any credit support provided. A REMIC is a mortgage securities vehicle that holds residential or commercial mortgages and issues securities representing interests in those mortgages. A REMIC may be formed as a corporation, partnership, or segregated pool of assets. The REMIC itself is generally exempt from federal income tax, but the income from the mortgages is reported by investors. For investment purposes, interests in REMIC securities are virtually indistinguishable from CMOs.
Mortgage Pass-Through Certificates-Mortgage pass-through certificates are issued by governmental, government-related and private organizations which are backed by pools of mortgage loans.
(1) Government National Mortgage Association ("GNMA") Mortgage Pass-Through Certificates ("Ginnie Maes")-GNMA is a wholly owned U.S. Government corporation within the Department of Housing and Urban Development. Ginnie Maes represent an undivided interest in a pool of mortgages that are insured by the Federal Housing Administration or the Farmers Home Administration or guaranteed by the Veterans Administration. Ginnie Maes entitle the holder to receive all payments (including prepayments) of principal and interest owed by the individual mortgagors, net of fees paid to GNMA and to the issuer which assembles the mortgage pool and passes through the monthly mortgage payments to the certificate holders (typically, a mortgage banking firm), regardless of whether the individual mortgagor actually makes the payment. Because payments are made to certificate holders regardless of whether payments are actually received on the underlying mortgages, Ginnie Maes are of the "modified pass-through" mortgage certificate type. The GNMA is authorized to guarantee the timely payment of principal and interest on the Ginnie Maes. The GNMA guarantee is backed by the full faith and credit of the United States, and the GNMA has unlimited authority to borrow funds from the U.S. Treasury to make payments under the guarantee. The market for Ginnie Maes is highly liquid because of the size of the market and the active participation in the secondary market of security dealers and a variety of investors.
(2) FHLMC Mortgage Participation Certificates ("Freddie Macs")-Freddie Macs represent interests in groups of specified first lien residential conventional mortgages underwritten and owned by the FHLMC. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by the FHLMC. The FHLMC guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. In cases where the FHLMC has not guaranteed timely payment of principal, the FHLMC may remit the amount due because of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable. Freddie 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.
Preferred Stock-A preferred stock blends the characteristics of a bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and its participation in the issuer's growth may be limited. Preferred stock has preference over common stock in the receipt of dividends and in any residual assets after payment to creditors should the issuer be dissolved. Although the dividend is set at a fixed annual rate, in some circumstances it can be changed or omitted by the issuer.
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 Rating Organizations in order to determine eligibility of long-term obligations. Credit ratings typically evaluate the safety of principal and interest payments, not the market value risk of high yield bonds. The Rating Organizations may fail to update a credit rating on a timely basis to reflect changes in economic or financial conditions that may affect the market value of the security. For these reasons, credit ratings may not be an accurate indicator of the market value of a high yield bond. The High Yield Bond Fund's investment adviser will monitor the Fund's holdings on a continuous basis to assess those factors not reflected in the credit rating. Therefore, the achievement of the High Yield Bond Fund's investment objective will be more dependent on the investment adviser's research abilities than if the High Yield Bond Fund invested primarily in higher-rated securities.
The four highest Moody's ratings for long-term obligations (or issuers thereof) are Aaa, Aa, A and Baa. Obligations rated Aaa are judged by Moody's to be of the best quality. Obligations rated Aa are judged to be of high quality by all standards. Together with the Aaa group, such debt comprises what is generally known as high-grade debt. Moody's states that debt rated Aa is rated lower than Aaa debt because margins of protection or other elements make long-term risks appear somewhat larger than for Aaa debt. Obligations which are rated A by Moody's possess many favorable investment attributes and are considered "upper medium-grade obligations." Obligations which are rated Baa by Moody's are considered to be medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time.
Moody's ratings of Ba, B, Caa, Ca and C are considered below investment grade. A rating of Ba by Moody's denotes obligations judged to have speculative elements. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Obligations rated B by Moody's generally lack the characteristics of a desirable investment. Assurance of
interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Moody's assigns a rating of Caa to those obligations considered of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. A rating of Ca signifies obligations considered by Moody's to be speculative to a high degree. Such issues are often in default or have other marked shortcomings. Obligations rated C by Moody's are considered in the lowest rated class and can be regarded as having extremely poor prospects of ever attaining any real investment standing. Moody's also supplies numerical indicators 1, 2, and 3 to rating categories. The modifier 1 indicates that the security is in the higher end of its rating category; the modifier 2 indicates a mid-range ranking; and modifier 3 indicates a ranking toward the lower end of the category.
The four highest Standard & Poor's ratings for long-term obligations are AAA, AA, A and BBB. Obligations rated AAA have the highest rating assigned by Standard & Poor's. Capacity to pay interest and repay principal is extremely strong. Obligations rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in a small degree. Obligations rated A have a strong capacity to pay principal and interest, although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions. Obligations rated BBB by Standard & Poor's are regarded as having adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than in higher rated categories.
Standard & Poor's ratings of BB, B, CCC, CC, C and D are considered below investment grade. An obligation rated BB is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions that could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation. An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. An obligation rated CC is currently highly vulnerable to nonpayment. A subordinated debt or preferred stock obligation rated C is currently highly vulnerable to nonpayment. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A C also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying. An obligation rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Standard & Poor's believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Fitch's four highest ratings for long-term obligations are AAA, AA, A and BBB. Obligations rated AAA have the lowest expectation of credit risk. A AAA rating is assigned only in cases of exceptionally strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events. Obligations rated AA have a very low expectation of credit risk. They are deemed to have a very strong capacity for timely payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. Obligations rated A have a low expectation of credit risk. Their capacity for timely payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is the case for higher ratings. Obligations rated BBB currently have a low expectation of credit risk. Their capacity for timely payment of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to impair this capacity. This is the lowest investment-grade category.
Fitch's ratings of BB or lower are considered below investment grade. A rating of BB indicates that there is a possibility of credit risk developing, particularly as the result of adverse economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met. Ratings of CCC, CC, or C indicate a real possibility for default. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments. A CC rating indicates that default of some kind appears probable. A C rating signals imminent default. Ratings of DDD, DD, or D indicate obligations in default. Obligations rated DDD have the highest prospect for resumption of performance or continued operation with or without a formal reorganization process and are estimated to recover around 90-100% of outstanding
amounts and accrued interest. Obligations rated DD are generally undergoing a formal reorganization or liquidation process and have the potential for recovery in the range of 50-90%. Obligations rated D are generally undergoing a formal reorganization or liquidation process but have recovery potential below 50%.
The four highest ratings for long-term obligations by Dominion Bond Rating Service Limited ("DBRS") are AAA, AA, A and BBB. Obligations rated AAA have the highest credit quality, with exceptionally strong protection for the timely repayment of principal and interest. Earnings are considered stable, the structure of the industry in which the entity operates is strong, and the outlook for future profitability is favorable. There are few qualifying factors present which would detract from the performance of the entity, the strength of liquidity and coverage ratios is unquestioned and the entity has established a creditable track record of superior performance. Obligations rated AA are of superior credit quality, and protection of interest and principal is considered high. Entities rated AA are also considered unlikely to be significantly affected by reasonably foreseeable events. Obligations rated A are of satisfactory credit quality and are considered more susceptible to adverse economic conditions and have greater cyclical tendencies than higher-rated companies. Obligations rated BBB are of adequate credit quality. They are more susceptible to adverse changes in economic and financial conditions, or there may be other adversities present that reduce the strength of the entity and its rated securities.
DBRS' ratings of BB or lower are considered speculative. A rating of BB indicates that the degree of protection afforded principal and interest is uncertain, particularly during periods of economic recession. A B rating signifies a reasonable high level of uncertainty that exists as to the ability of the entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry adversity. Obligations rated CCC, CC and C are considered very highly speculative and are in danger of default of interest and principal. In practice, there is little difference between the C to CCC categories, with CC and C normally used to lower ranking debt of companies where the senior debt is rated in the CCC to B range. A rating of D indicates obligations in default of either interest or principal.
Standard & Poor's and Fitch apply indicators (such as "+" and "-") and DBRS adds "high" or "low" to indicate relative standing within the major rating categories (except AAA). A rating without one of these indicators falls within the middle of the category.
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 may also be assigned to commercial paper programs that 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.
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.
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.
Commercial paper and short-term debt considered to be prime credit quality by DBRS is rated R-1. Obligations of the highest credit quality are rated R-1 (high). These are entities possessing unquestioned ability to repay current liabilities as they fall due and maintaining strong liquidity positions, conservative debt levels and profitability that is both stable and above average. Obligations rated R-1 (middle) are of superior credit quality and, in most cases, differ from R-1 (high) credits to only a small degree. Of satisfactory credit quality are obligations rated R-1 (low). For these entities, the overall strength and outlook for key liquidity, debt and profitability ratios is not normally as favorable as with higher-rating categories, but these considerations are still respectable.
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 Manager, the investment adviser, the Equity 500 Index Portfolio Board or the Index Trust Board, as appropriate, presents a minimum risk of bankruptcy during the term of the agreement based upon guidelines that periodically are reviewed by the Board, the AMR Trust Board, the Equity 500 Index Portfolio Board or the Index 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 Board, the AMR Trust Board, the Equity 500 Index Portfolio Board or the Index Trust Board, as appropriate, during the term of the agreement. However, if the market value of the securities subject to the repurchase agreement becomes less than the repurchase price (including interest), the Portfolio will direct the seller of the securities to deliver additional securities so that the market value of all securities subject to the repurchase agreement will equal or exceed the repurchase price.
In the event of the commencement of bankruptcy or insolvency proceedings with respect to the seller of the securities before the repurchase of the securities under a repurchase agreement, 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.
Rights and Warrants-Rights are short-term warrants issued in conjunction with new stock issues. Warrants are options to purchase an issuer's securities at a stated price during a stated term. There is no specific limit on the percentage of assets a Portfolio may invest in rights and warrants, although the ability of some of the Portfolios to so invest is limited by their investment objectives or policies.
Section 4(2) Securities-Section 4(2) securities are restricted as to disposition under the federal securities laws, and generally are sold to institutional investors, such as one of the Portfolios, that agree they are purchasing the securities for investment and not with an intention to distribute to the public. Any resale by the purchaser must be pursuant to an exempt transaction and may be accomplished in accordance with Rule 144A. Section 4(2) securities normally are resold to other institutional investors through or with the assistance of the issuer or dealers that make a market in the Section 4(2) securities, thus providing liquidity.
The Board, the AMR Trust Board, the Equity 500 Index Portfolio Board, the Index Trust Board, and the applicable investment adviser will carefully monitor the Portfolios' investments in Section 4(2) securities offered and sold under Rule 144A, focusing on such important factors, among others, as valuation, liquidity, and availability of information. Investments in Section 4(2) securities could have the effect of reducing a Portfolio's liquidity to the extent that qualified institutional buyers no longer wish to purchase these restricted securities.
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 investing in STRIPs will take into account as income a portion of the difference between these obligations' purchase prices and their face values. Because they do not pay coupon income, the prices of STRIPS and zero coupon obligations can be very volatile when interest rates change. STRIPS are zero coupon bonds issued by the U.S. Treasury.
Short Sales- In connection with the use of certain instruments based upon or consisting of one or more baskets of securities, the Manager, FAM or an investment adviser may sell a security a Portfolio does not own, or in an amount greater than the Portfolio owns (i.e., make short sales). With respect to the Index Portfolios, such transactions will be used only in an effort to adjust the weightings of particular securities represented in the basket to reflect such securities' weightings in the target index. Generally, to complete a short sale transaction, a Portfolio will borrow the security to make delivery to the buyer. The Portfolio is then obligated to replace the security borrowed. If the price at the time of replacement is more than the price at which the security was sold by the Portfolio, the Portfolio will incur a loss. Conversely, the Portfolio will realize a gain if the price of the security decreases between selling short and replacement. Although the Portfolio's gain is limited to the price at which it sold the security short, its potential loss is theoretically unlimited. Until the security is replaced, the Portfolio is required to pay to the lender any interest that accrues during the period of the loan. To borrow the security, the Portfolio may be required to pay a premium, which would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker to the extent necessary to meet margin requirements until the short position is closed out. Until the Portfolio replaces the borrowed security, it will (a) maintain in a segregated account with its custodian cash or liquid securities at such a level that the amount deposited in the account plus the amount deposited with the broker as collateral will equal the current market value of the security sold short or (b) otherwise cover its short position.
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.
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.
When-Issued and Forward Commitment Transactions- For purchases on a when-issued basis, the price of the security is fixed at the date of purchase, but delivery of and payment for the securities is not set until after the securities are issued (generally one to two months later). The value of when-issued securities is subject to market fluctuation during the interim period and no income accrues to a Portfolio until settlement takes place. Forward commitment transactions involve a commitment to purchase or sell securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction. The payment obligation and interest rate are fixed at the time the buyer enters into the forward commitment. Forward commitment transactions are typically used as a hedge against anticipated changes in interest rates and prices. Each Portfolio maintains with the Custodian a segregated account containing high-grade liquid securities in an
amount at least equal to the when-issued or forward commitment transaction. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued. When entering into a when-issued or forward commitment transaction, a Portfolio will rely on the other party to consummate the transaction; if the other party fails to do so, the Portfolio may be disadvantaged.
FINANCIAL STATEMENTS
The American AAdvantage Funds' Annual Report to Shareholders for the period ended October 31, 2002, the American AAdvantage Money Market Funds' Annual Report to Shareholders for the period ended December 31, 2002 and the Index Funds' Annual Report to Shareholders for the period ended December 31, 2002 are supplied with the Statement of Additional Information, and the financial statements and accompanying notes appearing therein are incorporated by reference in this Statement of Additional Information.
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2003
AMERICAN AADVANTAGE FUNDS(R) AMERICAN AADVANTAGE MILEAGE FUNDS(R)
CASH MANAGEMENT CLASS MILEAGE CLASS(R)
Money Market Fund Money Market Mileage Fund
U.S. Government Money Market Fund Municipal Money Market Mileage Fund
U.S. Government Money Market Mileage Fund
PLATINUM CLASS(SM) PLATINUM CLASS(SM)
Money Market Fund Money Market Mileage Fund
Municipal Money Market Fund Municipal Money Market Mileage Fund
U.S. Government Money Market Fund U.S. Government Money Market Mileage Fund
|
Each Fund (collectively, the "Funds") is a separate investment portfolio of either the American AAdvantage Funds (the "AAdvantage Trust") or the American AAdvantage Mileage Funds (the "Mileage Trust"). 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 constitutes a separate investment portfolio with a distinct purpose and strategy. 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 Cash Management and Platinum Classes of the AAdvantage Trust and the Mileage and Platinum Classes of the Mileage Trust.
Each Fund invests all of its investable assets in a corresponding portfolio with a similar name and an identical investment objective. 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"), a separate investment company managed by AMR Investment Services, Inc. (the "Manager").
This SAI should be read in conjunction with a Cash Management Class, a Platinum Class or a Mileage Class prospectus dated March 1, 2003 (individually, a "Prospectus"), copies of which may be obtained without charge by calling (800) 388-3344 for a Cash Management or a Mileage Class Prospectus or (800) 967-9009 for a Platinum Class Prospectus. This SAI is not a prospectus and is authorized for distribution to prospective investors only if preceded or accompanied by a current Prospectus.
TABLE OF CONTENTS
Non-Principal Investment Strategies and Risks ............................ 2 Investment Restrictions .................................................. 2 Trustees and Officers of the Trusts and the AMR Trust .................... 4 Code of Ethics ........................................................... 8 Control Persons and 5% Shareholders ...................................... 8 Management, Administrative and Distribution Services ..................... 9 Other Service Providers .................................................. 11 Portfolio Securities Transactions ........................................ 11 Redemptions in Kind ...................................................... 11 Net Asset Value .......................................................... 11 Tax Information .......................................................... 11 Yield and Total Return Quotations ........................................ 14 Description of the Trusts ................................................ 16 Other Information ........................................................ 16 Financial Statements ..................................................... 24 |
NON-PRINCIPAL INVESTMENT STRATEGIES AND RISKS
Each Fund may:
1. Engage in dollar rolls or purchase or sell securities on a when-issued or forward commitment basis. The purchase or sale of when-issued securities enables an investor to hedge against anticipated changes in interest rates and prices by locking in an attractive price or yield. The price of when-issued securities is fixed at the time the commitment to purchase or sell is made, but delivery and payment for the when-issued securities takes place at a later date, normally one to two months after the date of purchase. During the period between purchase and settlement, no payment is made by the purchaser to the issuer and no interest accrues to the purchaser. Such transactions therefore involve a risk of loss if the value of the security to be purchased declines prior to the settlement date or if the value of the security to be sold increases prior to the settlement date. A sale of a when-issued security also involves the risk that the other party will be unable to settle the transaction. Dollar rolls are a type of forward commitment transaction. Purchases and sales of securities on a forward commitment basis involve a commitment to purchase or sell securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction. As with when-issued securities, these transactions involve certain risks, but they also enable an investor to hedge against anticipated changes in interest rates and prices. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued. When purchasing securities on a when-issued or forward commitment basis, a segregated account of liquid assets at least equal to the value of purchase commitments for such securities will be maintained until the settlement date.
2. Invest in other investment companies (including affiliated investment companies) to the extent permitted by the Investment Company Act of 1940 ("1940 Act") or exemptive relief granted by the Securities and Exchange Commission ("SEC").
3. 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 Fund exceeds 33 1/3% of its total assets (including the market value of collateral received). For purposes of complying with a Fund's investment policies and restrictions, collateral received in connection with securities loans is deemed an asset of the Fund to the extent required by law. 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 Fund continues to receive dividends or interest, as applicable, 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. The Funds do not currently engage in securities lending nor does the Manager anticipate that they will do so in the near future.
4. Enter into repurchase agreements. A repurchase agreement is an agreement under which securities are acquired by a Fund from a securities dealer or bank subject to resale at an agreed upon price on a later date. The acquiring Fund bears a risk of loss in the event that the other party to a repurchase agreement defaults on its obligations and the Fund 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 that are deemed to be of good financial standing.
5. 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 Funds will not invest more than 10% of their respective net assets in Section 4(2) securities and illiquid securities unless the Manager determines, by continuous reference to the appropriate trading markets and pursuant to guidelines approved by the AMR Trust Board of Trustees ("AMR Trust Board"), that any Section 4(2) securities held by such Fund 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 its 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 and non-fundamental investment policies of each Fund and its corresponding Portfolio are identical. Therefore, although the following discusses the investment policies of each Portfolio and the AMR Trust 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 Board"), as applicable.
In addition to the investment limitations noted in the Prospectus, the following nine 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 1940 Act, and as used herein means, with respect to the Portfolio, the lesser of (a) 67% of the interests of the Portfolio present at the meeting if the holders of more than 50% of the interests are present and represented at the interest holders' meeting or (b) more than 50% of the interests of the Portfolio. Whenever 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 Board in the same proportion as those Fund shareholders who do, in fact, vote.
No Portfolio of the AMR Trust may:
1. Purchase or sell real estate or real estate limited partnership interests, provided, however, that a 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 and foreign currency futures contracts 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, a 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 this SAI.
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 a Portfolio may engage in when-issued and forward commitment securities 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 of 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 a 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 (except, with respect to the Money Market Portfolio, for the banking industry), provided that: (i) this
limitation does not apply to obligations issued or guaranteed by the U.S. Government, its agencies and instrumentalities; (ii) municipalities and their agencies and authorities are not deemed to be industries; and (iii) financial service companies are classified according to the end users of their services (for example, automobile finance, bank finance, and diversified finance will be considered separate industries).
The above percentage limits are based upon asset values at the time of the applicable transaction; accordingly, a subsequent change in asset values will not affect a transaction that was in compliance with the investment restrictions at the time such transaction was effected.
The following non-fundamental investment restrictions apply to each Fund and Portfolio and 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. No Fund or Portfolio may:
1. Invest more than 10% of its net assets in illiquid securities, including time deposits and repurchase agreements that mature in more than seven days; or
2. Purchase securities on margin, 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 Funds and Portfolios of the AMR Trust may invest up to 10% of their total assets in the securities of other investment companies to the extent permitted by law. In addition, pursuant to exemptive relief granted by the SEC, each Money Market Fund or the Money Market Portfolio may invest up to 25% of its total assets in the aggregate of the Municipal Money Market Portfolio and U.S. Government Money Market Portfolio, each Municipal Money Market Fund or the Municipal Money Market Portfolio may invest up to 25% of its total assets in the aggregate of the Money Market Portfolio and U.S. Government Money Market Portfolio, and each U.S. Gov't. Money Market Fund or the U.S. Government Money Market Portfolio may invest up to 25% of its total assets in the aggregate of the Money Market Portfolio and Municipal Money Market Portfolio. A Fund or 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 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 4151 Amon Carter Boulevard, MD 2450, Fort Worth, Texas 76155. Each Trustee oversees twenty-four funds in the fund complex that includes the AMR Trust, the American AAdvantage Funds, the American AAdvantage Mileage Funds, and the American AAdvantage Select Funds.
POSITION, TERM OF OFFICE
AND LENGTH OF TIME
NAME, AGE AND ADDRESS SERVED WITH EACH TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
--------------------- ---------------------- ---------------------------------------------------------------------
INTERESTED TRUSTEES Term
----
Lifetime of Trust until
removal, resignation or
retirement*
William F. Quinn** (55) Trustee and President President, AMR Investment Services, Inc. (1986-Present); Chairman,
of AAdvantage Trust American Airlines Federal Credit Union (1989-Present); Director,
since 1987 and AMR and Crescent Real Estate Equities, Inc. (1994-Present); Director, MW
Mileage Trusts since Pritchard, Hubble & Herr, LLC (2001-Present); Member, Southern
1995 Methodist University Endowment Fund Investment Committee
(1996-Present); Member, Southern Methodist University Cox School of
Business Advisory Board (1999-Present); Member, New York Stock
Exchange Pension Manager Committee (1997-1998, 2000-Present);
Trustee, American AAdvantage Select Funds (1999-Present).
Alan D. Feld** (66) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm)
(1960-Present); Director, Clear Channel Communications
(1984-Present); Trustee, CenterPoint Properties (1994-Present);
Trustee, American AAdvantage Select Funds (1999-Present).
|
POSITION, TERM OF OFFICE
AND LENGTH OF TIME
NAME, AGE AND ADDRESS SERVED WITH EACH TRUST PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND CURRENT DIRECTORSHIPS
--------------------- ---------------------- ---------------------------------------------------------------------
NON-INTERESTED TRUSTEES Term
----
Lifetime of Trust until
removal, resignation or
retirement*
Stephen D. O'Sullivan (67) Trustee of AAdvantage Consultant (1994-Present); Trustee, American AAdvantage Select Funds
Trust since 1987 and (1999-Present).
AMR and Mileage Trusts
since 1995
R. Gerald Turner (57) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986-Present); Director, J.C. Penney Company, Inc.
Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp.
Dallas, Texas 75275 (2001-Present); Member, United Way of Dallas Board of Directors;
Member, Salvation Army of Dallas Board of Directors; Member,
Methodist Hospital Advisory Board; Member, Knight Commission on
Intercollegiate Athletics; Member, National Association of
Independent Colleges and Universities Board of Directors; Trustee,
American AAdvantage Select Funds (2001-Present).
Kneeland Youngblood (47) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court (1998-Present); Trustee, The Hockaday School (1997-Present);
Suite 1740 Director, Starwood Hotels and Resorts (2001-Present); Member,
Dallas, Texas 75201 Council on Foreign Relations (1995-Present); Director, Just For the
Kids (1995-Present); Director, L&B Realty Advisors (1998-2000);
Trustee, Teachers Retirement System of Texas (1993-1999); Director,
United States Enrichment Corporation (1993-1998); Director, Starwood
Financial Trust (1998-2001); Trustee, American AAdvantage Select
Funds (1999-Present).
OFFICERS Term
----
One Year
Nancy A. Eckl (40) VP of AAdvantage Trust Vice President, Trust Investments, AMR Investment Services, Inc.
since 1990 and AMR and (1990-Present).
Mileage Trusts since
1995
Michael W. Fields (49) VP of AAdvantage Trust Vice President, Fixed Income Investments, AMR Investment Services,
since 1989 and AMR and Inc. (1988-Present).
Mileage Trusts since
1995
Barry Y. Greenberg (39) VP and Assistant Vice President, Legal and Compliance, AMR Investment Services, Inc.
Secretary since 1995 (1995-Present).
Rebecca L. Harris (36) Treasurer since 1995 Vice President, Finance, AMR Investment Services, Inc.
(1995-Present).
John B. Roberson (44) VP of AAdvantage Trust Vice President, Director of Sales, AMR Investment Services, Inc.
since 1989 and AMR and (1991-Present).
Mileage Trusts since
1995
Robert J. Zutz (50) Secretary since 1998 Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave. NW
2nd Floor
Washington, D.C. 20036
|
* The Board has adopted a retirement plan that requires Trustees to retire no later than the last day of the calendar year in which they reach the age of 70, with the exception of Mr. Quinn.
** Mr. Quinn is deemed to be an "interested person" of the AAdvantage Trust, Mileage Trust and AMR Trust, as defined by the 1940 Act, because of his position as President of the Manager. Mr. Feld is deemed to be an "interested person" of the AAdvantage Trust and AMR Trust only, as defined by the 1940 Act, because Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP ("Akin, Gump") has provided legal services within the past two years to one or more of the AMR and AAdvantage Trusts' investment advisers.
The Trusts have an Audit Committee, consisting of Messrs. Feld, O'Sullivan, Turner, and Youngblood. With the exception of Mr. Feld, the members of the committee are not "interested persons" of either Trust, as defined by the 1940 Act. As set forth in its charter, the primary duties of the Trusts' Audit Committee are: 1) to recommend to the Board auditors to be retained for the next fiscal year, 2) to meet with the Trusts' independent auditors as necessary, 3) to consider the effect upon each Fund of any changes in accounting principles or
practices proposed by the Manager or the auditors, 4) to review the fees charged by the auditors for audit and non-audit services, 5) to investigate improprieties or suspected improprieties in Fund operations, 6) to review the findings of SEC examinations and consult with the Manager on appropriate responses, and 7) to report its activities to the full Board on a regular basis and to make such recommendations with respect to the above and other matters as the Audit Committee may deem necessary or appropriate. The Audit Committee met twice during the fiscal year ended December 31, 2002.
The Trusts also have a Nominating Committee that is comprised of the non-interested Trustees (and Mr. Feld). The Nominating Committee's primary responsibility is to nominate Trustee candidates when there is a vacancy on the Boards. The Nominating Committee did not meet during the fiscal year ended December 31, 2002.
The Trustees who owned shares of any Fund are listed in the following table with the dollar range of their ownership in such Fund(s) and the Trusts as a whole as of the calendar year ended December 31, 2002.
INTERESTED NON-INTERESTED
QUINN FELD O'SULLIVAN TURNER YOUNGBLOOD
----- ---- ---------- ------ ----------
MONEY MARKET Over $100,000 Over $100,000 None None None
MUNICIPAL MONEY MARKET $10,001-$50,000 None None None None
U.S. GOV'T MONEY MARKET None None None None None
AADVANTAGE TRUST ON AN AGGREGATE BASIS Over $100,000 Over $100,000 None $10,001-$50,000 $1-$10,000
MONEY MARKET MILEAGE Over $100,000 None None None None
MUNICIPAL MONEY MARKET MILEAGE None None None None None
U.S. GOV'T MONEY MARKET MILEAGE None None None None None
MILEAGE TRUST ON AN AGGREGATE BASIS Over $100,000 None None None None
|
During the two most recently completed calendar years, Akin, Gump provided legal services to American Airlines, Inc., an affiliate of the Manager. Mr. Feld has advised the Trusts that, during this period, he had no material involvement in the services provided by Akin, Gump to American Airlines, Inc., that he received no material benefit in connection with these services, and that Akin, Gump did not provide legal services to the Manager or AMR Corporation during this period.
R. Gerald Turner is the President of Southern Methodist University. Mr. Don Carty, the CEO and Chairman of the Board of Directors of AMR Corporation, the parent company of the Manager, has served on the Southern Methodist University Board of Trustees since July 2000.
As compensation for their service to the Trusts, the American AAdvantage Select Funds (the "Select Funds") 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, the Select Funds and the AMR Trust pay American Airlines the flight service charges incurred for these travel arrangements. The Trusts, the Select Funds 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. From March 1, 2000 through February 28, 2002, Mr. O'Sullivan received an annual retainer of $20,000, plus $1,250 for each Board meeting attended. As of March 1, 2002, Mr. O'Sullivan receives an annual retainer of $40,000, plus $1,250 for each Board meeting attended. Trustees are also reimbursed for any expenses incurred in attending Board meetings. These amounts (excluding reimbursements) are reflected in the following table for the fiscal year ended October 31, 2002. The compensation amounts below include the flight service charges paid by the Trusts to American Airlines.
Aggregate Aggregate Pension or Retirement Total Compensation
Compensation Compensation Benefits Accrued as From the Trusts, Select
From the From the Part of the Trusts' Funds and AMR Trust
Name of Trustee AAdvantage Trust Mileage Trust Expenses (24 Funds)
--------------- ---------------- ------------- -------- ----------
INTERESTED TRUSTEES
William F. Quinn $0 $0 $0 $0
Alan D. Feld $6,537 $902 $0 $45,969
NON-INTERESTED TRUSTEES
Ben Fortson* $1,217 $166 $0 $8,321
Dee J. Kelly, Jr.** $2,762 $401 $0 $21,487
Stephen D. O'Sullivan $3,938 $614 $0 $35,000
R. Gerald Turner $3,704 $513 $0 $26,219
Kneeland Youngblood $3,780 $523 $0 $26,792
|
* Mr. Fortson retired from the Trusts effective February 28, 2002. He now serves as Trustee Emeritus.
** Mr. Kelly resigned from the Trusts, Select Funds and AMR Trust effective February 21, 2003.
The Boards have adopted an Emeritus Trustee and Retirement Plan. The Plan provides that a Trustee who has reached the age of 70 is eligible to elect Trustee Emeritus status. Alternately, a Trustee who has served on the Board of one or more Trusts for at least 5 years may elect to retire from the Boards at an earlier age and immediately assume Trustee Emeritus status. A person may serve as a Trustee Emeritus and receive related retirement benefits for a period up to a maximum of 10 years. Only those Trustees who retire from the Boards and elect Trustee Emeritus status may receive retirement benefits under the Plan. A Trustee Emeritus must commit to provide certain ongoing services and advice to the Board members and the Trusts; however, a Trustee Emeritus does not have any voting rights at Board meetings and is not subject to election by shareholders of the Funds.
During the term that the Trustee Emeritus serves, each Trustee Emeritus and his or her spouse will receive American Airlines annual flight benefits plus reimbursement to the Trustee Emeritus of any tax liability relating to such flights during the term that such person serves as a Trustee Emeritus. Such flight benefits, including the taxes that are payable with respect to such benefits, shall not exceed a maximum annual value to the Trustee Emeritus of $40,000.
At their February 21, 2003 meeting, the Trustees considered the renewal of the existing Management Agreement between the Manager and the Funds. As part of the renewal process, legal counsel to the Trusts and the independent Trustees sent a detailed request to the Manager for certain relevant information. This request letter included follow-up inquiries based upon previously identified conditions unique to the Manager, as well as general questions intended to elicit any developments since the last contract renewal that might have an effect on the services provided to the Funds. The Manager's response to the request letter was provided to the Trustees for their review prior to their meeting, and the Trustees were provided the opportunity to request any additional materials they felt cogent to their analysis.
The Manager provided the following information, which the Trustees considered as part of the renewal process:
o a description of any significant changes (actual or anticipated) to principal activities, personnel, services provided to the Funds, or any other area, including how these changes might affect the Funds;
o a copy of most recent audited and unaudited financial statements as well as Part I and II of Form ADV;
o a summary of any material past, pending or anticipated litigation or regulatory proceedings involving the Manager or its personnel, including the results of any regulatory examination or independent audit;
o a comparison of performance of each Fund with performance of other similar accounts managed by the Manager, including discussion of relative performance versus a peer group average and any remedial measures if the Manager's performance was below that of the peer group;
o a cost/profitability analysis of the Manager and any actual or anticipated economies of scale in relation to the services it provides to the Funds;
o an evaluation of benefits to the Manager or Funds as a result of their relationship, if any;
o an analysis of compensation, including fees paid for last five years, any proposed changes to the fee and the effect of any fee waivers;
o a discussion regarding the Manager's participation in "soft dollar" arrangements, if any, or other brokerage allocation policies with respect to Fund transactions, including the Manager's methodology for obtaining the most favorable execution and the use of any affiliated broker-dealers;
o a description of trade allocation procedures among accounts managed by the Manager;
o a discussion of the Manager's compliance program with regard to federal, state, corporate and Fund requirements;
o information regarding the Manager's code of ethics, insider trading policy, proxy voting procedures, and disaster recovery plan, including a description of any material changes thereto;
o a description of the Manager's affiliation with a broker-dealer, if any;
o a discussion of any anticipated change in the Manager's controlling party;
o verification of the Manager's insurance coverage with regards to the services provided to the Funds;
o a table comparing the performance of each Fund to comparable mutual funds and appropriate indices, including comments on each Fund's relative performance;
o an analysis of total Fund fees versus comparable mutual funds;
o a chart detailing asset levels by Fund for past five years and any future expectations;
o an analysis of any material complaints received from Fund shareholders; and
o any ideas for the future growth and efficient operation of the Funds.
Legal counsel also provided the Trustees with a memorandum detailing their responsibilities and relevant litigation pertaining to the renewal of the Management Agreement. This memorandum explained the regulatory requirements surrounding the Trustees' process for evaluating investment advisers and the terms of the contract.
At the meeting, in determining whether to approve the continuance of the
Management Agreement, the Trustees considered the best interests of each Fund
and its shareholders separately. To facilitate the review, the Manager's
response was separated by Fund. The Trustees queried various management
personnel of the Manager regarding certain key aspects of the material submitted
in support of the renewal. The Trustees and the Manager considered the foregoing
information and discussed the response, taking particular note of the following:
the generally good recent and long-term performance delivered by the Manager for
the Funds it manages directly; the low cost structure of the Funds in comparison
to other similar mutual funds; the record of the Manager in building improved
compliance, control and credit functions; the addition of new personnel to help
promote the Funds; and the active role played by the Manager in monitoring and,
as appropriate, recommending replacements for subadvisers. Based on the
foregoing information, the Trustees unanimously approved the continuance of the
Management Agreement.
CODE OF ETHICS
The Manager and the Trusts have each adopted a Code of Ethics ("Code") under Rule 17j-1 of the 1940 Act. Each Code significantly restricts the personal trading of all employees. For example, each Code generally requires pre-clearance of all personal securities trades (with limited exceptions) and prohibits employees from purchasing or selling a security that is being purchased or sold or being considered for purchase or sale by any Fund. Each Code is on public file with, and may be obtained from, the SEC.
CONTROL PERSONS AND 5% SHAREHOLDERS
There were no persons deemed to control any of the Funds by virtue of their beneficial ownership of more than 25% of the outstanding shares of a Fund as of January 31, 2003. All Trustees and officers as a group own less than 1% of the outstanding shares of any of the Funds. The following persons owned 5% or more of the outstanding shares of a Fund or Class as of January 31, 2003:
Cash Mgmt.
American AAdvantage Money Market Fund Total Fund Class Platinum Class
------------------------------------- ---------- ----- --------------
National Investor Services Corp.*
55 Water Street, 32nd Floor
New York, NY 10041 22%* 100%*
Rent-A-Center Inc.
5700 Tennyson Pkwy. Floor 3
Plano, TX 75024 14% 94%
Quantum Corp.
501 Sycamore Dr.
Milpitas, CA 95035 6%
*Denotes record owner of Fund shares only
|
American AAdvantage Municipal Money Market Fund Total Fund Platinum Class ----------------------------------------------- ---------- -------------- National Investor Services Corp.* 95%* 100%* 55 Water Street, 32nd Floor New York, NY 10041 *Denotes record owner of Fund shares only |
Cash Mgmt.
American AAdvantage U.S. Gov't Money Market Fund Total Fund Class Platinum Class
------------------------------------------------ ---------- ----- --------------
National Investor Services Corp.* 6%* 100%*
55 Water Street, 32nd Floor
New York, NY 10041
Transco & Co.* 75%* 44%*
105 N. Main St.
Wichita, KS 67202
Lone Star Airport Improvement Authority 31%
One Bank One Plaza Ste. 0823
Chicago, IL 60670
Grapevine Industrial Development Corp. 21%
One Bank One Plaza Ste. 0823
Chicago, IL 60670
*Denotes record owner of Fund shares only
|
American AAdvantage Money Market Mileage Fund Total Fund Mileage Class Platinum Class --------------------------------------------- ---------- ------------- -------------- National Investor Services Corp.* 94%* 47%* 100%* 55 Water Street, 32nd Floor New York, NY 10041 *Denotes record owner of Fund shares only |
American AAdvantage Municipal Money Market Mileage Fund Total Fund Mileage Class Platinum Class ------------------------------------------------------- ---------- ------------- -------------- National Investor Services Corp.* 61%* 48%* 100%* 55 Water Street, 32nd Floor New York, NY 10041 Coleman M. and Grace L. Brandt 9% 12% 330 W. 72nd St. Apt. 10A New York, NY 10023 Geoffrey Brod 6% 41 Woodford Hills Drive Avon, CT 06001 *Denotes record owner of Fund shares only |
American AAdvantage U.S. Gov't Money Market Mileage Fund Total Fund Mileage Class Platinum Class -------------------------------------------------------- ---------- ------------- -------------- National Investor Services Corp.* 48%* 28%* 100%* 55 Water Street, 32nd Floor New York, NY 10041 Steven D. Blecher 8% 11% 24 Henry Street Scarsdale, NY 10583 William Regnery, Trustee 7% 10% Western Shade Cloth Charitable Foundation P.O. Box 1369 Boca Grande, FL 33921-1369 Monica McQuaid 6% 8% 1341 Turvey Rd. Downers Grove, IL 60515 Seymour Licht, Elaine Licht, Larry Licht, Alysia Krueger 5% 8% P.O. Box 4383 Scottsdale, AZ 85261 *Denotes record owner of Fund shares only |
MANAGEMENT, ADMINISTRATIVE AND DISTRIBUTION SERVICES
The Manager is a wholly owned subsidiary of AMR Corporation, the parent company of American Airlines, Inc., and is paid a management fee as compensation for paying investment advisory fees and for providing the Trusts and the AMR Trust with advisory and asset allocation services. Pursuant to management and 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.
Each Fund is responsible for expenses not otherwise assumed by the Manager, including the following: audits by independent auditors; transfer agency, custodian, dividend disbursing agent and shareholder recordkeeping services; taxes, if any, and the preparation of each Fund's tax returns; interest; costs of Trustee and shareholder meetings; printing and mailing prospectuses and reports to existing shareholders; fees for filing reports with regulatory bodies and the maintenance of the Funds' existence; legal fees; fees to federal and state authorities for the registration of shares; fees and expenses of non-interested Trustees; insurance and fidelity bond premiums; fees paid to consultants providing reports regarding adherence by investment advisers to the investment style of a Fund; fees paid for brokerage commission analysis for the purpose of monitoring best execution practices of the investment advisers; and any extraordinary expenses of a nonrecurring nature.
As compensation for providing management services, each Portfolio pays the Manager an annualized advisory fee that is calculated and accrued daily, equal to 0.10% of its net assets. The following amounts represent management fees paid to the Manager based on total Portfolio assets, including funds and classes of shares not included in this SAI. Management fees for the fiscal years ended December 31, 2000, 2001 and 2002 were approximately $4,677,000, $10,352,000 and $9,652,000. Because the Portfolios are advised solely by the Manager, the Manager retained this entire amount. No management fees were waived by the Manager in relation to the Portfolios.
As of February 28, 2002, the following funds in the Mileage Trust and their corresponding portfolios (except for the portfolios of the International Equity and S&P 500 Index Funds) ceased operations: Balanced Fund, Intermediate Bond Fund, International Equity Fund, Large Cap Value Fund, S&P 500 Index Fund, Short-Term Bond Fund, and Small Cap Value Fund. Management fees prior to that date were based on total assets of the AAdvantage and Mileage Trust funds (or their corresponding portfolios) with fiscal years ended October 31, none of which are included in this SAI. Management fees for periods after February 28, 2002 are based on total assets of the AAdvantage Trust funds with fiscal years ended October 31, none of which are included in this SAI. Management fees for the fiscal years ended October 31 were approximately as follows: 2000, $11,612,000, of which approximately $7,840,000 was paid by the Manager to other investment advisers; 2001, $10,359,000, of which approximately $7,120,000 was paid by the Manager to other investment advisers; and 2002, $10,895,000, of which approximately $7,590,000 was paid by the Manager to the other investment advisers. Management fees in the amount of approximately $7,000, $39,500 and $32,000 were waived by the Manager during the fiscal years ended October 31, 2000, 2001 and 2002, respectively.
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 last three fiscal years were approximately as follows. These amounts include payments by funds and classes of the AAdvantage and Mileage Trusts not included in this SAI, some of which are no longer operational.
Fiscal Years Ended December 31, Fiscal Years Ended October 31,
------------------------------- ------------------------------
2000 2001 2002 2000 2001 2002
---- ---- ---- ---- ---- ----
AAdvantage Trust $7,540,000 $6,900,000 $7,858,000 $2,610,000 $2,426,000 $2,710,000
Mileage Trust $3,886,000 $4,871,000 $4,563,000 $41,000 $36,000 $10,558*
|
* Administrative services fees are for the period from November 1, 2001 through February 28, 2002.
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 Trust 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 December 31, 2000, 2001 and 2002 were approximately $1,830,000, $2,203,000 and $1,871,000, respectively. During the fiscal years ended December 31, 2000, 2001 and 2002, the Manager waived distribution fees in the amount of approximately $90,600, $99,900 and $36,500, respectively. Distribution fees pursuant to Rule 12b-1 under the 1940 Act for the fiscal years ended October 31, 2000 and 2001 were approximately $41,000 and $36,000, respectively. For the period from November 1, 2001 through February 28, 2002, distribution fees pursuant to Rule 12b-1 under the 1940 Act were approximately $18,961. During the fiscal years ended October 31, 2000 and 2001 and the period ended February 28, 2002, the Manager waived distribution fees in the amount of approximately $18,300, $36,000 and $8,187, respectively. These amounts include payments by funds and classes of the Mileage Trust that are no longer operational.
The Manager receives compensation for administrative and oversight functions with respect to securities lending of the portfolios of the AMR and AAdvantage Trusts. The Portfolios do not participate in securities lending, so the Manager received no such compensation for the fiscal years ended December 31, 2000, 2001 and 2002. Fees received by the Manager from securities lending for the fiscal years ended October 31 were approximately as follows: 2000, $206,541; 2001, $309,704; and 2002, $258,780. These amounts include payments by funds and classes of the Trust not included in this SAI, some of which are no longer operational.
The Cash Management and Platinum Classes have each adopted an Administrative Services Plan (collectively, the "Plans"). The Plans provide that each Fund's Cash Management Class will pay 0.07% and each Fund's Platinum Class will pay 0.55% per annum of its average daily net assets to the Manager (or another entity approved by the Board). The Manager or these approved entities may spend such amounts on any activities or expenses primarily intended to result in or relate to the servicing of Cash Management and Platinum Class shares including, but not limited to, payment of shareholder service fees and transfer agency or sub-transfer
agency expenses. The fees, which are included as part of a Fund's "Other Expenses" in the Table of Fees and Expenses in the Cash Management and Platinum Class Prospectuses, will be payable monthly in arrears without regard to whether the amount of the fee is more or less than the actual expenses incurred in a particular month by the entity for the services provided pursuant to the Plans. The primary expenses expected to be incurred under the Plans are transfer agency fees and servicing fees paid to financial intermediaries such as plan sponsors and broker-dealers.
SWS Financial Services, located at 1201 Elm Street, Dallas, Texas 75270, 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 and the Select Funds.
OTHER SERVICE PROVIDERS
The transfer agent for the Trust is State Street Bank and Trust Company ("State Street"), located in Boston, Massachusetts, who provides transfer agency services to Fund shareholders through its affiliate National Financial Data Services, located in 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, located in Dallas, Texas.
PORTFOLIO SECURITIES TRANSACTIONS
In selecting brokers or dealers to execute particular transactions, the Manager is authorized to consider "brokerage and research services" (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934), provision of statistical quotations (including the quotations necessary to determine a Fund or Portfolio's net asset value), the sale of Trust shares by such broker-dealer or the servicing of Trust shareholders by such broker-dealer, and other information provided to the applicable Fund, Portfolio, or the Manager, provided, however, that the Manager determines that it has received the best net price and execution available.
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 transaction costs.
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 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 "P-1" by Moody's Investors Service, Inc. ("Moody's") and "F-1" by Fitch Ratings, and have received the next highest short-term rating by other Rating Organizations, such as "A-2" by Standard & Poor's Ratings Services ("Standard & Poor's") and "P-2" by Moody's. See "Ratings of Municipal Obligations" and "Ratings of Short-Term Obligations" for further information concerning ratings.
TAX INFORMATION
TAXATION OF THE FUNDS
To continue to qualify for treatment as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Tax 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 ("Income Requirement");
o Diversify its investments so that, at the close of each quarter of its taxable year, (1) at least 50% of the value of its total assets is represented by cash and cash items, U.S. Government securities, securities of other RICs and other securities limited, in respect of any one issuer, to an amount that does not exceed 5% of the Fund's total asset value and that does not represent more than 10% of the issuer's outstanding voting securities and (2) not more than 25% of the value of its total assets is invested in securities (other than U.S. Government securities or securities of other RICs) of any one issuer or any two or more issuers that are controlled by the Fund and engaged in the same, similar or related businesses ("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 Tax Code ("Distribution Requirement").
Each Fund, as an investor in its corresponding Portfolio, is or should be 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 for treatment 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 - including distributions by the Municipal Money Market Funds that otherwise would qualify as "exempt-interest dividends" (as described below under "Taxation of the Funds' Shareholders") - as taxable dividends (that is, ordinary income) to the extent of the Fund's earnings and profits.
Each Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the extent it fails to distribute by the end of any calendar year substantially all of its ordinary (taxable) income for that year and capital gain net income by the end of its fiscal year, plus certain other amounts.
See the part of the next section entitled "Taxation of Certain Investments" for a discussion of the tax consequences to each Fund of certain investments and strategies it or its corresponding Portfolio may employ.
TAXATION OF THE PORTFOLIOS
The Portfolios and their Relationship to the Funds. Each Portfolio is classified as a separate partnership for federal income tax purposes and is not a "publicly traded partnership" treated as a corporation. As a result, each Portfolio is not 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, 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.
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.
Taxation of Certain Investments. The Municipal Money Market Funds' corresponding Portfolio may acquire zero coupon or other securities issued with original issue discount. As investors in a Portfolio that holds those
securities, the Municipal Money Market Funds would have to take into account 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 (plus, in the case of the Municipal Money Market Funds, their net tax-exempt interest income), including any original issue discount (and, in the case of the Municipal Money Market Funds, their share of the Municipal Money Market Portfolio's accrued tax-exempt original issue discount), to satisfy the Distribution Requirement and avoid imposition of the Excise Tax, 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.
TAXATION OF THE FUNDS' SHAREHOLDERS
A dividend or other distribution a Fund declared in the last quarter of any calendar year that is payable to shareholders of record on a date in that quarter will be deemed to have been paid by the Fund and received by those shareholders on December 31 of that year if the Fund pays the distribution during the following January. Accordingly, that distribution will be reported by, and (except for "exempt-interest dividends," as defined below) taxed to, those shareholders for the taxable year in which that December 31 falls.
If Fund shares are sold at a loss after being held for six months or less, the loss will be disallowed to the extent of any exempt-interest dividends received on those shares, and any loss not disallowed will be treated as long-term, instead of short-term, capital loss to the extent of any capital gain distributions received thereon. Investors also should be aware that if they purchase Fund shares shortly before the record date for a distribution (other than an exempt-interest dividend), they will pay full price for the shares and receive some portion of the price back as a taxable distribution.
Distributions by the Municipal Money Market Funds of the amount by which their respective share of the Municipal Money Market 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 Portfolio's total assets) consists of securities the interest on which is excludable from gross income under Section 103(a) of the Tax Code. The Funds and Portfolio 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 Tax 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") 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.
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.
YIELD AND TOTAL RETURN QUOTATIONS
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:
EFFECTIVE YIELD = [ (BASE PERIOD RETURN + 1)365/7 ] - 1
The current and effective yields for the Funds were as follows for the periods indicated:
Current daily Current yield for the Effective yield for
yield as of seven-day period ended the seven-day period
December 31, 2002 December 31, 2002 ended December 31, 2002
----------------- ---------------------- -----------------------
Cash Management Class
Money Market Fund 1.29% 1.27% 1.28%
U.S. Government Money Market Fund 1.17% 1.21% 1.22%
Platinum Class
Money Market Fund 0.55% 0.53% 0.53%
Municipal Money Market Fund 0.61% 0.59% 0.60%
U.S. Government Money Market Fund 0.41% 0.45% 0.45%
Money Market Mileage Fund 0.34% 0.32% 0.32%
Municipal Money Market Mileage Fund 0.40% 0.38% 0.39%
U.S. Gov't. Money Market Mileage Fund 0.16% 0.20% 0.20%
Mileage Class
Money Market Mileage Fund 0.94% 0.92% 0.93%
Municipal Money Market Mileage Fund 1.00% 0.98% 0.98%
U.S. Gov't. Money Market Mileage Fund 0.32% 0.35% 0.35%
|
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 and a 39.6% personal tax rate, the current and effective tax equivalent yields for the Municipal Money Market Funds for the seven-day period ending December 31, 2002 were:
Current Effective
Tax Equivalent Yield Tax Equivalent Yield
-------------------- --------------------
Municipal Money Market Fund-Platinum Class 0.98% 0.99%
Municipal Money Market Mileage Fund-Platinum Class 0.63% 0.65%
Municipal Money Market Mileage Fund-Mileage Class 1.62% 1.62%
|
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:
P(1 + T)(N)= 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:
For the For the period from
five-year commencement of
For the one-year period ended For the ten-year operations through
period ended December 31, period ended December 31,
December 31, 2002 2002 December 31, 2002 2002
----------------- ---- ----------------- ----
Cash Management Class
Money Market Fund (1) 1.73% 4.60% 4.77% 5.63%
U.S. Gov't. Money Market Fund (1)(2) 1.67% 4.49% 4.59% 4.51%
Platinum Class
Money Market Fund (3) 0.98% 3.86% 4.24% 5.28%
Municipal Money Market Fund (3) 0.51% 2.10% N/A(6) 2.49%
U. S. Gov't. Money Market Fund (2)(3) 0.90% 3.71% 4.04% 4.01%
Money Market Mileage Fund (4) 0.81% 3.72% 4.06% 5.14%
Municipal Money Market Mileage Fund (4) 0.35% 2.17% N/A(6) 2.54%
U.S. Gov't. Money Market Mileage Fund (2)(4) 0.69% 3.78% 4.10% 4.06%
Mileage Class
Money Market Mileage Fund (5) 1.29% 4.20% 4.38% 5.35%
Municipal Money Market Mileage Fund (5) 0.77% 2.48% N/A(6) 2.71%
U.S. Gov't. Money Market Mileage Fund (2)(5) 1.06% 4.06% 4.24% 4.19%
|
(1) Total returns for the Cash Management Class of the Money Market Fund reflect total returns achieved by the Institutional Class from the Fund's inception date of 9/1/87 up to the inception date of the Cash Management Class on 12/1/01. On 12/1/01, the Institutional Class of the U.S. Government Money Market Fund was redesignated the Cash Management Class.
(2) 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.
(3) Total returns for the Platinum Class of the Money Market Fund reflect total returns achieved by the Institutional Class from its inception on 9/1/87 up to the inception date of the Platinum Class on 11/7/95. Total returns for the Platinum Class of the Municipal Money Market Fund reflect total returns achieved by the Institutional Class from its inception on 11/10/93 up to the inception date of the Platinum Class on 11/7/95. Total returns for the Platinum Class of the U.S. Government Money Market Fund of the AAdvantage Trust reflect total returns achieved by the Cash Management Class from its inception on 3/2/92 up to the inception date of the Platinum Class on 11/7/95. Total returns have not been adjusted for any difference between the fees and expenses of the Platinum Class of each Fund and the historical fees and expenses of the Institutional and Cash Management Classes.
(4) Total returns for the Platinum Class of the Money Market Mileage Fund reflect 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. Total returns for the Platinum Class of the Municipal Money Market Mileage Fund reflect total returns of the Municipal Money Market Fund-Mileage Class (11/10/93-10/31/95), the Municipal Money Market Mileage Fund-Mileage Class (11/1/95-10/31/99) and the Municipal Money Market Mileage Fund-Platinum Class since its 11/1/99 inception. Total returns for the Platinum Class of the U.S. Government Money Market Mileage Fund reflect total returns of the U.S. Government Money Market Fund-Cash Management Class (3/2/92-10/31/93), the U.S. Government Money Market Fund-Mileage Class (11/1/93-10/31/95), the U.S. Government Money Market Mileage Fund-Mileage Class (11/1/95-10/31/99) and the U.S. Government Money Market Mileage Fund-Platinum Class since its 11/1/99 inception. 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.
(5) Total returns for the Mileage Class of the Money Market Mileage Fund reflect 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), and the Money Market Mileage Fund-Mileage Class since its 11/1/95 inception. Total returns for the Mileage Class of the Municipal Money Market Mileage Fund reflect total returns of the Municipal Money Market Fund-Mileage Class (11/10/93-10/31/95) up to the 11/1/95 inception of the Municipal Money Market Mileage Fund-Mileage Class. Total returns for the Mileage Class of the U.S. Government Money Market Mileage Fund reflect total returns of the U.S. Government Money Market Fund-Cash Management 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 since its 11/1/95 inception. 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.
(6) The Fund was not operational during this period.
Each Fund also may use "aggregate" total return figures for various periods that 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 or annual operating expense ratio with those of other mutual funds in rankings prepared by Lipper Analytical Services, Inc., Morningstar, Inc., iMoneyNet, Inc. and other similar independent services which monitor the performance of mutual funds or publications such as the "New York Times," "Barrons" and the "Wall Street Journal." Each Fund also may compare its performance with various indices prepared by independent 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. A description of the characteristics of the AAdvantage program may appear in Fund advertisements, including its ranking as compared to other frequent flyer programs by various publications.
From time to time, the Manager may offer special promotions as a means to attract new Mileage Fund shareholders. Such promotions may include contests with free air travel and/or hotel accommodations as prizes. In addition, the Manager may offer special AAdvantage mile awards to those who open a Mileage Fund account during a certain limited time period. In these type of promotion, an investor would receive one AAdvantage mile for each dollar invested a in Mileage Fund (up to a maximum investment dollar limit), in addition to one AAdvantage mile for each ten dollars maintained in a Mileage Fund on an ongoing basis. This offer may be targeted to a specific number of individuals selected from the AAdvantage program membership database by applying various search criteria.
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. Each Trust has not engaged in any other business.
The Cash Management Class was created for institutional investors. The following individuals are eligible for purchasing shares of the Cash Management Class with an initial investment below the minimums of $25 million for the Money Market Fund and $2 million for the U.S. Government Money Market Fund: (i) employees of the Manager, (ii) officers and directors of AMR and (iii) members of the Trusts' Board of Trustees. The Platinum Class was created as an investment vehicle for cash balances of customers of certain broker-dealers. The Mileage Class was created for individual investors wishing to receive American Airlines AAdvantage travel awards program miles.
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.
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.
Dollar Rolls-A dollar roll is a contract to sell mortgage-backed securities as collateral against a commitment to repurchase similar, but not identical, mortgage-backed securities on a specified future date. The other party to the contract is entitled to all principal, interest, and prepayment cash flows while it holds the collateral. Each Portfolio maintains with the Custodian a segregated account containing high-grade liquid securities in an amount at least equal to the forward purchase obligation.
Eurodollar and Yankeedollar obligations-Eurodollar obligations are U.S. dollar obligations issued outside the United States by domestic or foreign entities, while Yankeedollar obligations are U.S. dollar obligations issued inside the United States by foreign entities. There is generally less publicly available information about foreign issuers and there may be less governmental regulation and supervision of foreign stock exchanges, brokers and listed companies. Foreign issuers may use different accounting and financial standards, and the addition of foreign governmental restrictions may affect adversely the payment of principal and interest on foreign investments. In addition, not all foreign branches of United States banks are supervised or examined by regulatory authorities as are United States banks, and such branches may not be subject to reserve requirements.
Full Faith and Credit Obligations of the U.S. Government-Securities issued or guaranteed by the U.S. Treasury, backed by the full taxing power of the U.S. Government or the right of the issuer to borrow from the U.S. Treasury.
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 Portfolio 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. In addition, a Portfolio may get only limited information about an issuer, so it may be less able to predict a loss. A Portfolio also might have to register such restricted securities in order to dispose of them resulting in additional expense and delay. Adverse market conditions could impede such a public offering of securities.
In recent years, however, a large institutional market has developed for certain securities that are not registered under the 1933 Act, including repurchase agreements, commercial paper, foreign securities, municipal securities and corporate bonds and notes. Institutional investors depend on an efficient institutional market in which the unregistered security can be readily resold or on an issuer's ability to honor a demand for repayment. However, the fact that there are contractual or legal restrictions on resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.
Loan Participation Interests-Loan participation interests represent interests in bank loans made to corporations. The contractual arrangement with the bank transfers the cash stream of the underlying bank loan to the participating investor. Because the issuing bank does not guarantee the participations, they are subject to the credit risks generally associated with the underlying corporate borrower. In addition, because it may be necessary under the terms of the loan participation for the investor to assert through the issuing bank such rights as may exist against the underlying corporate borrower, in the event the underlying corporate borrower fails to pay principal and interest when due, the investor may be subject to delays, expenses and risks that are greater than those that would have been involved if the investor had purchased a direct obligation (such as commercial paper) of such borrower. Moreover, under the terms of the loan participation, the investor may be regarded as a creditor of the issuing bank (rather than of the underlying corporate borrower), so that the issuer 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.
(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.
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 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 differ from the highest rated issues only in a small degree.
The two highest ratings for long-term obligations by Dominion Bond Rating Service Limited ("DBRS") are AAA and AA. Obligations rated AAA have the highest credit quality, with exceptionally strong protection for the timely repayment of principal and interest. Earnings are considered stable, the structure of the industry in which the entity operates is strong, and the outlook for future profitability is favorable. There are few qualifying factors present which would detract from the performance of the entity, the strength of liquidity and coverage ratios is unquestioned and the entity has established a creditable track record of superior performance. Obligations rated AA are of superior credit quality, and protection of interest and principal is considered high. Entities rated AA are also considered unlikely to be significantly affected by reasonably foreseeable events.
Standard & Poor's and Fitch apply indicators (such as "+" and "-") and DBRS adds "high" or "low" to indicate relative standing within the major rating categories (except AAA). A rating without one of these indicators falls within the middle of the category.
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.
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.
Fitch Ratings' 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.
Commercial paper and short-term debt considered to be prime credit quality by DBRS is rated R-1. Obligations of the highest credit quality are rated R-1 (high). These are entities possessing unquestioned ability to repay current liabilities as they fall due and maintaining strong liquidity positions, conservative debt levels and profitability that is both stable and above average. Obligations rated R-1 (middle) are of superior credit quality and, in most cases, differ from R-1 (high) credits to only a small degree. Of satisfactory credit quality are obligations rated R-1 (low). For these entities, the overall strength and outlook for key liquidity, debt and profitability ratios is not normally as favorable as with higher-rating categories, but these considerations are still respectable.
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 Manager, presents a minimum risk of bankruptcy during the term of the agreement based upon guidelines that periodically are reviewed by the AMR Trust Board. 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.
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 one of the Portfolios, that agree they are purchasing the securities for investment and not with an intention to distribute to the public. Any resale by the purchaser must be pursuant to an exempt transaction and may be accomplished in accordance with Rule 144A. Section 4(2) securities normally are resold to other institutional investors 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 Manager 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.
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.
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.
When-Issued and Forward Commitment Transactions- For purchases on a when-issued basis, the price of the security is fixed at the date of purchase, but delivery of and payment for the securities is not set until after the securities are issued (generally one to two months later). The value of when-issued securities is subject to market fluctuation during the interim period and no income accrues to a Portfolio until settlement takes place. Forward commitment transactions involve a commitment to purchase or sell securities with payment and delivery to take place at some future date, normally one to two months after the date of the transaction. The payment obligation and interest rate are fixed at the time the buyer enters into the forward commitment. Forward commitment transactions are typically used as a hedge against anticipated changes in interest rates and prices. Each Portfolio maintains with the Custodian a segregated account containing high-grade liquid securities in an amount at least equal to the when-issued or forward commitment transaction. Forward commitment transactions are executed for existing obligations, whereas in a when-issued transaction, the obligations have not yet been issued. When entering into a when-issued or forward commitment transaction, a Portfolio will rely on the other party to consummate the transaction; if the other party fails to do so, the Portfolio may be disadvantaged.
FINANCIAL STATEMENTS
The American AAdvantage Money Market Funds' and the American AAdvantage Money Market Mileage Funds' Annual Reports to Shareholders for the fiscal year ended December 31, 2002, 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.
AMERICAN AADVANTAGE FUNDS
PART C. OTHER INFORMATION
Item 23. Exhibits
(a)(i) Declaration of Trust - (iv)
(ii) Amendment to Declaration of Trust, dated March 10, 1987
- filed herewith
(b) Bylaws - (iv)
(c) Voting trust agreement -- none
(d)(i)(A) Fund Management Agreement between American AAdvantage Funds and AMR Investment Services, Inc., dated April 3, 1987*
(i)(B) Supplement to Fund Management Agreement, dated August 1, 1994 - (iv)
(i)(C) Supplement to Fund Management Agreement, dated August 1, 1995 - (iv)
(i)(D) Supplement to Fund Management Agreement, dated November 1, 1995-(vii)
(i)(E) Amendment to Schedule A of Fund Management Agreement, dated December 1, 1995 - (i)
(i)(F) Supplement to Fund Management Agreement, dated December 17, 1996 - (ii)
(i)(G) Supplement to Fund Management Agreement, dated July 25, 1997 -
(i)(H) Supplement to Fund Management Agreement, dated September 1, 1998 - (vi)
(i)(I) Supplement to Fund Management Agreement, dated January 1, 1999
- (vii)
(i)(J) Supplemental Terms and Conditions to the Management Agreement, dated - May 19, 2000 - (ix)
(i)(K) Supplement to Fund Management Agreement, dated November 16, 2000 - (xi)
(i)(L) Supplement to Fund Management Agreement, dated October 17, 2001 - (xv)
(i)(M) Supplement to Fund Management Agreement, dated May 28, 2002 -
(ii)(A) Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, Inc., dated November 1, 1995 - (iv)
(ii)(B) Investment Advisory Agreement between AMR Investment Services, Inc. and Barrow, Hanley, Mewhinney & Strauss, Inc., dated November 1, 1995 - (iv)
(ii)(C) Investment Advisory Agreement between AMR Investment Services, Inc. and Lazard Asset Management - (vii)
(ii)(D) Investment Advisory Agreement between AMR Investment Services, Inc. and Goldman, Sachs & Company, Inc., dated July 31, 2000 -
(ii)(E) Investment Advisory Agreement between AMR Investment Services, Inc. and J.P. Morgan Investment Management Inc., dated July 31, 2000 - (x)
(ii)(F) Investment Advisory Agreement between AMR Investment Services, Inc. and Morgan Stanley Dean Witter Investment Management Inc., dated July 31, 2000 - (x)
(ii)(G) Investment Advisory Agreement between AMR Investment Services, Inc. and The Boston Company Asset Management, LLC, dated July 31, 2000 - (x)
(ii)(H) Investment Advisory Agreement between AMR Investment Services, Inc. and MW Post Advisory Group, LLC, dated December 29, 2000 - (xi)
(ii)(I) Investment Advisory Agreement between AMR Investment Services, Inc. and Metropolitan West Capital Management, LLC, dated November 30, 2000 - (xi)
(ii)(J) Investment Advisory Agreement between AMR Investment Services, Inc. and Causeway Capital Management LLC, dated August 31, 2001 - (xv)
(ii)(K) Investment Advisory Agreement between AMR Investment Services, Inc. and Hotchkis and Wiley Capital Management, LLC, dated October 9, 2001 - (xv)
(ii)(L) Investment Advisory Agreement between AMR Investment Services, Inc. and Independence Investment LLC, dated April 1, 2001 -
(ii)(M) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, LLC, dated January 1, 2001 - filed herewith
(ii)(N) Investment Advisory Agreement between AMR Investment Services, Inc. and Brandywine Asset Management, LLC, dated October 12, 2001 - (xvi)
(ii)(O) Securities Lending Management Agreement between American AAdvantage Funds, on behalf of High Yield Bond Fund, and Metropolitan West Securities, Inc., dated July 2, 2001 - (xvi)
(ii)(P) Amendment to Securities Lending Management Agreement between American AAdvantage Funds, on behalf of High Yield Bond Fund, and Metropolitan West Securities, Inc., dated March 1, 2002 -
(ii)(Q) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Lazard Asset Management, dated January 1, 2003 - filed herewith
(ii)(R) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Barrow, Hanley, Mewhinney & Strauss, Inc., dated January 1, 2003 - filed herewith
(ii)(S) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Brandywine Asset Management, LLC, dated January 1, 2003 - filed herewith
(ii)(T) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Goldman, Sachs & Company, Inc., dated January 1, 2003 - filed herewith
(ii)(U) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Independence Investment LLC, dated January 1, 2003 - filed herewith
(ii)(V) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and J.P. Morgan Investment Management Inc., dated January 1, 2003 - filed herewith
(ii)(W) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Metropolitan West Capital Management, LLC, dated January 1, 2003 - filed herewith
(ii)(X) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Morgan Stanley Investment Management Inc., dated January 1, 2003 - filed herewith
(ii)(Y) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and MW Post Advisory Group, LLC, dated January 1, 2003 - filed herewith
(ii)(Z) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and The Boston Company Asset Management, LLC, dated January 1, 2003 - filed herewith
(ii)(AA) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, LLC, dated January 1, 2003 - filed herewith
(iii) Amended and Restated Administrative Services Agreement between the American AAdvantage Funds and AMR Investment Services, Inc., dated March 1, 2002 - (xvi)
(iv)(A) Administrative Services Plan for the Platinum Class - (iv)
(iv)(B) Administrative Services Plan for the Cash Management Class -
(iv)(C) Supplement to Administrative Services Plan for the Platinum Class, dated September 27, 2002 - (xvii)
(v)(A) Administrative Agreement for Small Cap Index Fund and International Equity Index Fund, dated July 31, 2000 - (ix)
(v)(B) Administrative Agreement for S&P 500 Index Fund with SSgA Funds Management, Inc., dated May 1, 2001 - (xvi)
(e)(i) Distribution Agreement among the American AAdvantage Funds, the American AAdvantage Mileage Funds, the American Select Funds and SWS Financial Services, Inc., dated December 31, 1999 - (viii)
(ii) Amendment to the Distribution Agreement among the American AAdvantage Funds, the American AAdvantage Mileage Funds, the American AAdvantage Select Funds and SWS Financial Services, Inc., dated July 24, 2002 - (xvii)
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between the American AAdvantage Funds and State Street Bank and Trust Company, dated December 1, 1997 -
(ii) Amendment to Custodian Agreement to add Small Cap Value Fund, dated January 1, 1999 - (ix)
(iii) Amendment to Custodian Agreement to add Large Cap Growth, Emerging Markets, Small Cap Index and International Equity Index series of the American AAdvantage Funds, dated July 31, 2000 - filed herewith
(iv) Amendment to Custodian Agreement to add High Yield Bond Fund, dated December 29, 2000 - (xi)
(v) Amendment to Custodian Agreement to reflect amendments to Rule 17f-5 and addition of Rule 17f-7 of the 1940 Act, dated June 1, 2001 - filed herewith
(h)(i) Transfer Agency and Service Agreement between the American AAdvantage Funds and State Street Bank and Trust Company, dated January 1, 1998 - (v)
(ii) Amendment to Transfer Agency Agreement to add Small Cap Value Fund, dated January 1, 1999 - (ix)
(iii) Amendment to Transfer Agency Agreement to add four new AAdvantage Funds, dated July 31, 2000 - filed herewith
(iv) Amendment to Transfer Agency Agreement to add High Yield Bond Fund, dated December 29, 2000 - (xi)
(v) Amendment to Transfer Agency Agreement regarding anti-money laundering procedures, dated September 24, 2002 - filed herewith
(vi) Securities Lending Authorization Agreement between American AAdvantage Funds and State Street Bank and Trust Company, dated January 2, 1998 - (v)
(vii) Amendment to Securities Lending Authorization Agreement to add Large Cap Growth Fund and Emerging Markets Fund, dated July 31, 2000 - (xi)
(viii) Amendment to Securities Lending Authorization Agreement to add Small Cap Value Fund, dated January 1, 1999 - (xii)
(ix) Service Plan Agreement for the American AAdvantage Funds PlanAhead Class, dated August 1, 1994 - (iv)
(x) Credit Agreement between AMR Investment Services Trust, American AAdvantage Funds, American AAdvantage Mileage Funds, and AMR Investment Services, Inc., dated December 1, 1999 -
(xi) Amendment to Credit Agreement to add Large Cap Growth and Emerging Markets Portfolios and the four AAdvantage Funds, dated July 31, 2000 - (ix)
(xii) Amendment to Credit Agreement to add High Yield Bond Portfolio and High Yield Bond Fund, dated December 28, 2000 - (xi)
(xiii) Amendment to Credit Agreement to remove master-feeder funds, dated March 1, 2002 - (xvii)
(xiv) Administrative Services Agreement among American AAdvantage Funds, American AAdvantage Mileage Funds, AMR Investment Services Trust, AMR Investment Services, Inc. and State Street Bank and Trust Company, dated November 29, 1999 - (vii)
(xv) Purchase Agreement between American AAdvantage Funds and John H. Harland Company, dated December 1, 2001 - (xvi)
(i) Opinion and consent of counsel - filed herewith
(j) Consent of Independent Auditors - filed herewith
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent - (iv)
(m)(i) Plan pursuant to Rule 12b-1 for the Institutional, Cash Management, PlanAhead and AMR Classes - (iv)
(ii) Plan pursuant to Rule 12b-1 for the Platinum Class - (iv)
(n)(i) Amended and Restated Plan pursuant to Rule 18f-3 - (iv)
(ii) Amended and Restated Plan pursuant to Rule 18f-3, dated December 1, 2001 - (xvi)
(p)(i) Codes of Ethics of Registrant, American AAdvantage Mileage Funds, American Select Funds and AMR Investment Services Trust - (ix)
(ii) Code of Ethics of AMR Investments - (xiii)
(iii) Code of Ethics of State Street Master Funds - (ix)
(iv) Code of Ethics of Merrill Lynch's Asset Management Group -
(v) Code of Ethics of Brandywine Asset Management, Inc. - (ix)
(vi) Code of Ethics of The Boston Company Asset Management, LLC -
(vii) Code of Ethics of Barrow, Hanley, Mewhinney & Strauss, Inc. -
(viii) Code of Ethics of Lazard Asset Management - (xiii)
(ix) Code of Ethics of Hotchkis and Wiley Capital Management, LLC -
(x) Revised Code of Ethics of Causeway Capital Management LLC, dated January 25, 2002 - (xvi)
(xi) Amended and Restated Code of Ethics of Independence Investment LLC, dated April 2, 2001 - (xvi)
(xii) Revised Code of Ethics of J.P. Morgan Investment Management Inc., dated October 6, 2001 - (xvi)
(xiii) Revised Code of Ethics of Goldman Sachs Asset Management, dated August 1, 2002 - (xvii)
(xiv) Revised Code of Ethics of Metropolitan West Capital Management, LLC, dated July 26, 2002 - (xvii)
(xv) Amendments to the Code of Ethics of The Boston Company Asset Management, LLC, dated February 25, 2002 - (xvii)
(xvi) Revised Code of Ethics of Morgan Stanley Investment Management, dated August 16, 2002 - (xvii)
(xvii) Revised Code of Ethics of MW Post Advisory Group, dated September 18, 2002 - (xvii)
(xviii) Revised Code of Ethics of Franklin Templeton Investments,
dated December 3, 2002 - filed herewith
Other: Powers of Attorney for Trustees (Alan D. Feld, Stephen D.
O'Sullivan, and Kneeland Youngblood) - (ii)
Powers of Attorney for Trustees (R. Gerald Turner) - (xiv)
Powers of Attorney for Trustees of the Quantitative Master
Series Trust - filed herewith
Powers of Attorney for Trustees of the State Street Equity 500
Index Portfolio - (viii)
Powers of Attorney for President of the State Street Equity
500 Index Portfolio - (viii)
----------
|
* Incorporated by reference to Post-Effective Amendment No. 4 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 31, 1990.
(i) Incorporated by reference to Post-Effective Amendment No. 15 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 22, 1995.
(ii) Incorporated by reference to Post-Effective Amendment No. 19 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on February 13, 1997.
(iii) Incorporated by reference to Post-Effective Amendment No. 20 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on July 1, 1997.
(iv) Incorporated by reference to Post-Effective Amendment No. 23 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 18, 1997.
(v) Incorporated by reference to Post-Effective Amendment No. 24 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on February 27, 1998.
(vi) Incorporated by reference to Post-Effective Amendment No. 25 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 15, 1998.
(vii) Incorporated by reference to Post-Effective Amendment No. 28 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 21, 1999.
(viii) Incorporated by reference to Post-Effective Amendment No. 29 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on March 1, 2000.
(ix) Incorporated by reference to Post-Effective Amendment No. 32 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on July 7, 2000.
(x) Incorporated by reference to Post-Effective Amendment No. 33 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 11, 2000.
(xi) Incorporated by reference to Post-Effective Amendment No. 34 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 29, 2000.
(xii) Incorporated by reference to Post-Effective Amendment No. 35 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on February 28, 2001.
(xiii) Incorporated by reference to Post-Effective Amendment No. 36 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on June 20, 2001.
(xiv) Incorporated by reference to Post-Effective Amendment No. 37 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 1, 2001.
(xv) Incorporated by reference to Post-Effective Amendment No. 38 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on November 30, 2001.
(xvi) Incorporated by reference to Post-Effective Amendment No. 39 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on March 1, 2002.
(xvii) Incorporated by reference to Post-Effective Amendment No. 41 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 1, 2002.
Item 24. Persons Controlled by or under Common Control with Registrant
None.
Item 25. Indemnification
Article XI, Section 2 of the Declaration of Trust of the Trust provides that:
(a) Subject to the exceptions and limitations contained in paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of the Trust (hereinafter referred to as "Covered Person") shall be indemnified by the appropriate portfolios to the fullest extent permitted by law against liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer and against amounts paid or incurred by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall apply to all claims, actions, suits or proceedings (civil, criminal or other, including appeals), actual or threatened while in office or thereafter, and the words "liability" and "expenses" shall include, without limitation, attorneys' fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before which the proceeding was brought (A) to be liable to the Trust or its Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or (B) not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (A) by the court or other body approving
the settlement; (B) by at least a majority of those Trustees who are neither
interested persons of the Trust nor are parties to the matter based upon a
review of readily available facts (as opposed to a full trial-type inquiry); or
(C) by written opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type inquiry); provided,
however, that any Shareholder may, by appropriate legal proceedings, challenge
any such determination by the Trustees, or by independent counsel.
(c) The rights of indemnification herein provided may be insured against by policies maintained by the Trust, shall be severable, shall not be exclusive of or affect any other rights to which any Covered Person may now or hereafter be entitled, shall continue as to a person who has ceased to be such Trustee or officer and shall inure to the benefit of the heirs, executors and administrators of such a person. Nothing contained herein shall affect any rights to indemnification to which Trust
personnel, other than Trustees and officers, and other persons may be entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a defense to any claim, action, suit, or proceeding of the character described in paragraph (a) of this Section 2 may be paid by the applicable Portfolio from time to time prior to final disposition thereof upon receipt of an undertaking by or on behalf of such Covered Person that such amount will be paid over by him to the Trust if it is ultimately determined that he is not entitled to indemnification under this Section 2; provided, however, that:
(i) such Covered Person shall have provided appropriate security for such undertaking;
(ii) the Trust is insured against losses arising out of any such advance payments; or
(iii) either a majority of the Trustees who are neither interested persons of the Trust nor parties to the matter, or independent legal counsel in a written opinion, shall have determined, based upon a review of readily available facts (as opposed to a trial-type inquiry or full investigation), that there is reason to believe that such Covered Person will be found entitled to indemnification under this Section 2.
According to Article XII, Section 1 of the Declaration of Trust, the Trust is a trust, not a partnership. Trustees are not liable personally to any person extending credit to, contracting with or having any claim against the Trust, a particular Portfolio or the Trustees. A Trustee, however, is not protected from liability due to willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.
Article XII, Section 2 provides that, subject to the provisions of Section 1 of Article XII and to Article XI, the Trustees are not liable for errors of judgment or mistakes of fact or law, or for any act or omission in accordance with advice of counsel or other experts or for failing to follow such advice.
Item 26. I. Business and Other Connections of Investment Manager
AMR Investment Services, Inc. (the "Manager"), 4151 Amon Carter Boulevard, MD 2450, 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 (SEC File No. 801-29198) filed with the SEC and is incorporated by reference herein.
II. Business and Other Connections of Investment Advisers
The investment advisers listed below provide investment advisory services to the Trust.
AMR Investment Services, Inc., 4151 Amon Carter Blvd., MD 2450, Fort Worth, Texas 76155.
Barrow, Hanley, Mewhinney & Strauss, Inc., 3232 McKinney Avenue, 15th Floor, Dallas, Texas 75204.
Brandywine Asset Management, LLC, 201 North Walnut Street, Wilmington, Delaware 19801.
Causeway Capital Management LLC, 11111 Santa Monica Blvd., Suite 1550, Los Angeles, California 90025.
Goldman Sachs Asset Management, 32 Old Slip, New York, New York 10005.
Hotchkis and Wiley Capital Management, LLC, 725 South Figueroa Street, 39th Floor, Los Angeles, California 90017.
Independence Investment LLC, 53 State Street, Boston, Massachusetts 02109.
J.P. Morgan Investment Management Inc., 522 Fifth Avenue, New York, New York 10036.
Lazard Asset Management LLC, 30 Rockefeller Plaza, New York, New York 10112.
Metropolitan West Capital Management, LLC, 610 Newport Center Drive, Suite 150, Newport Beach, California 92660.
Metropolitan West Securities, LLC, 11440 San Vicente Boulevard, 3rd Floor, Los Angeles, California 90049.
Morgan Stanley Investment Management Inc., 1221 Avenue of the Americas, New York, New York 10020.
MW Post Advisory Group, LLC, 1880 Century Park East, Suite 820, Los Angeles, California 90067.
Templeton Investment Counsel, LLC, 500 East Broward Boulevard, Suite 2100, Ft. Lauderdale, Florida 33394.
The Boston Company Asset Management, LLC, One Boston Place, Boston, Massachusetts 02108.
Information as to the officers and directors of each of the above investment advisers is included in that adviser's current Form ADV filed with the SEC and is incorporated by reference herein.
Item 27. Principal Underwriter
(a) SWS Financial Services, Inc., 1201 Elm Street, Suite 3500, Dallas, TX 75270 is the principal underwriter for the Trust, the American AAdvantage Mileage Funds and the American AAdvantage Select Funds.
(b) The directors and officers of the Trust's principal underwriter are:
Positions & Offices Position
Name with Underwriter with Registrant
---- ---------------- ---------------
Daniel Leland Chief Executive Officer None
Robert Gioia President None
Stacy Hodges Chief Financial Officer None
Allen Tubb Secretary None
Kenneth Shade Vice President None
Ray Huie Vice President None
Laura Dye Vice President None
|
The address of the above named directors and officers is 1201 Elm Street, Suite 3500, Dallas, TX 75270.
Item 28. Location of Accounts and Records
The books and other documents required by Section 31(a) under the Investment Company Act of 1940 are maintained in the physical possession of the Trust's 1) custodian at State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts 02110; 2) Manager at AMR Investment Services, Inc., 4151 Amon Carter Blvd., MD 2450, Fort Worth, Texas 76155; 3) transfer agent at National Financial Data Services, 330 West 9th St., Kansas City, Missouri 64105; or 4) investment advisers at the addresses listed in Item 26 Part II above.
Item 29. Management Services
All substantive provisions of any management-related service contract are discussed in Part A or Part B.
Item 30. Undertakings
Not applicable.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, the Registrant certifies that it meets all of the requirements for effectiveness of this amendment to its Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 42 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 February 28, 2003. No other material event requiring prospectus disclosure has occurred since the latest of the three dates specified in Rule 485(b)(2).
AMERICAN AADVANTAGE FUNDS
By: /s/ William F. Quinn
---------------------
William F. Quinn
President
Attest:
/s/ Barry Y. Greenberg
--------------------------------------
Barry Y. Greenberg
Vice President and Assistant Secretary
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 42 to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William F. Quinn President and February 28, 2003
--------------------------- Trustee
William F. Quinn
Alan D. Feld* Trustee February 28, 2003
---------------------------
Alan D. Feld
Stephen D. O'Sullivan* Trustee February 28, 2003
---------------------------
Stephen D. O'Sullivan
R. Gerald Turner* Trustee February 28, 2003
---------------------------
R. Gerald Turner
Kneeland Youngblood* Trustee February 28, 2003
---------------------------
Kneeland Youngblood
*By /s/ William F. Quinn
----------------------------------
William F. Quinn, Attorney-In-Fact
|
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 certifies that it meets all of the requirements for effectiveness of this amendment to the Registration Statement as it relates to AMR Investment Services Trust pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Post-Effective Amendment No. 42 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 February 28, 2003. No other material event requiring prospectus disclosure has occurred since the latest of the three dates specified in Rule 485(b)(2).
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. 42 to the Registration Statement for the American AAdvantage Funds as it relates to the AMR Investment Services Trust has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ William F. Quinn President and February 28, 2003
--------------------------- Trustee
William F. Quinn
Alan D. Feld* Trustee February 28, 2003
---------------------------
Alan D. Feld
Stephen D. O'Sullivan* Trustee February 28, 2003
---------------------------
Stephen D. O'Sullivan
R. Gerald Turner* Trustee February 28, 2003
---------------------------
R. Gerald Turner
Kneeland Youngblood* Trustee February 28, 2003
---------------------------
Kneeland Youngblood
*By /s/ William F. Quinn
-----------------------------------
|
William F. Quinn, Attorney-In-Fact
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and the Investment Company Act of 1940, as amended, Quantitative Master Series Trust has duly caused this Post-Effective Amendment No. 42 to the Registration Statement on Form N-1A for the American AAdvantage Funds as it relates to the Quantitative Master Series Trust only to be signed on its behalf by the undersigned, thereunto duly authorized, in the Township of Plainsboro and the State of New Jersey, on February 28, 2003. No other material event requiring disclosure has occurred since the latest of the three dates specified in Rule 485(b)(2).
QUANTITATIVE MASTER SERIES TRUST
By: /s/ Terry K. Glenn
----------------------------
Terry K. Glenn
President
|
Pursuant to the requirements of the Securities Act of 1933, as amended, this Post-Effective Amendment No. 42 to the Registration Statement on Form N-1A for the American AAdvantage Funds as it relates to the Quantitative Master Series Trust only has been signed below by the following persons in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Terry K. Glenn* President (Principal
--------------------------- Executive Officer)
Terry K. Glenn and Trustee February 28, 2003
M. Colyer Crum* Trustee February 28, 2003
---------------------------
M. Colyer Crum
Laurie Simon Hodrick* Trustee February 28, 2003
---------------------------
Laurie Simon Hodrick
Stephen B. Swensrud* Trustee February 28, 2003
---------------------------
Stephen B. Swensrud
J. Thomas Touchton* Trustee February 28, 2003
---------------------------
J. Thomas Touchton
Fred G. Weiss* Trustee February 28, 2003
---------------------------
Fred G. Weiss
*By /s/ Terry K. Glenn
--------------------------------------------
Terry K. Glenn, Attorney-in-Fact
|
POWER OF ATTORNEY
The undersigned, Terry K. Glenn, Donald C. Burke, Donald W. Burton, M. Colyer Crum, Laurie Simon Hodrick, J. Thomas Touchton and Fred G. Weiss, the Directors/Trustees and the Officers of each of the registered investment companies listed below, hereby authorize Terry K. Glenn, Donald C. Burke, Robert C. Doll, Jr. and Phillip S. Gillespie or any of them, as attorney-in-fact, to sign on his or her behalf in the capacities indicated any Registration Statement or amendment thereto (including post-effective amendments) for each of the following registered investment companies and to file the same, with all exhibits thereto, with the Securities and Exchange Commission: Master Basic Value Trust; Master Small Cap Value Trust; Mercury Basic Value Fund, Inc.; Mercury Index Funds, Inc.; Mercury Small Cap Value Fund, Inc.; Merrill Lynch Balanced Capital Fund, Inc.; Merrill Lynch Basic Value Fund, Inc.; Merrill Lynch Disciplined Equity Fund, Inc.; Merrill Lynch Global Growth Fund, Inc.; Merrill Lynch Index Funds, Inc.; Merrill Lynch Natural Resources Trust; Merrill Lynch QA Strategy Series, Inc.; Merrill Lynch Ready Assets Trust; Merrill Lynch Series Fund, Inc.; Merrill Lynch Small Cap Value Fund, Inc.; Merrill Lynch U.S. Treasury Money Fund; Merrill Lynch U.S.A. Government Reserves; MuniYield Florida Insured Fund; MuniYield Michigan Insured Fund, Inc.; MuniYield New Jersey Insured Fund, Inc.; MuniYield Pennsylvania Insured Fund; Quantitative Master Series Trust and The S&P 500(R) Protected Equity Fund, Inc.
Dated: August 2, 2002
--------------------------------------------------- ------------------------------------------------
Terry K. Glenn Donald C. Burke
(President/Principal Executive (Vice President/Treasurer/Principal Financial
Officer/Director/Trustee) and Accounting Officer)
--------------------------------------------------- ------------------------------------------------
Donald W. Burton M. Colyer Crum
(Director/Trustee) (Director/Trustee)
--------------------------------------------------- ------------------------------------------------
Laurie Simon Hodrick J. Thomas Touchton
(Director/Trustee) (Director/Trustee)
---------------------------------------------------
Fred G. Weiss
(Director/Trustee)
|
SIGNATURES
This Registration Statement contains certain disclosures regarding State Street Equity 500 Index Portfolio (the "Portfolio"), a series of State Street Master Funds (the "Trust"). The Trust has, subject to the next following sentence, duly caused this Post-Effective Amendment No. 42 to the Registration Statement on Form N-1A of the American AAdvantage Funds (the "Registrant") to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and the Commonwealth of Massachusetts on March 1, 2003. The Trust is executing this Registration Statement only in respect of the disclosures contained herein specifically describing the Trust and the Portfolio, and hereby disclaims any responsibility or liability as to any other disclosures in this Registration Statement.
STATE STREET MASTER FUNDS
By: /s/ Kathleen Cuocolo
------------------------------------
Kathleen Cuocolo
President, State Street Master Funds
|
This Registration Statement on Form N-1A of the Registrant has been signed below by the following persons, solely in the capacities indicated and subject to the next following sentence, on March 1, 2003. Each of the following persons is signing this Post-Effective Amendment No. 42 to this Registration Statement only in respect of the disclosures contained herein specifically describing the Trust and the Portfolio, and hereby disclaims any responsibility or liability as to any other disclosures in this Registration Statement.
SIGNATURE TITLE
/s/ Kathleen Cuocolo President (Principal Executive Officer),
---------------------------- State Street Master Funds
Kathleen Cuocolo
/s/ Janine Cohen Treasurer (Principal Accounting Officer),
---------------------------- State Street Master Funds
Janine Cohen
William L. Boyan* Trustee, State Street Master Funds
----------------------------
William L. Boyan
Michael F. Holland* Trustee, State Street Master Funds
----------------------------
Michael F. Holland
Rina K. Spence* Trustee, State Street Master Funds
----------------------------
Rina K. Spence
Douglas T. Williams* Trustee, State Street Master Funds
----------------------------
Douglas T. Williams
*By: /s/ Julie A. Tedesco
------------------------------
Julie A. Tedesco
|
as Attorney-in-Fact pursuant to Powers of Attorney
INDEX TO EXHIBITS
Exhibit
Number Description Page
(a)(i) Declaration of Trust - (iv)
(ii) Amendment to Declaration of Trust, dated March 10, 1987 -
filed herewith
(b) Bylaws - (iv)
(c) Voting trust agreement -- none
|
(d)(i)(A) Fund Management Agreement between American AAdvantage Funds and AMR Investment Services, Inc., dated April 3, 1987*
(i)(B) Supplement to Fund Management Agreement, dated August 1, 1994 - (iv)
(i)(C) Supplement to Fund Management Agreement, dated August 1, 1995 - (iv)
(i)(D) Supplement to Fund Management Agreement, dated November 1, 1995-(vii)
(i)(E) Amendment to Schedule A of Fund Management Agreement, dated December 1, 1995 - (i)
(i)(F) Supplement to Fund Management Agreement, dated December 17, 1996 - (ii)
(i)(G) Supplement to Fund Management Agreement, dated July 25, 1997 -
(i)(H) Supplement to Fund Management Agreement, dated September 1, 1998 - (vi)
(i)(I) Supplement to Fund Management Agreement, dated January 1, 1999
- (vii)
(i)(J) Supplemental Terms and Conditions to the Management Agreement, dated - May 19, 2000 - (ix)
(i)(K) Supplement to Fund Management Agreement, dated November 16, 2000 - (xi)
(i)(L) Supplement to Fund Management Agreement, dated October 17, 2001 - (xv)
(i)(M) Supplement to Fund Management Agreement, dated May 28, 2002 -
(ii)(A) Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, Inc., dated November 1, 1995 - (iv)
(ii)(B) Investment Advisory Agreement between AMR Investment Services, Inc. and Barrow, Hanley, Mewhinney & Strauss, Inc., dated November 1, 1995 - (iv)
(ii)(C) Investment Advisory Agreement between AMR Investment Services, Inc. and Lazard Asset Management - (vii)
(ii)(D) Investment Advisory Agreement between AMR Investment Services, Inc. and Goldman Sachs & Co., dated July 31, 2000 - (x)
(ii)(E) Investment Advisory Agreement between AMR Investment Services, Inc. and J.P. Morgan Investment Management Inc., dated July 31, 2000 - (x)
(ii)(F) Investment Advisory Agreement between AMR Investment Services, Inc. and Morgan Stanley Dean Witter Investment Management Inc., dated July 31, 2000 - (x)
(ii)(G) Investment Advisory Agreement between AMR Investment Services, Inc. and The Boston Company Asset Management, LLC, dated July 31, 2000 - (x)
(ii)(H) Investment Advisory Agreement between AMR Investment Services, Inc. and MW Post Advisory Group, LLC, dated December 29, 2000 - (xi)
(ii)(I) Investment Advisory Agreement between AMR Investment Services, Inc. and Metropolitan West Capital Management, LLC, dated November 30, 2000 - (xi)
(ii)(J) Investment Advisory Agreement between AMR Investment Services, Inc. and Causeway Capital Management LLC, dated August 31, 2001 - (xv)
(ii)(K) Investment Advisory Agreement between AMR Investment Services, Inc. and Hotchkis and Wiley Capital Management, LLC, dated October 9, 2001 - (xv)
(ii)(L) Investment Advisory Agreement between AMR Investment Services, Inc. and Independence Investment LLC, dated April 1, 2001 -
(ii)(M) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, LLC, dated January 1, 2001 - filed herewith
(ii)(N) Investment Advisory Agreement between AMR Investment Services, Inc. and Brandywine Asset Management, LLC, dated October 12, 2001 - (xvi)
(ii)(O) Securities Lending Management Agreement between American AAdvantage Funds, on behalf of High Yield Bond Fund, and Metropolitan West Securities, Inc., dated July 2, 2001 - (xvi)
(ii)(P) Amendment to Securities Lending Management Agreement between American AAdvantage Funds, on behalf of High Yield Bond Fund, and Metropolitan West Securities, Inc., dated March 1, 2002 -
(ii)(Q) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Lazard Asset Management, dated January 1, 2003 - filed herewith
(ii)(R) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Barrow, Hanley, Mewhinney & Strauss, Inc., dated January 1, 2003 - filed herewith
(ii)(S) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Brandywine Asset Management, LLC, dated January 1, 2003 - filed herewith
(ii)(T) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Goldman, Sachs & Company, Inc., dated January 1, 2003 - filed herewith
(ii)(U) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Independence Investment LLC, dated January 1, 2003 - filed herewith
(ii)(V) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and J.P. Morgan Investment Management Inc., dated January 1, 2003 - filed herewith
(ii)(W) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Metropolitan West Capital Management, LLC, dated January 1, 2003 - filed herewith
(ii)(X) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Morgan Stanley Investment Management Inc., dated January 1, 2003 - filed herewith
(ii)(Y) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and MW Post Advisory Group, LLC, dated January 1, 2003 - filed herewith
(ii)(Z) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and The Boston Company Asset Management, LLC, dated January 1, 2003 - filed herewith
(ii)(AA) Amendment to Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, LLC, dated January 1, 2003 - filed herewith
(iii) Amended and Restated Administrative Services Agreement between the American AAdvantage Funds and AMR Investment Services, Inc., dated March 1, 2002 - (xvi)
(iv)(A) Administrative Services Plan for the Platinum Class - (iv)
(iv)(B) Administrative Services Plan for the Cash Management Class -
(iv)(C) Supplement to Administrative Services Plan for the Platinum Class, dated September 27, 2002 - (xvii)
(v)(A) Administrative Agreement for Small Cap Index Fund and International Equity Index Fund, dated July 31, 2000 - (ix)
(v)(B) Administrative Agreement for S&P 500 Index Fund with SSgA Funds Management, Inc., dated May 1, 2001 - (xvi)
(e)(i) Distribution Agreement among the American AAdvantage Funds, the American AAdvantage Mileage Funds, the American Select Funds and SWS Financial Services, Inc., dated December 31, 1999 - (viii)
(ii) Amendment to the Distribution Agreement among the American AAdvantage Funds, the American AAdvantage Mileage Funds, the American AAdvantage Select Funds and SWS Financial Services, Inc., dated July 24, 2002 - (xvii)
(f) Bonus, profit sharing or pension plans - none
(g)(i) Custodian Agreement between the American AAdvantage Funds and State Street Bank and Trust Company, dated December 1, 1997 -
(ii) Amendment to Custodian Agreement to add Small Cap Value Fund, dated January 1, 1999 - (ix)
(iii) Amendment to Custodian Agreement to add Large Cap Growth, Emerging Markets, Small Cap Index and International Equity Index series of the American AAdvantage Funds, dated July 31, 2000 - filed herewith
(iv) Amendment to Custodian Agreement to add High Yield Bond Fund, dated December 29, 2000 - (xi)
(v) Amendment to Custodian Agreement to reflect amendments to Rule 17f-5 and addition of Rule 17f-7 of the 1940 Act, dated June 1, 2001 - filed herewith
(h)(i) Transfer Agency and Service Agreement between the American AAdvantage Funds and State Street Bank and Trust Company, dated January 1, 1998 - (v)
(ii) Amendment to Transfer Agency Agreement to add Small Cap Value Fund, dated January 1, 1999 - (ix)
(iii) Amendment to Transfer Agency Agreement to add four new AAdvantage Funds, dated July 31, 2000 - filed herewith
(iv) Amendment to Transfer Agency Agreement to add High Yield Bond Fund, dated December 29, 2000 - (xi)
(v) Amendment to Transfer Agency Agreement regarding anti-money laundering procedures, dated September 24, 2002 - filed herewith
(vi) Securities Lending Authorization Agreement between American AAdvantage Funds and State Street Bank and Trust Company, dated January 2, 1998 - (v)
(vii) Amendment to Securities Lending Authorization Agreement to add Large Cap Growth Fund and Emerging Markets Fund, dated July 31, 2000 - (xi)
(viii) Amendment to Securities Lending Authorization Agreement to add Small Cap Value Fund, dated January 1, 1999 - (xii)
(ix) Service Plan Agreement for the American AAdvantage Funds PlanAhead Class, dated August 1, 1994 - (iv)
(x) Credit Agreement between AMR Investment Services Trust, American AAdvantage Funds, American AAdvantage Mileage Funds, and AMR Investment Services, Inc., dated December 1, 1999 -
(xi) Amendment to Credit Agreement to add Large Cap Growth and Emerging Markets Portfolios and the four AAdvantage Funds, dated July 31, 2000 - (ix)
(xii) Amendment to Credit Agreement to add High Yield Bond Portfolio and High Yield Bond Fund, dated December 28, 2000 - (xi)
(xiii) Amendment to Credit Agreement to remove master-feeder funds, dated March 1, 2002 - (xvii)
(xiv) Administrative Services Agreement among American AAdvantage Funds, American AAdvantage Mileage Funds, AMR Investment Services Trust, AMR Investment Services, Inc. and State Street Bank and Trust Company, dated November 29, 1999 - (vii)
(xv) Purchase Agreement between American AAdvantage Funds and John H. Harland Company, dated December 1, 2001 - (xvi)
(i) Opinion and consent of counsel - filed herewith
(j) Consent of Independent Auditors - filed herewith
(k) Financial statements omitted from prospectus - none
(l) Letter of investment intent - (iv)
(m)(i) Plan pursuant to Rule 12b-1 for the Institutional, Cash Management, PlanAhead and AMR Classes - (iv)
(ii) Plan pursuant to Rule 12b-1 for the Platinum Class - (iv)
(n)(i) Amended and Restated Plan pursuant to Rule 18f-3 - (iv)
(ii) Amended and Restated Plan pursuant to Rule 18f-3, dated December 1, 2001 - (xvi)
(p)(i) Codes of Ethics of Registrant, American AAdvantage Mileage Funds, American Select Funds and AMR Investment Services Trust - (ix)
(ii) Code of Ethics of AMR Investments - (xiii)
(iii) Code of Ethics of State Street Master Funds - (ix)
(iv) Code of Ethics of Merrill Lynch's Asset Management Group -
(v) Code of Ethics of Brandywine Asset Management, Inc. - (ix)
(vi) Code of Ethics of The Boston Company Asset Management, LLC -
(vii) Code of Ethics of Barrow, Hanley, Mewhinney & Strauss, Inc. -
(viii) Code of Ethics of Lazard Asset Management - (xiii)
(ix) Code of Ethics of Hotchkis and Wiley Capital Management, LLC -
(x) Revised Code of Ethics of Causeway Capital Management LLC, dated January 25, 2002 - (xvi)
(xi) Amended and Restated Code of Ethics of Independence Investment LLC, dated April 2, 2001 - (xvi)
(xii) Revised Code of Ethics of J.P. Morgan Investment Management Inc., dated October 6, 2001 - (xvi)
(xiii) Revised Code of Ethics of Goldman Sachs Asset Management, dated August 1, 2002 - (xvii)
(xiv) Revised Code of Ethics of Metropolitan West Capital Management, LLC, dated July 26, 2002 - (xvii)
(xv) Amendments to the Code of Ethics of The Boston Company Asset Management, LLC, dated February 25, 2002 - (xvii)
(xvi) Revised Code of Ethics of Morgan Stanley Investment Management, dated August 16, 2002 - (xvii)
(xvii) Revised Code of Ethics of MW Post Advisory Group, dated September 18, 2002 - (xvii)
(xviii) Revised Code of Ethics of Franklin Templeton Investments, dated December 3, 2002 - filed herewith
Other: Powers of Attorney for Trustees (Alan D. Feld, Stephen D.
O'Sullivan, and Kneeland Youngblood) - (ii)
Powers of Attorney for Trustees (R. Gerald Turner) - (xiv)
Powers of Attorney for Trustees of the Quantitative Master
Series Trust - filed herewith
Powers of Attorney for Trustees of the State Street Equity 500
Index Portfolio - (viii)
Powers of Attorney for President of the State Street Equity
500 Index Portfolio - (viii)
----------
|
* Incorporated by reference to Post-Effective Amendment No. 4 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 31, 1990.
(i) Incorporated by reference to Post-Effective Amendment No. 15 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 22, 1995.
(ii) Incorporated by reference to Post-Effective Amendment No. 19 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on February 13, 1997.
(iii) Incorporated by reference to Post-Effective Amendment No. 20 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on July 1, 1997.
(iv) Incorporated by reference to Post-Effective Amendment No. 23 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 18, 1997.
(v) Incorporated by reference to Post-Effective Amendment No. 24 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on February 27, 1998.
(vi) Incorporated by reference to Post-Effective Amendment No. 25 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 15, 1998.
(vii) Incorporated by reference to Post-Effective Amendment No. 28 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 21, 1999.
(viii) Incorporated by reference to Post-Effective Amendment No. 29 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on March 1, 2000.
(ix) Incorporated by reference to Post-Effective Amendment No. 32 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on July 7, 2000.
(x) Incorporated by reference to Post-Effective Amendment No. 33 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 11, 2000.
(xi) Incorporated by reference to Post-Effective Amendment No. 34 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on December 29, 2000.
(xii) Incorporated by reference to Post-Effective Amendment No. 35 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on February 28, 2001.
(xiii) Incorporated by reference to Post-Effective Amendment No. 36 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on June 20, 2001.
(xiv) Incorporated by reference to Post-Effective Amendment No. 37 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 1, 2001.
(xv) Incorporated by reference to Post-Effective Amendment No. 38 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on November 30, 2001.
(xvi) Incorporated by reference to Post-Effective Amendment No. 39 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on March 1, 2002.
(xvii) Incorporated by reference to Post-Effective Amendment No. 41 to the Registration Statement of the American AAdvantage Funds on Form N-1A as filed with the Securities and Exchange Commission on October 1, 2002.
EXHIBIT 99.a(ii)
AMERICAN EAGLE FUNDS
WRITTEN INSTRUMENT AMENDING THE
TRUST'S AGREEMENT AND DECLARATION OF TRUST
I, William F. Quinn, the sole initial Trustee of American Eagle Funds (the "Trust"), a business trust organized under the laws of the Commonwealth of Massachusetts, pursuant to an Agreement and Declaration of Trust dated January 16, 1987 (the "Declaration of Trust"), do hereby amend the Declaration of Trust as follows pursuant to Article XII, Section 7 of the Declaration of Trust.
1. The name of the Trust be, and it hereby is, amended to "American AAdvantage Funds."
2. Article I, Section 1 of the Declaration of Trust be, and it hereby is, amended in its entirety to read as follows:
Name
Section 1. This Trust shall be known as the "American AAdvantage Funds" and the Trustee(s) shall conduct the business of the Trust under that name or any other name as they may from time to time determine.
3. Article XII, Section 9 of the Declaration of Trust be, and it hereby is, amended in its entirety to read as follows:
Use of the Words "American AAdvantage" and "American Airlines"
Section 9. American Airlines, Inc. has consented to the use by the Trust of the identifying words "American AAdvantage." Such consent is conditioned upon the employment of AMR Investment Services, Inc., its successors or its affiliated companies as investment adviser or manager of the Trust. As between the Trust and itself, American Airlines, Inc. controls the use of the name of the Trust insofar as such name contains the identifying words "American AAdvantage." American Airlines, Inc. may from time to time use the identifying words "American AAdvantage" in other connections and for other purposes, including, without limitation, in the names of other investment companies, corporations or businesses which it may manage, advise, sponsor or own, or in which it may have a financial interest. American Airlines, Inc. may require the Trust to cease using the identifying words "American AAdvantage" in the name of the Trust if the Trust ceases to employ AMR Investment Services, Inc. or another subsidiary or affiliate of American Airlines, Inc. as investment adviser or Manager.
IN WITNESS WHEREOF AND UNDER PENALTIES OF PERJURY, the undersigned swears that the foregoing is his free act and deed, and he has not set his hand hereunder on this 10th day of March, 1987.
/s/ William F. Quinn -------------------- William F. Quinn Trustee |
[Notary]
State of Texas
County of Tarrant
This instrument was acknowledged before me on 10 March 1987 by William F. Quinn as Trustee of American AAdvantage Funds.
/s/ Carol C. Zimmerman ---------------------- Carol C. Zimmerman My commission expires: 2/17/91 |
EXHIBIT 99.d(ii)(M)
AMENDMENT
TO THE
INVESTMENT SUB-ADVISORY AGREEMENT
BETWEEN
AMR INVESTMENT SERVICES, INC.
AND
TEMPLETON INVESTMENT COUNSEL, INC.
This Amendment shall be effective January 1, 2001. This is an amendment to the Investment Advisory Agreement dated November 1, 1995 (the "Agreement") between AMR Investment Services, Inc. ("AMR") and Templeton Investment Counsel, LLC, formerly known as Templeton Investment Counsel, Inc. ("Templeton Counsel") with respect to the American AAdvantage Funds (the "Trust").
Whereas, Manager and Client wish to amend the Agreement;
Now, Therefore, the parties hereto agree as follows:
1. Manager's name is hereby changed to Templeton Investment Counsel, LLC.
IN WITNESS WHEREOF, this Amendment has been executed on behalf of each party as of the date set forth above.
AMR INVESTMENT SERVICES, INC.
By: ________________________________
Name:
Title:
Templeton investment counsel, LLC
By: ________________________________
Gary P. Motyl
President
EXHIBIT 99.d(ii)(Q)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Lazard Asset Management, a division of Lazard Freres & Co. LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated March 1, 1999 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
LAZARD ASSET MANAGEMENT AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- -------------------------------
Name: William F. Quinn
Title: President
Address: Address:
30 Rockefeller Plaza 4151 Amon Carter Blvd., MD 2450
New York, NY 10112 Ft. Worth, TX 76155
Attn: Steven Ludwig Attn: William F. Quinn
Fax: (212) 632-6883 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Lazard Asset Management
AMR Investment Services, Inc. shall pay compensation to Lazard Asset Management pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.50% per annum for the first $100 million 0.325% per annum for the next $400 million 0.20% per annum on all excess assets
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
LAZARD ASSET MANAGEMENT AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(R)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Barrow, Hanley, Mewhinney & Strauss, Inc. (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated November 1, 1995 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
BARROW, HANLEY, AMR INVESTMENT SERVICES, INC.
MEWHINNEY & STRAUSS, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
3232 McKinney Avenue, 15th Floor 4151 Amon Carter Blvd., MD 2450
Dallas, TX 75204 Ft. Worth, TX 76155
Attn: Clare Burch Attn: William F. Quinn
Fax: (214) 665-1936 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Barrow, Hanley, Mewhinney & Strauss, Inc.
AMR Investment Services, Inc. shall pay compensation to Barrow, Hanley, Mewhinney & Strauss, Inc. pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.30% per annum on the first $200 million 0.20% per annum on the next $300 million 0.15% per annum on the next $500 million 0.125% per annum on the excess over $1 billion.
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager (except assets managed by the Investment Manager under the HALO Bond Program).
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
BARROW, HANLEY, AMR INVESTMENT SERVICES, INC.
MEWHINNEY & STRAUSS, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(S)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Brandywine Asset Management, LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated October 12, 2001 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
BRANDYWINE ASSET MANAGEMENT, LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
201 North Walnut Street 4151 Amon Carter Blvd., MD 2450
Wilmington, DE 19801 Ft. Worth, TX 76155
Attn: Topher Fearey Attn: William F. Quinn
Fax: (302) 421-5842 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Brandywine Asset Management, LLC
AMR Investment Services, Inc. shall pay compensation to Brandywine Asset Management, LLC pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
1. For assets up to $500 million:
Large Cap Value Fund: 0.25%
Balanced Fund: 0.225%
2. For assets $500 - 600 million:
0.225%
3. For assets over $600 million:
0.20%
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager.
For purposes of calculating the fee for assets between $500 million and $600 million, the reduced fee rate will be applied pro rata based on assets for each equity portfolio. For purposes of calculating the fee for assets over $600 million, the reduced fee rate will be applied pro rata based on assets for each portfolio, except for the Small Cap Value Fund.
4. Small Cap Value Fund 0.50% for assets up to $100 million 0.45% for assets between $100 million and $250 million 0.40% for assets over $250 million
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
BRANDYWINE ASSET MANAGEMENT, LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(T)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Goldman, Sachs & Company, Inc. (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated July 31, 2000 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule(s) attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, within 15 business days after the end of each quarter and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule(s) to the average daily assets of the specified Portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
GOLDMAN, SACHS & COMPANY, INC. AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
32 Old Slip 4151 Amon Carter Blvd., MD 2450
New York, NY 10005 Ft. Worth, TX 76155
Attn: Alice Chin Attn: William F. Quinn
Fax: (212) 902-4140 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Goldman, Sachs & Company, Inc.
AMR Investment Services, Inc. shall pay compensation to Goldman, Sachs & Company, Inc. pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.60% on the first $50 million in assets 0.50% on the next $150 million in assets 0.40% on assets above $200 million.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
GOLDMAN, SACHS & COMPANY, INC. AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(U)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Independence Investment LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated April 1, 2001 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
INDEPENDENCE INVESTMENT LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
53 State Street 4151 Amon Carter Blvd., MD 2450
Boston, MA 02109 Ft. Worth, TX 76155
Attn: David Nolan Attn: William F. Quinn
Fax: (617) 228-8959 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Independence Investment LLC
AMR Investment Services, Inc. shall pay compensation to Independence Investment LLC pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.50% per annum of the first $30 million 0.25% per annum of the next $70 million 0.20% per annum of all excess assets
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
INDEPENDENCE INVESTMENT LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(V)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and J.P. Morgan Investment Management Inc. (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated July 31, 2000 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
J.P. MORGAN INVESTMENT AMR INVESTMENT SERVICES, INC.
MANAGEMENT INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
522 Fifth Avenue 4151 Amon Carter Blvd., MD 2450
New York, NY 10036 Ft. Worth, TX 76155
Attn: Jessie McPhoy Attn: William F. Quinn
Fax: (212) 837-5153 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and J.P. Morgan Investment Management Inc.
AMR Investment Services, Inc. shall pay compensation to J.P. Morgan Investment Management Inc. pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.45% on the first $25 million in assets 0.40% on assets above $25 million
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
J.P. MORGAN INVESTMENT AMR INVESTMENT SERVICES, INC.
MANAGEMENT INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d.(ii)(W)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Metropolitan West Capital Management, LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated November 30, 2000 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
METROPOLITAN WEST CAPITAL AMR INVESTMENT SERVICES, INC.
MANAGEMENT, LLC
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
610 Newport Center Dr., Suite 150 4151 Amon Carter Blvd., MD 2450
Newport Beach, CA 92660 Ft. Worth, TX 76155
Attn: Geraldine Kaskel Attn: William F. Quinn
Fax: (949) 718-9122 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Metropolitan West Capital Management, LLC
AMR Investment Services, Inc. shall pay compensation to Metropolitan West Capital Management, LLC pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.275% on the first $100 million in assets 0.200% on amounts over $100 million in assets
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of _____________, 2002
METROPOLITAN WEST CAPITAL AMR INVESTMENT SERVICES, INC.
MANAGEMENT, LLC
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(X)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Morgan Stanley Investment Management Inc. (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated July 31, 2000 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of Jnaury 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
MORGAN STANLEY AMR INVESTMENT SERVICES, INC.
INVESTMENT MANAGEMENT INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
1221 Avenue of the Americas 4151 Amon Carter Blvd., MD 2450
New York, NY 10020 Ft. Worth, TX 76155
Attn: Stefanie Chang Attn: William F. Quinn
Fax: (212) 762-7326 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Morgan Stanley Investment Management Inc.
AMR Investment Services, Inc. shall pay compensation to Morgan Stanley Investment Management Inc. pursuant to section 3 of the Investment Advisory Agreement between said parties for rendering investment management services with respect to the Emerging Markets Fund (the "Fund") based on the following calculation:
(a) 1.10% on the first $100 million in Combined Assets, 0.90% on the next $50 million in Combined Assets, 0.80% on the next $50 million in Combined Assets, plus 0.70% on Combined Assets above $200 million,
multiplied by
(b) the ratio of the Fund's assets over the Combined Assets.
For purposes of the above calculation, the "Combined Assets" shall include, (i) the assets of the Fund, (ii) the employee benefit plan assets of American Airlines, Inc., an affiliate of the Manager, managed by the Investment Manager in Emerging Markets Portfolio(s) pursuant to an Investment Manager Agreement dated July 31, 2000, and (iii) the assets of the American Airlines, Inc. Pilots Variable Benefits Trust invested in the Morgan Stanley Dean Witter Investment Management Emerging Markets Trust, a commingled trust vehicle sponsored and managed by the Investment Manager, pursuant to an Adoption Agreement dated September 30, 1994.
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets or trust assets of American Airlines, Inc. also under management by the Investment Manager.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
MORGAN STANLEY AMR INVESTMENT SERVICES, INC.
INVESTMENT MANAGEMENT, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(Y)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and MW Post Advisory Group, LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated December 29, 2000 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
MW POST ADVISORY GROUP, LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
1880 Century Park East, Suite 820 4151 Amon Carter Blvd., MD 2450
Los Angeles, CA 90067 Ft. Worth, TX 76155
Attn: Amy Adler Attn: William F. Quinn
Fax: (310) 996-9629 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and MW Post Advisory Group, LLC
AMR Investment Services, Inc. shall pay compensation to MW Post Advisory Group, LLC pursuant to section 3 of the Investment Advisory Agreement between said parties for rendering investment management services with respect to the High Yield Bond Fund (the "Fund") in the annualized amount of 0.55% on all Fund assets managed by the Investment Manager.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
MW POST ADVISORY GROUP, LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(Z)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and The Boston Company Asset Management, LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated July 31, 2000 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s)."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003
THE BOSTON COMPANY ASSET AMR INVESTMENT SERVICES, INC.
MANAGEMENT, LLC
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
One Boston Place 4151 Amon Carter Blvd., MD 2450
Boston, MA 02108 Ft. Worth, TX 76155
Attn: Jennifer Cassedy Attn: William F. Quinn
Fax: (617) 722-3928 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and The Boston Company Asset Management, LLC
AMR Investment Services, Inc. shall pay compensation to The Boston Company Asset Management, LLC pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.80% on the first $50 million in assets 0.70% on assets above $50 million
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets managed by the Investment Manager on behalf of American Airlines, Inc. and its affiliates.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
THE BOSTON COMPANY ASSET AMR INVESTMENT SERVICES, INC.
MANAGEMENT, LLC
By: By:
---------------------------------- --------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.d(ii)(AA)
AMENDMENT TO
AMERICAN AADVANTAGE FUNDS
INVESTMENT ADVISORY AGREEMENT
This Amendment to the Investment Advisory Agreement ("Amendment") is effective as of January 1, 2003 by and between AMR Investment Services, Inc., a Delaware corporation ("AMRIS"), and Templeton Investment Counsel, LLC (the "Investment Manager"), a registered investment adviser under the Investment Advisers Act of 1940, as amended.
Whereas, AMRIS and the Investment Manager entered into an Investment Advisory Agreement dated November 1, 1995 (the "Agreement"), and they desire to amend this Agreement as provided herein;
Now therefore, in consideration of the mutual covenants and promises set forth herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows:
1. Amendment.
a. Section 3 of the Agreement is hereby deleted and replaced with the following:
"3. COMPENSATION OF THE ADVISER. For the services to be rendered by the Adviser as provided in Sections 1 and 2 of this Agreement, the Manager shall pay to the Adviser compensation at the rate specified in Schedule A attached hereto and made a part of this Agreement. Such compensation shall be paid to the Adviser quarterly in arrears, and shall be calculated by applying the annual percentage rate(s) as specified in the attached Schedule A to the average daily assets of the specified portfolios during the relevant quarter. Solely for the purpose of calculating the applicable annual percentage rates specified in the attached Schedule(s), there shall be included such other assets as are specified in said Schedule(s).
The Adviser agrees that the fee charged to the Manager will be no more than that charged for any other client of similar size regardless of type except that the Adviser's clients before November 1, 1995 are excluded from this provision. Furthermore, the Adviser agrees to notify the Manager on a timely basis of any fee schedule it enters into with any other client of similar size which is lower than the fee paid by the Manager."
b. Schedule A of the Agreement is hereby amended and replaced with Schedule A, dated as of January 1, 2003 (attached hereto).
2. Ratification and Confirmation of Agreement. Except as specifically set forth herein, the Agreement is hereby ratified and confirmed in all respects and shall remain in full force and effect.
3. Counterparts. This amendment may be executed in counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this Amendment to be effective as of the 1st day of January, 2003.
TEMPLETON INVESTMENT COUNSEL, LLC AMR INVESTMENT SERVICES, INC.
By: By:
---------------------------- --------------------------------
Name: William F. Quinn
Title: President
Address: Address:
500 East Broward Blvd., Suite 2100 4151 Amon Carter Blvd., MD 2450
Fort Lauderdale, FL 33394 Ft. Worth, TX 76155
Attn: Susan Moore Attn: William F. Quinn
Fax: (954) 847-2470 Fax: (817) 963-3902
|
Schedule A to the American AAdvantage Funds Investment Advisory Agreement between AMR Investment Services, Inc. and Templeton Investment Counsel, LLC
AMR Investment Services, Inc. shall pay compensation to Templeton Investment Counsel, LLC pursuant to section 3 of the Investment Advisory Agreement between said parties in accordance with the following annual percentage rates:
0.50% per annum on the first $100 million 0.35% per annum on the next $50 million 0.30% per annum on the next $250 million 0.25% per annum on the excess over $400 million.
In calculating the amount of assets under management solely for the purpose of determining the applicable percentage rate, there shall be included all other assets managed by the Investment Manager on behalf of American Airlines, Inc. and its affiliates.
If the management of the accounts commences or terminates at any time other than the beginning or end of a calendar quarter, the fee shall be prorated based on the portion of such calendar quarter during which the Agreement was in force.
Dated: as of January 1, 2003
TEMPLETON INVESTMENT COUNSEL, LLC AMR INVESTMENT SERVICES, INC.
By: By:
----------------------------- ---------------------------------
Name: William F. Quinn
Title: President
|
EXHIBIT 99.g(iii)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Custody Agreement
Transfer Agency and Service Agreement
American AAdvantage Funds
Gentlemen:
This is to advise you that the American AAdvantage Funds ("the Funds") have established four new series, known as the Large Cap Growth Fund, the Emerging Markets Fund, the Small Cap Index Fund, and the International Equity Index Fund. In accordance with the Additional Funds provisions of Section 20 of the Custodian Contract dated December 1, 1997 and Section 15 of the Transfer Agency and Services Agreement dated January 1, 1998 between the Funds and State Street Bank and Trust Company, the Funds hereby request that you act as Custodian and Transfer Agent for the new series under the terms of the respective contracts.
Pursuant to Section 20 of the above referenced Custodian Contract and Section 15 of the above referenced Transfer Agency and Services Agreement, the Funds hereby request that Schedules C and D of the Custodian Contract and Schedule A of the Transfer Agency and Services Agreement be amended and restated as attached.
Please indicate your acceptance of the foregoing by executing two copies of this Letter Agreement, returning one to the Funds and retaining one copy for your records.
American AAdvantage Funds
By: ______________________________
Name: William F. Quinn
Title: President
Agreed to as of the 31st day of July, 2000.
State Street Bank and Trust Company
By: _______________________________
Name:
Title:
CUSTODIAN AGREEMENT
SCHEDULE D
PORTFOLIOS
Name of Portfolio Effective Date ----------------- -------------- BALANCED FUND JANUARY 1, 1998 INTERMEDIATE BOND FUND DECEMBER 1, 1997 INTERNATIONAL EQUITY FUND JANUARY 1, 1998 LARGE CAP VALUE FUND JANUARY 1, 1998 MONEY MARKET FUND DECEMBER 1, 1997 MUNICIPAL MONEY MARKET FUND DECEMBER 1, 1997 SHORT-TERM BOND FUND DECEMBER 1, 1997 SMALL CAP VALUE FUND JANUARY 1, 1999 S&P 500 INDEX FUND JANUARY 1, 1998 U.S. GOVERNMENT MONEY MARKET FUND DECEMBER 1, 1997 LARGE CAP GROWTH FUND JULY 31, 2000 EMERGING MARKETS FUND JULY 31, 2000 SMALL CAP INDEX FUND JULY 31, 2000 INTERNATIONAL EQUITY INDEX FUND JULY 31, 2000 |
TRANSFER AGENCY AND SERVICE AGREEMENT
SCHEDULE A
PORTFOLIOS
Name of Portfolio
BALANCED FUND
INTERMEDIATE BOND FUND
INTERNATIONAL EQUITY FUND
LARGE CAP VALUE FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
SHORT-TERM BOND FUND
SMALL CAP VALUE FUND
S&P 500 INDEX FUND
U.S. GOVERNMENT MONEY MARKET FUND
LARGE CAP GROWTH FUND
EMERGING MARKETS FUND
SMALL CAP INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
EXHIBIT 99.g(v)
AMENDMENT TO CUSTODIAN AGREEMENT
This Amendment to the Custodian Agreement is made as of June 1, 2001 by and between American AAdvantage Funds (the "Trust") and State Street Bank and Trust Company (the "Custodian"). Capitalized terms used in this Amendment without definition shall have the respective meanings given to such terms in the Custodian Agreement referred to below.
WHEREAS, the Trust and the Custodian entered into a Custodian Agreement dated as of December 1, 1997 (as amended and in effect from time to time, the "Agreement"); and
WHEREAS, the Trust intends to offer shares in the series set forth on Schedule D to the Agreement (such series, together with all other series subsequently established by the Trust and made subject to the Agreement, as amended, in accordance with Section 20 thereof and as of the effective date set forth on Schedule D, shall be referred to herein as the "PORTFOLIO(S)"); and
WHEREAS, each Portfolio, with the exceptions of (a) the S&P 500 Index Fund (which intends to invest all of its investable assets in the Equity 500 Index Portfolio) and (b) the Short-Term Income Fund, intends to invest all of its investable assets in the portfolio of AMR Investment Services Trust, an open-end, diversified management investment company, with which it shares its investment objectives; and
WHEREAS, the Trust and the Custodian desire to amend certain provisions of the Agreement to reflect revisions to Rule 17f-5 ("Rule 17f-5") and the adoption of Rule 17f-7 ("Rule 17f-7") promulgated under the Investment Company Act of 1940, as amended (the A 1940 Act"); and
WHEREAS, the Trust and the Custodian desire to amend and restate certain other provisions of the Agreement relating to the custody of assets of each of the Portfolios held outside of the United States.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Agreement, pursuant to the terms thereof, as follows:
I. Articles 3 and 4 of the Agreement are hereby deleted, and, as of the effective date of this Amendment, replaced with new Articles 3 and 4 as set forth below.
3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7
3.1. DEFINITIONS.
Capitalized terms in this Article 3 shall have the following meanings:
"Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment,
economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country; provided, however, country risk shall not include the custody or settlement practices, procedures or risks of an Eligible Foreign Custodian selected by the Foreign Custody Manager that are not prevailing and/or developing practices in the country in which the foreign assets are held.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the U.S. Securities and Exchange Commission (the A SEC )), or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.
"Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7.
"Foreign Assets" means any of the Portfolios' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios' transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5.
3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. The Trust, by resolution adopted by its Board of Trustees of Trustees (the "Board of Trustees"), hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities as Foreign Custody Manager set forth in this Section 3.2 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios.
3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be
responsible for performing the delegated responsibilities defined below only
with respect to the countries and custody arrangements for each such country
listed on Schedule A to this Agreement, which may be amended from time to time
by the Trust with the agreement of the Foreign Custody Manager. The Foreign
Custody Manager shall list on Schedule A the Eligible Foreign Custodians
selected by the Foreign Custody Manager to maintain the assets of the
Portfolios, which list of Eligible Foreign Custodians may be amended from time
to time in the sole discretion of the Foreign Custody Manager. The Foreign
Custody Manager will provide amended versions of Schedule A in accordance with
Section 3.2.5 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Trust, on behalf of the Portfolios, of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board of
Trustees on behalf of the Portfolios responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Amendment by the Trust shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Agreement. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board of Trustees on behalf of the Portfolios to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager of the Portfolios with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Trust. Sixty (60) days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Trust, the Custodian shall have no further responsibility as Foreign Custody Manager to the Trust with respect to the country as to which the Custodian's acceptance of delegation is withdrawn.
3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5( c)(1).
(b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
(c) MONITORING. In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian. In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Fund as soon as reasonably practicable in accordance with Section 3.2.5 hereunder.
3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board of Trustees or its delegate, as applicable, shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios.
3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report
the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the
placement of such Foreign Assets with another Eligible Foreign Custodian by
providing to the Board of Trustees (or its duly authorized investment manager or
investment adviser) an amended Schedule A at the end of the calendar quarter in
which an amendment to such Schedule has occurred. The Foreign Custody Manager
shall make written reports notifying the Board of Trustees (or its duly
authorized investment manager or investment adviser) of any other material
change in the foreign custody arrangements of the Portfolios described in this
Section 3.2 after the occurrence of the material change as required by Section
(b)(2) of Rule 17f-5.
3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise.
3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody
Manager represents to the Trust that it is a U.S. Bank as defined in section
(a)(7) of Rule 17f-5. The Trust represents to the Custodian, in reliance on the
preceding representation from the Foreign Custody Manager, that the Board of
Trustees has determined that it is reasonable for the Board of Trustees to rely
on the Custodian to perform the responsibilities delegated pursuant to this
Agreement to the Custodian as the Foreign Custody Manager of the Portfolios.
3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN
CUSTODY MANAGER. The Board of Trustees...delegation to the Custodian as Foreign
Custody Manager of the Portfolios shall be effective as of the date hereof and
shall remain in effect until terminated at any time, without penalty, by written
notice from the terminating party to the non-terminating party. Termination will
become effective thirty (30) days after receipt by the non-terminating party of
such notice. The provisions of Section 3.2.2 hereof shall govern the delegation
to and termination of the Custodian as Foreign Custody Manager of the Portfolios
with respect to designated countries.
3.3 ELIGIBLE SECURITIES DEPOSITORIES
3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Trust (or its duly-authorized investment manager or investment adviser) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7 on at least an annual basis, and (b) monitor such risks on a continuing basis, and promptly notify the Trust (or its duly-authorized investment manager or investment adviser) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.
3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1.
4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS HELD OUTSIDE THE UNITED STATES.
4.1 DEFINITIONS.
Capitalized terms in this Article 4 shall have the following meanings:
"Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian.
4.2. HOLDING SECURITIEs.
The Custodian shall identify on its books as belonging to the Portfolios the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
4.3. FOREIGN SECURITIES SYSTEMS.
Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country
4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
(i) upon the sale of such foreign securities for the Portfolio in
accordance with market practice generally accepted by
institutional investors in the country where such foreign
securities are held or traded, including, without limitation:
(A) delivery against expectation of receiving later payment;
or (B) in the case of a sale effected through a Foreign
Securities System, in accordance with the rules governing the
operation of the Foreign Securities System;
(ii) in connection with any repurchase agreement related to foreign securities;
(iii) to the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios;
(iv) to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;
(v) to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;
(vi) to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market practice generally accepted by institutional investors; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian...s own negligence or willful misconduct;
(vii) for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;
(viii) in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the
surrender of interim receipts or temporary securities for definitive securities;
(ix) for delivery as security in connection with any borrowing by the Portfolios requiring a pledge of assets by the Portfolios;
(x) in connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(xi) in connection with the lending of foreign securities; and
(xii) for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made.
4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio in the following cases only:
(i) upon the purchase of foreign securities for the Portfolio, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;
(ii) in connection with the conversion, exchange or surrender of foreign securities of the Portfolio;
(iii) for the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;
(iv) for the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;
(v) in connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(vi) for payment of part or all of the dividends received in respect of securities sold short;
(vii) in connection with the borrowing or lending of foreign securities; and
(viii) for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made.
4.4.3. MARKET CONDITIONS; MARKET INFORMATION.
Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures generally accepted by institutional investors in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.
The Custodian will provide the Board of Trustees or its delegate the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian, including without limitation information relating to Foreign Securities Systems, described on Schedule E hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule E from time to time, provided that no such revision shall result in the Board of Trustees or its delegate being provided with substantively less information than had been previously provided hereunder.
4.5. REGISTRATION OF FOREIGN SECURITIES.
The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the Trust on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.
4.6. BANK ACCOUNTS.
The Custodian shall identify on its books as belonging to the Trust cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian
(or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.
4.7. COLLECTION OF INCOME.
The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Trust and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.
4.8 SHAREHOLDER RIGHTS.
With respect to the foreign securities held pursuant to this Article 4, the Custodian will use its reasonable commercial efforts to facilitate the exercise of voting and other shareholder proxy rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. The Trust acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Trust to exercise shareholder rights.
4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES.
The Custodian shall transmit promptly to the Trust written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the Trust written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Portfolios at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three (3) business days prior to the date on which the Custodian is to take such action to exercise such right or power.
4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS
Each agreement pursuant to which the Custodian, acting solely in its capacity as Custodian, employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the institution...s performance of such obligations. At the Trust's election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim.
4.11. TAX LAW.
The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Trust, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of the Trust to notify the Custodian of the obligations imposed on the Trust with respect to the Portfolios or the Custodian as custodian of the Portfolios by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Trust with respect to any claim for exemption or refund under the tax law of countries for which the Trust has provided such information.
4.12. LIABILITY OF CUSTODIAN.
Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a Sub-Custodian, the Custodian shall be without liability to the Trust for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk.
The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care.
II. Except as specifically superseded or modified herein, the terms and provisions of the Agreement shall continue to apply with full force and effect. In the event of any conflict between the terms of the Agreement prior to this Amendment and this Amendment, the terms of this Amendment shall prevail. If the Custodian is delegated the responsibilities of Foreign Custody Manager pursuant to the terms
of Article 3 hereof, in the event of any conflict between the provisions of Articles 3 and 4 hereof, the provisions of Article 3 shall prevail.
[Remainder of page intentionally left blank]
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative as of the date first above written.
WITNESSED BY: STATE STREET BANK and TRUST COMPANY
------------------
Nelson H. Graves By:
Vice President and -----------------------------------
Counsel Name: Joseph L. Hooley
Title: Executive Vice President
WITNESSED BY: AMERICAN AADVANTAGE FUNDS
---------------
Barry Y. Greenberg, By:
Vice President, -----------------------------------
Legal & Compliance Name: William F. Quinn
Title: President
|
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
COUNTRY SUBCUSTODIAN
Argentina Citibank, N.A.
Australia Westpac Banking Corporation
Austria Erste Bank der Osterreichischen
Sparkassen AG
Bahrain HSBC Bank Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Bangladesh Standard Chartered Bank
Belgium Fortis Bank nv-sa
Bermuda The Bank of Bermuda Limited
Bolivia Citibank, N. A.
Botswana Barclays Bank of Botswana Limited
Brazil Citibank, N.A.
Bulgaria ING Bank N.V.
Canada State Street Trust Company Canada
Chile BankBoston, N.A.
People's Republic The Hongkong and Shanghai
of China Banking Corporation Limited,
Shanghai and Shenzhen branches
Colombia Cititrust Colombia S.A. Sociedad Fiduciaria
|
04/24/01
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
COUNTRY SUBCUSTODIAN
Costa Rica Banco BCT S.A.
Croatia Privredna Banka Zagreb d.d
Cyprus The Cyprus Popular Bank Ltd.
Czech Republic Eeskoslovenska Obchodni
Banka, A.S.
Denmark Danske Bank A/S
Ecuador Citibank, N.A.
Egypt Egyptian British Bank S.A.E.
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Estonia Hansabank
Finland Merita Bank Plc.
France BNP Paribas, S.A.
Germany Dresdner Bank AG
Ghana Barclays Bank of Ghana Limited
Greece National Bank of Greece S.A.
Hong Kong Standard Chartered Bank
Hungary Citibank Rt.
Iceland Icebank Ltd.
|
04/24/01
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
COUNTRY SUBCUSTODIAN
India Deutsche Bank AG
The Hongkong and Shanghai
Banking Corporation Limited
Indonesia Standard Chartered Bank
Ireland Bank of Ireland
Israel Bank Hapoalim B.M.
Italy BNP Paribas, Italian Branch
Ivory Coast Societe Generale de Banques
en Cote d'Ivoire
Jamaica Scotiabank Jamaica Trust and Merchant
Bank Ltd.
Japan The Fuji Bank, Limited
The Sumitomo Bank, Limited
Jordan HSBC Bank Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Kazakhstan HSBC Bank Kazakhstan
Kenya Barclays Bank of Kenya Limited
Republic of Korea The Hongkong and Shanghai Banking
Corporation Limited
Latvia A/s Hansabanka
|
04/24/01
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
COUNTRY SUBCUSTODIAN
Lebanon HSBC Bank Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Lithuania Vilniaus Bankas AB
Malaysia Standard Chartered Bank Malaysia Berhad
Mauritius The Hongkong and Shanghai
Banking Corporation Limited
Mexico Citibank Mexico, S.A.
Morocco Banque Commerciale du Maroc
Namibia Standard Bank Namibia Limited -
Netherlands Fortis Bank (Nederland) N.V.
New Zealand ANZ Banking Group (New Zealand) Limited
Nigeria Stanbic Merchant Bank Nigeria Limited
Norway Christiania Bank og Kreditkasse ASA
Oman HSBC Bank Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Pakistan Deutsche Bank AG
Palestine HSBC Bank Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Panama BankBoston, N.A.
|
04/24/01
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
COUNTRY SUBCUSTODIAN
Peru Citibank, N.A.
Philippines Standard Chartered Bank
Poland Bank Handlowy w Warszawie S.A.
Portugal Banco Comercial Portugues
Qatar HSBC Bank Middle East
(as delegate of The Hongkong and
Shanghai Banking Corporation Limited)
Romania ING Bank N.V.
Russia Credit Suisse First Boston AO - Moscow
(as delegate of Credit Suisse
First Boston - Zurich)
Singapore The Development Bank of Singapore Limited
Slovak Republic Eeskoslovenska Obchodni Banka, A.S.
Slovenia Bank Austria Creditanstalt d.d. - Ljubljana
South Africa Standard Bank of South Africa Limited
Spain Banco Santander Central Hispano S.A.
Sri Lanka The Hongkong and Shanghai
Banking Corporation Limited
Swaziland Standard Bank Swaziland Limited
Sweden Skandinaviska Enskilda Banken
|
04/24/01
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
COUNTRY SUBCUSTODIAN
Switzerland UBS AG
Taiwan - R.O.C. Central Trust of China
Thailand Standard Chartered Bank
Trinidad & Tobago Republic Bank Limited
Tunisia Banque Internationale Arabe de Tunisie
Turkey Citibank, N.A.
Ukraine ING Bank Ukraine
United Kingdom State Street Bank and Trust Company,
London Branch
Uruguay BankBoston, N.A.
Venezuela Citibank, N.A.
Vietnam The Hongkong and Shanghai
Banking Corporation Limited
Zambia Barclays Bank of Zambia Limited
Zimbabwe Barclays Bank of Zimbabwe Limited
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
Argentina Caja de Valores S.A.
Australia Austraclear Limited
Reserve Bank Information and
Transfer System
Austria Oesterreichische Kontrollbank AG
(Wertpapiersammelbank Division)
Belgium Caisse Interprofessionnelle de Depots et
de Virements de Titres, S.A.
Banque Nationale de Belgique
Brazil Companhia Brasileira de Liquidacao e Custodia
Sistema Especial de Liquidacao e de Custodia (SELIC)
Central de Custodia e de Liquidacao Financeira de
Titulos Privados (CETIP)
Bulgaria Central Depository AD
Bulgarian National Bank
Canada Canadian Depository for Securities Limited
Chile Deposito Central de Valores S.A.
People's Republic Shanghai Securities Central Clearing &
of China Registration Corporation
Shenzhen Securities Central Clearing Co., Ltd.
Colombia Deposito Centralizado de Valores
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
Costa Rica Central de Valores S.A.
Croatia Ministry of Finance
National Bank of Croatia
Sredisnja Depozitarna Agencija d.d.
Czech Republic Stredisko cennych papiru
Czech National Bank
Denmark Vaerdipapircentralen (Danish Securities Center)
Egypt Misr for Clearing, Settlement, and Depository
Estonia Eesti Vaartpaberite Keskdepositoorium
Finland Finnish Central Securities Depository
France Euroclear France
Germany Clearstream Banking AG, Frankfurt
Greece Bank of Greece,
System for Monitoring Transactions in
Securities in Book-Entry Form
Apothetirion Titlon AE - Central Securities Depository
Hong Kong Central Clearing and Settlement System
Central Moneymarkets Unit
Hungary Kozponti Elszamolohaz es Ertektar
(Budapest) Rt. (KELER)
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
India National Securities Depository Limited
Central Depository Services India Limited
Reserve Bank of India
Indonesia Bank Indonesia
PT Kustodian Sentral Efek Indonesia
Israel Tel Aviv Stock Exchange Clearing
House Ltd. (TASE Clearinghouse)
Italy Monte Titoli S.p.A.
Ivory Coast Depositaire Central - Banque de Reglement
Jamaica Jamaica Central Securities Depository
Japan Japan Securities Depository Center (JASDEC)
Bank of Japan Net System
Kazakhstan Central Depository of Securities
Kenya Central Bank of Kenya
Republic of Korea Korea Securities Depository
Latvia Latvian Central Depository
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
Lebanon Custodian and Clearing Center of
Financial Instruments for Lebanon
and the Middle East (Midclear) S.A.L.
Banque du Liban
Lithuania Central Securities Depository of Lithuania
Malaysia Malaysian Central Depository Sdn. Bhd.
Bank Negara Malaysia,
Scripless Securities Trading and Safekeeping
System
Mauritius Central Depository and Settlement Co. Ltd.
Bank of Mauritius
Mexico S.D. INDEVAL
(Instituto para el Deposito de Valores)
Morocco Maroclear
Netherlands Nederlands Centraal Instituut voor
Giraal Effectenverkeer B.V. (NECIGEF)
New Zealand New Zealand Central Securities
Depository Limited
Nigeria Central Securities Clearing System Limited
Norway Verdipapirsentralen (Norwegian Central
Securities Depository)
Oman Muscat Depository & Securities
Registration Company, SAOC
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
Pakistan Central Depository Company of Pakistan Limited
State Bank of Pakistan
Palestine Clearing Depository and Settlement, a department
of the Palestine Stock Exchange
Peru Caja de Valores y Liquidaciones, Institucion de
Compensacion y Liquidacion de Valores S.A
Philippines Philippine Central Depository, Inc.
Registry of Scripless Securities
(ROSS) of the Bureau of Treasury
Poland National Depository of Securities
(Krajowy Depozyt Papierow Wartosciowych SA)
Central Treasury Bills Registrar
Portugal Central de Valores Mobiliarios
Qatar Central Clearing and Registration (CCR), a
department of the Doha Securities Market
Romania National Securities Clearing, Settlement and
Depository Company
Bucharest Stock Exchange Registry Division
National Bank of Romania
Singapore Central Depository (Pte) Limited
Monetary Authority of Singapore
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
Slovak Republic Stredisko cennych papierov
National Bank of Slovakia
Slovenia Klirinsko Depotna Druzba d.d.
South Africa Central Depository Limited
Share Transactions Totally Electronic
(STRATE) Ltd.
Spain Servicio de Compensacion y
Liquidacion de Valores, S.A.
Banco de Espana, Central de Anotaciones en Cuenta
Sri Lanka Central Depository System (Pvt) Limited
Sweden Vardepapperscentralen VPC AB
(Swedish Central Securities Depository)
Switzerland SegaIntersettle AG (SIS)
Taiwan - R.O.C. Taiwan Securities Central Depository Co., Ltd.
Thailand Thailand Securities Depository Company Limited
Tunisia Societe Tunisienne Interprofessionelle pour la
Compensation et de Depots des Valeurs Mobilieres
Turkey Takas ve Saklama Bankasi A.S. (TAKASBANK)
Central Bank of Turkey
|
04/24/01
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
COUNTRY DEPOSITORIES
Ukraine National Bank of Ukraine
United Kingdom Central Gilts Office and
Central Moneymarkets Office
Venezuela Banco Central de Venezuela
Zambia LuSE Central Shares Depository Limited
Bank of Zambia
TRANSNATIONAL
Euroclear
Clearstream Banking AG
|
04/24/01
EXHIBIT 99.h(iii)
State Street Bank and Trust Company
1776 Heritage Drive
North Quincy, MA 02171
Re: Custody Agreement
Transfer Agency and Service Agreement
American AAdvantage Funds
Gentlemen:
This is to advise you that the American AAdvantage Funds ("the Funds") have established four new series, known as the Large Cap Growth Fund, the Emerging Markets Fund, the Small Cap Index Fund, and the International Equity Index Fund. In accordance with the Additional Funds provisions of Section 20 of the Custodian Contract dated December 1, 1997 and Section 15 of the Transfer Agency and Services Agreement dated January 1, 1998 between the Funds and State Street Bank and Trust Company, the Funds hereby request that you act as Custodian and Transfer Agent for the new series under the terms of the respective contracts.
Pursuant to Section 20 of the above referenced Custodian Contract and Section 15 of the above referenced Transfer Agency and Services Agreement, the Funds hereby request that Schedules C and D of the Custodian Contract and Schedule A of the Transfer Agency and Services Agreement be amended and restated as attached.
Please indicate your acceptance of the foregoing by executing two copies of this Letter Agreement, returning one to the Funds and retaining one copy for your records.
American AAdvantage Funds
By: ______________________________
Name: William F. Quinn
Title:President
Agreed to as of the 31st day of July, 2000.
State Street Bank and Trust Company
By: _______________________________
Name:
Title:
CUSTODIAN AGREEMENT
SCHEDULE D
PORTFOLIOS
Name of Portfolio Effective Date ----------------- -------------- BALANCED FUND JANUARY 1, 1998 INTERMEDIATE BOND FUND DECEMBER 1, 1997 INTERNATIONAL EQUITY FUND JANUARY 1, 1998 LARGE CAP VALUE FUND JANUARY 1, 1998 MONEY MARKET FUND DECEMBER 1, 1997 MUNICIPAL MONEY MARKET FUND DECEMBER 1, 1997 SHORT-TERM BOND FUND DECEMBER 1, 1997 SMALL CAP VALUE FUND JANUARY 1, 1999 S&P 500 INDEX FUND JANUARY 1, 1998 U.S. GOVERNMENT MONEY MARKET FUND DECEMBER 1, 1997 LARGE CAP GROWTH FUND JULY 31, 2000 EMERGING MARKETS FUND JULY 31, 2000 SMALL CAP INDEX FUND JULY 31, 2000 INTERNATIONAL EQUITY INDEX FUND JULY 31, 2000 |
TRANSFER AGENCY AND SERVICE AGREEMENT
SCHEDULE A
PORTFOLIOS
Name of Portfolio
BALANCED FUND
INTERMEDIATE BOND FUND
INTERNATIONAL EQUITY FUND
LARGE CAP VALUE FUND
MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
SHORT-TERM BOND FUND
SMALL CAP VALUE FUND
S&P 500 INDEX FUND
U.S. GOVERNMENT MONEY MARKET FUND
LARGE CAP GROWTH FUND
EMERGING MARKETS FUND
SMALL CAP INDEX FUND
INTERNATIONAL EQUITY INDEX FUND
EXHIBIT 99.h(v)
September 24, 2002
Mr. William F. Quinn
President
AMR Investments
4151 Amon Carter Blvd., MD 2450
Fort Worth, TX 76155
Dear Bill:
STATE STREET BANK AND TRUST COMPANY (the "Transfer Agent") and the undersigned entities (the "Funds") are parties to an agreement or agreements (the "Agreement") under which the Transfer Agent performs certain transfer agency and/or recordkeeping services for the Funds. In connection with the enactment of the USA Patriot Act of 2001 and the regulations promulgated thereunder, (collectively, the "Patriot Act"), the Funds have requested and the Transfer Agent has agreed to amend the Agreement as of July 24, 2002 in the manner set forth below:
WHEREAS, the Patriot Act imposes new anti-money laundering requirements on financial institutions, including mutual funds;
WHEREAS, the Funds recognize the importance of complying with the Patriot Act and the Funds have developed and implemented a written anti-money laundering program, which is designed to satisfy the requirements of the Patriot Act, (the "Funds' Program");
WHEREAS, the Patriot Act authorizes a mutual fund to delegate to a service provider, including its transfer agent, the implementation and operation of aspects of the fund's anti-money laundering program; and
WHEREAS, the Funds desire to delegate to the Transfer Agent the implementation and operation of certain aspects of the Funds' Program and the Transfer Agent desires to accept such delegation.
NOW THEREFORE, in consideration of the foregoing and the mutual covenants and agreements hereinafter contained, the parties hereby agree to amend the Agreement, pursuant to the terms thereof, as follows:
1. Delegation; Duties
1.1 Subject to the terms and conditions set forth in the Agreement, the Funds hereby delegate to the Transfer Agent those aspects of the Funds' Program that are set forth on Exhibit A, attached hereto. The duties set forth on Exhibit A may be amended, from time to time, by mutual agreement of the parties upon the execution by both parties of a revised Exhibit A bearing a later date than the date hereof.
1.2 The Transfer Agent agrees to perform such delegated duties, with respect to the ownership of shares in the Funds for which the Transfer Agent maintains the applicable shareholder information, subject to and in accordance with the terms and conditions of the Agreement.
2. Consent to Examination
2.1 In connection with the performance by the Transfer Agent of the above-delegated duties, the Transfer Agent understands and acknowledges that the Funds remain responsible for assuring compliance with the Patriot Act and that the records the Transfer Agent maintains for the Funds relating to the Funds' Program may be subject, from time to time, to examination and/or inspection by federal regulators in order that the regulators may evaluate such compliance.The Transfer Agent hereby consents to such examination and/or inspection and agrees to cooperate with such federal examiners in connection with their review. For purposes of such examination and/or inspection, the Transfer Agent will use its best efforts to make available, during normal business hours, all required records and information for review by such examiners.
3. Delivery of Documents
3.1 Transfer Agent agrees to furnish to the Funds the following documents:
a. a copy of Transfer Agent's anti-money laundering program ("Transfer Agent's Program") as in effect on the date hereof, and any material amendment thereto promptly after the adoption of any such amendment; and
b. a copy of the SAS 70 annually.
4. Reports
4.1 In order for the Funds' Anti-Money Laundering Compliance Officer to monitor and access the effectiveness of the implementation and operation of the aspects of the Funds' Program delegated to the Transfer Agent hereunder, the Transfer Agent will provide periodic system generated reports at such intervals as may be mutually agreed to by the parties.
5. Limitation on Delegation
5.1 The Funds acknowledge and agree that in accepting the delegation hereunder, the Transfer Agent is agreeing to perform only those aspects of the Funds' Program that have been expressly delegated hereby and is not undertaking and shall not be responsible for any other
aspect of the Funds' Program or for the overall compliance by the Funds with the Patriot Act. Additionally, the parties acknowledge and agree that the Transfer Agent shall only be responsible for performing the delegated duties with respect to the ownership of shares in the Funds for which the Transfer Agent maintains the applicable shareholder information.
6. Expenses
6.1 In consideration of the performance of the foregoing duties, the Funds agree to pay the Transfer Agent for the reasonable administrative expense. The Funds will be provided 30 days written notice prior to the implementation of the fees that may be associated with such additional duties. The terms of the Agreement shall apply with respect to the payment of such expense in the same manner and to the same extent as any other expenses incurred under the Agreement.
7. Miscellaneous
7.1 In all other regards, the terms and provisions of the Agreement shall continue to apply with full force and effect.
7.2. Each party represents to the other that the execution and delivery of this Amendment has been duly authorized.
IN WITNESS WHEREOF, each of the parties has caused this Amendment to be executed in its name and behalf by its duly authorized representative as of the date first above written.
WITNESSED BY: STATE STREET BANK AND TRUST COMPANY
By: By:
---------------------------------- --------------------------------
Name: Name:
-------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
WITNESSED BY: AMERICAN AADVANTAGE FUNDS
AMERICAN AADVANTAGE MILEAGE FUNDS
AMERICAN AADVANTAGE SELECT FUNDS
AMR INVESTMENTS ENHANCED YIELD
BUSINESS TRUST
By: By:
---------------------------------- --------------------------------
Name: Name:
-------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
|
Exhibit A
Delegated Duties
With respect to the ownership of shares in the Funds for which the Transfer Agent maintains the applicable shareholder information, the Transfer Agent shall:
- Follow the Funds' no cash policy; which includes cash equivalent checks;
- Follow the Funds' third party check policies (which may change from time to time);
- Submit all financial and non-financial transactions through the Office of Foreign Assets Control ("OFAC") database and the Securities and Exchange Commission ("SEC") Control Lists;
- Review redemption transactions that occur within thirty (30) days of account establishment or maintenance;
- Review wires sent to banking instructions other than those on file;
- Review a shareholder's account for unusual activity when purchases and redemptions by the shareholder (based on social security number within the Funds) hit the $100,000 threshold that has been set on the "Unusual Activity Warning System";
- Review accounts to identify those established by known offenders attempting fraud and once identified, freeze such accounts;
- Monitor and track cash equivalents under $10,000 for a rolling twelve-month period and file Form 8300 as necessary; and
- File suspicious activity reports as necessary.
In the event that the Transfer Agent detects suspicious activity as a result of the foregoing procedures, which necessitates the filing by the Transfer Agent of a suspicious activity report, a Form 8300 or other similar report or notice to OFAC or other regulatory agency, then the Transfer Agent shall also immediately notify the Fund, unless prohibited by applicable law.
STATE STREET BANK AND TRUST AMERICAN AADVANTAGE FUNDS
COMPANY AMERICAN AADVANTAGE MILEAGE FUNDS
AMERICAN AADVANTAGE SELECT FUNDS
AMR INVESTMENTS ENHANCED YIELD
BUSINESS TRUST
By: By:
---------------------------------- --------------------------------
Name: Name:
-------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
Date:
--------------------------------
|
EXHIBIT 99.i
KIRKPATRICK & LOCKHART LLP 1800 Massachusetts Avenue, NW Suite 200 Washington, DC 20036-1221 202.778.9000 202.778.9100 Fax www.kl.com
February 26, 2003
American AAdvantage Funds
4151 Amon Carter Boulevard
Fort Worth, Texas 76155
Ladies and Gentlemen:
We have acted as counsel to American AAdvantage Funds, a business trust formed under the laws of the Commonwealth of Massachusetts (the "Trust"), in connection with the filing with the Securities and Exchange Commission ("SEC") of Post-Effective Amendment No. 42 to the Trust's Registration Statement on Form N-1A (File Nos. 33-11387; 811-4984) (the "Post-Effective Amendment"), registering an indefinite number shares of beneficial interest of the (1) PlanAhead Class of the Balanced Fund, Large Cap Value Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, S&P 500 Index Fund, High Yield Bond Fund, Intermediate Bond Fund, Short-Term Bond Fund, Money Market Fund, Municipal Money Market Fund and U.S. Government Money Market Fund, (2) AMR Class of the Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, Intermediate Bond Fund and Short-Term Bond Fund, (3) Institutional Class of the Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value Fund, International Equity Fund, Emerging Markets Fund, S&P 500 Index Fund, Small Cap Index Fund, International Equity Index Fund, High Yield Bond Fund, Intermediate Bond Fund, Short-Term Bond Fund, Money Market Fund and Municipal Money Market Fund, (4) Platinum Class of the Money Market Fund, Municipal Money Market Fund and U.S. Government Money Market Fund, and (5) Cash Management Class of the Money Market Fund and U.S. Government Money Market Fund, each a series of the Trust, (the "Shares") under the Securities Act of 1933, as amended (the "1933 Act").
You have requested our opinion as to the matters set forth below in connection with the filing of the Post-Effective Amendment. For purposes of rendering that opinion, we have examined the Post-Effective Amendment, the Declaration of Trust, as amended, and Bylaws of the Trust, and the resolutions of the Board of Trustees of the Trust that provide for the issuance of the Shares, and we have made such other investigation as we have deemed appropriate. In rendering our opinion, we also have made the assumptions that are customary in opinion letters of this kind. We have not verified any of those assumptions.
Our opinion, as set forth herein, is limited to the federal laws of the United States of America and the laws of the Commonwealth of Massachusetts that, in our experience, generally are applicable to the issuance of shares by entities such as the Trust. We express no opinion with respect to any other laws.
KIRKPATRICK & LOCKHART LLP
American AAdvantage Funds
February 26, 2003
Based upon and subject to the foregoing, we are of the opinion that:
1. The Shares to be issued pursuant to the Post-Effective Amendment have been duly authorized for issuance by the Trust; and
2. When issued and paid for upon the terms provided in the Post-Effective Amendment, the Shares to be issued pursuant to the Post-Effective Amendment will be validly issued, fully paid and non-assessable.
This opinion is rendered solely in connection with the filing of the Post-Effective Amendment and supersedes any previous opinions of this firm in connection with the issuance of Shares. We hereby consent to the filing of this opinion with the SEC in connection with the Post-Effective Amendment and to the reference to this firm in the statement of additional information that is being filed as part of the Post-Effective Amendment. In giving our consent we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the 1933 Act or the rules and regulations of the SEC thereunder.
Very truly yours,
/s/ Kirkpatrick & Lockhart LLP Kirkpatrick & Lockhart LLP |
EXHIBIT 99.j
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial Highlights" and "Other Service Providers" and to the use of our reports dated December 19, 2002 and February 14, 2003 in the Registration Statement (Form N-1A) of the American AAdvantage Funds and their incorporation by reference in the related Prospectuses and Statements of Additional Information, filed with the Securities and Exchange Commission in this Post-Effective Amendment No. 42 to the Registration Statement under the Securities Act of 1933 (File No. 33-11387) and in this Amendment No. 43 to the Registration Statement under the Investment Company Act of 1940 (File No. 811-4984).
/s/ Ernst & Young LLP
Dallas, Texas
February 24, 2003
|
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Post-Effective Amendment No. 42 to Registration Statement No. 33-11387 on Form N-1A of American AAdvantage Funds of our reports dated February 20, 2003 for Master Small Cap Index Series and for Master International Index Series, appearing in the December 31, 2002 Annual Report of American AAdvantage Funds - Small Cap Index Fund and International Equity Index Fund.
/s/ Deloitte & Touche LLP Princeton, New Jersey February 27, 2003 |
EXHIBIT 99.p(xviii)
FRANKLIN TEMPLETON INVESTMENTS
CODE OF ETHICS
AND
POLICY STATEMENT ON INSIDER TRADING
TABLE OF CONTENTS
CODE OF ETHICS........................................................................................ 1 PART 1 - STATEMENT OF PRINCIPLES...................................................................... 2 PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE................................................. 3 PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS............................................... 4 PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS........................... 11 PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS................................................ 14 PART 6 - PRE-CLEARANCE REQUIREMENTS................................................................... 18 PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE......................................................... 23 PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON INVESTMENTS INSIDER TRADING POLICY................... 25 PART 9 - FOREIGN COUNTRY SUPPLEMENTS (CANADA)......................................................... 26 APPENDIX A: COMPLIANCE PROCEDURES AND DEFINITIONS..................................................... 28 I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER........................................... 29 II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS.................................................... 34 III. SECURITIES EXEMPT FROM THE PROHIBITED, REPORTING, AND PRE-CLEARANCE PROVISIONS................... 36 IV. LEGAL REQUIREMENT................................................................................ 37 APPENDIX B:ACKNOWLEGMENT FORM AND SCHEDULES........................................................... 38 ACKNOWLEDGMENT FORM................................................................................... 39 SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX NUMBERS............... 40 SCHEDULE B - TRANSACTIONS REPORT...................................................................... 41 SCHEDULE C - INITIAL, ANNUAL, & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES HOLDINGS.............. 42 SCHEDULE D - NOTIFICATION OF SECURITIES ACCOUNT...................................................... 43 SCHEDULE E - NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST................................... 44 SCHEDULE F - INITIAL, ANNUAL, & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS............................. 45 SCHEDULE G - INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY.............................. 46 SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS MADE BY PORTFOLIO PERSONS............................................................................. 47 APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER SUBSIDIARIES OF FRANKLIN RESOURCES, INC. - DECEMBER 2002.................................................................................. 49 POLICY STATEMENT ON INSIDER TRADING................................................................... 1 A. LEGAL REQUIREMENT.................................................................................. 1 B. WHO IS AN INSIDER?................................................................................. 2 C. WHAT IS MATERIAL INFORMATION?...................................................................... 2 D. WHAT IS NON-PUBLIC INFORMATION?.................................................................... 2 E. BASIS FOR LIABILITY................................................................................ 2 F. PENALTIES FOR INSIDER TRADING...................................................................... 3 G. INSIDER TRADING PROCEDURES......................................................................... 4 H. FAIR DISCLOSURE POLICIES AND PROCEDURES............................................................ 6 SUPPLEMENTAL MEMORANDUM............................................................................... 1 CHINESE WALL PROCEDURES............................................................................... 1 |
CODE OF ETHICS
Franklin Resources, Inc. and all of its subsidiaries, and the funds in the Franklin Templeton Group of Funds (the "Funds") (collectively, "Franklin Templeton Investments") will follow this Code of Ethics (the "Code") and Policy Statement on Insider Trading (the "Insider Trading Policy"), including any supplemental memoranda. Additionally, the subsidiaries listed in Appendix C of this Code, together with Franklin Resources, Inc., the Funds, the Fund's investment advisers and principal underwriter, have adopted the Code and Insider Trading Policy.
PART 1 - STATEMENT OF PRINCIPLES
Franklin Templeton Investments' policy is that the interests of shareholders and clients are paramount and come before the interests of any director, officer or employee of Franklin Templeton Investments.(1)
Personal investing activities of ALL directors, officers and employees of Franklin Templeton Investments should be conducted in a manner to avoid actual or potential conflicts of interest with Franklin Templeton Investments, Fund shareholders, and other clients of any Franklin Templeton adviser.
Directors, officers and employees of Franklin Templeton Investments shall use their positions with Franklin Templeton Investments and any investment opportunities they learn of because of their positions with Franklin Templeton Investments, in a manner consistent with their fiduciary duties for the benefit of Fund shareholders, and clients.
PART 2 - PURPOSES, AND CONSEQUENCES OF NON-COMPLIANCE
It is important that you read and understand this document, because its overall purpose is to help all of us comply with the law and to preserve and protect the outstanding reputation of Franklin Templeton Investments. This document was adopted to comply with Securities and Exchange Commission rules under the Investment Company Act of 1940 ("1940 Act"), the Investment Advisers Act of 1940 ("Advisers Act"), the Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA"), industry practice and the recommendations contained in the ICI's Report of the Advisory Group on Personal Investing. Any violation of the Code or Insider Trading Policy, including engaging in a prohibited transaction or failing to file required reports, may result in disciplinary action, and, when appropriate, termination of employment and/or referral to appropriate governmental agencies.
PART 3 - COMPLIANCE REQUIREMENTS FOR ALL ACCESS PERSONS
3.1 WHO IS COVERED BY THE CODE AND HOW DOES IT WORK?
The principles contained in the Code must be observed by ALL directors, officers and employees(2) of Franklin Templeton Investments. However, there are different categories of restrictions on personal investing activities. The category in which you have been placed generally depends on your job function, although unique circumstances may result in you being placed in a different category.
The Code covers the following categories of employees who are described below:
(1) ACCESS PERSONS: Access Persons are those employees who have "access to information" concerning recommendations made to a Fund or client with regard to the purchase or sale of a security. Examples of "access to information" would include having access to trading systems, portfolio accounting systems, research databases or settlement information. Access Persons would typically include employees, including Futures Associates, in the following departments:
- fund accounting;
- investment operations;
- information services & technology;
- product management;
- legal and legal compliance
- and anyone else designated by the Director, Global Compliance
In addition, you are an Access Person if you are any of the following:
- an officer or and directors of funds;
- an officer or director of an investment advisor or broker-dealer subsidiary in Franklin Templeton Investments;
- a person that controls those entities; and
- any Franklin Resources' Proprietary Account ("Proprietary Account")(3)
(2) PORTFOLIO PERSONS: Portfolio Persons are a subset of Access Persons and are those employees of Franklin Templeton Investments, who, in connection with his or her regular functions or duties, makes or participates in the decision to purchase or sell a security by a Fund in Franklin Templeton Investments, or any other client or if his or her functions relate to the making of any recommendations about those purchases or sales. Portfolio Persons include:
- portfolio managers;
- research analysts;
(3) See Appendix A. II., for definition of "Proprietary Accounts."
- traders;
- employees serving in equivalent capacities (such as Futures Associates);
- employees supervising the activities of Portfolio Persons; and
- anyone else designated by the Director, Global Compliance
(3) NON-ACCESS PERSONS: If you are an employee of Franklin Templeton Investments AND you do not fit into any of the above categories, you are a Non-Access Person. Because you do not normally receive confidential information about Fund portfolios, you are subject only to the prohibited transaction provisions described in 3.4 of this Code and the Franklin Resources, Inc.'s Standards of Business Conduct contained in the Employee Handbook.
Please contact the Legal Compliance Department if you are unsure as to what category you fall in or whether you should be considered to be an Access Person or Portfolio Person.
The Code works by prohibiting some transactions and requiring pre-clearance and reporting of most others. NON-ACCESS PERSONS do not have to pre-clear their security transactions, and, in most cases, do not have to report their transactions. "INDEPENDENT DIRECTORS" need not pre-clear or report any securities transaction unless you knew, or should have known that, during the 15-day period before or after the transaction, the security was purchased or sold or considered for purchase or sale by a Fund or Franklin Resources for a Fund. (See Section 5.2.B below.) HOWEVER, PERSONAL INVESTING ACTIVITIES OF ALL EMPLOYEES AND INDEPENDENT DIRECTORS ARE TO BE CONDUCTED IN COMPLIANCE WITH THE PROHIBITED TRANSACTIONS PROVISIONS CONTAINED IN 3.4 BELOW. If you have any questions regarding your personal securities activity, contact the Legal Compliance Department.
3.2 WHAT ACCOUNTS AND TRANSACTIONS ARE COVERED?
The Code covers all of your personal securities accounts and transactions, as well as transactions by any of Franklin Resource's Proprietary Accounts. It also covers all securities and accounts in which you have "beneficial ownership."(4) A transaction by or for the account of your spouse, or any other family member living in your home is considered to be the same as a transaction by you. Also, a transaction for
any account in which you have any economic interest (other than the account of an unrelated client for which advisory fees are received) AND have or share investment control is generally considered the same as a transaction by you. For example, if you invest in a corporation that invests in securities and you have or share control over its investments, that corporation's securities transactions are considered yours.
However, you are not deemed to have a pecuniary interest in any securities held by a partnership, corporation, trust or similar entity unless you control, or share control of such entity, or have, or share control over its investments. For example, securities transactions of a trust or foundation in which you do not have an economic interest (i.e., you are not the trustor or beneficiary) but of which you are a trustee are not considered yours unless you have voting or investment control of its assets. Accordingly, each time the words "you" or "your" are used in this document, they apply not only to your personal transactions and accounts, but also to all transactions and accounts in which you have any direct or indirect beneficial interest. If it is not clear whether a particular account or transaction is covered, ask a Preclearance Officer for guidance.
3.3 WHAT SECURITIES ARE EXEMPT FROM THE CODE OF ETHICS?
You do not need to pre-clear or report transactions of the following securities:
(1) securities that are direct obligations of the U. S. Government (i.e., issued or guaranteed by the U.S. Government, such as Treasury bills, notes and bonds, including U.S. Savings Bonds and derivatives thereof);
(2) high quality short-term instruments, including but not limited to bankers' acceptances, bank certificates of deposit, commercial paper and repurchase agreements;
(3) shares of registered open-end investment companies ("mutual funds"); and
(4) commodity futures (excluding futures on individual securities), currencies, currency forwards and derivatives thereof.
Such transactions are also exempt from: (i) the prohibited transaction
provisions contained in Part 3.4 such as front-running; (ii) the additional
compliance requirements applicable to portfolio persons contained in Part 4; and
(iii) the applicable reporting requirements contained in Part 5.
3.4 PROHIBITED TRANSACTIONS FOR ALL ACCESS PERSONS
A. "INTENT" IS IMPORTANT
Certain transactions described below have been determined by the courts and the SEC to be prohibited by law. The Code reiterates that these types of transactions are a violation of the Statement of Principals and are prohibited. Preclearance, which is a cornerstone of our compliance efforts, cannot detect transactions which are dependent upon intent, or which by their nature, occur before any order has been placed for a fund or client. A Preclearance Officer, who is there to assist you with compliance with the Code, cannot guarantee any transaction or transactions comply with the Code or the law. The fact that your transaction receives preclearance, shows evidence of good faith, but depending upon all the facts, may not provide a full and complete defense to any accusation of violation of the Code or of the law. For example, if you executed a transaction for which you received approval, or if the transaction was exempt from preclearance (e.g., a transaction for 100 shares or less), would not preclude a subsequent finding that front-running or scalping occurred because such activity are dependent upon your intent. Intent cannot be detected during preclearance, but only after a review of all the facts.
In the final analysis, compliance remains the responsibility of each individual effecting personal securities transactions.
B. FRONT-RUNNING: TRADING AHEAD OF A FUND OR CLIENT
You cannot front-run any trade of a Fund or client. The term "front-run" means knowingly trading before a contemplated transaction by a Fund or client of any Franklin Templeton adviser, whether or not your trade and the Fund's or client's trade take place in the same market. Thus, you may not:
(1) purchase a security if you intend, or know of Franklin Templeton Investments' intention, to purchase that security or a related security on behalf of a Fund or client, or
(2) sell a security if you intend, or know of Franklin Templeton Investments' intention, to sell that security or a related security on behalf of a Fund or client.
C. SCALPING.
You cannot purchase a security (or its economic equivalent) with the intention of recommending that the security be purchased for a Fund, or client, or sell short a security (or its economic equivalent) with the intention of recommending that the security be sold for a Fund or client. Scalping is prohibited whether or not you realize a profit from such transaction.
D. TRADING PARALLEL TO A FUND OR CLIENT
You cannot buy a security if you know that the same or a related security is being bought contemporaneously by a Fund or client, or sell a security if you know that the same or a related security is being sold contemporaneously by a Fund or client.
E. TRADING AGAINST A FUND OR CLIENT
You cannot:
(1) buy a security if you know that a Fund or client is selling the same or a related security, or has sold the security, until seven (7) calendar days after the Fund's or client's order has either been executed or withdrawn, or
(2) sell a security if you know that a Fund or client is buying the same or a related security, or has bought the security until seven (7) calendar days after the Fund's or client's order has either been executed or withdrawn.
Refer to Section I.A., "Pre-Clearance Standards," of Appendix A of the Code for more details regarding the preclearance of personal securities transactions.
F. USING PROPRIETARY INFORMATION FOR PERSONAL TRANSACTIONS
You cannot buy or sell a security based on Proprietary Information(5) without disclosing the information and receiving written authorization. If you wish to purchase or sell a security about which you obtained such information, you must report all of the information you obtained regarding the security to the Appropriate Analyst(s)(6), or to the Director, Global Compliance for dissemination to the Appropriate Analyst(s).
You will be permitted to purchase or sell such security if the Appropriate Analyst(s) confirms to the Preclearance Desk that there is no intention to engage in a transaction regarding the security within seven (7) calendar days on behalf of an Associated Client(7) and you subsequently preclear such security in accordance with Part 6 below.
G. CERTAIN TRANSACTIONS IN SECURITIES OF FRANKLIN RESOURCES, INC., AND
AFFILIATED CLOSED-END FUNDS, AND REAL ESTATE INVESTMENT TRUSTS
If you are an employee of Franklin Resources, Inc. or any of its affiliates, including Franklin Templeton Investments, you cannot effect a short sale of the securities, including "short sales against the box" of Franklin Resources, Inc., or any of the Franklin or Templeton closed-end funds, or any other security issued by Franklin Resources, Inc. or its affiliates. This prohibition would also apply to effecting economically equivalent transactions, including, but not limited to purchasing and selling call or put options and "swap" transactions or other derivatives. Officers and directors of Franklin Templeton Investments who may be covered by Section 16 of the Securities Exchange Act of 1934, are reminded that their obligations under that section are in addition to their obligations under this Code.
(7) Associated Client: A Fund or client who's trading information would be available to the access person during the course of his or her regular functions or duties.
3.5 SERVICE AS A DIRECTOR
As an employee of Franklin Templeton Investments, you may not serve as a director, trustee, or in a similar capacity for any public or private company (excluding not-for-profit companies, charitable groups, and eleemosynary organizations) unless you receive approval from a member of the Office of the President or Office of the Chairman (excluding the vote of any member who is seeking such approval for himself) and it is determined that your service is consistent with the interests of the clients of Franklin Templeton Investments. You must notify the Legal Compliance Department in writing of your interest in serving as a director, which includes the justification for such directorship. Legal Compliance will process the request through the OOP/OOC.
Legal Compliance will advise you of the OOP/OOC's decision. If approved, the Legal Compliance Department will furnish procedures applicable to serving as an outside director to you.
PART 4 - ADDITIONAL COMPLIANCE REQUIREMENTS APPLICABLE TO PORTFOLIO PERSONS(8)
4.1 REQUIREMENT TO DISCLOSE INTEREST AND METHOD OF DISCLOSURE
As a Portfolio Person, you must promptly disclose your direct or indirect beneficial interest in a security whenever you learn that the security is under consideration for purchase or sale by an Associated Client in the Franklin Templeton Group and you;
(1) Have or share investment control of the Associated Client;
(2) Make any recommendation or participate in the determination of which recommendation shall be made on behalf of the Associated Client; or
(3) Have functions or duties that relate to the determination of which recommendation shall be made to the Associated Client.
In such instances, you must initially disclose that beneficial interest orally to the primary portfolio manager (or other Appropriate Analyst) of the Associated Client(s) considering the security, the Director of Research and Trading or the Director, Global Compliance. Following that oral disclosure, you must send a written acknowledgment of that interest on Schedule E (or on a form containing substantially similar information) to the primary portfolio manager (or other Appropriate Analyst), with a copy to the Legal Compliance Department.
4.2 SHORT SALES OF SECURITIES
You cannot sell short any security held by your Associated Clients, including "short sales against the box". Additionally, Portfolio Persons associated with the Templeton Group of Funds and clients cannot sell short any security on the Templeton "Bargain List". This prohibition would also apply to effecting economically equivalent transactions, including, but not limited to, sales of uncovered call
options, purchases of put options while not owning the underlying security and short sales of bonds that are convertible into equity positions.
4.3 SHORT SWING TRADING
Portfolio Persons cannot profit from the purchase and sale or sale and purchase within sixty calendar days of any security, including derivatives. Portfolio Persons are responsible for transactions that may occur in margin and option accounts and all such transactions must comply with this restriction.(9)
This restriction does NOT apply to:
(1) trading within a shorter period if you do not realize a profit and if you do not violate any other provisions of this Code; and
(2) profiting on the purchase and sale or sale and purchase within sixty calendar days of the following securities:
- securities that are direct obligations of the U.S. Government, such as Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof;
- high quality short-term instruments ("money market instruments") including but not limited to (i) bankers' acceptances, (ii) U.S. bank certificates of deposit; (iii) commercial paper; and (iv) repurchase agreements;
- shares of registered open-end investment companies; and
- commodity futures, currencies, currency forwards and derivatives thereof.
Calculation of profits during the 60-calendar day holding period generally will be based on "last-in, first-out" ("LIFO"). Portfolio Persons may elect to calculate their 60 calendar day profits on either a LIFO or FIFO ("first-in, first-out") basis when there has not been any activity in such security by their Associated Clients during the previous 60 calendar days.
4.4 SECURITIES SOLD IN A PUBLIC OFFERING
Portfolio Persons cannot buy securities in any initial public offering, or a secondary offering by an issuer, including initial public offerings of securities made by closed-end funds and real estate investment trusts advised by Franklin Templeton Investments. Purchases of open-end mutual funds are excluded from this prohibition.
4.5 INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Portfolio Persons cannot acquire limited partnership interests or other securities in private placements unless they:
(1) complete the Private Placement Checklist (Schedule H);
(2) provide supporting documentation (e.g., a copy of the offering memorandum); and
(3) obtain approval of the appropriate Chief Investment Officer; and
(4) submit all documents to the Legal Compliance Department
Approval will only be granted after the Director of Global Compliance consults with an executive officer of Franklin Resources, Inc.
PART 5 - REPORTING REQUIREMENTS FOR ALL ACCESS PERSONS
5.1 REPORTING OF BENEFICIAL OWNERSHIP AND SECURITIES TRANSACTIONS
Compliance with the following personal securities transaction reporting procedures is essential to enable us to meet our responsibilities to Funds and other clients and to comply with regulatory requirements. You are expected to comply with both the letter and spirit of these requirements, including completing and filing all reports required under the Code in a timely manner.
5.2 INITIAL HOLDINGS AND BROKERAGE ACCOUNT REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
Every employee (new or transfer) of Franklin Templeton Investments who becomes an Access Person, must file:
(1) An Acknowledgement Form;
(2) Schedule C: Initial, Annual & Updated Disclosure of Securities Holdings; and
(3) Schedule F: Initial, Annual & Updated Disclosure of Securities Accounts
The Acknowledgement Form, Schedule C and Schedule F must be completed and returned to the Legal Compliance Department within 10 calendar days of the date the employee becomes an access person.
5.3 QUARTERLY TRANSACTION REPORTS
A. ALL ACCESS PERSONS (EXCEPT INDEPENDENT DIRECTORS)
You must report all securities transactions by; (i) providing the Legal Compliance Department with copies of all broker's confirmations and statements within 10 calendar days after the end of the calendar quarter (which may be sent under separate cover by the broker) showing all transactions and holdings in securities and (ii) certifying by January 30th of each year that you have disclosed all such brokerage accounts on Schedule F to the Legal Compliance Department. The brokerage statements and confirmations must include all transactions in securities in which you have, or by reason of the transaction acquire any direct or indirect beneficial ownership, including transactions in a discretionary account and
transactions for any account in which you have any economic interest and have or share investment control. Also, if you acquire securities by any other method which is not being reported to the Legal Compliance Department by a duplicate confirmation statement at or near the time of the acquisition, you must report that acquisition to the Legal Compliance Department on Schedule B within 10 calendar days after you are notified of the acquisition. Such acquisitions include, among other things, securities acquired by gift, inheritance, vesting,(10) stock splits, merger or reorganization of the issuer of the security.
You must file these documents with the Legal Compliance Department not later than 10 calendar days after the end of each quarter, but you need not show or report transactions for any account over which you had no direct or indirect influence or control.(11) Failure to timely report transactions is a violation of Rule 17j-1 as well as the Code, and may be reported to the Fund's Board of Directors and may also result, among other things, in denial of future personal security transaction requests.
B. INDEPENDENT DIRECTORS
If you are a director of a Fund within Franklin Templeton Investments but you are not an "interested person" of the Fund, you are not required to file transaction reports unless you knew or should have known that, during the 15-day period before or after a transaction, the security was purchased or sold, or considered for purchase or sale, by a Fund or by Franklin Templeton Investments on behalf of a Fund.
(11) See Sections 3.2 and 4.6 of the Code. Also, confirmations and statements of transactions in open-end mutual funds, including mutual funds sponsored by Franklin Templeton Investments are not required. See Section 3.3 above for a list of other securities that need not be reported. If you have any beneficial ownership in a discretionary account, transactions in that account are treated as yours and must be reported by the manager of that account (see Section 6.1.C below).
5.4 ANNUAL REPORTS - ALL ACCESS PERSONS
A. SECURITIES ACCOUNTS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
As an access person, you must file a report of all personal securities accounts on Schedule F, with the Legal Compliance Department, annually by January 30th. You must report the name and description of each securities account in which you have a direct or indirect beneficial interest, including securities accounts of a spouse and minor children. You must also report any account in which you have any economic interest and have or share investment control (e.g., trusts, foundations, etc.) other than an account for a Fund in, or a client of, Franklin Templeton Investments.
B. SECURITIES HOLDINGS REPORTS (EXCEPT INDEPENDENT DIRECTORS)
You must file a report of personal securities holdings on Schedule C, with the Legal Compliance Department, by January 30th of each year. This report should include all of your securities holdings, including any security acquired by a transaction, gift, inheritance, vesting, merger or reorganization of the issuer of the security, in which you have any direct or indirect beneficial ownership, including securities holdings in a discretionary account and for any account in which you have any economic interest and have or share investment control. Your securities holding information must be current as of a date no more than 30 days before the report is submitted. You may attach copies of year-end brokerage statements to the Schedule C in lieu of listing each security position on the schedule.
C. CERTIFICATION OF COMPLIANCE WITH THE CODE OF ETHICS (INCLUDING
INDEPENDENT DIRECTORS)
All access persons, including independent directors, will be asked to certify that they will comply with Franklin Templeton Investments' Code of Ethics and Policy Statement on Insider Trading by filing the Acknowledgment Form with the Legal Compliance Department within 10 business days of receipt of the Code. Thereafter, you will be asked to certify that you have complied with the Code during the preceding year by filing a similar Acknowledgment Form by January 30 of each year.
5.5 BROKERAGE ACCOUNTS AND CONFIRMATIONS OF SECURITIES TRANSACTIONS (EXCEPT INDEPENDENT DIRECTORS)
If you are an access person , in Franklin Templeton Investments, before or at a time contemporaneous with opening a brokerage account with a registered broker-dealer, or a bank, or placing an initial order for the purchase or sale of securities with that broker-dealer or bank, you must:
(1) notify the Legal Compliance Department, in writing, by completing Schedule D or by providing substantially similar information; and
(2) notify the institution with which the account is opened, in writing, of your association with Franklin Templeton Investments.
The Compliance Department will request the institution in writing to send to it duplicate copies of confirmations and statements for all transactions effected in the account simultaneously with their mailing to you.
If you have an existing account on the effective date of this Code or upon becoming an access person, you must comply within 10 days with conditions (1) and (2) above.
PART 6 - PRE-CLEARANCE REQUIREMENTS
6.1 PRIOR APPROVAL OF SECURITIES TRANSACTIONS
A. LENGTH OF APPROVAL
Unless you are covered by Paragraph C or D below, you cannot buy or sell any security, without first contacting a Preclearance Officer by fax, phone, or e-mail and obtaining his or her approval. Approval is good until the close of the business day following the day clearance is granted but may be extended in special circumstances, shortened or rescinded, as explained in Appendix A.
B. SECURITIES NOT REQUIRING PRECLEARANCE
The securities enumerated below do not require preclearance under the Code. However, all other provisions of the Code apply, including, but not limited to: (i) the prohibited transaction provisions contained in Part 3.4 such as front-running; (ii) the additional compliance requirements applicable to portfolio persons contained in Part 4, (iii) the applicable reporting requirements contained in Part 5; and (iv) insider trading prohibitions.
You need NOT pre-clear transactions in the following securities:
(1) FRANKLIN RESOURCES, INC., AND ITS AFFILIATES. Purchases and sales of securities of Franklin Resources, Inc., closed-end funds of the Franklin Templeton Group, or real estate investment trusts advised by Franklin Properties Inc., as these securities cannot be purchased on behalf of our advisory clients.(12)
(2) SMALL QUANTITIES.
- Transactions that do not result in purchases or sales of more than 100 shares of any one security, regardless of where it is traded, in any 30 day period; or
- Transactions of 500 shares or less of any security listed on the NYSE or NASDAQ NMS (does not include NASDAQ Small Cap or OTC) in any 30 day period; or
- Transactions of 1000 shares or less of the top 50 securities by volume during the previous calendar quarter on the NYSE or NASDAQ NMS(does not include Small Cap or OTC) in any 30 day period.
HOWEVER, YOU MAY NOT EXECUTE ANY TRANSACTION, REGARDLESS OF QUANTITY, IF YOU LEARN THAT THE FUNDS ARE ACTIVE IN THE SECURITY. IT WILL BE PRESUMED THAT YOU HAVE KNOWLEDGE OF FUND ACTIVITY IN THE SECURITY IF, AMONG OTHER THINGS, YOU ARE DENIED APPROVAL TO GO FORWARD WITH A TRANSACTION REQUEST.
(3) DIVIDEND REINVESTMENT PLANS: Transactions made pursuant to dividend reinvestment plans ("DRIPs") do not require preclearance regardless of quantity or Fund activity.
(4) GOVERNMENT OBLIGATIONS. Transactions in securities issued or guaranteed by the governments of the United States, Canada, the United Kingdom, France, Germany, Switzerland, Italy and Japan, or their agencies or instrumentalities, or derivatives thereof.
(5) PAYROLL DEDUCTION PLANS. Securities purchased by an employee's spouse pursuant to a payroll deduction program, provided the access person has previously notified the Compliance Department in writing that the spouse will be participating in the payroll deduction program.
(6) EMPLOYER STOCK OPTION PROGRAMS. Transactions involving the exercise and/or purchase by an access person or an access person's spouse of securities pursuant to a program sponsored by a corporation employing the access person or spouse.
(7) PRO RATA DISTRIBUTIONS. Purchases effected by the exercise of rights issued pro rata to all holders of a class of securities or the sale of rights so received.
(8) TENDER OFFERS. Transactions in securities pursuant to a bona fide tender offer made for any and all such securities to all similarly situated shareholders in conjunction with mergers, acquisitions, reorganizations and/or similar corporate actions. However, tenders pursuant to offers for less than all outstanding securities of a class of securities of an issuer must be precleared.
(9) NOT ELIGIBLE FOR FUNDS AND CLIENTS. Transactions in any securities that are prohibited investments for all Funds and clients advised by the entity employing the access person.
(10) NO INVESTMENT CONTROL. Transactions effected for an account or entity over which you do not have or share investment control (i.e., an account where someone else exercises complete investment control).
(11) NO BENEFICIAL OWNERSHIP. Transactions in which you do not acquire or dispose of direct or indirect beneficial ownership (i.e., an account where in you have no financial interest).
(12) ETFS AND HOLDRS. Transactions in Exchange-Traded Funds and Holding Company Depository Receipts (Holdrs).
Although an access person's securities transaction may be exempt from preclearing, such transactions must comply with the prohibited transaction provisions of Section 3.4 above. Additionally, you may not trade any securities as to which you have "inside information" (see attached Franklin Templeton Investments' Policy Statement on Insider Trading). If you have any questions, contact a
Preclearance Officer before engaging in the transaction. If you have any doubt whether you have or might acquire direct or indirect beneficial ownership or have or share investment control over an account or entity in a particular transaction, or whether a transaction involves a security covered by the Code, you should consult with a Preclearance Officer before engaging in the transaction.
C. DISCRETIONARY ACCOUNTS
You need not pre-clear transactions in any discretionary account for which a registered broker-dealer, a registered investment adviser, or other investment manager acting in a similar fiduciary capacity, which is not affiliated with Franklin Templeton Investments, exercises sole investment discretion, if the following conditions are met: (13)
(1) The terms of each account relationship ("Agreement") must be in writing and filed with a Preclearance Officer prior to any transactions.
(2) Any amendment to each Agreement must be filed with a Preclearance Officer prior to its effective date.
(3) The Portfolio Person certifies to the Compliance Department at the time such account relationship commences, and annually thereafter, as contained in Schedule G of the Code that such Portfolio Person does not have direct or indirect influence or control over the account, other than the right to terminate the account.
(4) Additionally, any discretionary account that you open or maintain with a registered broker-dealer, a registered investment adviser, or other investment manager acting in a similar fiduciary capacity must provide duplicate copies of confirmations and statements for all transactions effected in the account simultaneously with their delivery to you., If your discretionary account acquires securities which are not reported to a Preclearance Officer by a duplicate confirmation, such transaction must be reported to a Preclearance Officer on Schedule B within 10 days after you are notified of the acquisition.(14)
(14) Any pre-existing agreement must be promptly amended to comply with this condition. The required reports may be made in the form of an account statement if they are filed by the applicable deadline.
However, if you make any request that the discretionary account manager enter into or refrain from a specific transaction or class of transactions, you must first consult with a Preclearance Officer and obtain approval prior to making such request.
D. DIRECTORS WHO ARE NOT ADVISORY PERSONS OR ADVISORY REPRESENTATIVES
You need not pre-clear any securities if:
(1) You are a director of a Fund in Franklin Templeton Investments and a director of the fund's advisor;
(2) You are not an "advisory person"(15) of a Fund in Franklin Templeton Investments; and
(3) You are not an employee of any Fund,
or
(1) You are a director of a Fund in the Franklin Templeton Group;
(2) You are not an "advisory representative"(16) of Franklin Resources or any subsidiary; and
(3) You are not an employee of any Fund,
unless you know or should know that, during the 15-day period before the transaction, the security was purchased or sold, or considered for purchase or sale, by a Fund or by Franklin Resources on behalf of a Fund or other client.
(16) Generally, an "advisory representative" is any person who makes any
recommendation, who participates in the determination of which
recommendation shall be made, or whose functions or duties relate to the
determination of which recommendation shall be made, or who, in connection
with his duties, obtains any information concerning which securities are
being recommended prior to the effective dissemination of such
recommendations or of the information concerning such recommendations. See
Section II of Appendix A for the legal definition of "Advisory
Representative."
Directors, other than independent Directors, qualifying under this paragraph are required to comply with all applicable provisions of the Code including reporting their initial holdings and brokerage accounts in accordance with 5.2, personal securities transactions and accounts in accordance with 5.3 and 5.5, and annual reports in accordance with 5.4 of the Code.
E. LIMITED EXCEPTION FOR CERTAIN PROPRIETARY ACCOUNTS
Franklin Templeton Investments may sponsor private partnerships and other pooled investment accounts ("affiliated accounts") intended for distribution to unaffiliated persons.. At the outset of operations of such affiliated accounts, Franklin Templeton Investments will likely have a significant ownership interest, thereby causing the affiliated account to be a Proprietary Account. Though considered a Proprietary Account for all other purposes of this Code, an affiliated account need not pre-clear any securities transaction during the first full 12 month period after its commencement of operations.
PART 7 - PENALTIES FOR VIOLATIONS OF THE CODE
The Code is designed to assure compliance with applicable law and to maintain shareholder confidence in Franklin Templeton Investments.
In adopting this Code, it is the intention of the Boards of Directors/Trustees, to attempt to achieve 100% compliance with all requirements of the Code - but it is recognized that this may not be possible. Incidental failures to comply with the Code are not necessarily a violation of the law or the Franklin Templeton Investment's Statement of Principles. Such isolated or inadvertent violations of the Code not resulting in a violation of law or the Statement of Principles will be referred to the Director, Global Compliance and/or management personnel, and disciplinary action commensurate with the violation, if warranted, will be imposed. Additionally, if you violate any of the enumerated prohibited transactions contained in Parts 3 and 4 of the Code, you will be expected to give up any profits realized from these transactions to Franklin Resources for the benefit of the affected Funds or other clients. If Franklin Resources cannot determine which Fund(s) or client(s) were affected, the proceeds will be donated to a charity chosen by Franklin Resources. Please refer to the following page for guidance of the types of sanctions that would likely be imposed for isolated or inadvertent violations of the Code.
However, failure to disgorge profits when requested or a pattern of violations that individually do not violate the law or Statement of Principles, but which taken together demonstrate a lack of respect for the Code of Ethics, may result in more significant disciplinary action including termination of employment. A violation of the Code resulting in a violation of the law will be severely sanctioned, with disciplinary action including, but not limited to, referral of the matter to the board of directors of the affected Fund, termination of employment or referral of the matter to the appropriate regulatory agency for civil and/or criminal investigation.
CODE OF ETHICS SANCTION GUIDELINES
VIOLATION SANCTION IMPOSED
--------------------------------------------------------------------- -------------------------------------
- Failure to preclear but otherwise would have been approved Reminder Memo
(i.e., no conflict with the fund's transactions).
- Failure to preclear but otherwise would have been approved 30 Day Personal Securities Trading
(i.e., no conflict with the fund's transactions) twice within Suspension
12 calendar months
- Failure to preclear and the transaction would have been
disapproved:
- Failure to preclear but otherwise would have been approved Greater Than 30 Day Personal Securities
(i.e., no conflict with the fund's transactions) three times Trading Suspension (e.g., 60 or 90 Days)
or more within 12 calendar months
- Failure to preclear and the transaction would have been
disapproved twice or more within 12 calendar months
- Profiting from short-swing trades (profiting on purchase & Profits are donated to The United Way
sale/sale & purchase within 60 days (or charity of employee's choice)
- Repeated violations of the Code of Ethics even if each Fines levied after discussion with the
individual violation might be considered deminimis General Counsel and appropriate CIO.
|
PART 8 - A REMINDER ABOUT THE FRANKLIN TEMPLETON INVESTMENTS INSIDER TRADING
POLICY
The Code of Ethics is primarily concerned with transactions in securities held or to be acquired by any of the Funds or Franklin Resources' clients, regardless of whether those transactions are based on inside information or actually harm a Fund or a client.
The Insider Trading Policy (attached to this document) deals with the problem of insider trading in securities that could result in harm to a Fund, a client, or members of the public, and applies to all directors, officers and employees of any entity in the Franklin Templeton Investments. Although the requirements of the Code and the Insider Trading Policy are similar, you must comply with both.
PART 9 - FOREIGN COUNTRY SUPPLEMENTS (CANADA)
The Investment Funds Institute of Canada ("IFIC") has implemented a new Model Code of Ethics for Personal Investing (the "IFIC Code") to be adopted by all IFIC members. Certain provisions in the IFIC Code differ from the provisions of Franklin Templeton Investments Code of Ethics (the "FT Code"). This Supplementary Statement of Requirements for Canadian Employees (the "Canadian Supplement") describes certain further specific requirements that govern the activities of Franklin Templeton Investments Corp. ("FTIC"). It is important to note that the Canadian Supplement does not replace the FT Code but adds certain restrictions on trading activities, which must be read in conjunction with the Code.
All capitalized terms in this Canadian Supplement, unless defined in this Canadian Supplement, have the meaning set forth in the FT Code.
INITIAL PUBLIC AND SECONDARY OFFERINGS
Access Persons cannot buy securities in any initial public offering, or a secondary offering by an issuer. Public offerings of securities made by Franklin Templeton Investments, including open-end and closed-end mutual funds, real estate investment trusts and securities of Franklin Resources, Inc, are excluded from this prohibition.
Note: the FT Code presently prohibits Portfolio Persons from buying securities
in any initial public offering, or a secondary offering by an issuer (See
Section 4.5 of the FT Code). This provision extends Section 4.5 of the FT Code
to all Access Persons.
INTERESTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS
Access Persons and Portfolio Persons cannot acquire limited partnership interests or other securities in private placements unless they obtain approval of the Compliance Officer after he or she consults with an executive officer of Franklin Resources, Inc. Purchases of limited partnership interests or other securities in private placements will not be approved, unless in addition to the requirements for the approval of other trades and such other requirements as the executive officer of Franklin Resources, Inc. may require, the Compliance Officer is satisfied that the issuer is a "private company" as defined in the Securities Act (Ontario) and the Access Person has no reason to believe that the issuer will make a public offering of its securities in the foreseeable future.
Note: the FT Code presently prohibits as a general rule Portfolio Persons from buying limited partnership interests or other securities in private placements (See Section 4.6 of the FT Code). This section extends the ambit of the prohibition to Access Persons and limits the exception to the general rule contained in section 4.6 of the FT Code.
ADDITIONAL REQUIREMENTS TO OBTAIN APPROVAL FOR PERSONAL TRADES
Prior to an Access Person obtaining approval for a personal trade he or she must advise the Compliance Officer that he or she:
- Does not possess material non-public information relating to the security;
- Is not aware of any proposed trade or investment program relating to that security by any of the Franklin Templeton Group of Funds;
- Believes that the proposed trade has not been offered because of the Access Person's position in Franklin Templeton Investments and is available to any market participant on the same terms;
- Believes that the proposed trade does not contravene any of the prohibited activities set out in Section 3.4 of the FT Code, and in the case of Portfolio Persons does not violate any of the additional requirements set out in Part 4 of the FT Code; and
- Will provide any other information requested by the Compliance Officer concerning the proposed personal trade.
An Access Person may contact the Compliance Officer by fax, phone or e-mail to obtain his or her approval.
Note: the method of obtaining approval is presently set out in Section 6.1A of the FT Code and provides that an Access Person may contact the Compliance Officer by fax, phone or e-mail. The additional requirement described above makes it clear that an Access Person may continue to contact the Compliance Officer in the same manner as before. The Access Person will have deemed to have confirmed compliance with the above requirements prior to obtaining approval from the Compliance Officer.
APPOINTMENT OF INDEPENDENT REVIEW PERSON
FTIC shall appoint an independent review person who will be responsible for approval of all personal trading rules and other provisions of the FT Code with respect to FTIC and for monitoring the administration of the FT Code from time to time with respect to FTIC employees. The Compliance Officer will provide a written report to the Independent Review Person, at least annually, summarizing:
- Compliance with the FT Code for the period under review
- Violations of the FT Code for the period under review
- Sanctions imposed by Franklin Templeton Investments for the period under review
- Changes in procedures recommended by the FT Code
- Any other information requested by the Independent Review Person
APPENDIX A: COMPLIANCE PROCEDURES AND DEFINITIONS
This appendix sets forth the additional responsibilities and obligations of Compliance Officers, and the Legal/Administration and Legal/Compliance Departments, under Franklin Templeton Investments' Code of Ethics and Policy Statement on Insider Trading.
I. RESPONSIBILITIES OF EACH DESIGNATED COMPLIANCE OFFICER
A. PRE-CLEARANCE STANDARDS
1. GENERAL PRINCIPLES
The Director, Global Compliance, or a Preclearance Officer, shall only permit an access person to go forward with a proposed security(17) transaction if he or she determines that, considering all of the facts and circumstances, the transaction does not violate the provisions of Rule 17j-1, or of this Code and there is no likelihood of harm to a client.
2. ASSOCIATED CLIENTS
Unless there are special circumstances that make it appropriate to
disapprove a personal securities transaction request, a Preclearance Officer
shall consider only those securities transactions of the "Associated Clients" of
the access person, including open and executed orders and recommendations, in
determining whether to approve such a request. "Associated Clients" are those
Funds or clients whose trading information would be available to the access
person during the course of his or her regular functions or duties. Currently,
there are three groups of Associated Clients: (i) the Franklin Mutual Series
Funds and clients advised by Franklin Mutual Advisers, LLC ("Mutual Clients");
(ii) the Franklin Group of Funds and the clients advised by the various Franklin
investment advisers ("Franklin Clients"); and (iii) the Templeton Group of Funds
and the clients advised by the various Templeton investment advisers ("Templeton
Clients"). Thus, persons who have access to the trading information of Mutual
Clients generally will be precleared solely against the securities transactions
of the Mutual Clients, including open and executed orders and recommendations.
Similarly, persons who have access to the trading information of Franklin
Clients or Templeton Clients generally will be precleared solely against the
securities transactions of Franklin Clients or Templeton Clients, as
appropriate.
Certain officers of Franklin Templeton Investments, as well as legal, compliance, fund accounting, investment operations and other personnel who generally have access to trading information of the funds and clients of Franklin Templeton Investments during the course of their regular functions and duties, will have their personal securities transactions precleared against executed transactions, open orders and recommendations of the entire Franklin Templeton Investments.
3. SPECIFIC STANDARDS
(a) Securities Transactions by Funds or clients
No clearance shall be given for any transaction in any security on any day during which an Associated Client of the access person has executed a buy or sell order in that security, until seven (7) calendar days after the order has been executed. Notwithstanding a transaction in the previous seven days, clearance may be granted to sell if all Associated Clients have disposed of the security.
(b) Securities under Consideration
Open Orders
No clearance shall be given for any transaction in any security on any day which an Associated Client of the access person has a pending buy or sell order for such security, until seven (7) calendar days after the order has been executed.
Recommendations
No clearance shall be given for any transaction in any security on any day on which a recommendation for such security was made by a Portfolio Person, until seven (7) calendar days after the recommendation was made and no orders have subsequently been executed or are pending.
(c) Private Placements
In considering requests by Portfolio Personnel for approval of limited partnerships and other private placement securities transactions, the Director, Global Compliance shall consult with an executive officer of Franklin Resources, Inc. In deciding whether to approve the transaction, the Director, Global Compliance and the executive officer shall take into account, among other factors, whether the investment opportunity should be reserved for a Fund or other client, and whether the investment opportunity is being offered to the Portfolio Person by virtue of his or her position with Franklin Templeton Investments. If the Portfolio Person receives clearance for the transaction, an investment in the same issuer may only be made for a Fund or client if an executive officer of Franklin Resources, Inc., who has been informed of the Portfolio Person's pre-existing investment and who has no interest in the issuer, approves the transaction.
(d) Duration of Clearance
If a Preclearance Officer approves a proposed securities transaction, the order for the transaction must be placed and effected by the close of the next business day following the day approval was granted. The Director, Global Compliance may, in his or her discretion, extend the clearance period up to seven calendar days, beginning on the date of the approval, for a securities transaction of any access person who demonstrates that special circumstances make the extended clearance period necessary and appropriate.(18) The Director, Global Compliance may, in his or her discretion, after consultation with a member of senior management for Franklin Resources, Inc., renew the approval for a particular transaction for up to an additional seven calendar days upon a similar showing of special circumstances by the access person. The Director, Global Compliance may shorten or rescind any approval or renewal of approval under this paragraph if he or she determines it is appropriate to do so.
B. WAIVERS BY THE DIRECTOR, GLOBAL COMPLIANCE
The Director, Global Compliance may, in his or her discretion, after consultation with an executive officer of Franklin Resources, Inc., waive compliance by any access person with the provisions of the Code, if he or she finds that such a waiver:
(1) is necessary to alleviate undue hardship or in view of unforeseen circumstances or is otherwise appropriate under all the relevant facts and circumstances;
(2) will not be inconsistent with the purposes and objectives of the Code;
(3) will not adversely affect the interests of advisory clients of Franklin Templeton Investments, the interests of Franklin Templeton Investments or its affiliates; and
(4) will not result in a transaction or conduct that would violate provisions of applicable laws or regulations.
Any waiver shall be in writing, shall contain a statement of the basis for it, and the Director, Global Compliance, shall promptly send a copy to the General Counsel of Franklin Resources, Inc.
C. CONTINUING RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
A Preclearance Officer shall make a record of all requests for pre-clearance regarding the purchase or sale of a security, including the date of the request, the name of the access person, the details of the proposed transaction, and whether the request was approved or denied. A Preclearance Officer shall keep a record of any waivers given, including the reasons for each exception and a description of any potentially conflicting Fund or client transactions.
A Preclearance Officer shall also collect the signed initial acknowledgments of receipt and the annual acknowledgments from each access person of receipt of a copy of the Code and Insider Trading Policy, as well as reports, as applicable, on Schedules B, C, D, E and F of the Code. In addition, a Preclearance Officer shall request copies of all confirmations, and other information with respect to an account opened and maintained with the broker-dealer by any access person of the Franklin Templeton Group. A Preclearance Officer shall preserve those acknowledgments and reports, the records of consultations and waivers, and the confirmations, and other information for the period required by applicable regulation.
A Preclearance Officer shall review brokerage transaction confirmations, account statements, Schedules B, C, D, E, F and Private Placement Checklists of Access Persons for compliance with the Code. The reviews shall include, but are not limited to;
(1) Comparison of brokerage confirmations, Schedule Bs, and/or brokerage statements to preclearance request worksheets or, if a private placement, the Private Placement Checklist;
(2) Comparison of brokerage statements and/or Schedule Cs to current securities holding information;
(3) Comparison of Schedule F to current securities account information;
(4) Conducting periodic "back-testing" of access person transactions, Schedule Es and/or Schedule Gs in comparison to fund and client transactions;
A Preclearance Officer shall evidence review by initialing and dating the appropriate document. Any apparent violations of the Code detected by a Preclearance Officer during his or her review shall be promptly brought to the attention of the Director, Global Compliance.
D. PERIODIC RESPONSIBILITIES OF THE LEGAL COMPLIANCE DEPARTMENT
The Legal Compliance Department shall consult with the General Counsel and the Human Resources Department, as the case may be, to assure that:
(1) Adequate reviews and audits are conducted to monitor compliance with the reporting, pre-clearance, prohibited transaction and other requirements of the Code.
(2) Adequate reviews and audits are conducted to monitor compliance with the reporting, pre-clearance, prohibited transaction and other requirements of the Code.
(3) All access persons and new employees of the Franklin Templeton Group are adequately informed and receive appropriate education and training as to their duties and obligations under the Code.
(4) There are adequate educational, informational and monitoring efforts to ensure that reasonable steps are taken to prevent and detect unlawful insider trading by access persons and to control access to inside information.
(5) Written compliance reports are submitted to the Board of Directors of Franklin Resources, Inc., and the Board of each relevant Fund at least annually. Such reports will describe any issues arising under the Code or procedures since the last report, including, but not limited to, information about material violations of the Code or procedures and sanctions imposed in response to the material violations.
(6) The Legal Compliance Department will certify at least annually to the Fund's board of directors that Franklin Templeton Investments has adopted procedures reasonably necessary to prevent Access Persons from violating the Code, and
(7) Appropriate records are kept for the periods required by law.
E. APPROVAL BY FUND'S BOARD OF DIRECTORS
(1) Basis for Approval
The Board of Directors/Trustees must base its approval of the Code on a determination that the Code contains provisions reasonably necessary to prevent access persons from engaging in any conduct prohibited by rule 17j-1.
(2) New Funds
At the time a new fund is organized, the Legal Compliance Department will provide the Fund's board of directors, a certification that the investment adviser and principal underwriter has adopted procedures reasonably necessary to prevent Access Persons from violating the Code. Such certification will state that the Code contains provisions reasonably necessary to prevent Access Persons from violating the Code.
(3) Material Changes to the Code of Ethics
The Legal Compliance Department will provide the Fund's board of directors a written description of all material changes to the Code no later than six months after adoption of the material change by Franklin Templeton Investments.
II. COMPILATION OF DEFINITIONS OF IMPORTANT TERMS
For purposes of the Code of Ethics and Insider Trading Policy, the terms below have the following meanings:
1934 ACT - The Securities Exchange Act of 1934, as amended.
1940 ACT - The Investment Company Act of 1940, as amended.
ACCESS PERSON - Each director, trustee, general partner or officer, and any
other person that directly or indirectly controls (within the meaning of
Section 2(a)(9) of the 1940 Act) the Franklin Templeton Group or a person,
including an Advisory Representative, who has access to information
concerning recommendations made to a Fund or client with regard to the
purchase or sale of a security.
ADVISORY REPRESENTATIVE - Any officer or director of Franklin Resources; any employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; any employee who, in connection with his or her duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by Franklin Resources prior to the effective dissemination of such recommendations or of the information concerning such recommendations: (i) any person in a control relationship to Franklin Resources, (ii) any affiliated person of such controlling person, and (iii) any affiliated person of such affiliated person.
AFFILIATED PERSON - it meaning as Section 2(a)(3) of the Investment Company Act of 1940. An "affiliated person" of an investment company includes directors, officers, employees, and the investment adviser. In addition, it includes any person owning 5% of the company's voting securities, any person in which the investment company owns 5% or more of the voting securities, and any person directly or indirectly controlling, controlled by, or under common control with the company.
APPROPRIATE ANALYST - With respect to any access person, any securities analyst or portfolio manager making investment recommendations or investing funds on behalf of an Associated Client and who may be reasonably expected to recommend or consider the purchase or sale of a security.
ASSOCIATED CLIENT - A Fund or client whose trading information would be available to the access person during the course of his or her regular functions or duties.
BENEFICIAL OWNERSHIP - Has the same meaning as in Rule 16a-1(a)(2) under the 1934 Act. Generally, a person has a beneficial ownership in a security if he or she, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the security. There is a presumption of a pecuniary interest in a security held or acquired by a member of a person's immediate family sharing the same household.
EXCHANGE TRADED FUNDS AND HOLDING COMPANY DEPOSITORY RECEIPTS - An Exchanged
Traded Fund or "ETF" is a basket of securities that is designed to
generally track an index--broad stock or bond market, stock industry
sector, or international stock. Holding Company Depository Receipts
"Holdrs" are securities that represent an investor's ownership in the
common stock or American Depository Receipts of specified companies in a
particular industry, sector or group.
FUNDS - Investment companies in the Franklin Templeton Group of Funds.
HELD OR TO BE ACQUIRED - A security is "held or to be acquired" if within the most recent 15 days it (i) is or has been held by a Fund, or (ii) is being or has been considered by a Fund or its investment adviser for purchase by the Fund.
PORTFOLIO PERSON - Any employee of Franklin Templeton Investments, who, in connection with his or her regular functions or duties, makes or participates in the decision to purchase or sell a security by a Fund in Franklin Templeton Investments, or any other client or if his or her functions relate to the making of any recommendations about those purchases or sales. Portfolio Persons include portfolio managers, research analysts, traders, persons serving in equivalent capacities (such as Management Trainees), persons supervising the activities of Portfolio Persons, and anyone else designated by the Director, Global Compliance
PROPRIETARY ACCOUNTS - Any corporate account or other account including, but not limited to, a limited partnership, a corporate hedge fund, a limited liability company or any other pooled investment vehicle in which Franklin Resources or its affiliates, owns 25 percent or more of the outstanding capital or is entitled to 25% or more of the profits or losses in the account (excluding any asset based investment management fees based on average periodic net assets in accounts).
SECURITY - Any stock, note, bond, evidence of indebtedness, participation or interest in any profit-sharing plan or limited or general partnership, investment contract, certificate of deposit for a security, fractional undivided interest in oil or gas or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit), guarantee of, or warrant or right to subscribe for or purchase any of the foregoing, and in general any interest or instrument commonly known as a security, except commodity futures, currency and currency forwards. For the purpose of this Code, "security" does not include:
(1) Direct obligations of the Government of the United States;
(2) Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and
(3) Shares issued by open-end funds.
See Section III of Appendix A for a summary of different requirements for different types of securities.
III. SECURITIES EXEMPT FROM THE PROHIBITED , REPORTING, AND PRE-CLEARANCE PROVISIONS
A. PROHIBITED TRANSACTIONS
Securities that are EXEMPT from the prohibited transaction provisions of
Section 3.4 include:
(1) securities that are direct obligations of the U.S. Government, such as Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof;
(2) high quality short-term instruments ("money market instruments") including but not limited to (i) bankers' acceptances, (ii) U.S. bank certificates of deposit; (iii) commercial paper; and (iv) repurchase agreements;
(3) shares of registered open-end investment companies;
(4) commodity futures, currencies, currency forwards and derivatives thereof;
(5) securities that are prohibited investments for all Funds and clients advised by the entity employing the access person; and
(6) transactions in securities issued or guaranteed by the governments or their agencies or instrumentalities of Canada, the United Kingdom, France, Germany, Switzerland, Italy and Japan and derivatives thereof.
B. REPORTING AND PRECLEARANCE
Securities that are EXEMPT from both the reporting requirements of Section 5 and preclearance requirements of Section 6 of the Code include:
(1) securities that are direct obligations of the U.S. Government, such as Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof;
(2) high quality short-term instruments ("money market instruments") including but not limited to (i) bankers' acceptances, (ii) U.S. bank certificates of deposit; (iii) commercial paper; and (iv) repurchase agreements;
(3) shares of registered open-end investment companies; and
(4) commodity futures, currencies, currency forwards and derivatives thereof.
IV. LEGAL REQUIREMENT
Rule 17j-1 under the Investment Company Act of 1940 ("1940 Act") makes it unlawful for any affiliated person of Franklin Templeton Investments in connection with the purchase or sale of a security, including any option to purchase or sell, and any security convertible into or exchangeable for, any security that is "held or to be acquired" by a Fund in Franklin Templeton Investments:
A. To employ any device, scheme or artifice to defraud a Fund;
B. To make to a Fund any untrue statement of a material fact or omit to state to a Fund a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;
C. To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon a Fund; or
D. To engage in any manipulative practice with respect to a Fund.
A security is "held or to be acquired" if within the most recent 15 days it (i) is or has been held by a Fund, or (ii) is being or has been considered by a Fund or its investment adviser for purchase by the Fund.
APPENDIX B: ACKNOWLEGMENT FORM AND SCHEDULES
ACKNOWLEDGMENT FORM
CODE OF ETHICS AND POLICY STATEMENT ON INSIDER TRADING
TO: DIRECTOR OF GLOBAL COMPLIANCE, LEGAL COMPLIANCE DEPARTMENT
I HEREBY ACKNOWLEDGE RECEIPT OF A COPY OF FRANKLIN TEMPLETON INVESTMENTS CODE OF
ETHICS AND POLICY STATEMENT ON INSIDER TRADING, Amended and Restated, December
2002, WHICH I HAVE READ AND UNDERSTAND. I WILL COMPLY FULLY WITH ALL PROVISIONS
OF THE CODE AND THE INSIDER TRADING POLICY TO THE EXTENT THEY APPLY TO ME DURING
THE PERIOD OF MY EMPLOYMENT. ADDITIONALLY, I AUTHORIZE ANY BROKER-DEALER, BANK
OR INVESTMENT ADVISER WITH WHOM I HAVE SECURITIES ACCOUNTS AND ACCOUNTS IN WHICH
I HAVE BENEFICIAL OWNERSHIP, TO PROVIDE BROKERAGE CONFIRMATIONS AND STATEMENTS
AS REQUIRED FOR COMPLIANCE WITH THE CODE. I FURTHER UNDERSTAND AND ACKNOWLEDGE
THAT ANY VIOLATION OF THE CODE OR INSIDER TRADING POLICY, INCLUDING ENGAGING IN
A PROHIBITED TRANSACTION OR FAILURE TO FILE REPORTS AS REQUIRED (SEE SCHEDULES
B, C, D, E, F AND G), MAY SUBJECT ME TO DISCIPLINARY ACTION, INCLUDING
TERMINATION OF EMPLOYMENT.
Instructions:
1. Complete all sections of this form.
2. Print the completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address);
Lpreclear@frk.com (external address)
SCHEDULE A: LEGAL AND COMPLIANCE OFFICERS AND PRECLEARANCE DESK TELEPHONE & FAX NUMBERS(19)
LEGAL OFFICER
MURRAY L. SIMPSON
EXECUTIVE VICE PRESIDENT & GENERAL COUNSEL
FRANKLIN TEMPLETON INVESTMENTS
ONE FRANKLIN PARKWAY
SAN MATEO, CA 94403-1906
(650) 525 -7331
COMPLIANCE OFFICERS
DIRECTOR, GLOBAL COMPLIANCE PRECLEARANCE OFFICERS
James M. Davis Stephanie Harwood, Supervisor
Franklin Templeton Investments Lisa Del Carlo
One Franklin Parkway Darlene Nisby
San Mateo, CA 94403-1906 Legal Compliance Department
(650) 312-2832 Franklin Templeton Investments
One Franklin Parkway
San Mateo, CA 94403-1906
(650) 312-3693 (telephone)
(650) 312-5646 (facsimile)
Preclear, Legal (internal e-mail address)
Lpreclear@frk.com (external e-mail address)
|
SCHEDULE B - TRANSACTIONS REPORT
This report of personal securities transactions not reported by duplicate confirmations and brokerage statements pursuant to Section 5.3 of the Code is required pursuant to Rule 204-2(a) of the Investment Advisers Act of 1940 or Rule 17j-1(c) of the Investment Company Act of 1940. The report must be completed and submitted to the Compliance Department no later than 10 calendar days after the end of the calendar quarter. Refer to Section 5.3 of the Code of Ethics for further instructions.
Instructions:
1. Complete all sections of this form.
2. Print completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
PRE-CLEARED
THROUGH
SECURITY NAME DESCRIPTION AND COMPLIANCE
BUY, SELL TYPE OF SECURITY PRINCIPAL DEPARTMENT
TRADE DATE OR OTHER (COMMON,BOND,OPTION, ETC.) QUANTITY PRICE AMOUNT BROKER-DEALER OR BANK (DATE OR N/A)
---------- -------- ----------------------------- -------- ----- --------- --------------------- -------------
|
THE REPORT OR RECORDING OF ANY TRANSACTIONS ABOVE SHALL NOT BE CONSTRUED AS AN ADMISSION THAT I HAVE ANY DIRECT OR INDIRECT OWNERSHIP IN THE SECURITIES.
SCHEDULE C - INITIAL, ANNUAL, & UPDATED DISCLOSURE OF ACCESS PERSONS SECURITIES HOLDINGS
This report shall set forth the security name or description and security class of each security holding in which you have a direct or indirect beneficial interest, including holdings by a spouse, minor children, trusts, foundations, and any account for which trading authority has been delegated to you, other than authority to trade for a Fund in or a client of Franklin Templeton Investments. In lieu of listing each security position below, you may instead attach copies of brokerage statements, sign below and return Schedule C and brokerage statements to the Legal Compliance Department within 10 days if an initial report or by January 30th of each year if an annual report. Refer to Sections 5.2.A and 5.4.A of the Code for additional filing instructions.
Instructions:
1. Complete all sections of this form.
2. Print completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance P.O. Box 25050 San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
Securities that are EXEMPT from being reported on Schedule C include: (i) securities that are direct obligations of the U.S. Government, such as Treasury bills, notes and bonds, and U.S. Savings Bonds and derivatives thereof; (ii) high quality short-term instruments ("money market instruments") including but not limited to bankers' acceptances, U.S. bank certificates of deposit; commercial paper; and repurchase agreements; (iii) shares of registered open-end investment companies; and (iv) commodity futures, currencies, currency forwards and derivatives thereof.
| | I DID NOT HAVE ANY PERSONAL SECURITIES HOLDINGS FOR YEAR
ENDED:_______________ (OR CURRENT DATE IF INITIAL DISCLOSURE)
| | I HAVE ATTACHED STATEMENTS CONTAINING ALL MY PERSONAL SECURITIES HOLDINGS FOR YEAR ENDED:_____________ (OR CURRENT DATE IF INITIAL DISCLOSURE )
| |I HAVE LISTED BELOW ALL MY PERSONAL SECURITIES HOLDINGS FOR YEAR
ENDED:_____________ (OR CURRENT DATE IF INITIAL DISCLOSURE)
Security Description, including Quantity &
interest rate and maturity (if Security Type Principal Name of Broker - Dealer Account
appropriate) (Stock, Bond, Option, etc.) Amount or Bank Number
-------------------------------- --------------------------- -------------- ----------------------- ----------
|
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED PARTY.
SCHEDULE D - NOTIFICATION OF SECURITIES ACCOUNT
All Franklin registered representatives and Access Persons, PRIOR TO OPENING A BROKERAGE ACCOUNT OR PLACING AN INITIAL ORDER, are required to notify the Legal Compliance Preclearance Department and the executing broker-dealer in writing. This includes accounts in which the registered representative or access person has or will have a financial interest in (e.g., a spouse's account) or discretionary authority (e.g., a trust account for a minor child).
UPON RECEIPT OF THE NOTIFICATION OF SECURITIES ACCOUNT FORM, THE LEGAL COMPLIANCE PRECLEARANCE DEPARTMENT WILL CONTACT THE BROKER-DEALER IDENTIFIED BELOW AND REQUEST THAT DUPLICATE CONFIRMATIONS AND STATEMENTS OF YOUR BROKERAGE ACCOUNT ARE SENT TO FRANKLIN TEMPLETON INVESTMENTS.
Instructions:
1. Complete all sections of this form.
2. Print the completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
SCHEDULE E - NOTIFICATION OF DIRECT OR INDIRECT BENEFICIAL INTEREST
If you have any beneficial ownership in a security and you recommend to the Appropriate Analyst that the security be considered for purchase or sale by an Associated Client, or if you carry out a purchase or sale of that security for an Associated Client, you must disclose your beneficial ownership to the Legal-Compliance Department and the Appropriate Analyst in writing on Schedule E (or an equivalent form containing similar information) before the purchase or sale, or before or simultaneously with the recommendation.
Instructions:
1. Complete all sections of this form.
2. Print completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
SECURITY OWNERSHIP YEAR METHOD OF DATE AND METHOD PRIMARY NAME OF DATE OF
DESCRIPTION TYPE: ACQUIRED ACQUISITION LEARNED THAT PORTFOLIO PERSON VERBAL
(DIRECT OR (PURCHASE/GIFT/ SECURITY'S UNDER MANAGER OR NOTIFIED NOTIFICATION
INDIRECT) OTHER) CONSIDERATION BY PORTFOLIO
FUNDS ANALYST
---------------- ----------- -------- -------------- ---------------- ---------- --------- ----------------
|
SCHEDULE F - INITIAL, ANNUAL, & UPDATED DISCLOSURE OF SECURITIES ACCOUNTS
This report shall set forth the name and description of each securities account in which you have a direct or indirect beneficial interest, including securities accounts of a spouse, minor children, trusts, foundations, and any account for which trading authority has been delegated to you, other than authority to trade for a Fund in or a client of the Franklin Templeton Group. In lieu of listing each securities account below, you may instead attach copies of the brokerage statements, sign below and return Schedule F and brokerage statements to the Compliance Department.
Instructions:
1. Complete all sections of this form.
2. Print completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
ACCOUNT NAME(S) NAME OF BROKERAGE FIRM, ADDRESS OF BROKERAGE FIRM, NAME OF ACCOUNT ACCOUNT
(REGISTRATION SHOWN ON BANK OR INVESTMENT ADVISER BANK OR INVESTMENT ADVISER EXECUTIVE/REPRESENTATIVE NUMBER
STATEMENT) (STREET/CITY/STATE/ZIP CODE)
------------------------ --------------------------- ------------------------------ ------------------------ ----------
|
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED TO ME.
SCHEDULE G - INITIAL AND ANNUAL CERTIFICATION OF DISCRETIONARY AUTHORITY
This report shall set forth the account name or description in which you have a direct or indirect beneficial interest, including holdings by a spouse, minor children, trusts, foundations, and as to which trading authority has been delegated by you to an unaffiliated registered broker-dealer, registered investment adviser, or other investment manager acting in a similar fiduciary capacity, who exercises sole investment discretion.
Instructions:
1. Complete all sections of this form.
2. Print completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
NAME(S) AS SHOWN ON ACCOUNT OR NAME/DESCRIPTION OF TYPE OF OWNERSHIP: ACCOUNT NUMBER
INVESTMENT BROKERAGE FIRM, BANK, DIRECT OWNERSHIP (DO) (IF APPLICABLE)
INVESTMENT ADVISER OR INDIRECT OWNERSHIP (IO)
INVESTMENT
------------------------------ --------------------- ----------------------- -----------------
|
TO THE BEST OF MY KNOWLEDGE I HAVE DISCLOSED ALL OF MY SECURITIES ACCOUNTS AND/OR INVESTMENTS IN WHICH I HAVE A DIRECT OR INDIRECT BENEFICIAL INTEREST, INCLUDING SECURITY ACCOUNTS OF A SPOUSE, MINOR CHILDREN, TRUSTS, FOUNDATIONS, AND ANY ACCOUNT FOR WHICH TRADING AUTHORITY HAS BEEN DELEGATED AN UNAFFILIATED PARTY. FURTHER, I CERTIFY THAT I DO NOT HAVE ANY DIRECT OR INDIRECT INFLUENCE OR CONTROL OVER THE ACCOUNTS LISTED ABOVE.
SCHEDULE H: CHECKLIST FOR INVESTMENTS IN PARTNERSHIPS AND SECURITIES ISSUED IN PRIVATE PLACEMENTS MADE BY PORTFOLIO PERSONS
In considering requests by Portfolio Personnel for approval of limited partnerships and other private placement securities transactions, the Compliance Officer shall consult with an executive officer of Franklin Resources, Inc. In deciding whether to approve the transaction, the Compliance Officer and the executive officer shall take into account, among other factors, whether the investment opportunity should be reserved for a Fund or other client, and whether the investment opportunity is being offered to the access person by virtue of his or her position with Franklin Templeton Investments. IF THE ACCESS PERSON RECEIVES CLEARANCE FOR THE TRANSACTION, NO INVESTMENT IN THE SAME ISSUER MAY BE MADE FOR A FUND OR CLIENT UNLESS AN EXECUTIVE OFFICER OF FRANKLIN RESOURCES, INC., WITH NO INTEREST IN THE ISSUER, APPROVES THE TRANSACTION.
Instructions:
1. Complete all sections of this form.
2. Print the completed form, sign, and date.
3. Submit completed form to Legal Compliance via:
Inter-office Mail to: Preclearance
L-Comp SM-920/2
U.S. Mail to: Franklin Templeton Investments
Attn: Legal-Compliance/Preclearance
P.O. Box 25050
San Mateo, CA 94402-5050
Telephone: (650) 312-3693 Fax: (650) 312-5646
E-mail: Preclear,Legal (internal address); Lpreclear@frk.com (external address)
IN ORDER TO EXPEDITE YOUR REQUEST, PLEASE PROVIDE THE FOLLOWING INFORMATION:
1) PLEASE ATTACH PAGES OF THE OFFERING MEMORANDUM (OR OTHER DOCUMENTS) SUMMARIZING THE INVESTMENT OPPORTUNITY, INCLUDING:
i) Name of the partnership/hedge fund/issuer;
ii) Name of the general partner, location & telephone number;
iii) Summary of the offering; including the total amount the offering/issuer;
iv) Percentage your investment will represent of the total offering;
v) Plan of distribution; and
vi) Investment objective and strategy,
2) PLEASE RESPOND TO THE FOLLOWING QUESTIONS:
a) Was this investment opportunity presented to you in your capacity as a portfolio manager? If no, please explain the relationship, if any, you have to the issuer or principals of the issuer.
b) Is this investment opportunity suitable for any fund/client that you advise? (20) If yes, why isn't the investment being made on behalf of the fund/client? If no, why isn't the investment opportunity suitable for the fund/clients?
c) Do any of the fund/clients that you advise presently hold securities of the issuer of this proposed investment (e.g., common stock, preferred stock, corporate debt, loan participations, partnership interests, etc.)? If yes, please provide the names of the funds/clients and security description.
d) Do you presently have or will you have any managerial role with the company/issuer as a result of your investment? If yes, please explain in detail your responsibilities, including any compensation you will receive.
e) Will you have any investment control or input to the investment decision making process?
f) Will you receive reports of portfolio holdings? If yes, when and how frequently will these be provided?
3) REMINDER: PERSONAL SECURITIES TRANSACTIONS THAT DO NOT GENERATE BROKERAGE CONFIRMATIONS (E.G., INVESTMENTS PRIVATE PLACEMENTS) MUST BE REPORTED TO THE LEGAL-COMPLIANCE DEPARTMENT ON THE SCHEDULE B FORM WITHIN 10 CALENDAR DAYS AFTER YOU ARE NOTIFIED.
------------------------------- ------------------------ ----------------- PORTFOLIO PERSON'S NAME SIGNATURE DATE APPROVED BY: ------------------------------- ------------------------ ----------------- CHIEF INVESTMENT OFFICER'S NAME SIGNATURE DATE |
LEGAL COMPLIANCE USE ONLY
Date Received:____________ Date Entered in Lotus Notes:_______________________
Date Forwarded to FRI Executive Officer:___________________________
Approved By:
-------------------------------------------- --------------------
James M. Davis, Director, Global Compliance Date
-------------------------------------------- --------------------
Murray L. Simpson, EVP-General Counsel Date
Date Entered in Examiner:___________ Precleared: | | | |
Yes No
(attach E-Mail)
|
APPENDIX C: INVESTMENT ADVISOR AND BROKER-DEALER AND OTHER
SUBSIDIARIES OF FRANKLIN RESOURCES, INC. - DECEMBER 2002
Franklin Advisers, Inc. IA Templeton Investment Counsel, LLC IA
Franklin Advisory Services, LLC IA Templeton Asset Management, Ltd. IA/FIA
Franklin Investment Advisory Services, Inc. IA Franklin Templeton Investments Japan Ltd. FIA
Franklin Private Client Group, Inc. IA Closed Joint-Stock Company Templeton (Russia) FIA
Franklin Mutual Advisers, LLC IA Templeton Unit Trust Management Ltd. (UK) FBD
Franklin Properties, Inc. REA Orion Fund Management Ltd. FIA
Franklin/Templeton Distributors, Inc. BD Templeton Global Advisors Ltd. (Bahamas) IA
IA Templeton Asset Management (India) Pvt. Ltd. FIA/FBD
Templeton (Switzerland), Ltd. FBD Templeton Italia SIM S.P.A. (Italy) FBD
FBD Franklin Templeton Investment Services GmbH FBD
(Germany)
IA/FIA FTTrust Company Trust Co
Franklin Templeton International Services S.A. FBD Franklin Templeton Services, LLC BM
(Luxembourg)
Franklin Templeton Investments Australia Limited FIA Franklin Templeton Investments Corp. (Ontario) IA/FIA
Franklin/Templeton Investor Services, LLC TA Templeton Global Advisors Limited (Bahamas) IA
Franklin Templeton Alternative Strategies, LLC IA Templeton Asset Management Ltd. (Singapore) IA/FIA
FTI Institutional, LLC IA Fiduciary Trust Company International Trust Co.
Franklin Templeton Asset Strategies LLC IA Fiduciary International, Inc IA
Fiduciary Financial Services, Corp. BD Fiduciary Investment Management International Inc IA
Franklin Templeton Asset Management S.A. (France) FIA Fiduciary Trust International Australia Limited FIA
Franklin Templeton Investments (Asia) Limited FBD/IA Fiduciary Trust International Asia Limited (Hong FIA
(Hong Kong) Kong)
Franklin Templeton Investment Management Limited IA/FIA Fiduciary Trust International Limited (UK) IA/FIA
(UK)
Franklin Templeton Investments Corp. (Canada) IA/FIA Fiduciary Trust International Investment FIA
Management, Inc. (Japan)
Templeton/Franklin Investment Services, Inc IA/BD
|
Codes: IA: US registered investment adviser
BD: US registered broker-dealer
FIA: Foreign equivalent investment adviser
FBD: Foreign equivalent broker-dealer
TA: US registered transfer agent
BM: Business manager to the funds
REA: Real estate adviser
Trust: Trust company
|
POLICY STATEMENT ON INSIDER TRADING
A. LEGAL REQUIREMENT
Pursuant to the Insider Trading and Securities Fraud Enforcement Act of 1988, it is the policy of Franklin Templeton Investments to forbid any officer, director, employee, consultant acting in a similar capacity, or other person associated with Franklin Templeton Investments from trading, either personally or on behalf of clients, including all client assets managed by the entities in Franklin Templeton Investments, on material non-public information or communicating material non-public information to others in violation of the law. This conduct is frequently referred to as "insider trading." Franklin Templeton Investment's Policy Statement on Insider Trading applies to every officer, director, employee or other person associated with Franklin Templeton Investments and extends to activities within and outside their duties with Franklin Templeton Investments. Every officer, director and employee must read and retain this policy statement. Any questions regarding Franklin Templeton Investments Policy Statement on Insider Trading or the Compliance Procedures should be referred to the Legal Department.
The term "insider trading" is not defined in the federal securities laws, but generally is used to refer to the use of material non-public information to trade in securities (whether or not one is an "insider") or to communications of material non-public information to others.
While the law concerning insider trading is not static, it is generally understood that the law prohibits:
(1) trading by an insider, while in possession of material non-public information; or
(2) trading by a non-insider, while in possession of material non-public information, where the information either was disclosed to the non-insider in violation of an insider's duty to keep it confidential or was misappropriated; or
(3) communicating material non-public information to others.
The elements of insider trading and the penalties for such unlawful conduct are discussed below. If, after reviewing this policy statement, you have any questions, you should consult the Legal Department.
0B. WHO IS AN INSIDER?
The concept of "insider" is broad. It includes officers, directors and employees of a company. In addition, a person can be a "temporary insider" if he or she enters into a special confidential relationship in the conduct of a company's affairs and as a result is given access to information solely for the company's purposes. A temporary insider can include, among others, a company's outside attorneys, accountants, consultants, bank lending officers, and the employees of such organizations. In addition, an investment adviser may become a temporary insider of a company it advises or for which it performs other services. According to the U.S. Supreme Court, the company must expect the outsider to keep the disclosed non-public information confidential and the relationship must at least imply such a duty before the outsider will be considered an insider.
C. WHAT IS MATERIAL INFORMATION?
Trading on inside information is not a basis for liability unless the information is material. "Material information" generally is defined as information for which there is a substantial likelihood that a reasonable investor would consider it important in making his or her investment decisions, or information that is reasonably certain to have a substantial effect on the price of the company's securities. Information that officers, directors and employees should consider material includes, but is not limited to: dividend changes, earnings estimates, changes in previously released earnings estimates, significant merger or acquisition proposals or agreements, major litigation, liquidation problems, and extraordinary management developments.
Material information does not have to relate to a company's business. For example, in Carpenter v. U.S., 108 U.S. 316 (1987), the Supreme Court considered as material certain information about the contents of a forthcoming newspaper column that was expected to affect the market price of a security. In that case, a Wall Street Journal reporter was found criminally liable for disclosing to others the dates that reports on various companies would appear in the Wall Street Journal and whether those reports would be favorable or not.
D. WHAT IS NON-PUBLIC INFORMATION?
Information is non-public until it has been effectively communicated to the marketplace. One must be able to point to some fact to show that the information is generally public. For example, information found in a report filed with the Securities and Exchange Commission ("SEC"), or appearing in Dow Jones, Reuters Economic Services, The Wall Street Journal or other publications of general circulation would be considered public.
E. BASIS FOR LIABILITY
1. FIDUCIARY DUTY THEORY
In 1980, the Supreme Court found that there is no general duty to disclose before trading on material non-public information, but that such a duty arises only where there is a fiduciary relationship. That is, there must be a relationship between the parties to the transaction such that one party has a right to expect that the other party will not disclose any material non-public information or refrain from trading. Chiarella v. U.S., 445 U.S. 22 (1980).
In Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court stated alternate theories under which non-insiders can acquire the fiduciary duties of insiders. They can enter into a confidential relationship with the company through which they gain information (e.g., attorneys, accountants), or they can acquire a fiduciary duty to the company's shareholders as "tippees" if they are aware
or should have been aware that they have been given confidential information by an insider who has violated his fiduciary duty to the company's shareholders.
However, in the "tippee" situation, a breach of duty occurs only if the insider personally benefits, directly or indirectly, from the disclosure. The benefit does not have to be pecuniary but can be a gift, a reputational benefit that will translate into future earnings, or even evidence of a relationship that suggests a quid pro quo.
2. MISAPPROPRIATION THEORY
Another basis for insider trading liability is the "misappropriation" theory, under which liability is established when trading occurs on material non-public information that was stolen or misappropriated from any other person. In U.S. v. Carpenter, supra, the Court found, in 1987, a columnist defrauded The Wall Street Journal when he stole information from the Wall Street Journal and used it for trading in the securities markets. It should be noted that the misappropriation theory can be used to reach a variety of individuals not previously thought to be encompassed under the fiduciary duty theory.
F. PENALTIES FOR INSIDER TRADING
Penalties for trading on or communicating material non-public information are severe, both for individuals involved in such unlawful conduct and their employers. A person can be subject to some or all of the penalties below even if he or she does not personally benefit from the violation. Penalties include:
- civil injunctions;
- treble damages;
- disgorgement of profits;
- jail sentences;
- fines for the person who committed the violation of up to three times the profit gained or loss avoided, whether or not the person actually benefited; and
- fines for the employer or other controlling person of up to the greater of $1,000,000 or three times the amount of the profit gained or loss avoided.
In addition, any violation of this policy statement can result in serious sanctions by the Franklin Templeton Group, including dismissal of any person involved.
G. INSIDER TRADING PROCEDURES
Each access person, Compliance Officer, the Risk Management Department, and the Legal Department, as the case may be, shall comply with the following procedures.
1. IDENTIFYING INSIDE INFORMATION
Before trading for yourself or others, including investment companies or private accounts managed by the Franklin Templeton Group, in the securities of a company about which you may have potential inside information, ask yourself the following questions:
- Is the information material?
- Is this information that an investor would consider important in making his or her investment decisions?
- Is this information that would substantially affect the market price of the securities if generally disclosed?
- Is the information non-public?
- To whom has this information been provided?
- Has the information been effectively communicated to the marketplace (e.g., published in Reuters, The Wall Street Journal or other publications of general circulation)?
If, after consideration of these questions, you believe that the information may be material and non-public, or if you have questions as to whether the information is material and non-public, you should take the following steps:
(i) Report the matter immediately to the designated Compliance Officer, or if he or she is not available, to the Legal Department.
(ii) Do not purchase or sell the securities on behalf of yourself or others, including investment companies or private accounts managed by Franklin Templeton Investments.
(iii) Do not communicate the information inside or outside Franklin Templeton Investments , other than to the Compliance Officer or the Legal Department.
(iv) The Compliance Officer shall immediately contact the Legal Department for advice concerning any possible material, non-public information.
(v) After the Legal Department has reviewed the issue and consulted with
the Compliance Officer, you will be instructed either to continue
the prohibitions against trading and communication noted in (ii) and
(iii), or you will be allowed to trade and communicate the
information.
(vi) In the event the information in your possession is determined by the Legal Department or the Compliance Officer to be material and non-public, it may not be communicated to anyone, including persons within Franklin Templeton Investments, except as provided in (i) above. In addition, care should be taken so that the information is secure. For example, files containing the information should be sealed and access to computer files containing material non-public information should be restricted to the extent practicable.
2. RESTRICTING ACCESS TO OTHER SENSITIVE INFORMATION
All Franklin Templeton Investments personnel also are reminded of the need to be careful to protect from disclosure other types of sensitive information that they may obtain or have access to as a result of their employment or association with Franklin Templeton Investments.
(I) GENERAL ACCESS CONTROL PROCEDURES
Franklin Templeton Investments has established a process by which access to company files that may contain sensitive or non-public information such as the Bargain List and the Source of Funds List is carefully limited. Since most of the Franklin Templeton Group files, which contain sensitive information, are stored in computers, personal identification numbers, passwords and/or code access numbers are distributed to Franklin Templeton Investments computer access persons only. This activity is monitored on an ongoing basis. In addition, access to certain areas likely to contain sensitive information is normally restricted by access codes.
H. FAIR DISCLOSURE POLICIES AND PROCEDURES
WHAT IS REGULATION FD?
Regulation FD under the Securities Exchange Act of 1934, as amended (the "1934 Act"), prohibits certain persons associated with Franklin Resources, Inc. ("Resources") and persons associated with each U.S. closed-end fund advised by an investment advisory subsidiary of Resources (collectively, the "FTI Closed-End Funds") and persons associated with the FTI investment adviser to the FTI Closed-End Funds, from selectively disclosing material nonpublic information about Resources and the FTI Closed-End Funds to certain securities market professionals and shareholders. Regulation FD is designed to promote the full and fair disclosure of information by issuers such as Resources and the FTI Closed-End Funds.
The scope of Regulation FD is limited. Regulation FD applies to Resources and FTI Closed-End Funds, but does not apply to open-end investment companies managed by the FTI investment advisers. The rule also does not apply to all communications about Resources or FTI Closed-End Funds with outside persons. Rather, Regulation FD applies only to communications to securities market professionals and to any shareholder of Resources or FTI Closed-End Funds under circumstances in which it is reasonably foreseeable that such shareholder will trade on the basis of the information. In addition, Regulation FD does not apply to all employees and officers. It only applies to certain senior officers of Resources and the FTI Closed-End Funds and those persons who regularly communicate with securities market professionals or with shareholders. Consequently, Regulation FD and the Franklin Templeton Investments Fair Disclosure Policies and Procedures (the "Policies and Procedures") will not apply to a variety of legitimate, ordinary-course business communications or to disclosures made to the media. Irrespective of Regulation FD, all Franklin personnel must comply with the "Franklin Templeton Investment Policy Statement on Insider Trading" and should be aware that disclosure of material nonpublic information to another person may constitute a form of illegal insider trading called "tipping."
FTI'S CORPORATE POLICY FOR REGULATION FD
Franklin Templeton Investments is committed to complying with Regulation FD by making fair disclosure of information about Resources or FTI Closed-End Funds without advantage to any particular securities market professional, shareholder or investor. It is not the intention of these Policies and Procedures, however, to interfere with legitimate, ordinary-course business communications or disclosures made to the media or governmental agencies. FTI believes it is in its best interest to maintain an active and open dialogue with securities market professionals, shareholders and investors regarding Resources and the FTI Closed-End Funds. FTI will continue to provide current and potential shareholders access to key information reasonably required for making an informed decision on whether to invest in shares of Resources or FTI Closed-End Funds. FTI personnel will make appropriate announcements and conduct interviews about Resources and FTI Closed-End Funds with the media, in accordance with Corporate Communication's Procedures regarding such announcements or interviews.
GENERAL PROVISIONS OF REGULATION FD
WHENEVER:
(1) AN ISSUER, OR PERSON ACTING ON ITS BEHALF (i.e. any senior officer or any other officer, employee or agent of an issuer (or issuer's investment adviser) who regularly communicates with securities professionals or shareholders, or any
employee directed to make a disclosure by a member of senior management)
(2) DISCLOSES MATERIAL NON-PUBLIC INFORMATION
(3) TO CERTAIN SPECIFIED PERSONS (generally, securities market professionals or holders of the issuer's securities who may trade on the basis of the information)
THEN:
(4) the issuer must make public disclosure of that same information:
- simultaneously (for intentional disclosures), or
- promptly (for non-intentional disclosures).
In the case of non-intentional disclosures, "promptly" means no later than 24 hours (or the commencement of the next day's trading on the NYSE, whichever is later), after a senior officer learns of the disclosure and knows, or is reckless in not knowing, that the information is both material and non-public.
PERSONS TO WHOM SELECTIVE DISCLOSURE MAY NOT BE MADE:
(1) BROKER-DEALERS and their associated persons;
(2) INVESTMENT ADVISERS, certain institutional investment managers and their associated persons,
(3) INVESTMENT COMPANIES, hedge funds and their affiliated persons, and
(4) HOLDERS OF THE ISSUER'S SECURITIES, under circumstances where it is reasonably foreseeable that such person would purchase or sell securities on the basis of the information.
The Regulation is designed to cover sell-side analysts, buy-side analysts, institutional investment managers, and other market professionals who may be likely to trade on the basis of selectively disclosed information.
EXCLUSIONS FROM REGULATION FD
SELECTIVE DISCLOSURES MAY BE MADE TO THE FOLLOWING AND NOT VIOLATE REGULATION
FD:
(1) communications to "temporary insiders" who owe a duty of trust or confidence to the issuer (i.e. attorneys, investment bankers, or accountants);
(2) any person who expressly agrees to maintain the information in confidence (i.e., disclosures by a public company to private investors in private offerings);
(3) an entity whose primary business is the issuance of a credit rating, if the information is disclosed for the sole purpose of developing such ratings and the entity's ratings are publicly available; and
(4) communications made in connection with most offerings of securities registered under the Securities Act of 1933.
METHODS OF PUBLIC DISCLOSURE:
An issuer's disclosure obligation may be met by any method reasonably designed to provide broad, non-exclusionary distribution of the information to the public. Acceptable methods of public disclosure include:
- Furnishing or filing with the SEC a Form 8-K (not applicable to closed-end investment companies);
- press releases distributed through a widely circulated news or wire service; or
- announcements made through press conferences or conference calls that interested members of the public may attend or listen to either in person, by telephonic transmission, or by other electronic transmission (including use of the Internet), of which the public has adequate notice and means of access.
Posting of new information on an issuer's own website is not by itself a sufficient method of public disclosure. It may be used in combination with other methods.
FREQUENTLY ASKED QUESTIONS:
(1) WHEN IS DISCLOSURE CONSIDERED INTENTIONAL WITHIN THE MEANING OF REGULATION FD?
Under Regulation FD, selective disclosure is considered intentional when the issuer (or person acting on its behalf) knows, or is reckless in not knowing, that the information disclosed is BOTH material and non-public. For example, non-intentional selective disclosures may occur when company officials inadvertently disclose material information in response to questions from analysts or shareholders or when a decision is made to selectively disclose information that the company does not view as material but the market moves in response to the disclosure.
(2) WHAT IS NON-PUBLIC INFORMATION?
Information is non-public if it has not been disseminated in a manner making it available to investors generally.
(3) WHAT IS MATERIAL INFORMATION?
Regulation FD deems information material if "there is a substantial likelihood that a reasonable shareholder would consider it important" in making an investment decision or if there a substantial likelihood that a fact would be viewed by a reasonable investor as having "significantly altered the `total mix' of information made available."
(4) ARE THERE SPECIFIC TYPES OF INFORMATION THAT ARE CONSIDERED MATERIAL?
There is no bright line test to determine materiality. However, below is a list of items that should be reviewed carefully to determine whether they are material.
- An impending departure of a portfolio manager who is primarily responsible for day-to-day management of a Closed-End Fund;
- A plan to convert a Closed-End Fund from a closed-end investment company to an open-end investment company;
- A plan to merge a Closed-End Fund into another investment company;
- Impending purchases or sales of particular portfolio securities;
- Information about Resources related to earnings or earnings forecasts;
- Mergers, acquisitions, tender offers, joint ventures, or material change in assets;
- Changes in control or in management;
- Change in auditors or auditor notification that the issuer may no longer rely on an auditor's audit report;
- Events regarding Resources or an FTI Closed-End Fund's securities - e.g., repurchase plans, stock splits or changes in dividends, calls of securities for redemption, changes to the rights of security holders, public or private sales of additional securities; and
- Bankruptcies or receiverships.
(5) ARE ALL ISSUER COMMUNICATIONS COVERED BY THE REGULATION?
No. Regulation FD applies only to communications by the issuer's senior management, its investor relations professionals and others who regularly communicate with securities market professionals and security holders when those communications are made to securities market professionals and security holders under circumstances in which it is reasonably foreseeable that the holders will trade on the basis of the information. Regulation FD isn't intended to apply to persons who are engaged in ordinary-course business communications with the issuer or to interfere with disclosures to the media. However, the traditional disclosure concerns (such as "tipping" material non-public information and leaking disclosure into the market) still apply.
(6) ARE COMMUNICATIONS TO THE MEDIA COVERED BY REGULATION FD?
No, but, as a general policy, we advise the press that we cannot tell them anything that is material and non-public about FRI or the FTI Closed-End Funds without putting out a press release.
(7) ARE ONE-ON-ONE DISCUSSIONS WITH ANALYSTS PERMITTED?
Yes. Reg FD is not intended to undermine the role of analysts in "sifting through and extracting information that may not be significant to the ordinary investor to reach material conclusions." However, persons covered by Regulation FD must be cautious not to selectively provide material non-public information in one-on-one discussions.
(8) MAY ISSUERS PROVIDE GUIDANCE ON EARNINGS?
Not selectively. Although many issuers have historically provided earnings guidance, the SEC observed in Regulation FD's adopting release that an issuer that has a private conversation with an analyst in which the issuer provides direct or indirect guidance as to whether earnings will be higher than, lower than or even the same as forecasted will likely violate the rule. Regulation FD may be violated simply by confirming in a non-public manner an earnings forecast that is already public, because such confirmation may be material.
(9) WHAT HAPPENS IF SOMEONE COVERED BY THESE POLICIES AND PROCEDURES THINKS THAT HE OR SHE MAY HAVE MISTAKENLY DISCLOSED MATERIAL NON-PUBLIC INFORMATION ABOUT RESOURCES OR A CLOSED-END FUND TO A SECURITIES MARKET PROFESSIONAL OR SHAREHOLDER?
That person should report such inadvertent disclosure immediately to the compliance or legal department, which will review the nature of the disclosure and the audience to verify whether further disclosure must be made pursuant to these Policies and Procedures or some other appropriate action must be taken.
TRAINING
Appropriate training will be provided to certain employees identified as follows:
- Corporate Communications Department;
- Investor Relations Department;
- Portfolio managers of closed-end funds and their assistants;
- Managers and supervisors of Customer Service Representatives.
As a part of this training, each employee will be notified that they should not communicate on substantive matters involving Franklin Resources Inc., or the FTI Closed-end Funds except in accordance with these Policies and Procedures.
QUESTIONS
All inquiries regarding these Policies and Procedures should be addressed to Murray Simpson, General Counsel (650-525-7331), Barbara Green, Deputy General Counsel (650-525-7188), or Jim Davis, Director, Global Compliance (650-312-2832).
SUPPLEMENTAL MEMORANDUM
CHINESE WALL PROCEDURES
Under The Chinese Wall, access persons from Advisory Groups (as defined in Appendix A) are prohibited from having access to investment information of an Advisory Group other than his or her own Advisory Group with the following exception: Access persons to Floating Rate may have access to Investment Information of Franklin Templeton, but access persons to Franklin Templeton may not have access to Floating Rate.
The Chinese Wall applies to all access persons, including part-time employees, and consultants, and are in addition to those obligations prescribed by Franklin Templeton Code of Ethics (the "Code of Ethics").
Questions regarding these procedures should be directed to the attention of Jim
Davis, Legal Compliance Department, at 650-312-2832 or e-mailed to:
jdavis@frk.com.
GENERAL PROCEDURES
CONFIDENTIALITY. Access persons within one Advisory Group (e.g., Franklin Templeton) may not disclose Investment Information to access persons of the other Advisory Group (e.g., Franklin Mutual). Any communication of Investment Information outside an Advisory Group should be limited to persons (such as Accounting, Investment Operations, Legal and Compliance personnel) who have a valid "need to know" such information and each of whom is specifically prohibited from disclosing Investment Information from one to another except when necessary for regulatory purposes. Nothing contained herein is designed to prohibit the proper exchange of accounting, operational, legal or compliance information among such persons in the normal course of performing his or her duties.
DISCUSSIONS. Access persons within one Advisory Group should avoid discussing Investment Information in the presence of persons who do not have a need to know the information. Extreme caution should be taken with discussions in public places such as hallways, elevators, taxis, airplanes, airports, restaurants, and social gatherings. Avoid discussing confidential information on speakerphones. Mobile telephones should be used with great care because they are not secure.
ACCESS. Access persons should limit physical access to areas where confidential or proprietary information may be present or discussed. Only persons with a valid business reason for being in such an area should be permitted. In this regard, meetings with personnel who are not members of the same Advisory Group should be conducted in conference rooms rather than employee offices. Work on confidential projects should take place in areas that are physically separate and secure.
OUTSIDE INQUIRIES. Any person not specifically authorized to respond to press or other outside inquiries concerning a particular matter should refer all calls relating to the matter to the attention of Holly Gibson-Brady, Director, Corporate Communications, Franklin Templeton Investments, in San Mateo, California, at (650) 312-4701.
DOCUMENTS AND DATABASES. Confidential documents should not be stored in common office areas where unauthorized persons may read them. Such documents should be stored in secure locations and not left exposed overnight on desks or in workrooms.
Confidential databases and other confidential information accessible by computer should be protected by passwords or otherwise secured against access by unauthorized persons.
FAXING PROCEDURES. Confidential documents should not be faxed to locations where they may be read by unauthorized persons, including to other FRI offices outside the Advisory Group, unless steps have been taken to remove or redact any confidential information included in such documents. Prior to faxing a document that includes confidential information, the sender should confirm that the recipient is attending the machine that receives such documents.
THE CHINESE WALL
GENERAL. FRI has adopted the Chinese Wall to separate investment management activities conducted by certain investment advisory subsidiaries of FRI. The Chinese Wall may be amended or supplemented from time to time by memoranda circulated by the Legal Compliance Department.
CHINESE WALL RESTRICTIONS. Except in accordance with the Wall-crossing procedures described below or in accordance with such other procedures as may be developed by the Legal Compliance Department for a particular department or division:
- No access person in any Advisory Group (as defined in Appendix A) should disclose Investment Information to any access person in the any other Advisory Group, or give such access persons access to any file or database containing such Investment Information; and
- No access person in any Advisory Group should obtain or make any effort to obtain Investment Information within the any other Advisory Group from any person.
An access person who obtains Investment Information of an Advisory Group other than his or her own in a manner other than in accordance with the Chinese Wall procedures described herein, should immediately notify an appropriate supervisory person in his or her department who, in turn, should consult with the Legal Compliance Department concerning what, if any, action should be taken. Unless expressly advised to the contrary by the Legal Compliance Department, such employee should refrain from engaging in transactions in the related securities or other securities of the related issuer for any account and avoid further disclosure of the information.
CROSSING PROCEDURES. Disclosure of Investment Information of one Advisory Group to an access person in another Advisory Group on a "need to know" basis in the performance of his or her duties, should be made only if absolutely necessary. In such instance, the disclosure of such information may be made only in accordance with the specific procedures set forth below.
An access person within one Advisory Group must obtain prior approval from the Legal Compliance Department before making any disclosure of Investment Information to an access person within the other Advisory Group.
Before approval is granted, the Legal Compliance Department must be notified in writing by an Executive Officer within the Advisory Group (the "Originating Group") which proposes to cross the Chinese Wall of (1) the identity of the Advisory Group access person(s) who are proposed to cross the Chinese Wall, (2) the identity of the access person(s) in the other Advisory Group (the "Receiving Group") who are proposed to receive the Investment Information, (3) the applicable issuer(s), (4) the nature of the information to be discussed, and (5) the reason for crossing the Chinese Wall. The form of notice is attached to this Memorandum as Appendix B.
The Legal Compliance Department will notify an Executive Officer within the Receiving Group of the identity of the access person(s) who are proposed to cross the Chinese Wall. The Legal Compliance Department may not disclose any additional information to such person.
If approval is obtained from an Executive Officer within the Receiving Group, the Legal Compliance Department will notify the requesting Executive Officer in the Originating Group that the proposed Wall-crosser(s) may be contacted. Personnel from the Legal Compliance Department or their designees must attend all meetings where Wall-crossing communications are made. Communications permitted by these crossing procedures should be conducted in a manner not to be overheard or received by persons not authorized to receive confidential information.
The Legal Compliance Department will maintain a record of Wall-crossings.
An access person who has crossed the Chinese Wall under these procedures must maintain the confidentiality of the Investment Information received and may use it only for the purposes for which it was disclosed.
Any questions or issues arising in connection with these crossing procedures will be resolved between the appropriate Executive Officers(s), the Legal Compliance Department and the Legal Department.
APPENDIX A
FRANKLIN TEMPLETON INVESTMENT'S ADVISORY GROUPS (12/02)
1. FRANKLIN/TEMPLETON ADVISORY GROUP
Franklin Advisers, Inc.
Franklin Advisory Services, LLC
Franklin Investment Advisory Services, Inc.
Franklin Private Client Group, Inc.
Franklin Templeton Investments Corp (Canada)
Franklin Templeton Investment Management, Limited (UK)
Franklin Templeton Investments Japan, Ltd.
Franklin Templeton Investments Australia Limited
FTI Institutional, LLC
Franklin Templeton Asset Strategies, LLC
Franklin Templeton Investments (Asia) Limited
Franklin Templeton Asset Management S.A., (France)
Templeton/Franklin Investment Services, Inc.
Templeton Investment Counsel, LLC
Templeton Asset Management, Limited.
Templeton Global Advisors Limited (Bahamas)
Templeton Asset Management (India) Pvt. Ltd.
Fiduciary Trust Company International (NY)
Fiduciary International, Inc.
Fiduciary Investment Management International, Inc.
Fiduciary Trust International Asia Limited (Hong Kong)
Fiduciary Trust International Australia Limited
Fiduciary Trust International Limited (UK)
Fiduciary Trust International Investment Management, Inc. (Japan)
Fiduciary Trust International of California
Fiduciary Trust International of the South (Florida)
FTI -Banque Fiduciary Trust (Switzerland)
2. FRANKLIN FLOATING RATE TRUST ADVISORY GROUP
3. FRANKLIN MUTUAL ADVISORY GROUP