UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-4984
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 offices)-(Zip code)
WILLIAM F. QUINN, PRESIDENT
4151 Amon Carter Boulevard, MD 2450
Fort Worth, Texas 76155
(Name and address of agent for service)
Registrant's telephone number, including area code: (817) 967-3509
Date of fiscal year end: October 31, 2003
Date of reporting period: October 31, 2003
ITEM 1. REPORT TO STOCKHOLDERS.
(AA EAGLE)
About AMR Investments
- --------------------------------
AMR Investments is an
experienced provider of
investment advisory services to
institutional and retail
markets. We act as manager of
the American AAdvantage Funds, a
family of diversified mutual
funds, and offer customized
fixed income portfolio
management services.
Our clients include defined
benefit plans, defined
contribution plans, foundations,
endowments, corporations, and
other institutional investors.
AMR Investments is a wholly
owned subsidiary of AMR
Corporation, the parent company
of American Airlines, Inc.
Incorporated in 1986, we are
directly responsible for the
investment management and
oversight of AMR Corporation's
defined benefit and defined
contribution plans, as well as
its fixed income investments.
<Table>
<Caption>
Contents
-----------------------------------------
President's Message........... 1
American AAdvantage Funds'
Performance................ 2
Market and Performance
Overviews.................. 3
American AAdvantage Schedules of
Investments
Balanced Fund.............. 22
Large Cap Value Fund....... 30
Large Cap Growth Fund...... 34
Small Cap Value Fund....... 38
Emerging Markets Fund...... 44
High Yield Bond Fund....... 50
Enhanced Income Fund....... 56
Intermediate Bond Fund..... 61
Short-Term Bond Fund....... 67
AMR Investment Services Trust
Schedules of Investments
International Equity
Portfolio............... 109
Additional Information........Inside Back
Cover
</Table>
Any opinions herein, including forecasts, reflect our judgement as of the end of
the reporting period and are subject to change. Each adviser's strategies and
each Fund's portfolio composition will change depending on economic and market
conditions. This report is not a complete analysis of market conditions and
therefore, should not be relied upon as investment advice. Although economic and
market information has been compiled from reliable sources, AMR Investment
Services, Inc. makes no representation as to the completeness or accuracy of the
statements contained herein.
American AAdvantage Funds October 31, 2003
(BILL QUINN PICTURE)
FELLOW SHAREHOLDERS,
I am pleased to present
you with the Annual Report
for the American
AAdvantage Funds for the
twelve months ended
October 31, 2003. During
this time, the American
AAdvantage Funds performed
very well versus their
peers.
During the past year,
investors experienced both
upward and downward market
turns while hoping to
avoid a fourth consecutive
annual decline in the
stock market as of
December 2003 (something
that has not occurred
since 1932). Fortunately,
the up markets outpaced
downward periods by a
large margin. The reality
seems to be that the
economic recovery has arrived. Several unique factors impacted both domestic and
global markets: the War with Iraq, the occupation of Afghanistan, the SARS
outbreak, the lowest Fed Funds rate in 45 years at 1.0%, along with corporate
earnings growth, and signals of a growing economy.
Investors welcomed an "upswing" in the market as the major market indices
posted significant gains for the fiscal year ended October 31, 2003. The S&P 500
Index reported a gain of 20.80%, the MSCI EAFE Index increased 27.04%, and the
Dow Jones Industrial Average was up 19.53%.
During the "upswing", the American AAdvantage Funds performed very well. All
of the Institutional Class Equity funds outpaced their respective Lipper
benchmarks for the twelve-month period. Additionally, the Balanced, Small Cap
Value, International Equity, and Emerging Markets Funds all outperformed their
respective Lipper benchmarks for the one-year, three-year, and since inception
time periods as of October 31, 2003.
On the fixed-income front, the High Yield Bond, Intermediate Bond and
Short-Term Bond Funds posted positive returns for the fiscal year. The
Institutional Class of the Short-Term Bond Fund outperformed its Lipper
benchmark for the one, three, five, and ten-year time periods.
As the economy rebounds, the American AAdvantage Funds continue to emphasize
fundamental investing on behalf of our shareholders. We believe proper asset
allocation, management diversification, and low costs will produce superior
results over the long term.
Please review the enclosed portfolio listings and detailed financial data.
As always, we welcome the opportunity to serve your financial needs. Should you
have any questions about the enclosed information, please do not hesitate to
contact us at 800-967-9009. You may also access Fund and account information at
www.aafunds.com. Thank you for your continued confidence in the American
AAdvantage Funds.
Sincerely,
/s/ WILLIAM F. QUINN
William F. Quinn
President,
American AAdvantage Funds
1
AMERICAN AADVANTAGE FUNDS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
AVERAGE ANNUALIZED TOTAL RETURN
------------------------------------------
INCEPTION TICKER 10 YEAR/
DATE SYMBOL 1 YEAR 3 YEAR 5 YEAR SINCE INCEPTION
--------- ------ ------ ------ ------ ---------------
Balanced Fund -- Institutional 7/17/87 AADBX 19.77% 5.74% 4.56% 8.56%
Balanced Fund -- PlanAhead 8/1/94 AABPX 19.36% 5.53% 4.32% 8.29%
Balanced Fund -- AMR 8/1/94 AABNX 20.06% 6.09% 4.87% 8.84%
Lipper Balanced Funds Index 16.21% -0.69% 3.54% 7.81%
Large Cap Value Fund -- Institutional 7/17/87 AADEX 27.30% 3.54% 3.43% 9.50%
Large Cap Value Fund -- PlanAhead 8/1/94 AAGPX 26.99% 3.25% 3.14% 9.18%
Large Cap Value Fund -- AMR 8/1/94 AAGAX 27.64% 3.79% 3.68% 9.76%
Lipper Multi-Cap Value Funds Index 27.28% 1.81% 4.96% 10.00%
Large Cap Growth Fund -- Institutional 7/31/00 ALCGX 21.15% -16.81% N/A -16.84%
Large Cap Growth Fund -- AMR 7/31/00 ALFIX 21.09% -16.73% N/A -16.74%
Lipper Large-Cap Growth Funds Index 18.51% -16.80% N/A -16.92%
Small Cap Value Fund -- Institutional 12/31/98 AVFIX 47.45% 22.32% N/A 14.06%
Small Cap Value Fund -- PlanAhead 3/1/99 AVPAX 47.12% 21.91% N/A 13.77%
Small Cap Value Fund -- Service 5/1/03 AASSX 46.84% 21.84% N/A 13.72%
Small Cap Value Fund -- AMR 3/1/99 AASVX 47.93% 22.67% N/A 14.37%
Lipper Small-Cap Value Funds Index 41.48% 14.02% N/A 11.18%
International Equity Fund -- Institutional 8/7/91 AAIEX 31.61% -0.57% 3.84% 7.79%
International Equity Fund -- PlanAhead 8/1/94 AAIPX 31.62% -0.69% 3.65% 7.54%
International Equity Fund -- Service 5/1/03 AAISX 31.28% -0.78% 3.60% 7.51%
International Equity Fund -- AMR 8/1/94 AAIAX 31.77% -0.36% 4.09% 8.05%
Lipper International Funds Index 26.54% -4.84% 1.87% 4.99%
Emerging Markets Fund -- Institutional 7/31/00 AEMFX 48.45% 9.92% N/A 2.55%
Emerging Markets Fund -- PlanAhead 10/1/02 AAEPX 48.07% 9.78% N/A 2.42%
Emerging Markets Fund -- AMR 7/31/00 AAMRX 48.84% 10.17% N/A 2.80%
Lipper Emerging Market Funds Index 48.38% 7.34% N/A 1.38%
High Yield Bond Fund -- Institutional 12/29/00 AYBFX 20.11% N/A N/A 10.98%
High Yield Bond Fund -- PlanAhead 3/1/02 AHYPX 19.57% N/A N/A 10.48%
High Yield Bond Fund -- Service 5/1/03 AAHSX 18.77% N/A N/A 10.22%
Lipper High Yield Bond Funds Index 30.27% N/A N/A 5.96%
Enhanced Income Fund -- PlanAhead 6/30/03 AANPX N/A N/A N/A 0.32%
Lipper Interm. Invest. Grade Index N/A N/A N/A -0.76%
Intermediate Bond Fund -- Institutional 9/15/97 AAIBX 4.31% 7.52% 5.87% 6.75%
Intermediate Bond Fund -- PlanAhead 3/2/98 AAPAX 4.25% 7.32% 5.30% 6.23%
Intermediate Bond Fund -- AMR 3/1/99 AABDX 4.62% 7.82% 5.70% 6.61%
Lipper Interm. Invest. Grade Index 6.68% 8.12% 6.15% 6.71%
Short-Term Bond Fund -- Institutional 12/3/87 AADFX 3.58% 5.92% 5.22% 5.25%
Short-Term Bond Fund -- PlanAhead 8/1/94 AALPX 3.38% 5.68% 4.96% 5.03%
Short-Term Bond Fund -- AMR 8/1/94 AASBX 3.82% 6.11% 5.44% 5.47%
Lipper Short Invest. Grade Index 3.17% 5.26% 4.99% 5.21%
</Table>
Performance shown for the PlanAhead and AMR Classes prior to their inception
dates is that of the Institutional Class. Performance shown for the Service
Class prior to its inception date is that of the Institutional and PlanAhead
Classes since their inception dates. Past performance is not indicative of
future performance. Fund performance does not reflect the deduction of taxes a
shareholder would pay on distributions or the redemption of shares.
2
DOMESTIC EQUITY MARKET OVERVIEW
October 31, 2003
- --------------------------------------------------------------------------------
After a rocky start at the beginning of the fiscal period, the U.S. equity
markets staged a surprisingly strong rally that stoked a renewed sense of
investor optimism. For the twelve months ended October 31, 2003 the S&P 500
Index and Russell 2000 Index returned 20.8 % and 43.4%, respectively.
For the first six months of the year, investors struggled with reconciling
the future of the U.S. economy and corporate earnings against a nearly constant
flow of negative news. Corporate scandals, low consumer confidence, terrorism,
and the war in Iraq weighed heavily on the market. The consumer confidence index
fell to almost a ten-year low, and unemployment was a concern. Rising energy
costs further depressed the economy as surging oil prices decreased consumer
spending.
Nevertheless, the combination of low interest rates, federal income tax
cuts, and the end of major corporate cost cutting programs set the stage for
improved economic performance. During the year, mortgage refinancing activity
soared, as yields on 10-year Treasury Notes fell to a 45-year low. In addition,
the $350 billion tax cut package provided stimulation to GDP. The combination of
tax refunds and lower consumer credit rates (both mortgage and credit card)
enabled the average consumer to continue to spend.
With the end of major combat in Iraq and money in the pocket, consumer
confidence recovered and spending increased. This stimulus and large ongoing
productivity gains had a very positive impact on corporate confidence and put an
end to negative quarterly earnings surprises. With the end of the war, investors
began to anticipate the impact of economic recovery, which sparked a broad-based
market rally led by economically sensitive small cap stocks. In the early stages
of the rally, investment style was not a significant factor as both high and low
P/E stocks performed well. Later in the rally, growth or high P/E stocks
appeared to gain more momentum as speculation was back in vogue in certain
sectors, such as technology.
October 2003 concluded with strong economic improvement, including high
productivity gains and improving corporate profits. Revised GDP growth was over
8% in the third quarter. Investors were optimistic enough to create a late
summer mini technology rally, despite the lack of positive earnings or revenue
growth in many technology companies. Unemployment remains high despite strong
GDP growth; however, employment improvements typically lag economic growth.
Investors remain sensitive to news on the economy and specific earnings
developments. Earnings growth expectations appear to be high, and overall market
prices have risen sharply over the past year. Capital and consumer spending will
be key determinants of economic strength in the coming months.
Any opinions expressed in the Market and Performance overviews, including
forecasts, reflect our judgement as of this date and are subject to change.
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE BALANCED FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Balanced Fund's Institutional Class returned 19.8% for the twelve
months ended October 31, 2003, outperforming the 60% S&P 500 Barra Value/40%
Lehman Brothers Aggregate Index benchmark return of 16.9% and the Lipper
Balanced Funds Index return of 16.2%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/93 THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LIPPER S&P 500 S&P 500/ LEHMAN BALANCED
CLASS BALANCED INDEX BARRA VALUE BROTHERS COMPOSITE
FUNDS INDEX AGG INDEX INDEX
INDEX
10/93 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00 10,000.00
10/94 9,992.00 9,939.00 10,387.00 10,218.00 9,632.00 9,986.00
10/95 11,929.00 11,687.00 13,133.00 12,570.00 11,139.00 11,993.00
10/96 13,893.00 13,382.00 16,297.00 15,664.00 11,789.00 14,013.00
10/97 16,677.00 16,092.00 21,530.00 20,316.00 12,840.00 16,985.00
10/98 18,185.00 17,823.00 26,265.00 22,701.00 14,037.00 18,938.00
10/99 18,281.00 20,064.00 33,007.00 27,016.00 14,112.00 21,114.00
10/00 19,219.00 21,651.00 35,017.00 29,632.00 15,142.00 23,017.00
10/01 20,001.00 19,756.00 26,298.00 24,173.00 17,346.00 21,613.00
10/02 18,973.00 18,251.00 22,324.00 20,359.00 18,368.00 20,104.00
10/03 22,724.00 21,209.00 26,968.00 25,412.00 19,270.00 23,504.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/03 $10,000
--------------------------- 10/31/93-
1 YEAR 5 YEARS 10 YEARS 10/31/03
------ ------- -------- ---------
Institutional Class(1).... 19.77% 4.56% 8.56% $22,724
PlanAhead Class(1,2)...... 19.36% 4.32% 8.29% $22,180
AMR Class(1,2)............ 20.06% 4.87% 8.84% $23,333
Lipper Balanced Funds
Index.................... 16.21% 3.54% 7.81% $21,209
S&P 500 Index............. 20.80% 0.53% 10.43% $26,968
S&P 500/Barra Value
Index.................... 24.82% 2.28% 9.78% $25,412
Lehman Bros. Aggregate
Index.................... 4.91% 6.54% 6.78% $19,270
Balanced Composite
Index*................... 16.91% 4.41% 8.92% $23,504
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 10/31/93 up to 8/1/94, the inception date of
the PlanAhead and AMR Classes, and the returns of the PlanAhead and AMR
Classes since inception of these Classes. Expenses of the PlanAhead Class
are higher than those of the Institutional Class. Therefore, total returns
shown may be higher than they would have been had the PlanAhead Class been
in existence since 10/31/93. Expenses of the AMR Class are lower than those
of the Institutional Class. As a result, total returns shown may be lower
than they would have been had the AMR Class been in existence since
10/31/93.
* 60% S&P 500 Barra Value, 40% Lehman Bros. Aggregate
Index
During the twelve-month period, the Fund's assets on average were invested
63% in equities (and equitized cash), 36% in fixed-income securities and less
than 1% in non-equitized cash, ending the period with 66% in equities (and
equitized cash) and 34% in fixed-income securities.
The equity portion of the Fund returned 28.8%, outperforming the S&P 500
Barra Value Index ("Barra Value Index") return of 24.8%. The Fund's equity
holdings added value relative to the Barra Value Index through stock selection.
The Consumer Discretionary sector contributed most to the Fund's excess
performance as the Fund returned 46.1% versus a Barra Value Index return of
24.3% in the sector. The Fund's positions in Sears Roebuck (up 107.0%), Centex
(up 114.9%) and Yum Brands (up 51.5%) had the most impact in this sector. The
Financials sector holdings were also a source of significant added value,
primarily through FleetBoston Financial (up 81.6%), J.P. Morgan Chase (up 81.2%)
and CIT Group (up 93.2%). The Fund's Information Technology sector holdings
returned a solid 44.6% for the twelve-month period; however, they underperformed
the Barra Value Index return of 74.0% for the sector. The Fund's positions in
Electronic Data Systems (up 47.6%) and International Business Machines (up
14.2%) detracted from performance relative to the Barra Value Index.
Equity sector selection had little net impact on the Fund's relative
returns during the fiscal year. The benefit from underweighting
Telecommunication Services, the worst performing sector of the Barra Value
Index, was negated by overweighting Consumer Staples, the second worst
performing sector.
The fixed-income portion of the Fund returned 7.6% for the twelve-month
period, ahead of the Lehman Brothers Aggregate Index return of 4.9%. The Fund's
outperformance was due mostly to a larger than double weighting in Corporates,
the best performing sector of the Lehman Brothers Aggregate Index. A significant
underweighting in Treasuries, the worst performing sector of the Lehman Brothers
Aggregate Index, also contributed to the Fund's excess performance.
4
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE BALANCED FUND(SM) -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
The sub-advisers continue to search for attractive fixed-income securities
in a difficult interest rate environment. Their equity philosophy of investing
in companies that have attractive valuations and earnings growth potential
should cause the Fund to benefit from the economic recovery currently under way.
TOP TEN EQUITY HOLDINGS
<Table>
<Caption>
% OF
EQUITIES
--------
CitiGroup, Incorporated 2.3%
Altria Group, Incorporated 2.3%
Conoco Phillips 2.1%
Allstate Corporation 2.1%
Washington Mutual, Incorporated 2.0%
Bank of America Corporation 2.0%
Sears Roebuck & Company 1.9%
American Electric Power Company, Incorporated 1.9%
Boeing Company 1.7%
MetLife, Incorporated 1.7%
-----
Total 20.0%
Top Ten Equity Holdings as % of Total Net Assets 11.6%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
----------
Financials 28.5%
Industrials 14.3%
Consumer Discretionary 12.0%
Energy 9.5%
Health Care 8.0%
Consumer Staples 8.0%
Materials 6.3%
Information Technology 6.2%
Utilities 5.6%
Telecommunication Services 1.0%
Real Estate 0.6%
</Table>
FIXED INCOME SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporate 47.6%
Treasury 27.0%
Mortgage Backed 22.9%
Agency 2.5%
</Table>
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE LARGE CAP VALUE FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the Large Cap Value Fund returned 27.3% for the
twelve months ended October 31, 2003, well ahead of the S&P 500/Barra Value
Index return of 24.8% and matching the Lipper Multi-Cap Value Funds Index return
of 27.3%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/93 THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LIPPER MULTI- S&P 500 S&P 500/
CLASS CAP VALUE INDEX BARRA VALUE
FUNDS INDEX INDEX
10/93 10,000.00 10,000.00 10,000.00 10,000.00
10/94 10,336.00 10,379.00 10,387.00 10,218.00
10/95 12,475.00 12,465.00 13,133.00 12,570.00
10/96 15,390.00 15,027.00 16,297.00 15,664.00
10/97 19,707.00 19,425.00 21,530.00 20,316.00
10/98 20,944.00 20,359.00 26,265.00 22,701.00
10/99 21,304.00 22,373.00 33,007.00 27,016.00
10/00 22,329.00 24,579.00 35,017.00 29,632.00
10/01 21,836.00 23,023.00 26,298.00 24,173.00
10/02 19,471.00 20,380.00 22,324.00 20,359.00
10/03 24,787.00 25,940.00 26,968.00 25,412.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/03 $10,000
--------------------------- 10/31/93-
1 YEAR 5 YEARS 10 YEARS 10/31/03
------ ------- -------- ---------
Institutional Class(1).... 27.30% 3.43% 9.50% $24,786
PlanAhead Class(1,2)...... 26.99% 3.14% 9.18% $24,066
AMR Class(1,2)............ 27.64% 3.68% 9.76% $25,378
Lipper Multi-Cap Value
Funds Index.............. 27.28% 4.96% 10.00% $25,940
S&P 500 Index............. 20.80% 0.53% 10.43% $26,968
S&P 500/Barra Value
Index.................... 24.82% 2.28% 9.78% $25,412
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 10/31/93 up to 8/1/94, the inception date of
the PlanAhead and AMR Classes, and the returns of the PlanAhead and AMR
Classes since inception of these Classes. Expenses of the PlanAhead Class
are higher than those of the Institutional Class. Therefore, total returns
shown may be higher than they would have been had the PlanAhead Class been
in existence since 10/31/93. Expenses of the AMR Class are lower than those
of the Institutional Class. As a result, total returns shown may be lower
than they would have been had the AMR Class been in existence since
10/31/93.
Similar to the S&P 500/Barra Value Index ("Index"), the Fund produced
absolute positive returns in every sector except Telecommunication Services.
Overall, the Fund added value relative to the Index through strong stock
selection and, to a lesser extent, through positive sector allocation.
The Fund benefited from its stock selection in seven of the ten economic
sectors. The largest contributors were holdings in the Consumer Discretionary
sector, where the Fund returned 43.1% versus an Index return of 24.3%. Positions
in Sears Roebuck (up 107.0%), Centex (up 114.9%) and Yum Brands (up 51.5%) had
the largest impact in this sector. Significant value also was added through
stock selection in the Financials sector, led by holdings in FleetBoston
Financial (up 81.6%), J.P. Morgan Chase (up 81.2%) and CIT Group (up 93.2%).
While the Fund's Information Technology sector holdings produced strong absolute
returns of 47.6% for the twelve-month period, they still underperformed the
Index return of 74.0% in that sector. The Fund's positions in Electronic Data
Systems (up 47.6%) and International Business Machines (up 14.2%) detracted from
performance relative to the Index.
Sector weightings also added value, primarily through underweighting
Telecommunication Services, the worst performing sector of the Index.
Unfortunately, overweighting Consumer Staples, the second worst performing
sector, offset much of the value otherwise attained through sector selection.
We believe the sub-advisers' philosophy of investing in companies that have
attractive valuations and earnings growth potential should allow the Fund to
benefit from the economic recovery currently under way.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Altria Group, Incorporated 2.2%
ConocoPhillips 1.9%
Allstate Corporation 1.8%
Citigroup, Incorporated 1.8%
Sears Roebuck & Company 1.7%
Cendant Corporation 1.6%
Tyco International Limited 1.6%
Washington Mutual, Incorporated 1.6%
Boeing Company 1.5%
MetLife, Incorporated 1.5%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Financials 27.5%
Industrials 14.5%
Consumer Discretionary 12.0%
Consumer Staples 8.8%
Energy 8.2%
Health Care 7.7%
Information Technology 7.5%
Utilities 5.7%
Materials 5.6%
Telecommunication Services 1.6%
Real Estate 0.9%
</Table>
6
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE LARGE CAP GROWTH FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the Large Cap Growth Fund returned 21.15% for
the twelve months ended October 31, 2003, compared to the Russell 1000(R) Growth
Index return of 21.81% and the Lipper Large Cap Growth Funds Index return of
18.51%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL RUSSELL 1000 LIPPER LARGE
CLASS GROWTH CAP GROWTH
INDEX FUNDS INDEX
7/00 10,000.00 10,000.00 10,000.00
10/00 9,540.00 9,407.00 9,505.00
10/01 5,665.00 5,649.00 5,678.00
10/02 4,534.00 4,541.00 4,620.00
10/03 5,493.00 5,531.00 5,476.00
</Table>
* Inception of Large Cap Growth Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
-----------------------------
PERIODS ENDED 10/31/03 VALUE OF
----------------------------- $10,000
SINCE 7/31/00-
1 YEAR 3 YEAR INCEPTION 10/31/03
------ -------- --------- ---------
Institutional
Class(1).............. 21.15% (16.81)% (16.84)% $5,493
AMR Class(1)............ 21.09% (16.73)% (16.74)% $5,514
Lipper Large-Cap Growth
Funds Index........... 18.51% (16.80)% (16.92)% $5,476
Russell 1000
Growth Index.......... 21.81% (16.22)% (16.66)% $5,531
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
As these returns indicate, it has been a positive period for growth stocks,
and the Fund participated fully in the upside movement. During the Fund's fiscal
year, all sectors in the Russell 1000 Growth Index ("Index") posted positive
returns. The Fund added value almost exclusively through good stock selection,
although sector weighting decisions were mildly beneficial.
From a stock selection standpoint, the largest value added sector for the
Fund relative to the Index was Financials. Owning Countrywide Financial (up
123.1%), Capital One (up 100.1%) and E-Trade (up 128.9%) contributed to this
sector's outstanding relative performance. In Healthcare, positions in Gilead
Sciences (up 57.1%), Pacificare Health Systems (up 65.1%) and Guidant (up 73.1%)
were the largest contributors relative to the Index.
Conversely, stock selection in the Information Technology and Consumer
Discretionary sectors detracted from performance relative to the Index. In
Information Technology, the largest drag on relative performance was Microsoft
(down 1.3%). In the Consumer Discretionary sector, the Fund's relative
performance was hurt as a result of positions in Viacom (down 10.5%), Wal Mart
(up 10.8%) and Time Warner (up 10.4%).
Looking forward, the Fund's sub-advisers will continue to maintain a
disciplined, long-term approach to equity investing in larger stocks with above
average growth potential.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
General Electric Company 4.6%
Intel Corporation 4.2%
Pfizer, Incorporated 4.1%
Microsoft Corporation 3.8%
Wal-Mart Stores, Incorporated 2.8%
Procter & Gamble Company 2.6%
Cisco Systems, Incorporated 2.4%
Amgen, Incorporated 2.2%
Coca-Cola Company 1.8%
Dell, Incorporated 1.7%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Information Technology 25.3%
Health Care 23.8%
Consumer Discretionary 18.3%
Consumer Staples 10.2%
Industrials 9.2%
Financials 8.6%
Energy 2.0%
Materials 1.4%
Telecommunication Services 1.1%
Utilities 0.1%
</Table>
Russell 1000 (R) Growth Index is a service mark of the Frank Russell Company
7
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE SMALL CAP VALUE FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the Small Cap Value Fund returned 47.4% for the
twelve months ended October 31, 2003, outperforming the Russell 2000(R) Value
Index return of 40.3% and the Lipper Small-Cap Value Funds Index return of 41.5%
for the same period.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/31/98* THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LIPPER SMALL-CAP RUSSELL 2000
CLASS VALUE FUNDS INDEX VALUE INDEX
12/98 10,000.00 10,000.00 10,000.00
10/99 9,070.00 9,513.00 9,508.00
10/00 10,320.00 11,261.00 11,153.00
10/01 12,400.00 12,151.00 12,129.00
10/02 12,808.00 11,799.00 11,822.00
10/03 18,886.00 16,693.00 16,584.00
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------
PERIODS ENDED 10/31/03 VALUE OF
---------------------------- $10,000
SINCE 12/31/98-
1 YEAR 3 YEARS INCEPTION 10/31/03
------ ------- --------- ---------
Institutional
Class(1)............ 47.45% 22.32% 14.06% $18,886
PlanAhead Class(1,2).. 47.12% 21.91% 13.77% $18,654
AMR Class(1,2)........ 47.93% 22.67% 14.37% $19,140
Service Class(1,3).... 46.84% 21.84% 13.72% $18.618
Lipper Small-Cap Value
Funds Index......... 41.48% 14.02% 11.18% $16,693
Russell 2000 Value
Index............... 40.29% 14.14% 11.03% $16,584
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 12/31/98 up to 3/1/99, the inception date of
the PlanAhead and AMR Classes, and the returns of the PlanAhead and AMR
Classes since inception of these Classes. Expenses of the PlanAhead Class
are higher than those of the Institutional Class. Therefore, total returns
shown may be higher than they would have been had the PlanAhead Class been
in existence since 12/31/98. Expenses of the AMR Class are lower than those
of the Institutional Class. As a result, total returns shown may be lower
than they would have been had the AMR Class been in existence since
12/31/98.
3 Fund performance represents the total returns achieved by
the Institutional Class from 12/31/98 up to 3/1/99, the returns of the
PlanAhead Class from 3/1/99 up to 5/1/03 (the inception date of the Service
Class), and the returns of the Service Class since its inception. Expenses
of the Service Class are higher than those of the Institutional and
PlanAhead Classes. Therefore, total returns shown may be higher than they
would have been had the Service Class been in existence since 12/31/98.
The Fund generated positive returns in every sector and outperformed the
Russell 2000 Value Index ("Index") during the fiscal year. Stock selection
accounted for the excess performance over the Index, as sector selection
detracted from the Fund's relative performance.
Stock selection in the Financials sector had the greatest impact,
accounting for 6.1% of the Fund's excess performance relative to the Index.
Positions in Allmerica Financial, Tierone and Friedman Billings Ramsey were the
major contributors to the sector's positive impact on the Fund's performance.
The Consumer Discretionary and Industrials sectors also contributed
significantly to the Fund's excess return, adding 2.2% and 1.5%, respectively,
from stock selection. Holdings such as Toll Brothers and Foot Locker in the
Consumer Discretionary sector and Brookfield Homes and Joy Global in Industrials
helped to produce the positive results.
The Fund's underweighting in the Information Technology sector detracted
1.4% from relative performance. Information Technology was the second best
performing sector in the Index for the twelve-month period, up 84.4%.
As the economy improves, we believe that the attractively valued stocks in
the Fund's portfolio should continue to provide strong returns.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF NET ASSETS
---------------
Valassis Communications, Incorporated 2.1%
Beazer Homes USA, Incorporated 1.9%
Allmerica Financial Corporation 1.9%
MI Developments, Incorporated 1.7%
The Warnaco Group, Incorporated 1.5%
LNR Property Corporation 1.4%
BJ's Wholesale Club, Incorporated 1.3%
WCI Communities, Incorporated 1.2%
Foot Locker, Incorporated 1.1%
Rotech Healthcare, Incorporated 1.1%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF EQUITIES
-------------
Consumer Discretionary 25.7%
Financials 23.2%
Industrials 17.8%
Utilities 8.7%
Materials 6.4%
Health Care 6.2%
Energy 4.7%
Information Technology 3.8%
Consumer Staples 3.3%
Telecommunication Services 0.2%
</Table>
Russell 2000(R) Value Index is a service mark of the Frank Russell Company.
8
INTERNATIONAL EQUITY/EMERGING MARKETS OVERVIEW
October 31, 2003
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY
The twelve months ended October 31, 2003 can be divided into two distinct
periods: the war-ridden, economically feeble months of November through March,
and the cyclical upturn in April through October. The combined result was a
strong EAFE Index return of 27.0% for the twelve-month period ended October 31,
2003, which was driven by both strong local markets and foreign currencies
appreciating against the U.S. dollar.
In the first period, the global economy weathered the war in Iraq, rising
oil prices, and deflationary threats. The war in Iraq and global economic
uncertainty damaged sentiment in the U.S., Europe and Japan. In Germany,
business confidence suffered another sharp decline in March, dashing the hopes
of analysts who expected German firms to rebound from their slump. In the U.S.
and Europe, continuing weak labor market data gave central banks a reason to
lower interest rates one last time in this cycle.
In late spring, the overthrow of Saddam Hussein and a dip in oil prices
incited optimism in global economic growth. Meanwhile, the seemingly untiring
U.S. consumer kept on spending as retail sales rose by 6.0% in the twelve months
through May 2003. Other signs of initial global economic strength were the
continued rise in natural resource commodity prices, an improvement in demand
for technology evident in rising semiconductor pricing, and improving business
confidence.
By late October, a rise in equity markets signaled that the global recovery
was sustainable, even in regions such as Japan, ever susceptible to a false
dawn. Central banks in Australia, Canada and the UK raised short-term interest
rates in October, acting pre-emptively and withdrawing stimulus that was no
longer suited to the improving environment. With a recovery in the global
economy, other monetary authorities began considering similar action. Even
China, after reporting a stunning 9.1% annual growth, decided to tighten its
monetary policy. Beijing drained funds out of the banking system to slow the
lending boom.
With improved growth across many countries, some economists have been
placing a high probability on a synchronized global economic recovery, which
they believe might currently be under way. Even the sluggish global job market,
widely considered the main hurdle of the current recovery, gave some positive
signs toward the end of this reporting period.
EMERGING MARKETS
Global emerging markets, as measured by the MSCI Emerging Markets Free Index
(the Index") rebounded from early year weakness to return an impressive 48.3%
during the twelve months ended October 31, 2003. All regions ended with strong
double-digit gains with particular strength in Latin America and Asia.
Meanwhile, oil producing countries were also strong performers as they benefited
from firm oil prices.
During the first half of the fiscal year, the consistent threat of the
U.S.-led war against Iraq, concerns over the global recovery and pessimistic
corporate outlooks depressed an already weak investor sentiment worldwide. Most
of the period was characterized by growing risk aversion and steady selling by
global investors. The markets rebounded sharply by mid-March once diplomacy over
Iraq broke down and it became clear that the U.S. would initiate war with Iraq,
helping to remove some uncertainty in the market and increasing prospects for a
U.S.-led global recovery.
After reaching lows on March 12, 2003, the Index posted seven consecutive
months of positive performance. Investor sentiment worldwide appeared to improve
particularly during the second calendar quarter as expectations for better
economic growth grew following the successful U.S. campaign in Iraq and the
subsequent easing in the price of oil.
Momentum in the markets remained strong particularly in the latter half of
the period. Positive sentiment continued to be supported by strong foreign
buying, domestic and global monetary easing, and economic strength among most
emerging markets. In addition, there were signs of further improvements in the
U.S. and Japanese economies.
9
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the International Equity Fund returned 31.6% for
the twelve months ended October 31, 2003. The Fund outperformed the MSCI EAFE
Index return of 27.0% and the Lipper International Funds Index return of 26.5%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/93 THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LIPPER INT'L
CLASS FUNDS MSCI EAFE
INDEX INDEX
10/93 10,000.00 10,000.00 10,000.00
10/94 11,177.00 11,151.00 11,010.00
10/95 12,060.00 11,099.00 10,969.00
10/96 14,143.00 12,499.00 12,118.00
10/97 16,841.00 14,170.00 12,679.00
10/98 17,547.00 14,828.00 13,902.00
10/99 21,053.00 18,244.00 17,104.00
10/00 21,550.00 18,874.00 16,608.00
10/01 17,985.00 14,325.00 12,468.00
10/02 16,095.00 12,854.00 10,821.00
10/03 21,183.00 16,265.00 13,747.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/03 $10,000
--------------------------- 10/31/93-
1 YEAR 5 YEARS 10 YEARS 10/31/03
------ ------- -------- ---------
Institutional
Class(1)............. 31.61% 3.84% 7.79% $21,183
PlanAhead Class(1,2)... 31.62% 3.65% 7.54% $20,690
AMR Class(1,2)......... 31.77% 4.09% 8.05% $21,683
Service Class(1,3)..... 31.28% 3.60% 7.51% $20,637
Lipper Int'l. Funds
Index................ 26.54% 1.87% 4.99% $16,265
MSCI EAFE Index........ 27.04% (0.23)% 3.23% $13,747
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 10/31/93 up to 8/1/94, the inception date of
the PlanAhead and AMR Classes, and the returns of the PlanAhead and AMR
Classes since inception of these Classes. Expenses of the PlanAhead Class
are higher than those of the Institutional Class. Therefore, total returns
shown may be higher than they would have been had the PlanAhead Class been
in place since 10/31/93. Expenses of the AMR Class are lower than those of
the Institutional Class. As a result, total returns shown may be lower than
they would have been had the AMR Class been in place since 10/31/93.
3 Fund performance represents the total returns achieved by
the Institutional Class from 10/31/93 up to 8/1/94, the returns of the
PlanAhead Class from 8/1/94 up to 5/1/03 (the inception date of the Service
Class), and the returns of the Service Class since its inception. Expenses
of the Service Class are higher than those of the Institutional and
PlanAhead Classes. Therefore, total returns shown may be higher than they
would have been had the Service Class been in existence since 10/31/93.
The turnaround that began in October of 2002 continued throughout the
twelve-month period ended October 31, 2003, helping to drive the strong returns
of the Fund. All twenty-one developed countries in the MSCI EAFE Index ("Index")
produced a return in excess of 10%.
The Fund outperformed the Index over the past fiscal year due to strong
stock selection, while country allocation was slightly negative. In the
Netherlands, significant positions in Philips Electronics (up 53.9%), Vedior (up
142.6%) and ABN AMRO (up 51.4%) contributed nearly 2% in relative performance as
compared to the Index. In Switzerland, the Fund added value by owning Credit
Suisse (up 85.0%) and Adecco (up 97.9% during the period it was held by the
Fund), while UK holdings, Reuters and Hanson (both up nearly 60%), also
contributed to the Fund's outperformance. Country allocation detracted value as
the Fund had a nearly double-digit underweighting in Japan versus the Index,
while the Japanese market gained over 33% during the period.
Sector performance resembled country performance for the period as each
sector produced returns in excess of 10%. Although most of the value added was
achieved through stock selection, sector allocation was also positive. Stock
selection was particularly strong in the Energy, Consumer Discretionary,
Financial and Information Technology sectors. Within the Energy sector,
Petrochina gained over 90%, while Repsol and Norsk Hydro (along with Consumer
Discretionary stocks Philips Electronics and Reuters) helped Fund performance as
each rose over 50%. Depfa Bank (Financial) gained nearly 150% while Konica
Minolta (Information Technology) rose nearly 100%.
From a sector allocation perspective, the Fund added value by overweighting
Industrials, the second best performing sector for the period (up over 40%), and
by underweighting Health Care, the second worst performing sector (up 13.9%).
Although economic and market conditions vary from period to period, the
Fund's primary strategy remains consistent as it focuses on investing in
undervalued companies with above-average earnings growth expectations.
10
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND(SM) -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Koninklijke (Royal) Philips Electronics NV 2.2%
Total SA 1.5%
Vodafone Group PLC 1.5%
Aventis SA 1.4%
Unilever PLC 1.4%
Credit Suisse Group 1.4%
Telefonica SA 1.3%
Diageo PLC 1.3%
Canon, Incorporated 1.3%
GlaxoSmithKline PLC 1.3%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
----------
Financials 26.0%
Industrials 15.3%
Consumer Discretionary 12.6%
Telecommunication Services 9.4%
Consumer Staples 8.8%
Materials 7.4%
Energy 7.1%
Health Care 6.6%
Information Technology 4.2%
Utilities 2.6%
</Table>
REGIONAL ALLOCATION*
(PIE CHART)
REGIONAL ALLOCATION*
<Table>
<Caption>
% OF
EQUITIES
--------
Europe 75.5%
Pacific Rim 21.6%
North America 2.6%
Central America 0.3%
</Table>
* Allocations based upon gross investments in AMR
Investment Services Trust International Equity
Portfolio.
11
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE EMERGING MARKETS FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the Emerging Markets Fund returned 48.5% for the
twelve months ended October 31, 2003. The Fund slightly outperformed both the
MSCI EM Free Index return of 48.3% and the Lipper Emerging Market Funds Index
return of 48.4%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 7/31/00* THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL MSCI EMG MKTS LIPPER EMG MKT
CLASS FREE INDEX FUNDS INDEX
07/00 10,000.00 10,000.00 10,000.00
10/00 8,170.00 8,499.00 8,455.00
10/01 6,657.00 6,488.00 6,578.00
10/02 7,309.00 7,023.00 7,047.00
10/03 10,851.00 10,417.00 10,456.00
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------
PERIODS ENDED 10/31/03 VALUE OF
---------------------------- $10,000
SINCE 7/31/00-
1 YEAR 3 YEARS INCEPTION 10/31/03
------ ------- --------- --------
Institutional
Class(1)............ 48.45% 9.92% 2.55% $10,851
PlanAhead Class(1,2).. 48.07% 9.78% 2.42% $10,808
AMR Class(1).......... 48.84% 10.17% 2.80% $10,938
Lipper Emg Mkt Funds
Index............... 48.38% 7.34% 1.38% $10,456
MSCI Emerging Markets
Free Index.......... 48.33% 7.02% 1.26% $10,417
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 7/31/00 up to 10/1/02, the inception date of
the PlanAhead Class, and the returns of the PlanAhead Class since its
inception. Expenses of the PlanAhead Class are higher than those of the
Institutional Class. Therefore, total returns shown may be higher than they
would have been had the PlanAhead Class been in existence since 7/31/00.
All twenty-six emerging market countries in the MSCI EM Free Index
("Index") produced a return in excess of 20%. Twenty-one of the countries within
the Index produced a return in excess of 40%, and nine countries produced a
return in excess of 80%.
The Fund outperformed the Index over the past fiscal year due to stock
selection and country allocation, but much of the outperformance was negated due
to the Fund's cash position. Although the Fund held a small amount in cash (the
average cash position was 4.2% during the fiscal year), it created a significant
performance drag due to the strength of each country's equity market.
Stock selection was strong in India as positions in State Bank of India (up
186.2%), GAIL (India) Limited (up 126.6%), Tata Engineering (up 176.1%) and
Hindalco Industries Limited (up 140.5%) contributed to the outperformance as
compared to the Index. In Indonesia, positions in PT Astra International (up
194.7%) and PT Telekomunikasi Indonesia (up 127.2%) added significant value as
well.
From a country allocation perspective, the Fund added value by
overweighting Indonesia, the second best performing market for the period, and
India. Unfortunately, some of the value added was offset by underweighting
Chile, the third best performing market in the Index (up 91.8%), and by
overweighting Mexico, the worst performing market for the period.
Similar to country performance, sector performance was very strong within
the Index as each sector produced returns in excess of 30%. The Fund's sector
outperformance was due to stock selection, as sector allocation was slightly
negative. Stock selection was particularly strong in the Consumer Discretionary,
Telecommunication Services, Information Technology and Financial sectors. Within
the Consumer Discretionary sector, PT Astra International and Tata Engineering
gained over 194% and 176%, respectively. PT Telekomunikasi Indonesia and
American Movil (both Telecommunication Services) posted returns of over 127% and
78%, respectively. Samsung SDI (Information Technology) gained over 71% while
State Bank of India (Financials) rose 186%.
From a sector allocation viewpoint, the Fund detracted value by
underweighting Materials, the third best performing sector for the period (up
60.8%) and by overweighting Telecommunication Services, the second worst
performing sector for the period (up 37%).
Despite the outperformance of the emerging markets asset class, the Fund's
basic philosophy remains focused on investing in undervalued companies with
above-average earnings growth expectations.
12
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE EMERGING MARKETS FUND(SM) -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Samsung Electronics Company Limited 3.3%
Anglo American PLC 3.0%
Telefonos de Mexico SA, ADR 2.3%
Samsung SDI Company Limited 1.6%
LUKOIL Oil Company, ADR 1.6%
Petroleo Brasileiro SA, ADR 1.4%
Sasol Limited 1.4%
Korea Electric Power Corporation 1.2%
Mining and Metallurgical Co. Norilsk Nickel, ADR 1.1%
United Microelectronics Corporation 1.0%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
----------
Financials 18.3%
Information Technology 13.7%
Materials 13.5%
Telecommunication Services 12.8%
Industrials 11.0%
Energy 9.6%
Consumer Discretionary 8.7%
Consumer Staples 7.7%
Utilities 3.9%
Health Care 0.8%
</Table>
COUNTRY ALLOCATION
(PIE CHART)
COUNTRY ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
South Korea 17.6%
South Africa 15.3%
Taiwan 12.4%
Other Europe, Middle East, Africa 11.4%
Brazil 8.7%
Mexico 8.6%
India 7.4%
Other Asia 7.2%
China 6.6%
Malaysia 3.0%
Israel 1.6%
Other Latin America 0.2%
</Table>
13
HIGH YIELD BOND MARKET OVERVIEW
October 31, 2003
- --------------------------------------------------------------------------------
The economic environment improved steadily, albeit slowly, over the twelve
months ended October 31,2003. In November 2002, the Federal Reserve cut the Fed
Funds rate by 0.50% to 1.25%, which was followed by a further 0.25% cut in June
2003. At its latest meeting in October 2003, the Federal Reserve voted
unanimously to keep the benchmark U.S. interest rate at 1.00%, a 45-year low
(1958). The high yield market, as measured by the Lehman Brothers High Yield
Index ("Index"), returned an impressive 33.8% during the twelve months ended
October 31, 2003.
After the U.S. attack on Iraq in March, April's "relief rally" saw the
major stock indices gain ground after months of underperformance. GDP, as
revised, for the third quarter of 2003 exceeded 8%, which was the fastest pace
in two decades.
Although the high yield market was strong throughout the period, the U.S.
Treasury provided no help, with a total return actually below the coupon. The
low quality Caa segment of the market, which comprised 15% of the Index,
returned 71.9% for the twelve months ended October 31, 2003. The lowest-rated
segment of the Index (Ca-D segment) was up 89.1% for the twelve months.
High yield new issuance, at $114 billion for the first ten months of 2003,
is on track to reach over $130 billion for the year, putting it in the running
to be the highest year of new issuance. In 2003, there have been four months, in
which new issues topped $15 billion, compared to only one such month in the
prior history of the market. (High yield new issuance volume totaled $126
billion for the 12 months ended October 31, 2003.) At the current rate, the size
of the high yield market could reach the $1 trillion mark sometime in the middle
of 2004.
The high yield market is in a tug-of-war between investors seeking yield
and others being cautious on the theory that such an extraordinary run means
that the market will take a breather, no matter how good things look today.
14
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE HIGH YIELD BOND FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the High Yield Bond Fund returned 20.1% for the
twelve months ended October 31, 2003. Despite its strong absolute return, the
Fund trailed the Lipper High Current Yield Funds Index return of 30.3%, the
Citigroup High Yield Cash Pay Index return of 35.3% and the Lehman Brothers High
Yield Index return of 33.8%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 12/29/00* THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LEHMAN CITIGROUP LIPPER HIGH
CLASS BROS. CORP. HIGH YIELD YIELD BOND
HIGH YIELD CASH PAY FUNDS
INDEX INDEX INDEX
12/00 10,000.00 10,000.00 10,000.00 10,000.00
10/01 10,533.00 10,199.00 10,385.00 9,618.00
10/02 11,194.00 9,640.00 9,780.00 9,045.00
10/03 13,446.00 12,896.00 13,230.00 11,783.00
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL
RETURNS
------------------
PERIODS ENDED
10/31/03 VALUE OF
------------------ $10,000
SINCE 12/29/00-
1 YEAR INCEPTION 10/31/03
------ --------- ---------
Institutional Class(1)................ 20.11% 10.98% $13,446
PlanAhead Class(1,2).................. 19.57% 10.48% $13,271
Service Class(1,3).................... 18.77% 10.22% $13,182
Lehman Bros. Corp. High Yield Index... 35.28% 10.38% $12,896
Citigroup High Yield Cash Pay Index... 35.28% 10.38% $13,230
Lipper High Yield Bond Funds Index.... 30.27% 5.96% $11,783
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 12/29/00 up to 3/1/02, the inception date of
the PlanAhead Class, and the returns of the PlanAhead Class since its
inception. Expenses of the PlanAhead Class are higher than those of the
Institutional Class. Therefore, total returns shown may be higher than they
would have been had the PlanAhead Class been in existence since 12/29/00.
3 Fund performance represents the total returns achieved by
the Institutional Class from 12/29/00 up to 3/1/02, the returns of the
PlanAhead Class from 3/1/02 up to 5/1/03 (the inception date of the Service
Class), and the returns of the Service Class since its inception. Expenses
of the Service Class are higher than those of the Institutional and
PlanAhead Classes. Therefore, total returns shown may be higher than they
would have been had the Service Class been in existence since 12/29/00.
The high yield market enjoyed strong returns over the past fiscal year. The
Lehman Brothers High Yield Index ("Index") return for the twelve-month period
ended October 2003 ranked as the best twelve-month return since March 1992. The
Index also posted positive returns in eleven of the twelve months ended October
31, 2003.
The Fund's focus on companies with strong cash flows and fundamental credit
strength was not in favor during the period. The riskier segments of the high
yield market were the top performers, resulting in the Fund's overall
underperformance versus the Index. The Fund underweighted the Communications
sector by over 10% and the Utility sector by over 9%, each of which outperformed
the Index as a whole. Communications returned 53.2%, while the Utility sector
gained 61.6%. The Fund overweighted Capital Goods by over 4%, Consumer Cyclical
by almost 13% and Consumer Non-Cyclical by over 8% as each of these sectors
underperformed the total Index return.
From a more positive perspective, the Fund had a 5.1% underweighting in
Basic Industry, which was the worst performing sector for the period with a
return of just over 17%. Additionally, the Fund overweighted Technology (up
57.8%) and Other Industrial (up 36.2%) during the period.
Despite underperforming the Index for the twelve-month time period, the
Fund's sub-adviser continues to focus on fundamental research and downside
protection to identify and invest in companies with strong cash flows. The
sub-adviser believes that their research approach, which has generated
outperformance for the Fund in the past, should deliver superior performance
over time.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Horseshoe Gaming, LLC, 8.625%, Due 5/15/2009 2.5%
Tenet Healthcare Corporation, 7.375%, Due 2/1/2013 2.0%
Xerox Credit Corporation, 6.10%, Due 12/16/2003 1.9%
EchoStar Communications Corporation, 9.375%, Due
2/1/2009 1.6%
aaiPharma Incorporated, 11.00%, Due 4/1/2010 1.5%
Turning Stone Casino Resort, 9.125%, Due 12/15/2010 1.4%
Regal Cinemas Corporation, 9.375%, Due 2/1/2012 1.3%
US Oncology, Incorporated, 9.625%, Due 2/1/2012 1.3%
Interline Brands, Incorporated, 11.50%, Due
5/15/2011 1.3%
Star Gas Partners L.P., 10.25%, Due 2/15/2013 1.3%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporate 100.0%
</Table>
15
U.S. FIXED-INCOME MARKET OVERVIEW
October 31, 2003
- --------------------------------------------------------------------------------
For the twelve-month period ended October 31, 2003, the investment grade
fixed-income market, as defined by the Lehman Brothers Aggregate Index (the
"Index"), produced a 4.9% total return. The individual sector returns within the
Index were broadly distributed, with the highest return coming from the credit
sector at 10.6%, and the lowest return coming from mortgages at 2.8%. Interest
rates along the Treasury yield curve steepened during the period with long-term
interest rates rising in response to the gradual economic recovery and
short-term rates declining in response to the Federal Reserve's final cut in the
Fed Funds rate to 1.0%. Within the credit sector, triple-B rated bonds returned
nearly 16%, and the non-investment grade credit market returned in excess of 33%
for the period.
<Table>
<Caption>
TOTAL RETURNS
----------------------
PERIODS ENDED 10/31/03
----------------------
SECTOR 6 MONTH 12 MONTH
- ------ ------- --------
Lehman Aggregate 0.57% 4.91%
Lehman Gov/Credit 0.62% 6.17%
US Treasury (0.24)% 2.82%
US Agency (0.08)% 3.08%
Mortgage Backed 0.41% 2.75%
U.S. Credit 1.66% 10.57%
Asset Backed 3.21% 8.06%
- -----------------------------------------------------
CREDIT RATING
Aaa 0.45% 4.28%
Aa 0.51% 6.08%
A 1.20% 9.77%
Baa 3.01% 15.86%
</Table>
(source: Lehman Brothers)
The credit spread chart below reflects the incredible strength in investor
demand for corporate bonds. Although the year ended on a positive note, the
beginning of this period was not as pleasant. In October 2002, triple-B rated
credit spreads reached nearly 400, a level traditionally reserved for the high
yield bond market. Many of the largest issuers, including auto,
telecommunication and media corporations, were targets of the selling pressure
that pushed spreads to such wide levels. The credit markets had their share of
problems as record-breaking bankruptcies, fraudulent corporate managers and
unsustainable leverage took toll on investor confidence. Yet with surprising
speed, by the end of 2002, investors returned to the bond market in droves.
LB AGGREGATE INDEX CREDIT SPREADS
(GRAPH)
<Table>
<Caption>
INDEX AAA CREDIT AA CREDIT A CREDIT BAA CREDIT
1/4/02............... 185 82 112 178 255
1/11/02.............. 185 77 109 178 260
1/18/02.............. 186 77 110 176 263
1/25/02.............. 180 77 105 168 258
2/1/02............... 188 75 107 179 267
2/8/02............... 198 76 113 193 277
2/15/02.............. 196 73 108 189 278
2/22/02.............. 197 72 108 192 280
3/1/02............... 189 70 104 184 266
3/8/02............... 177 70 97 168 253
3/15/02.............. 183 72 102 175 258
3/22/02.............. 182 74 102 174 258
3/29/02.............. 182 73 103 175 257
4/5/02............... 185 81 109 176 259
4/12/02.............. 190 89 117 180 264
4/19/02.............. 179 71 103 172 252
4/26/02.............. 187 66 102 160 286
5/3/02............... 198 70 107 168 305
5/10/02.............. 182 70 105 163 269
5/17/02.............. 180 63 100 158 272
5/24/02.............. 177 61 97 155 272
5/31/02.............. 165 59 92 141 253
6/7/02............... 171 61 95 147 263
6/14/02.............. 172 62 97 149 263
6/21/02.............. 178 61 99 156 274
6/28/02.............. 189 62 105 160 296
7/5/02............... 193 64 105 162 305
7/12/02.............. 194 64 105 166 306
7/19/02.............. 201 64 107 171 322
7/26/02.............. 222 65 118 186 366
8/2/02............... 231 74 129 201 365
8/9/02............... 235 72 128 211 367
8/16/02.............. 238 71 130 214 374
8/23/02.............. 224 69 125 199 349
8/30/02.............. 220 68 123 199 341
9/6/02............... 225 70 126 204 348
9/13/02.............. 219 69 121 197 342
9/20/02.............. 225 71 124 205 347
9/27/02.............. 232 72 127 211 362
10/4/02.............. 235 79 130 216 362
10/11/02............. 254 85 137 240 387
10/18/02............. 250 80 132 242 378
10/25/02............. 249 79 128 247 368
11/1/02.............. 240 80 124 237 354
11/8/02.............. 223 74 115 214 337
11/15/02............. 210 71 114 196 320
11/22/02............. 203 71 109 195 302
11/29/02............. 192 67 107 185 286
12/6/02.............. 195 69 107 189 289
12/13/02............. 189 65 102 183 281
12/20/02............. 186 65 101 180 277
12/27/02............. 184 63 98 175 278
1/3/03............... 180 63 99 174 268
1/10/03.............. 176 62 96 171 261
1/17/03.............. 171 59 94 163 256
1/24/03.............. 173 61 95 164 260
1/31/03.............. 169 59 89 161 257
2/7/03............... 169 58 90 161 256
2/14/03.............. 167 54 89 158 256
2/21/03.............. 165 54 89 157 251
2/28/03.............. 162 53 85 155 247
3/7/03............... 167 57 87 163 249
3/14/03.............. 167 56 89 167 245
3/21/03.............. 165 55 90 168 238
3/28/03.............. 161 53 85 161 235
4/4/03............... 159 53 86 159 229
4/11/03.............. 157 52 85 155 227
4/17/03.............. 149 51 80 146 217
4/25/03.............. 144 48 78 139 210
5/2/03............... 134 47 76 130 193
5/9/03............... 128 42 70 125 186
5/16/03.............. 130 43 70 126 191
5/23/03.............. 132 44 72 128 192
5/30/03.............. 128 42 69 125 186
6/6/03............... 128 43 69 127 184
6/13/03.............. 124 41 66 120 181
6/20/03.............. 123 41 67 120 178
6/27/03.............. 124 41 67 120 179
7/3/03............... 124 40 67 122 180
7/11/03.............. 122 41 66 118 176
7/18/03.............. 119 42 68 116 169
7/25/03.............. 118 42 69 114 168
8/1/03............... 128 55 81 124 176
8/8/03............... 121 45 73 116 171
8/15/03.............. 126 48 76 121 179
8/22/03.............. 121 48 72 115 173
8/29/03.............. 120 48 73 115 169
9/5/03............... 119 49 54 93 174
9/12/03.............. 117 47 51 91 172
9/19/03.............. 113 46 54 88 165
9/26/03.............. 114 45 53 88 167
10/3/03.............. 115 48 57 89 167
10/10/03............. 114 44 57 90 165
10/17/03............. 109 44 56 85 157
10/24/03............. 112 47 56 86 164
10/31/03............. 108 45 54 83 156
</Table>
The primary beneficiaries of the corporate bond market's enthusiasm were
those sectors that, only one year ago, were under the most duress. According to
Lehman Brothers, for the twelve-month period ended October 31, 2003, the
wireless telecommunications sector returned 25.2%, the media-cable sector
returned 22.4% and the utility sector returned 14.2%. The largest sector in the
Index, the automotive sector, returned over 16%. The lowest returning sectors
were the more traditional, low volatility sectors such as food/beverage at 5.9%,
pharmaceuticals at 5.7% and consumer products at 5.3%.
Among the other sectors in the U.S. bond market, Treasuries returned 2.8%
and government agencies returned 3.1%. Interest rates rose slightly during the
period along most of the Treasury curve, but these two sectors were still able
to produce positive total returns.
US TREASURY YIELD CURVE
(GRAPH)
<Table>
<Caption>
2 YR. 5 YRS. 10 YRS. 30 YRS.
10/31/2003 1.67% 2.73% 3.89% 4.99%
10/31/2002 1.82% 3.24% 4.29% 5.13%
</Table>
Finally, the mortgage backed sector produced a total return of 2.8%.
Generally, the mortgage market performs well in rising interest rate
environments. However, with interest rates at 40-year lows, mortgage refinancing
activity hit record highs during the period, resulting in early repayments of
principal to mortgage holders and lower total returns accordingly.
16
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE ENHANCED INCOME FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The PlanAhead Class of the Enhanced Income Fund returned 0.3% from its
inception on June 30, 2003 through October 31, 2003. Its benchmark, a blend of
37.5% Lehman Brothers Gov/Credit Intermediate Index, 37.5% Lehman Brothers
Intermediate Aggregate Index and 25% Merrill Lynch Convertible Bonds Index,
returned 0.9%. The Fund's peer group, the Lipper Intermediate Investment Grade
Index, returned -0.8% over the four months ended October 31, 2003.
<Table>
<Caption>
TOTAL RETURNS
----------------------
PERIODS ENDED 10/31/03
----------------------
SINCE INCEPTION
----------------------
PlanAhead Class(1).................... 0.32%
Lipper Intermediate Inv. Grade
Index............................... (0.76)%
Enhanced Income Composite Index*...... 0.89%
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the table above does not reflect the deduction of
taxes a shareholder would pay on distributions or the redemption of shares.
* 37.5% Lehman Bros. Gov/Credit Intermediate Index, 37.5%
Lehman Bros. Aggregate Index, 25% Merrill Lynch Convertibles Index.
The Fund's assets have been allocated approximately 75% to a sub-adviser
who invests in income producing, short- and intermediate-term, investment grade
bonds and 25% to a sub-adviser who invests in convertible bonds, convertible
preferreds, high yield bonds and equities in order to enhance the yield of the
overall Fund.
Slightly negative total returns in the short, intermediate and high yield
bond portions of the Fund were primarily the result of a rapid rise in interest
rates during the months of July and August followed by a fairly range bound rate
environment. The dramatic increase in rates was unusual in that the Federal
Reserve Bank had very recently lowered the Fed Funds rate by 25 basis points to
1.0% to support a struggling economy with declining inflation.
The negative return for the bond portion of the Fund was more than offset
by returns in the Fund's convertible preferred stocks, convertible bonds and
equities, where the Fund was positioned in areas of the market which tend to
perform well during an economic recovery.
Going forward, the Fund will continue to invest about three-quarters of its
assets in income producing, short- to intermediate-term, investment grade bonds.
The remainder of the Fund's assets will continue to be invested primarily in
convertible bonds, convertible preferreds, and to a lesser extent, equity and
high yield securities with emphasis on sectors that the sub-adviser expects will
benefit from an expanding economy.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Heller Financial, Incorporated, 6.375%, Due
3/15/2006 2.7%
Prudential Insurance Company of America, 6.375%,
Due 7/23/2006 2.2%
Citibank Credit Card Master Trust I 1999-7 A,
6.90%, Due 10/15/2007 2.2%
Salomon, Incorporated, 6.75%, Due 1/15/2006 2.2%
DaimlerChrysler Auto Trust, 4.63%, Due 12/6/2006 2.0%
Honda Auto Receivables Owner Trust 2003-4, 2.79%
Due 3/16/2009 2.0%
MassMutual Global Funding II, 3.80%, Due
4/15/2009 2.0%
Coca-Cola Enterprises, Incorporated, 2.50%, Due
9/15/2006 2.0%
International Lease Finance Corporation, 6.375%,
Due 3/15/2009 1.9%
Ford Motor Credit Company, 7.375%, Due
10/28/2009 1.7%
</Table>
FIXED INCOME SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporate 78.4%
Corporate Convertibles 10.9%
Asset-Backed 8.2%
Treasury 1.2%
Agency 0.7%
Mortgage-Backed 0.6%
</Table>
EQUITY SECTOR ALLOCATION
<Table>
<Caption>
% OF
EQUITIES
--------
Information Technology 34.8%
Financials 20.3%
Consumer Discretionary 17.4%
Industrials 13.2%
Energy 7.0%
Telecommunication Services 4.3%
Health Care 3.0%
</Table>
17
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the Intermediate Bond Fund returned 4.3% for the
twelve months ended October 31, 2003, trailing the Lehman Brothers Aggregate
Index return of 4.9% and the Lipper Intermediate Investment Grade Index return
of 6.7%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 9/15/97* THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INSTITUTIONAL LIPPER LEHMAN BROS.
CLASS INTERMEDIATE AGGREGATE
INV. GRADE INDEX INDEX
9/97 10,000.00 10,000.00 10,000.00
10/97 10,241.00 10,211.00 10,295.00
10/98 11,215.00 11,045.00 11,254.00
10/99 11,123.00 11,074.00 11,314.00
10/00 12,001.00 11,775.00 12,140.00
10/01 13,724.00 13,462.00 13,908.00
10/02 14,302.00 13,952.00 14,727.00
10/03 14,918.00 14,884.00 15,450.00
</Table>
* Inception of Institutional Class of Fund
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
----------------------------
PERIODS ENDED 10/31/03 VALUE OF
---------------------------- $10,000
SINCE 9/15/97-
1 YEAR 5 YEARS INCEPTION 10/31/03
------ ------- --------- --------
Institutional
Class(1,3)............ 4.31% 5.87% 6.75% $14,918
PlanAhead Class(1,2).... 4.25% 5.30% 6.23% $14,479
AMR Class(1,2).......... 4.62% 5.70% 6.61% $14,799
Lipper Intermediate Inv.
Grade Index........... 6.68% 6.15% 6.71% $14,884
Lehman Bros. Agg.
Index(4).............. 4.91% 6.54% 7.31% $15,450
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 9/15/97 up to 3/2/98, the inception date of the
PlanAhead Class, and 3/1/99, the inception date of the AMR Class,
respectively, and the returns of the PlanAhead and AMR Class since inception
of each Class. Expenses of the PlanAhead Class are higher than those of the
Institutional Class. Therefore, total returns shown may be higher than they
would have been had the PlanAhead Class been in existence since 9/15/97.
Expenses of the AMR Class are lower than those of the Institutional Class.
As a result, total returns shown may be lower than they would have been had
the AMR Class been in existence since 9/15/97.
3 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.
4 Since Inception performance is as of 8/31/97.
Before expenses, the Fund performed in line with the Lehman Brothers
Aggregate Index ("Index"). Unfortunately, the Fund did not generate enough
excess performance to offset its expenses. The Fund added 0.8% of value relative
to the Index from its large overweighting in Corporates, the best performing
sector of the Index. However, the Fund's Corporate holdings returned
approximately 9.3% versus the Index return of 11.0% for the sector mostly due to
the Fund's security selection in the Industrial and Financial industries, which
detracted 0.7% from relative returns. The Fund also added value through its
security selection in U.S. Treasuries; however, this performance advantage was
offset by underperformance of the Fund's holdings in the Mortgage sector.
Although the Fund's holdings in the Corporate sector underperformed the
Index during the period, the Fund's sub-advisers remain focused on a
conservative approach towards the Corporate sector that they believe will add
value during this unusually volatile period in the market.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Federal National Mortgage Association, TBA, 15 yr.,
4.50% 2.3%
Government National Mortgage Association, Pool #579750,
6.00%, Due 9/15/2032 2.1%
Federal Home Loan Mortgage Corporation, 5.00%, Due
3/1/2018 1.7%
Federal National Mortgage Association, TBA, 15 yr.,
6.00% 1.5%
Federal National Mortgage Association, TBA, 30 yr.,
6.50% 1.5%
Federal National Mortgage Association, Pool #713706,
5.50%, Due 8/1/2033 1.4%
International Lease Finance Corporation, 6.375%, Due
3/15/2009 1.3%
United States Treasury Bonds, 6.875%, Due 8/15/2025 1.2%
Government National Mortgage Association, Pool #780747,
6.50%, Due 3/15/2028 1.2%
Ford Motor Credit Company, 7.375%, Due 10/28/2009 1.1%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporates 60.7%
Mortgage Backed 27.5%
Treasury 6.8%
Agency 4.4%
Asset Backed 0.6%
</Table>
18
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE SHORT-TERM BOND FUND(SM)
October 31, 2003
- --------------------------------------------------------------------------------
The Institutional Class of the Short-Term Bond Fund returned 3.6% for the
twelve months ended October 31, 2003, outperforming the Merrill Lynch 1-3 Year
Gov./Corp. Index return of 3.1% and the Lipper Short Investment Grade Bond Funds
Index return of 3.2%.
COMPARISON OF CHANGE IN VALUE OF A $10,000 INVESTMENT
FOR THE PERIOD FROM 10/31/93 THROUGH 10/31/03
(GRAPH)
<Table>
<Caption>
INST'L CLASS LIPPER SHORT INV. LINKED ML 1-3 YR.
GRADE BOND LIPPER GOV./CORP.
FUNDS INDEX AVERAGE INDEX
10/93 10,000.00 10,000.00 10,000.00 10,000.00
10/94 10,042.00 10,096.00 10,013.00 10,125.00
10/95 10,863.00 10,937.00 10,879.00 11,036.00
10/96 11,417.00 11,541.00 11,373.00 11,698.00
10/97 12,136.00 12,299.00 12,061.00 12,465.00
10/98 12,937.00 13,028.00 12,776.00 13,411.00
10/99 13,268.00 13,456.00 13,149.00 13,844.00
10/00 14,041.00 14,247.00 13,898.00 14,698.00
10/01 15,583.00 15,686.00 15,276.00 16,360.00
10/02 16,108.00 16,105.00 15,684.00 17,152.00
10/03 16,685.00 16,615.00 16,156.00 17,687.00
</Table>
<Table>
<Caption>
ANNUALIZED TOTAL RETURNS
--------------------------- VALUE OF
PERIODS ENDED 10/31/03 $10,000
--------------------------- 10/31/93-
1 YEAR 5 YEARS 10 YEARS 10/31/03
------ ------- -------- ---------
Institutional
Class(1).............. 3.58% 5.22% 5.25% $16,685
PlanAhead Class(1,2).... 3.38% 4.96% 5.03% $16,328
AMR Class(1,2).......... 3.82% 5.44% 5.47% $17,037
Lipper Short Inv. Grade
Bond Funds Index(3)... 3.17% 4.99% 5.21% $16,615
Linked Lipper Average*.. 3.01% 4.81% 4.92% $16,156
Merrill Lynch 1-3 Yr
Gov./Corp. Index...... 3.12% 5.87% 5.87% $17,687
</Table>
1 Past performance is not indicative of future performance.
Fund performance shown in the chart and table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance represents the total returns achieved by
the Institutional Class from 10/31/93 up to 8/1/94, the inception date of
the PlanAhead and AMR Classes, and the returns of the PlanAhead and AMR
Classes since inception of these Classes. Expenses of the PlanAhead Class
are higher than those of the Institutional Class. Therefore, total returns
shown may be higher than they would have been had the PlanAhead Class been
in place since 10/31/93. Expenses of the AMR Class are lower than those of
the Institutional Class. As a result, total returns shown may be lower than
they would have been had the AMR Class been in existence since 10/31/93.
3 The Lipper Short Investment Grade Bond Funds Index
hereby replaces the Linked Lipper Average as the Fund's benchmark, because
it better reflects the principal strategies of the Fund.
* The Linked Lipper Average is created by linking the Lipper
Short-Term (1-5 year) Investment Grade Debt Average from 10/31/92 through
12/31/95, the Lipper Short-Intermediate Investment Grade Debt Average from
1/1/96 through 7/31/96 and the Lipper Short-Term (1-3 Year) Investment Grade
Debt Average since 8/1/96.
The short-term, fixed-income markets continued to enjoy the benefits of the
declining interest rate environment during the year ended October 31, 2003.
While longer-term interest rates increased along the Treasury curve,
shorter-term rates declined in response to the Federal Reserve Bank (the "Fed")
lowering the Fed Funds rate to 1.0% in June 2003. Addressing the tepid economic
recovery, the Fed went further to clearly indicate its intent to keep rates low
going forward to allow for sustainable growth and to prevent inflation from
declining further.
Only one year ago, the corporate bond market was roiling under the weight
of record-breaking bankruptcies, fraudulent corporate management, and
unsustainable leverage. Then, in late 2002 and with remarkable speed, investors
returned to the corporate bond market in droves. Interest rates were at 40-year
lows and a nascent economic recovery was underway, so investors found the
incremental yield in the corporate bond market very attractive. As a result, the
corporate bond market witnessed a tremendous recovery during the period. Within
the short-term, investment-grade, fixed-income markets represented by the
Merrill Lynch 1-3 Year Index, the Corporate sector produced, by far, the highest
total return at 6.8%. The remaining sector returns were meager by comparison
with Government Agencies at 2.4%, Treasuries at 2.0% and Mortgages at 1.7%.
During the twelve-month period, the Fund's duration remained neutral to its
benchmarks, and thus did not contribute to the Fund's excess performance. The
Fund's outperformance relative to its benchmarks was primarily due to its
overweighted position in the Corporate sector. Within Corporates, some of the
best performing industries were telecommunications, cable/media, and autos, all
of which the Fund overweighted during the period.
We will likely maintain the Fund's overweighted position in the Corporate
sector going forward, as we
19
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE SHORT-TERM BOND FUND(SM) -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
believe that relative value opportunities still exist. Additionally, given the
Fed's overtly accommodative monetary policy, we plan to maintain the Fund's
duration at short to neutral relative to its benchmarks as long as the prospects
for a continuing economic recovery remain in place.
TOP TEN HOLDINGS
<Table>
<Caption>
% OF
NET ASSETS
----------
Prudential Insurance Company of America, 6.375%
Due 7/23/2006 3.2%
Household Finance Corporation, 8.00%, Due
5/9/2005 3.2%
General Motors Acceptance Corporation, 6.75%,
Due 1/15/2006 3.2%
Chemical Master Credit Card Trust 1996-2 A,
5.98%, Due 9/15/2008 3.1%
Synovus Financial Corporation, 7.25%, Due
12/15/2005 2.7%
Wachovia Corporation, 6.40%, Due 4/1/2008 2.7%
Heller Financial, Incorporated, 6.375%, Due
3/15/2006 2.7%
Ford Motor Credit Company, 7.50%, Due 3/15/2005 2.6%
Discover Card Master Trust 1999-6 A, 6.85%, Due
7/17/2007 2.6%
MetLife, Incorporated, 3.911%, Due 5/15/2005 2.6%
</Table>
SECTOR ALLOCATION
<Table>
<Caption>
% OF
FIXED INCOME
------------
Corporate 79.4%
Asset Backed 12.6%
Mortgage Backed 8.0%
</Table>
20
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
American AAdvantage Balanced Fund
American AAdvantage Large Cap Value Fund
American AAdvantage Large Cap Growth Fund
American AAdvantage Small Cap Value Fund
American AAdvantage International Equity Fund
American AAdvantage Emerging Markets Fund
American AAdvantage High Yield Bond Fund
American AAdvantage Enhanced Income Fund
American AAdvantage Intermediate Bond Fund
American AAdvantage Short-Term Bond Fund
We have audited the accompanying statements of assets and liabilities of
the American AAdvantage Funds, comprised of the American AAdvantage Balanced
Fund, the American AAdvantage Large Cap Value Fund, the American AAdvantage
Large Cap Growth Fund, the American AAdvantage Small Cap Value Fund, the
American AAdvantage International Equity Fund, the American AAdvantage Emerging
Markets Fund, the American AAdvantage High Yield Bond Fund, the American
AAdvantage Enhanced Income Fund, the American AAdvantage Intermediate Bond Fund
and the American AAdvantage Short-Term Bond Fund, (collectively, "the Funds"),
including the schedules of investments, as of October 31, 2003, and the related
statements of operations, statements of changes in net assets and financial
highlights for each of the periods indicated therein. These financial statements
and financial highlights are the responsibility of the Funds' management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of October 31, 2003, by correspondence with
the custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of
each of the respective American AAdvantage Funds at October 31, 2003, the
results of their operations, the changes in their net assets, and the financial
highlights for each of the periods indicated therein, in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
December 19, 2003
- --------------------------------------------------------------------------------
21
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
U.S. TREASURY OBLIGATIONS - 8.53%
U.S. TREASURY NOTES - 4.59%
3.25%, Due 5/31/2004*.......... $ 5,000 $ 5,062
1.625%, Due 9/30/2005*......... 4,000 3,988
4.625%, Due 5/15/2006*......... 2,685 2,849
4.375%, Due 5/15/2007*......... 2,000 2,116
2.625%, Due 5/15/2008*......... 5,800 5,686
3.00%, Due 7/15/2012*.......... 905 991
4.375%, Due 8/15/2012*......... 3,000 3,045
3.625%, Due 5/15/2013*......... 2,985 2,858
--------
TOTAL U.S. TREASURY
NOTES.................... 26,595
--------
U.S. TREASURY BILLS - 2.92%
Discount Note, Due 3/25/2004... 17,000 16,933
--------
TOTAL U.S. TREASURY
BILLS.................... 16,933
--------
U.S. TREASURY BONDS - 1.02%
7.50%, Due 11/15/2016*......... 480 607
8.125%, Due 8/15/2019*......... 930 1,248
6.875%, Due 8/15/2025.......... 1,280 1,552
6.25%, Due 5/15/2030*.......... 900 1,029
5.375%, Due 2/15/2031*......... 1,420 1,467
--------
TOTAL U.S. TREASURY
BONDS.................... 5,903
--------
TOTAL U.S. TREASURY
OBLIGATIONS.............. 49,431
--------
U.S. AGENCY OBLIGATIONS - 0.86%
Federal National Mortgage Association,
1.875%, Due 12/15/2004......... 3,890 3,906
7.25%, Due 5/15/2030........... 900 1,089
--------
TOTAL U.S. AGENCY
OBLIGATIONS.............. 4,995
--------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 7.26%
FEDERAL HOME LOAN MORTGAGE
CORPORATION - 2.04%
3.25%, Due 11/15/2004.......... 4,500 4,585
6.50%, Due 3/1/2008............ 1,064 1,115
5.13%, Due 10/15/2008*......... 500 535
6.00%, Due 3/1/2013............ 215 224
6.00%, Due 11/1/2016........... 347 361
5.50%, Due 8/1/2017............ 179 184
5.00%, Due 3/1/2018............ 1,774 1,802
5.50%, Due 6/1/2018............ 365 376
6.50%, Due 5/1/2029............ 340 354
6.50%, Due 6/1/2029............ 54 56
6.50%, Due 7/1/2029............ 846 880
6.00%, Due 1/1/2033............ 321 329
6.00%, Due 8/1/2033............ 995 1,021
--------
TOTAL FEDERAL HOME LOAN
MORTGAGE CORPORATION..... 11,822
--------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.19%
Pool #313522, 7.00%, Due
5/1/2012..................... $ 1,061 $ 1,127
Pool #323223, 6.50%, Due
7/1/2013..................... 183 193
Pool #323309, 6.00%, Due
9/1/2013..................... 387 403
Pool #488099, 5.50%, Due
2/1/2014..................... 657 679
Pool #323789, 6.00%, Due
6/1/2014..................... 540 562
Pool #535846, 6.00%, Due
4/1/2016..................... 394 410
Pool #648511, 6.00%, Due
6/1/2017..................... 1,567 1,630
Pool #100292, 10.00%, Due
9/1/2018..................... 384 431
Pool #581864, 6.50%, Due
7/1/2031..................... 313 325
Pool #577440, 7.00%, Due
11/1/2031.................... 610 642
Pool #647747, 7.00%, Due
5/1/2032..................... 781 823
Pool #650077, 7.50%, Due
7/1/2032..................... 1,074 1,144
Pool #665380, 7.00%, Due
10/1/2032.................... 484 510
Pool #678220, 6.50%, Due
12/1/2032.................... 205 213
Pool #688459, 6.00%, Due
3/1/2033..................... 2,606 2,675
Pool #713706, 5.50%, Due
8/1/2033..................... 784 792
Pool #730570, 6.00%, Due
8/1/2033..................... 330 339
Pool #727223, 5.50%, Due
9/1/2033..................... 1,582 1,598
Pool #741901, 5.50%, Due
10/1/2033.................... 600 606
TBA, 4.50%, 15 yr.............. 3,400 3,394
--------
TOTAL FEDERAL NATIONAL
MORTGAGE ASSOCIATION..... 18,496
--------
GOVERNMENT NATIONAL MORTGAGE
ASSOCIATION - 2.03%
Pool #780030, 7.00%, Due
6/15/2024.................... 354 378
Pool #780400, 7.00%, Due
12/15/2025................... 341 362
Pool #781200, 8.00%, Due
12/15/2025................... 395 429
Pool #780615, 6.50%, Due
8/15/2027.................... 619 650
Pool #780651, 7.00%, Due
10/15/2027................... 730 774
Pool #780680, 6.50%, Due
11/15/2027................... 697 732
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
22
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Pool #780747, 6.50%, Due
3/15/2028.................... $ 652 $ 684
Pool #780788, 6.50%, Due
4/15/2028.................... 696 729
Pool #780842, 8.50%, Due
8/20/2028.................... 420 455
Pool #780936, 7.50%, Due
12/15/2028................... 810 868
Pool #781035, 6.50%, Due
5/15/2029.................... 637 668
Pool #002754, 6.50%, Due
5/20/2029.................... 454 474
Pool #781273, 6.00%, Due
4/15/2031.................... 804 832
Pool #574846, 7.00%, Due
11/15/2031................... 633 671
Pool #555732, 6.50%, Due
3/15/2032.................... 608 636
Pool #553235, 6.00%, Due
5/15/2033.................... 2,354 2,432
--------
TOTAL GOVERNMENT NATIONAL
MORTGAGE ASSOCIATION..... 11,774
--------
TOTAL U.S. AGENCY
MORTGAGE-BACKED
OBLIGATIONS.............. 42,092
--------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.59%
Countrywide Home Loan,
Incorporated,
3.50%, Due 12/19/2005........ 800 816
3.25%, Due 5/21/2008......... 810 790
5.50%, Due 8/25/2033......... 838 835
General Electric Commercial
Mortgage Corporation, 4.17%,
Due 7/10/2037................ 430 433
Wachovia Bank Commercial
Mortgage Trust, 3.989%, Due
6/15/2035.................... 570 532
--------
TOTAL NON-AGENCY
MORTGAGE-BACKED
OBLIGATIONS.............. 3,406
--------
CORPORATE BONDS - 16.25%
BANKS - 2.79%
Banco Popular North America
Inc, 4.25%, Due 4/1/2008..... 300 303
Bank of America Corporation,
7.40%, Due 1/15/2011......... 1,000 1,167
Bank One Corporation,
7.125%, Due 5/15/2007........ 350 394
4.90%, Due 4/30/2015......... 300 292
2.625%, Due 6/30/2008........ 480 458
Branch Banking and Trust
Company,
4.875%, Due 1/15/2013........ 800 794
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Capital One,
6.70%, Due 5/15/2008......... $ 1,000 $ 1,090
5.75%, Due 9/15/2010......... 210 220
Citigroup, Incorporated,
6.20%, Due 3/15/2009......... 1,000 1,109
6.50%, Due 1/18/2011......... 400 450
6.00%, Due 10/31/2033........ 400 398
Credit Suisse First Boston,
6.50%, Due 5/1/2008.......... 500 553
First Tennessee Bank, NA,
5.75%, Due 12/1/2008......... 475 515
FleetBoston Financial
Corporation,
3.85%, Due 2/15/2008......... 600 607
Fleet Norstar Financial Group,
Incorporated,
8.625%, Due 1/15/2007........ 400 464
ING Bank, NV, 5.125%, Due
5/1/2015, 144A (Note A)...... 300 296
Inter-American Development
Bank,
5.375%, Due 11/18/2008....... 1,280 1,391
John Hancock Global Funding,
3.75%, Due 9/30/2008......... 500 497
J P Morgan Chase & Company,
6.75%, Due 8/15/2008......... 650 733
KeyCorp Limited, 4.625%, Due
5/16/2005.................... 335 349
PNC Funding Corporation,
7.50%, Due 11/1/2009......... 525 616
Synovus Financial Corporation,
4.875%, Due 2/15/2013........ 300 294
US Bank, NA,
5.70%, Due 12/15/2008........ 675 732
6.375%, Due 8/1/2011......... 700 778
Wachovia Corporation,
4.95%, Due 11/1/2006......... 285 302
Washington Mutual Financial
Corporation,
6.875%, Due 5/15/2011........ 425 477
Washington Mutual,
Incorporated,
4.375%, Due 1/15/2008........ 400 410
Wells Fargo Bank, NA,
6.45%, Due 2/1/2011.......... 450 503
--------
TOTAL BANKS................ 16,192
--------
FINANCE - 5.99%
Aegon, NV,
8.00%, Due 8/15/2006......... 300 342
Allstate Corporation,
2.50%, Due 6/20/2008, 144A
(Note A)................... 300 284
American General Finance
Corporation,
5.375%, Due 9/1/2009......... 285 302
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
23
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Bear Stearns Companies,
Incorporated,
3.00%, Due 3/30/2006......... $ 500 $ 506
2.875%, Due 7/2/2008......... 300 289
Boeing Capital Corporation,
5.40%, Due 11/30/2009........ 650 671
Caterpillar Financial Services
Corporation,
2.50%, Due 10/3/2006......... 575 571
Cendant Corporation,
6.875%, Due 8/15/2006........ 1,015 1,115
Ford Motor Credit Company,
6.50%, Due 1/25/2007......... 375 387
7.375%, Due 10/28/2009....... 1,400 1,448
General Electric Capital
Corporation,
3.25%, Due 6/15/2009......... 630 608
7.375%, Due 1/19/2010*....... 850 992
General Motors Acceptance
Corporation,
6.125%, Due 8/28/2007........ 320 337
7.25%, Due 3/2/2011.......... 1,000 1,054
Goldman Sachs Group,
Incorporated,
7.35%, Due 10/1/2009......... 750 868
4.75%, Due 7/15/2013......... 650 628
5.25%, Due 10/15/2013........ 500 501
Household Finance Corporation,
5.75%, Due 1/30/2007......... 800 864
7.875%, Due 3/1/2007......... 400 459
6.375%, Due 11/27/2012....... 280 305
4.75%, Due 7/15/2013......... 400 387
International Lease Finance
Corporation,
6.375%, Due 3/15/2009........ 1,625 1,782
Liberty Mutual Corporation,
7.875%, Due 10/15/2026, 144A
(Note A)..................... 1,500 1,432
MBNA Credit Card Master Trust,
2.65%, Due 11/15/2010........ 820 788
Merrill Lynch & Company,
Incorporated,
6.56%, Due 12/16/2007........ 800 895
3.125%, Due 7/15/2008........ 555 542
Monumental Global Funding,
3.85%, Due 3/3/2008, 144A
(Note A)..................... 800 804
Morgan Stanley Dean Witter &
Company,
6.10%, Due 4/15/2006......... 450 488
4.34%, Due 6/13/2041......... 400 403
PHH Corporation,
6.00%, Due 3/1/2008.......... 300 321
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Prudential Financial,
Incorporated,
3.75%, Due 5/1/2008.......... $ 485 $ 483
4.50%, Due 7/15/2013......... 325 310
SLM Corporation,
2.00%, Due 3/15/2005......... 11,000 11,042
3.95%, Due 8/15/2008......... 420 423
5.125%, Due 8/27/2012........ 800 804
Sprint Capital Corporation,
7.90%, Due 3/15/2005......... 500 536
6.125%, Due 11/15/2008....... 195 205
Travelers Property Casualty
Corporation,
5.00%, Due 3/15/2013......... 200 199
Verizon Global Funding
Corporation,
4.375%, Due 6/1/2013......... 400 373
--------
TOTAL FINANCE.............. 34,748
--------
FOREIGN - 0.04%
United Mexican States, 7.50%,
Due 4/8/2033................. 240 245
--------
TOTAL FOREIGN.............. 245
--------
INDUSTRIAL - 6.14%
Akzo Nobel, Incorporated,
6.00%, Due 11/15/2003, 144A
(Note A)..................... 2,880 2,884
Allstate Corporation,
5.375, Due 12/1/2006......... 260 280
Anheuser Busch Companies,
Incorporated,
6.50%, Due 1/1/2028.......... 522 563
AT&T Broadband Corporation,
8.375%, Due 3/15/2013........ 748 904
AT&T Wireless Services,
Incorporated,
7.35%, Due 3/1/2006.......... 855 938
8.125%, Due 5/1/2012......... 350 406
8.75%, Due 3/1/2031.......... 265 319
Atlantic Richfield Company,
9.125%, Due 3/1/2011......... 425 548
AutoZone, Incorporated,
4.375%, Due 6/1/2013......... 240 223
Bemis, Incorporated,
6.70%, Due 7/1/2005.......... 1,000 1,075
BHP Finance (USA) Limited,
4.80%, Due 4/15/2013......... 300 298
Bunge Limited Financial
Corporation,
7.80%, Due 10/15/2012........ 250 288
Campbell Soup Company,
5.00%, Due 12/3/2012......... 240 243
Cargill, Incorporated,
6.25%, Due 5/1/2006, 144A
(Note A)..................... 1,000 1,091
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
24
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Clear Channel Communications,
4.25%, Due 5/15/2009......... $ 315 $ 313
5.75%, Due 1/15/2013......... 205 212
Comcast Cable Communications,
7.625%, Due 2/15/2008........ 200 225
6.75%, Due 1/30/2011......... 255 282
Computer Sciences Corporation,
3.50%, Due 4/15/2008......... 400 396
Conagra Foods, Incorporated,
7.125%, Due 10/1/2026........ 410 470
7.00%, Due 10/1/2028......... 400 438
ConocoPhillips,
3.625%, Due 10/15/2007....... 425 427
Continental Cablevision,
Incorporated,
8.30%, Due 5/15/2006......... 270 302
DaimlerChrysler North America,
4.75%, Due 1/15/2008......... 970 969
7.75%, Due 1/18/2011......... 1,000 1,105
John Deere Capital Corporation,
4.125%, Due 7/15/2005........ 410 424
Dell Computer Corporation,
6.55%, Due 4/15/2008......... 400 446
Deutsche Telekom International,
8.50%, Due 6/15/2010......... 280 337
Emerson Electric Company,
5.00%, Due 12/15/2014........ 240 240
General Motors Corporation,
8.375%, Due 7/15/2033........ 410 433
Harley Davidson Motorcycle,
2.69%, Due 4/15/2011......... 610 605
Hershey Foods Corporation,
6.95%, Due 3/1/2007.......... 1,000 1,128
Hertz Corporation,
4.70%, Due 10/2/2006......... 450 444
Hewlett Packard Company,
5.75%, Due 12/15/2006........ 470 508
International Business Machines
Corporation,
4.875%, Due 10/1/2006........ 505 536
4.75%, Due 11/29/2012........ 400 400
Kroger Company,
7.375%, Due 3/1/2005......... 450 481
Lockheed Martin Corporation,
7.20%, Due 5/1/2036.......... 600 702
Martin Marietta Material,
Incorporated,
6.90%, Due 8/15/2007......... 200 218
Norfolk Southern Corporation,
7.05%, Due 5/1/2037.......... 495 542
Northrop Grumman Corporation,
7.125%, Due 2/15/2011........ 905 1,040
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Occidental Petroleum
Corporation,
4.25%, Due 3/15/2010......... $ 395 $ 394
6.75%, Due 1/15/2012......... 400 450
Pepsi Bottling Group,
Incorporated,
7.00%, Due 3/1/2029.......... 425 485
Reed Elsevier Capital,
Incorporated,
6.125%, Due 8/1/2006......... 615 671
Safeway, Incorporated,
3.80%, Due 8/15/2005......... 300 306
Sara Lee Corporation,
6.00%, Due 1/15/2008......... 1,200 1,302
Simon Property Group,
7.625%, Due 5/15/2005, 144A
(Note A)..................... 750 810
Target Corporation,
7.00%, Due 7/15/2031......... 450 508
Time Warner, Incorporated,
7.625%, Due 4/15/2031........ 250 279
Tyson Foods, Incorporated,
6.625%, Due 10/1/2004........ 340 353
Unilever Capital Corporation,
7.125%, Due 11/1/2010........ 2,000 2,316
Univision Communications,
Incorporated,
3.875%, Due 10/15/2008....... 365 361
Verizon Communications,
Incorporated,
6.36%, Due 4/15/2006......... 550 598
Verizon Virginia,
4.625%, Due 3/15/2013........ 600 574
Verizon Wireless Capital LLC,
5.375%, Due 12/15/2006....... 420 449
Viacom, Incorporated,
5.625%, Due 8/15/2012........ 495 523
Vodafone Group plc,
3.95%, Due 1/30/2008......... 400 405
Wal-Mart Stores, Incorporated,
7.55%, Due 2/15/2030......... 450 553
The Walt Disney Company,
5.375%, Due 6/1/2007......... 235 251
Weyerhaeuser Company,
5.95%, Due 11/1/2008......... 340 364
--------
TOTAL INDUSTRIAL........... 35,635
--------
PHARMACEUTICAL - 0.17%
Bristol Myers Squibb Company,
4.00%, Due 8/15/2008, 144A
(Note A)..................... 465 471
Wyeth Corporation,
6.70%, Due 3/15/2011......... 450 506
--------
TOTAL PHARMACEUTICAL....... 977
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
25
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
TRANSPORTATION - 0.43%
CNF Transportation,
Incorporated,
8.875%, Due 5/1/2010......... $ 1,850 $ 1,967
Union Pacific Corporation,
6.50%, Due 4/15/2012......... 450 499
--------
TOTAL TRANSPORTATION....... 2,466
--------
UTILITY - 0.69%
AEP Texas Central Company,
6.65%, Due 2/15/2033......... 120 124
Appalachian Power Company,
5.95%, Due 5/15/2033......... 120 112
Consolidated Natural Gas
Company,
6.875%, Due 10/15/2026....... 360 398
Devon Energy Corporation,
2.75%, Due 8/1/2006.......... 420 420
Dominion Resources,
Incorporated,
5.00%, Due 3/15/2013......... 210 208
Enterprise Products Partners
LP,
7.50%, Due 2/1/2011.......... 230 265
FirstEnergy Corporation,
6.45%, Due 11/15/2011........ 180 191
Kerr-McGee Corporation,
5.875%, Due 9/15/2006........ 420 450
Marathon Oil Corporation,
5.375%, Due 6/1/2007......... 260 278
MidAmerican Energy Holdings
Company,
3.50%, Due 5/15/2008......... 395 384
5.875%, Due 10/01/2012....... 305 316
Oncor Electric Delivery
Company,
7.25%, Due 1/15/2033......... 155 174
Union Oil Company of
California,
7.90%, Due 4/18/2008......... 100 114
Xcel Energy, Incorporated,
7.00%, Due 12/1/2010......... 500 562
--------
TOTAL UTILITY.............. 3,996
--------
TOTAL CORPORATE BONDS...... 94,259
--------
</Table>
<Table>
<Caption>
SHARES
-----------
COMMON STOCK - 58.05%
CONSUMER DISCRETIONARY - 6.94%
AUTO COMPONENTS - 0.10%
Delphi Corporation............. 63,200 562
--------
TOTAL AUTO COMPONENTS...... 562
--------
HOTELS, RESTAURANTS & LEISURE - 2.02%
Carnival Corporation........... 85,900 2,999
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Mandalay Resort Group.......... 68,800 $ 2,700
Park Place Entertainment
Corporation+................. 81,200 779
Wendy's International,
Incorporated................. 31,000 1,149
Yum Brands, Incorporated+...... 120,500 4,114
--------
TOTAL HOTELS, RESTAURANTS &
LEISURE.................. 11,741
--------
HOUSEHOLD DURABLES - 1.38%
Centex Corporation............. 41,300 4,027
Fortune Brands, Incorporated... 27,300 1,779
Konnklijke Philips Electronics
NV........................... 82,431 2,212
--------
TOTAL HOUSEHOLD DURABLES... 8,018
--------
LEISURE EQUIPMENT & PRODUCTS - 0.52%
Eastman Kodak Company.......... 123,600 3,020
--------
TOTAL LEISURE EQUIPMENT &
PRODUCTS................. 3,020
--------
MULTILINE RETAIL - 2.69%
Federated Department Stores,
Incorporated................. 57,500 2,734
May Department Stores
Company...................... 96,900 2,709
J.C. Penney Company,
Incorporated................. 158,000 3,737
Sears Roebuck & Company........ 121,800 6,410
--------
TOTAL MULTILINE RETAIL..... 15,590
--------
TEXTILES & APPAREL - 0.23%
Jones Apparel Group,
Incorporated................. 18,600 642
Liz Claiborne, Incorporated.... 18,000 664
--------
TOTAL TEXTILES & APPAREL... 1,306
--------
TOTAL CONSUMER
DISCRETIONARY............ 40,237
--------
CONSUMER STAPLES - 4.64%
FOOD PRODUCTS - 1.75%
Albertson's, Incorporated*..... 80,000 1,623
Conagra, Incorporated.......... 130,200 3,104
Dean Foods Company+............ 35,000 1,059
Kraft Foods, Incorporated...... 78,600 2,287
Sara Lee Company............... 103,574 2,064
--------
TOTAL FOOD PRODUCTS........ 10,137
--------
TOBACCO - 2.89%
Altria Group, Incorporated..... 168,600 7,840
Gallaher Group, plc, ADR....... 64,400 2,573
Imperial Tobacco Group, plc,
ADR.......................... 94,800 3,150
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
26
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
UST, Incorporated.............. 94,500 $ 3,215
--------
TOTAL TOBACCO.............. 16,778
--------
TOTAL CONSUMER STAPLES..... 26,915
--------
ENERGY - 5.50%
ENERGY EQUIPMENT & SERVICES - 0.51%
Duke Energy Corporation........ 161,900 2,938
--------
TOTAL ENERGY EQUIPMENT &
SERVICES................. 2,938
--------
OIL & GAS - 4.99%
BP plc, ADR.................... 80,380 3,407
ChevronTexaco Corporation...... 43,814 3,255
ConocoPhillips................. 122,688 7,012
Devon Energy Corporation....... 50,800 2,464
El Paso Corporation............ 45,500 334
Equitable Resources,
Incorporated................. 28,600 1,178
Kerr-McGee Corporation......... 14,000 581
Marathon Oil Corporation....... 26,500 784
Occidental Petroleum
Corporation.................. 131,400 4,633
Royal Dutch Petroleum
Company...................... 26,500 1,176
Sunoco, Incorporated........... 65,009 2,845
Teekay Shipping Corporation.... 27,000 1,300
--------
TOTAL OIL & GAS............ 28,969
--------
TOTAL ENERGY............... 31,907
--------
FINANCIALS - 16.56%
BANKS - 6.16%
Bank of America Corporation.... 88,111 6,673
Bank One Corporation........... 14,500 616
FleetBoston Financial
Corporation.................. 91,300 3,688
KeyCorp Limited................ 124,500 3,517
PNC Financial Services Group,
Incorporated................. 64,178 3,438
UnionBanCal Corporation........ 28,700 1,555
U.S. Bancorp, Incorporated..... 88,860 2,419
Wachovia Corporation........... 86,000 3,945
Washington Mutual,
Incorporated................. 153,500 6,716
Wells Fargo & Company.......... 56,600 3,188
--------
TOTAL BANKS................ 35,755
--------
DIVERSIFIED FINANCIALS - 5.18%
American Express Company....... 27,000 1,267
Bear Stearns Companies,
Incorporated................. 22,300 1,700
Cinergy Corporation............ 3,200 116
CIT Group, Incorporated........ 112,400 3,779
Citigroup, Incorporated........ 165,842 7,861
Federal National Mortgage
Association.................. 30,800 2,208
J P Morgan Chase & Company..... 145,650 5,229
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Merrill Lynch & Company,
Incorporated................. 36,600 $ 2,167
Morgan Stanley Dean Witter &
Company...................... 36,400 1,997
Principal Financial Group...... 87,600 2,746
SLM Corporation................ 24,300 952
--------
TOTAL DIVERSIFIED
FINANCIALS............... 30,022
--------
INSURANCE - 5.22%
Ace Limited.................... 61,600 2,218
Allmerica Financial
Corporation+................. 31,400 836
Allstate Corporation........... 174,800 6,905
Hartford Financial Services
Group, Incorporated.......... 10,000 549
Loews Corporation.............. 26,000 1,118
MetLife, Incorporated.......... 181,580 5,702
MGIC Investments Corporation... 66,200 3,397
Prudential Financial,
Incorporated................. 90,900 3,512
St. Paul Companies,
Incorporated................. 100,000 3,813
XL Capital Limited............. 31,800 2,210
--------
TOTAL INSURANCE............ 30,260
--------
TOTAL FINANCIALS........... 96,037
--------
HEALTH CARE - 4.67%
HEALTH CARE EQUIPMENT & SUPPLIES - 0.61%
Bausch & Lomb, Incorporated.... 26,700 1,286
Baxter International,
Incorporated................. 83,900 2,230
--------
TOTAL HEALTH CARE EQUIPMENT
& SUPPLIES............... 3,516
--------
HEALTH CARE PROVIDERS & SERVICES - 2.10%
Aetna, Incorporated............ 66,700 3,829
Cigna Corporation.............. 23,700 1,352
HCA, Incorporated.............. 32,400 1,239
Health Net, Incorporated+...... 24,200 764
Tenet Healthcare Corporation+.. 322,500 4,451
Wellpoint Health Networks,
Incorporated+................ 5,900 525
--------
TOTAL HEALTH CARE PROVIDERS
& SERVICES............... 12,160
--------
PHARMACEUTICALS - 1.96%
Bristol-Myers Squibb Company... 193,700 4,914
Merck & Company,
Incorporated................. 25,300 1,120
Pfizer, Incorporated........... 44,400 1,403
Schering Plough Corporation.... 164,000 2,504
Wyeth Corporation.............. 31,700 1,399
--------
TOTAL PHARMACEUTICALS...... 11,340
--------
TOTAL HEALTH CARE.......... 27,016
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
27
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 8.32%
AEROSPACE & DEFENSE - 3.18%
Boeing Company................. 151,900 $ 5,847
Honeywell International,
Incorporated................. 94,600 2,896
Lockheed Martin Corporation.... 30,600 1,418
Raytheon Company............... 86,000 2,277
Textron, Incorporated.......... 76,500 3,801
United Technologies
Corporation.................. 26,000 2,202
--------
TOTAL AEROSPACE &
DEFENSE.................. 18,441
--------
COMMERCIAL SERVICES & SUPPLIES - 1.76%
Cendant Corporation+........... 271,200 5,541
Concord EFS, Incorporated+..... 31,000 331
Waste Management,
Incorporated................. 167,079 4,331
--------
TOTAL COMMERCIAL SERVICES &
SUPPLIES................. 10,203
--------
ELECTRICAL EQUIPMENT - 0.85%
Emerson Electrical Company..... 87,100 4,943
--------
TOTAL ELECTRICAL
EQUIPMENT................ 4,943
--------
INDUSTRIAL CONGLOMERATES - 0.89%
Tyco International Limited..... 246,701 5,151
--------
TOTAL INDUSTRIAL
CONGLOMERATES............ 5,151
--------
MACHINERY - 0.81%
Caterpillar, Incorporated...... 38,100 2,792
ITT Industries, Incorporated... 28,400 1,931
--------
TOTAL MACHINERY............ 4,723
--------
TRANSPORTATION - 0.83%
Burlington Northern Santa Fe
Corporation.................. 85,500 2,474
CSX Corporation................ 73,900 2,351
--------
TOTAL TRANSPORTATION....... 4,825
--------
TOTAL INDUSTRIALS.......... 48,286
--------
INFORMATION TECHNOLOGY - 3.57%
COMPUTERS & PERIPHERALS - 1.23%
Gateway, Incorporated+......... 89,100 449
Hewlett Packard Company........ 142,800 3,186
International Business Machines
Corporation.................. 38,900 3,481
--------
TOTAL COMPUTERS &
PERIPHERALS.............. 7,116
--------
IT CONSULTING & SERVICES - 1.29%
Computer Sciences
Corporation+................. 56,500 2,239
Electronic Data Systems
Corporation.................. 245,000 5,255
--------
TOTAL IT CONSULTING &
SERVICES................. 7,494
--------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
OFFICE ELECTRONICS - 0.21%
IKON Office Solutions,
Incorporated*................ 142,800 $ 1,199
--------
TOTAL OFFICE ELECTRONICS... 1,199
--------
SOFTWARE - 0.84%
Cadence Design Systems,
Incorporated+................ 65,000 1,000
Computer Associates
International,
Incorporated................. 164,700 3,874
--------
TOTAL SOFTWARE............. 4,874
--------
TOTAL INFORMATION
TECHNOLOGY............... 20,683
--------
MATERIALS - 3.67%
CHEMICALS - 1.99%
Air Products & Chemicals,
Incorporated................. 25,500 1,158
Crompton Corporation........... 121,113 649
E. I. du Pont de Nemours &
Company...................... 28,500 1,151
Eastman Chemical Company....... 40,400 1,311
Hercules, Incorporated+........ 128,400 1,342
Imperial Chemical Industries,
plc, ADR..................... 108,300 1,414
Lyondell Chemical Company...... 165,700 2,370
PPG Industries, Incorporated... 37,600 2,168
--------
TOTAL CHEMICALS............ 11,563
--------
METALS & MINING - 0.50%
Alcoa, Incorporated............ 92,396 2,917
--------
TOTAL METALS & MINING...... 2,917
--------
PAPER & FOREST PRODUCTS - 1.18%
Plum Creek Timber Company,
Incorporated................. 47,047 1,240
Sappi Limited, ADR............. 218,000 2,790
UPM Kymmene Corporation,
ADR*......................... 106,200 1,995
Weyerhaeuser Company........... 13,800 831
--------
TOTAL PAPER & FOREST
PRODUCTS................. 6,856
--------
TOTAL MATERIALS............ 21,336
--------
REAL ESTATE INVESTMENT TRUSTS - 0.35%
Equity Office Properties
Trust........................ 72,900 2,042
--------
TOTAL REAL ESTATE
INVESTMENT TRUSTS........ 2,042
--------
TELECOMMUNICATION SERVICES - 0.60%
SBC Communications,
Incorporated................. 31,300 751
Verizon Communications,
Incorporated................. 80,428 2,702
--------
TOTAL TELECOMMUNICATION
SERVICES................. 3,453
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
28
AMERICAN AADVANTAGE BALANCED FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
UTILITIES - 3.23%
ELECTRIC UTILITIES - 3.05%
American Electric Power
Company, Incorporated........ 222,200 $ 6,264
Centerpoint Energy,
Incorporated*................ 132,600 1,301
DTE Energy Company............. 26,200 966
Entergy Corporation............ 69,400 3,741
FirstEnergy Corporation........ 54,700 1,881
Northeast Utilities............ 54,800 1,032
Reliant Resources,
Incorporated+................ 144,956 717
The Southern Company........... 31,400 936
Teco Energy, Incorporated*..... 64,300 844
--------
TOTAL ELECTRIC UTILITIES... 17,682
--------
MULTI-UTILITIES - 0.18%
Scana Corporation.............. 30,644 1,051
--------
TOTAL MULTI-UTILITIES...... 1,051
--------
TOTAL UTILITIES............ 18,733
--------
TOTAL COMMON STOCK......... 336,645
--------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
SHORT-TERM INVESTMENTS - 15.24%
UNITED STATES TREASURY BILLS - 0.70%
1.00%, Due 12/11/2003 (Note
B)........................... $ 4,050 $ 4,046
--------
TOTAL UNITED STATES
TREASURY BILLS........... 4,046
--------
</Table>
<Table>
<Caption>
SHARES
-----------
OTHER SHORT-TERM INVESTMENTS - 14.54%
American AAdvantage Money
Market Select Fund........... 71,941,241 71,941
AMR Investments Enhanced Yield
Business Trust............... 12,493,430 12,493
--------
TOTAL OTHER SHORT-TERM
INVESTMENTS.............. 84,434
--------
TOTAL SHORT-TERM
INVESTMENTS.............. 88,480
--------
TOTAL INVESTMENTS - 106.78%
(COST $564,625).............. 619,308
--------
LIABILITIES, NET OF OTHER
ASSETS - (6.78%)............. (39,334)
--------
TOTAL NET ASSETS - 100%........ $579,974
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $8,072 or 1.39% of net assets.
(B) At October 31, 2003, securities held as collateral for open futures
contracts.
* - All or a portion of this security is on loan at October 31, 2003. See Note
4.
+ - non-income producing
See accompanying notes
- --------------------------------------------------------------------------------
29
AMERICAN AADVANTAGE LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 92.67%
CONSUMER DISCRETIONARY - 11.11%
AUTO COMPONENTS - 0.15%
Delphi Corporation.............. 107,100 $ 953
--------
TOTAL AUTO COMPONENTS....... 953
--------
HOTELS, RESTAURANTS & LEISURE - 2.77%
Carnival Corporation............ 112,300 3,920
Mandalay Resort Group*.......... 99,200 3,894
Park Place Entertainment
Corporation+.................. 133,700 1,284
Wendy's International,
Incorporated.................. 49,800 1,845
Yum Brands, Incorporated+....... 202,600 6,917
--------
TOTAL HOTELS, RESTAURANTS &
LEISURE................... 17,860
--------
HOUSEHOLD DURABLES - 2.42%
Centex Corporation.............. 69,600 6,786
Fortune Brands, Incorporated.... 42,700 2,782
Konnklijke Philips Electronics
NV............................ 110,666 2,970
Matsushita Electric Industrial
Company Limited, ADR.......... 115,000 1,509
Newell Rubbermaid,
Incorporated.................. 68,300 1,557
--------
TOTAL HOUSEHOLD DURABLES.... 15,604
--------
LEISURE EQUIPMENT & PRODUCTS - 0.74%
Eastman Kodak Company*.......... 195,700 4,781
--------
TOTAL LEISURE EQUIPMENT &
PRODUCTS.................. 4,781
--------
MEDIA - 0.52%
Clear Channel Communications,
Incorporated+................. 40,000 1,633
Liberty Media Corporation+...... 173,000 1,746
--------
TOTAL MEDIA................. 3,379
--------
MULTILINE RETAIL - 4.20%
Federated Department Stores,
Incorporated.................. 77,900 3,704
May Department Stores Company... 135,900 3,800
J.C. Penney Company,
Incorporated.................. 348,400 8,240
Sears Roebuck & Company......... 206,600 10,873
Target Corporation.............. 10,000 397
--------
TOTAL MULTILINE RETAIL...... 27,014
--------
TEXTILES & APPAREL - 0.31%
Jones Apparel Group,
Incorporated.................. 31,600 1,090
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Liz Claiborne, Incorporated..... 25,000 $ 922
--------
TOTAL TEXTILES & APPAREL.... 2,012
--------
TOTAL CONSUMER
DISCRETIONARY............. 71,603
--------
CONSUMER STAPLES - 8.14%
FOOD & DRUG RETAILING - 0.43%
Albertson's, Incorporated*...... 135,600 2,751
--------
TOTAL FOOD & DRUG
RETAILING................. 2,751
--------
FOOD PRODUCTS - 2.63%
Archer-Daniels-Midland
Company*...................... 131,000 1,880
Conagra, Incorporated........... 189,100 4,508
Dean Foods Company+............. 57,100 1,727
Kellogg Company................. 53,000 1,756
Kraft Foods, Incorporated....... 133,400 3,882
Sara Lee Company................ 160,328 3,195
--------
TOTAL FOOD PRODUCTS......... 16,948
--------
HOUSEHOLD PRODUCTS - 0.26%
Kimberly Clark Corporation...... 32,000 1,690
--------
TOTAL HOUSEHOLD PRODUCTS.... 1,690
--------
PERSONAL PRODUCTS - 0.36%
Gillette Company................ 72,000 2,297
--------
TOTAL PERSONAL PRODUCTS..... 2,297
--------
TOBACCO - 4.46%
Altria Group, Incorporated...... 300,700 13,983
Gallaher Group, plc, ADR........ 79,800 3,188
Imperial Tobacco Group, plc,
ADR........................... 188,900 6,277
UST, Incorporated............... 154,800 5,266
--------
TOTAL TOBACCO............... 28,714
--------
TOTAL CONSUMER STAPLES...... 52,400
--------
ENERGY - 7.59%
ENERGY EQUIPMENT & SERVICES - 0.28%
Weatherford International
Limited+*..................... 51,000 1,772
--------
TOTAL ENERGY EQUIPMENT &
SERVICES.................. 1,772
--------
OIL & GAS - 7.31%
BP plc, ADR..................... 109,136 4,625
ChevronTexaco Corporation....... 69,781 5,185
ConocoPhillips.................. 212,022 12,117
Devon Energy Corporation........ 79,900 3,875
El Paso Corporation*............ 53,300 391
Equitable Resources,
Incorporated.................. 36,100 1,487
Kerr-McGee Corporation.......... 19,000 789
Marathon Oil Corporation........ 35,700 1,056
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
30
AMERICAN AADVANTAGE LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Occidental Petroleum
Corporation................... 222,900 $ 7,859
Royal Dutch Petroleum Company... 48,100 2,135
Sunoco, Incorporated............ 108,805 4,761
Teekay Shipping Corporation*.... 58,100 2,796
--------
TOTAL OIL & GAS............. 47,076
--------
TOTAL ENERGY................ 48,848
--------
FINANCIALS - 25.47%
BANKS - 9.18%
Bank of America Corporation..... 121,903 9,232
Bank One Corporation............ 24,600 1,044
Comerica, Incorporated.......... 31,000 1,596
FleetBoston Financial
Corporation................... 103,400 4,176
KeyCorp Limited................. 192,300 5,432
Mitsubishi Tokyo Financial
Group, Incorporated, ADR*..... 237,000 1,740
PNC Financial Services Group,
Incorporated.................. 123,827 6,633
UnionBanCal Corporation......... 48,700 2,638
U.S. Bancorp, Incorporated...... 126,060 3,431
Wachovia Corporation............ 114,000 5,229
Washington Mutual,
Incorporated.................. 228,700 10,006
Wells Fargo & Company*.......... 141,200 7,952
--------
TOTAL BANKS................. 59,109
--------
DIVERSIFIED FINANCIALS - 7.58%
American Express Company........ 36,500 1,713
Bear Stearns Companies,
Incorporated.................. 33,000 2,516
Charles Schwab Corporation...... 100,000 1,356
CIT Group, Incorporated......... 190,600 6,408
Citigroup, Incorporated......... 239,638 11,359
Federal National Mortgage
Association................... 40,600 2,911
Ing Groep NV, ADR............... 110,417 2,301
J P Morgan Chase & Company...... 211,142 7,580
Merrill Lynch & Company,
Incorporated.................. 58,800 3,481
Morgan Stanley Dean Witter &
Company....................... 53,500 2,936
Principal Financial Group,
Incorporated.................. 148,500 4,655
SLM Corporation................. 39,900 1,562
--------
TOTAL DIVERSIFIED
FINANCIALS................ 48,778
--------
INSURANCE - 8.71%
Ace Limited..................... 103,800 3,737
Allmerica Financial
Corporation+.................. 46,800 1,246
Allstate Corporation............ 298,328 11,784
American International Group,
Incorporated.................. 8,000 487
Chubb Corporation............... 34,000 2,272
Cincinnati Financial
Corporation................... 63,000 2,578
Hartford Financial Services
Group, Incorporated........... 17,400 955
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Loews Corporation............... 42,000 $ 1,806
MetLife, Incorporated........... 316,000 9,922
MGIC Investments Corporation.... 107,700 5,526
Prudential Financial,
Incorporated.................. 153,800 5,943
St. Paul Companies,
Incorporated.................. 160,300 6,112
XL Capital Limited.............. 53,400 3,711
--------
TOTAL INSURANCE............. 56,079
--------
TOTAL FINANCIALS............ 163,966
--------
HEALTH CARE - 7.16%
HEALTH CARE EQUIPMENT & SUPPLIES - 1.29%
Alcon, Incorporated*............ 36,000 1,984
C. R. Bard, Incorporated........ 6,000 480
Bausch & Lomb, Incorporated..... 45,300 2,182
Baxter International,
Incorporated.................. 137,900 3,665
--------
TOTAL HEALTH CARE EQUIPMENT
& SUPPLIES................ 8,311
--------
HEALTH CARE PROVIDERS & SERVICES - 3.03%
Aetna, Incorporated............. 112,600 6,464
Cigna Corporation............... 35,500 2,025
HCA, Incorporated............... 55,100 2,108
Health Net, Incorporated+....... 37,100 1,172
Tenet Healthcare Corporation+... 502,400 6,933
Wellpoint Health Networks,
Incorporated+................. 8,700 773
--------
TOTAL HEALTH CARE PROVIDERS
& SERVICES................ 19,475
--------
PHARMACEUTICALS - 2.84%
Astrazeneca, plc, ADR*.......... 48,000 2,289
Bristol-Myers Squibb Company.... 258,400 6,556
Merck & Company, Incorporated... 38,000 1,682
Pfizer, Incorporated............ 57,300 1,811
Schering Plough Corporation..... 267,700 4,088
Wyeth Corporation............... 42,700 1,885
--------
TOTAL PHARMACEUTICALS....... 18,311
--------
TOTAL HEALTH CARE........... 46,097
--------
INDUSTRIALS - 13.43%
AEROSPACE & DEFENSE - 3.30%
Boeing Company.................. 258,200 9,938
L3 Communications Holding
Corporation+*................. 40,000 1,870
Lockheed Martin Corporation..... 51,900 2,406
Raytheon Company................ 155,900 4,128
United Technologies
Corporation................... 34,100 2,888
--------
TOTAL AEROSPACE & DEFENSE... 21,230
--------
COMMERCIAL SERVICES & SUPPLIES - 2.89%
Cendant Corporation+............ 511,000 10,440
Concord EFS, Incorporated+...... 46,200 494
Deluxe Corporation.............. 9,300 375
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
31
AMERICAN AADVANTAGE LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Waste Management, Incorporated.. 280,695 $ 7,276
--------
TOTAL COMMERCIAL SERVICES &
SUPPLIES.................. 18,585
--------
ELECTRICAL EQUIPMENT - 1.44%
Emerson Electrical Company...... 126,900 7,202
Molex, Incorporated*............ 78,000 2,068
--------
TOTAL ELECTRICAL
EQUIPMENT................. 9,270
--------
INDUSTRIAL CONGLOMERATES - 3.53%
3M Company...................... 26,000 2,051
Honeywell International,
Incorporated.................. 177,300 5,427
Textron, Incorporated........... 99,200 4,929
Tyco International Limited...... 493,100 10,296
--------
TOTAL INDUSTRIAL
CONGLOMERATES............. 22,703
--------
MACHINERY - 1.09%
Caterpillar, Incorporated....... 52,900 3,877
ITT Industries, Incorporated.... 46,500 3,162
--------
TOTAL MACHINERY............. 7,039
--------
TRANSPORTATION - 1.18%
Burlington Northern Santa Fe
Corporation................... 133,500 3,863
CSX Corporation................. 117,700 3,745
--------
TOTAL TRANSPORTATION........ 7,608
--------
TOTAL INDUSTRIALS........... 86,435
--------
INFORMATION TECHNOLOGY - 6.95%
COMMUNICATIONS EQUIPMENT - 0.54%
Lucent Technologies,
Incorporated+*................ 550,000 1,760
Motorola, Incorporated.......... 128,000 1,732
--------
TOTAL COMMUNICATIONS
EQUIPMENT................. 3,492
--------
COMPUTERS & PERIPHERALS - 2.36%
Apple Computer, Incorporated+... 98,000 2,243
Gateway, Incorporated+.......... 151,100 762
Hewlett Packard Company......... 186,200 4,154
International Business Machines
Corporation................... 69,400 6,210
NCR Corporation+*............... 51,000 1,833
--------
TOTAL COMPUTERS &
PERIPHERALS............... 15,202
--------
IT CONSULTING & SERVICES - 1.83%
Computer Sciences Corporation+.. 71,800 2,845
Electronic Data Systems
Corporation................... 415,200 8,906
--------
TOTAL IT CONSULTING &
SERVICES.................. 11,751
--------
OFFICE ELECTRONICS - 0.63%
IKON Office Solutions,
Incorporated*................. 287,500 2,415
</Table>
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Xerox Corporation+*............. 156,000 $ 1,638
--------
TOTAL OFFICE ELECTRONICS.... 4,053
--------
SOFTWARE - 1.59%
Autodesk, Incorporated*......... 110,000 2,118
Cadence Design Systems,
Incorporated+................. 101,400 1,561
Computer Associates
International, Incorporated... 279,100 6,564
--------
TOTAL SOFTWARE.............. 10,243
--------
TOTAL INFORMATION
TECHNOLOGY................ 44,741
--------
MATERIALS - 5.19%
CHEMICALS - 3.17%
Air Products & Chemicals,
Incorporated*................. 75,200 3,415
Crompton Corporation............ 209,808 1,125
Cytec Industries,
Incorporated+................. 60,000 2,095
E. I. du Pont de Nemours &
Company....................... 42,700 1,725
Hercules, Incorporated+......... 173,400 1,812
Imperial Chemical Industries,
plc, ADR...................... 156,900 2,049
Lyondell Chemical Company....... 237,700 3,399
Millennium Chemicals,
Incorporated+................. 117,100 1,173
PPG Industries, Incorporated.... 62,700 3,615
--------
TOTAL CHEMICALS............. 20,408
--------
METALS & MINING - 0.74%
Alcoa, Incorporated............. 151,168 4,772
--------
TOTAL METALS & MINING....... 4,772
--------
PAPER & FOREST PRODUCTS - 1.28%
Sappi Limited, ADR.............. 337,000 4,314
UPM Kymmene Corporation, ADR*... 134,000 2,518
Weyerhaeuser Company............ 23,100 1,391
--------
TOTAL PAPER & FOREST
PRODUCTS.................. 8,223
--------
TOTAL MATERIALS............. 33,403
--------
REAL ESTATE INVESTMENT TRUSTS - 0.83%
Equity Office Properties
Trust......................... 122,500 3,431
Plum Creek Timber Company,
Incorporated.................. 72,043 1,898
--------
TOTAL REAL ESTATE INVESTMENT
TRUSTS.................... 5,329
--------
TELECOMMUNICATION SERVICES - 1.45%
DIVERSIFIED TELECOMMUNICATION - 1.16%
SBC Communications,
Incorporated*................. 120,400 2,887
Verizon Communications,
Incorporated.................. 136,346 4,581
--------
TOTAL DIVERSIFIED
TELECOMMUNICATION......... 7,468
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
32
AMERICAN AADVANTAGE LARGE CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
WIRELESS TELECOMMUNICATION - 0.29%
Vodafone Group, plc, ADR*....... 89,000 $ 1,882
--------
TOTAL WIRELESS
TELECOMMUNICATION......... 1,882
--------
TOTAL TELECOMMUNICATION
SERVICES.................. 9,350
--------
UTILITIES - 5.35%
ELECTRIC UTILITIES - 4.46%
American Electric Power Company,
Incorporated.................. 348,900 9,835
Centerpoint Energy,
Incorporated*................. 217,700 2,136
Cinergy Corporation............. 5,400 196
DTE Energy Company.............. 45,300 1,671
Entergy Corporation............. 115,000 6,198
FirstEnergy Corporation......... 92,600 3,185
Northeast Utilities............. 92,200 1,737
Reliant Resources,
Incorporated+................. 238,147 1,179
The Southern Company............ 51,600 1,538
Teco Energy, Incorporated*...... 77,500 1,018
--------
TOTAL ELECTRIC UTILITIES.... 28,693
--------
MULTI-UTILITIES - 0.89%
Duke Energy Corporation......... 219,500 3,984
Scana Corporation............... 51,602 1,769
--------
TOTAL MULTI-UTILITIES....... 5,753
--------
TOTAL UTILITIES............. 34,446
--------
TOTAL COMMON STOCK.......... 596,618
--------
</Table>
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
SHORT-TERM INVESTMENTS - 12.22%
U.S. TREASURY BILLS - 0.50%
1.00%, Due 12/11/2003 (Note
A)............................ $ 3,230 $ 3,227
--------
TOTAL U.S. TREASURY BILLS... 3,227
--------
</Table>
<Table>
<Caption>
SHARES
----------
OTHER SHORT-TERM INVESTMENTS - 11.72%
American AAdvantage Money Market
Select Fund................... 67,291,457 67,291
AMR Investments Enhanced Yield
Business Trust................ 8,024,136 8,024
--------
TOTAL OTHER SHORT-TERM
INVESTMENTS............... 75,315
--------
TOTAL SHORT-TERM
INVESTMENTS............... 78,542
--------
TOTAL INVESTMENTS - 104.89%
(COST $596,321)............... 675,160
--------
LIABILITIES, NET OF OTHER
ASSETS - (4.89%).............. (31,448)
--------
TOTAL NET ASSETS - 100%......... $643,712
========
</Table>
- ---------------
(A) At October 31, 2003, security held as collateral for open futures contracts.
* - All or a portion of this security is on loan at October 31, 2003. See Note 4
+ - non-income producing
See accompanying notes
- --------------------------------------------------------------------------------
33
AMERICAN AADVANTAGE LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 98.13%
CONSUMER DISCRETIONARY - 18.01%
AUTO COMPONENTS - 0.31%
Autoliv, Incorporated.............. 2,200 $ 73
Johnson Controls, Incorporated..... 400 43
Lear Corporation+.................. 600 35
-------
TOTAL AUTO COMPONENTS.......... 151
-------
AUTOMOBILES - 1.62%
AutoNation, Incorporated+.......... 11,400 213
Ford Motor Company................. 3,300 40
Harley Davidson, Incorporated...... 11,400 540
-------
TOTAL AUTOMOBILES.............. 793
-------
HOTELS, RESTAURANTS & LEISURE - 0.80%
Carnival Corporation............... 100 3
CBRL Group, Incorporated........... 2,400 93
GTECH Holdings Corporation......... 900 40
McDonald's Corporation............. 4,500 113
Yum Brands, Incorporated+.......... 4,200 143
-------
TOTAL HOTELS, RESTAURANTS &
LEISURE...................... 392
-------
INTERNET & CATALOG RETAIL - 1.89%
Amazon.com, Incorporated+.......... 7,000 381
Ebay, Incorporated+................ 9,000 503
MSC Industrial Direct Company,
Incorporated..................... 1,700 40
-------
TOTAL INTERNET & CATALOG
RETAIL....................... 924
-------
LEISURE EQUIPMENT & PRODUCTS - 0.36%
Mattel, Incorporated............... 9,100 176
-------
TOTAL LEISURE EQUIPMENT &
PRODUCTS..................... 176
-------
HOUSEHOLD DURABLES - 0.87%
Centex Corporation................. 1,000 98
NVR, Incorporated+................. 50 24
Whirlpool Corporation.............. 4,300 303
-------
TOTAL HOUSEHOLD DURABLES....... 425
-------
MEDIA - 3.87%
Comcast Corporation, Class A Common
Stock+........................... 4,300 146
Cox Communications, Incorporated+.. 700 24
Cox Radio, Incorporated+........... 3,100 69
Fox Entertainment Group,
Incorporated+.................... 11,900 330
Gannett Company, Incorporated...... 1,100 93
General Motors Corporation+........ 700 12
Hearst-Argyle Television,
Incorporated+.................... 1,100 27
Liberty Media Corporation+......... 4,300 43
McGraw Hill Companies,
Incorporated..................... 400 27
The E. W. Scripps Company.......... 2,100 195
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
Time Warner, Incorporated+......... 9,700 $ 148
Tribune Company.................... 1,700 83
Viacom, Incorporated............... 14,000 558
The Walt Disney Company............ 6,200 140
-------
TOTAL MEDIA.................... 1,895
-------
MULTILINE RETAIL - 4.04%
Dollar General Corporation......... 5,000 112
Family Dollar Stores,
Incorporated..................... 1,400 61
Federated Department Stores,
Incorporated..................... 700 33
Kohl's Corporation+................ 3,800 213
Target Corporation................. 5,000 199
Wal-Mart Stores, Incorporated...... 23,000 1,356
-------
TOTAL MULTILINE RETAIL......... 1,974
-------
SPECIALTY RETAIL - 3.61%
Abercrombie and Fitch Company+..... 4,300 123
Bed Bath & Beyond, Incorporated+... 800 34
Best Buy Company, Incorporated+.... 3,200 187
Blockbuster, Incorporated.......... 1,600 31
Gap Inc............................ 5,400 103
Home Depot, Incorporated........... 15,400 571
Lowe's Companies, Incorporated..... 4,900 289
Staples, Incorporated+............. 16,000 429
-------
TOTAL SPECIALTY RETAIL......... 1,767
-------
TEXTILES & APPAREL - 0.64%
Coach, Incorporated+............... 800 28
Jones Apparel Group, Incorporated.. 3,600 124
Nike, Incorporated................. 2,500 160
-------
TOTAL TEXTILES & APPAREL....... 312
-------
TOTAL CONSUMER DISCRETIONARY... 8,809
-------
CONSUMER STAPLES - 10.03%
BEVERAGES - 1.80%
Coca Cola Company.................. 18,500 858
PepsiCo, Incorporated.............. 500 24
-------
TOTAL BEVERAGES................ 882
-------
FOOD & DRUG RETAILING - 1.48%
CVS Corporation.................... 5,100 179
Sysco Corporation.................. 14,800 498
Walgreen Company................... 1,400 49
-------
TOTAL FOOD & DRUG RETAILING.... 726
-------
FOOD PRODUCTS - 2.00%
Archer-Daniels-Midland Company..... 24,000 344
Kraft Foods, Incorporated.......... 10,300 300
Tyson Foods, Incorporated.......... 23,400 334
-------
TOTAL FOOD PRODUCTS............ 978
-------
HOUSEHOLD PRODUCTS - 2.70%
Black & Decker Corporation......... 400 19
Boise Cascade Corporation.......... 800 22
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
34
AMERICAN AADVANTAGE LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
Procter & Gamble Company........... 13,000 $ 1,278
-------
TOTAL HOUSEHOLD PRODUCTS....... 1,319
-------
PERSONAL PRODUCTS - 1.28%
Gillette Company................... 19,700 628
-------
TOTAL PERSONAL PRODUCTS........ 628
-------
TOBACCO - 0.77%
Altria Group, Incorporated......... 5,300 246
R.J. Reynolds Tobacco Holdings,
Incorporated..................... 2,700 130
-------
TOTAL TOBACCO.................. 376
-------
TOTAL CONSUMER STAPLES......... 4,909
-------
ENERGY - 1.95%
ENERGY EQUIPMENT & SERVICES - 1.25%
Baker Hughes, Incorporated......... 600 17
Cooper Cameron Corporation+........ 2,800 120
Halliburton Company................ 4,700 112
Pride International,
Incorporated+.................... 4,400 72
Rowan Companies, Incorporated+..... 300 7
Transocean, Incorporated+.......... 14,800 284
-------
TOTAL ENERGY EQUIPMENT &
SERVICES..................... 612
-------
OIL & GAS - 0.70%
Anadarko Petroleum Corporation..... 300 13
ConocoPhillips..................... 800 46
Kinder Morgan, Incorporated........ 400 21
Sunoco, Incorporated............... 6,000 263
-------
TOTAL OIL & GAS................ 343
-------
TOTAL ENERGY................... 955
-------
FINANCIALS - 8.46%
BANKS - 0.87%
Bank of America Corporation........ 400 30
FleetBoston Financial
Corporation...................... 300 12
Greenpoint Financial Corporation... 2,550 79
Hudson City Bancorp, Incorporated.. 3,200 111
SunTrust Banks, Incorporated....... 400 27
U.S. Bancorp, Incorporated......... 6,000 163
Washington Mutual, Incorporated.... 100 4
-------
TOTAL BANKS.................... 426
-------
DIVERSIFIED FINANCIALS - 5.69%
AmeriCredit Corporation+*.......... 18,200 244
Capital One Financial
Corporation...................... 1,800 109
CIT Group, Incorporated............ 1,300 44
Citigroup, Incorporated............ 600 28
Countrywide Financial Corporation.. 3,200 336
E*Trade Group, Incorporated+....... 5,300 55
Federal Home Loan Mortgage
Corporation...................... 3,800 213
Federal National Mortgage
Corporation...................... 1,700 122
Goldman Sachs Group, Incorporated.. 1,000 94
J P Morgan Chase & Company......... 9,300 334
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
Janus Capital Group,
Incorporated..................... 100 $ 1
MBNA Corporation................... 16,900 418
Moody's Corporation................ 5,700 330
Morgan Stanley Dean Witter &
Company.......................... 2,100 115
Nuveen Investments, Incorporated... 1,800 50
SLM Corporation.................... 7,400 290
-------
TOTAL DIVERSIFIED FINANCIALS... 2,783
-------
INSURANCE - 1.85%
Allstate Corporation............... 2,200 87
Ambac Financial Group,
Incorporated..................... 6,100 432
Aon Corporation.................... 200 4
Hartford Financial Services Group,
Incorporated..................... 800 44
The Progressive Corporation........ 200 15
Protective Life Corporation........ 100 3
Prudential Financial,
Incorporated..................... 8,300 321
-------
TOTAL INSURANCE................ 906
-------
REAL ESTATE - 0.05%
CarrAmerica Realty Corporation..... 800 24
-------
TOTAL REAL ESTATE.............. 24
-------
TOTAL FINANCIALS............... 4,139
-------
HEALTH CARE - 23.30%
BIOTECHNOLOGY - 4.17%
Amgen, Incorporated+............... 17,352 1,072
Genentech, Incorporated+........... 4,100 336
Gilead Sciences, Incorporated+..... 9,100 497
Human Genome Sciences,
Incorporated+.................... 2,900 40
MedImmune, Incorporated+........... 3,600 96
-------
TOTAL BIOTECHNOLOGY............ 2,041
-------
HEALTH CARE EQUIPMENT & SUPPLIES - 5.19%
Baxter International,
Incorporated..................... 5,800 154
Becton Dickinson & Company......... 1,600 58
Boston Scientific Corporation+..... 6,900 467
Guidant Corporation................ 16,100 821
Medtronic, Incorporated............ 12,900 588
St. Jude Medical, Incorporated+.... 400 23
Zimmer Holdings, Incorporated+..... 6,700 428
-------
TOTAL HEALTH CARE EQUIPMENT &
SUPPLIES..................... 2,539
-------
HEALTH CARE PROVIDERS & SERVICES - 2.91%
Aetna, Incorporated................ 5,100 293
Anthem, Incorporated+.............. 3,300 226
Cardinal Health, Incorporated...... 500 30
Cigna Corporation.................. 800 46
HCA, Incorporated.................. 300 11
Health Net, Incorporated+.......... 6,600 208
IMS Health, Incorporated........... 1,900 45
Manor Care, Incorporated........... 2,400 80
McKesson HBOC, Incorporated........ 10,900 330
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
35
AMERICAN AADVANTAGE LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
Unitedhealth Group, Incorporated... 3,100 $ 158
-------
TOTAL HEALTH CARE PROVIDERS &
SERVICES..................... 1,427
-------
PHARMACEUTICALS - 11.03%
Abbott Laboratories................ 6,400 273
Allergan, Incorporated............. 1,000 76
American Pharmaceutical Partners,
Incorporated+*................... 5,600 136
Bristol-Myers Squibb Company....... 4,800 122
Eli Lilly & Company................ 8,900 593
Endo Pharmaceuticals Holdings,
Incorporated+.................... 8,700 142
Forest Laboratories,
Incorporated+.................... 7,500 375
Johnson & Johnson.................. 11,600 584
Medco Health Solutions,
Incorporated+.................... 277 9
Merck & Company, Incorporated...... 4,700 208
Mylan Laboratories, Incorporated... 13,200 319
Perrigo Company.................... 1,500 20
Pfizer, Incorporated............... 62,960 1,990
Wyeth Corporation.................. 12,500 552
-------
TOTAL PHARMACEUTICALS.......... 5,399
-------
TOTAL HEALTH CARE.............. 11,406
-------
INDUSTRIALS - 9.00%
AEROSPACE & DEFENSE - 1.10%
Lockheed Martin Corporation........ 4,600 213
Northrop Grumman Corporation....... 100 9
Raytheon Company................... 1,900 50
Rockwell Collins, Incorporated..... 2,500 69
United Technologies Corporation.... 2,300 195
-------
TOTAL AEROSPACE & DEFENSE...... 536
-------
COMMERCIAL SERVICES & SUPPLIES - 1.52%
Cintas Corporation................. 200 9
Concord EFS, Incorporated+......... 1,700 18
Convergys Corporation+............. 9,200 148
First Data Corporation............. 10,100 361
ITT Educational Services,
Incorporated+.................... 2,100 105
United Parcel Service,
Incorporated..................... 1,000 73
Waste Management, Incorporated..... 1,300 34
-------
TOTAL COMMERCIAL SERVICES &
SUPPLIES..................... 748
-------
CONSTRUCTION & ENGINEERING - 0.14%
American Standard Companies,
Incorporated+.................... 100 10
Masco Corporation.................. 2,100 58
-------
TOTAL CONSTRUCTION &
ENGINEERING.................. 68
-------
INDUSTRIAL CONGLOMERATES - 5.94%
3M Company......................... 4,500 355
General Electric Company........... 77,800 2,257
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
Tyco International Limited......... 14,000 $ 292
-------
TOTAL INDUSTRIAL
CONGLOMERATES................ 2,904
-------
MACHINERY - 0.03%
Eaton Corporation.................. 100 10
SPX Corporation+................... 100 5
-------
TOTAL MACHINERY................ 15
-------
TRANSPORTATION - 0.27%
Norfolk Southern Corporation....... 1,500 30
Overseas Shipholding Group,
Incorporated..................... 3,800 104
-------
TOTAL TRANSPORTATION........... 134
-------
TOTAL INDUSTRIALS.............. 4,405
-------
INFORMATION TECHNOLOGY - 24.85%
COMMUNICATIONS EQUIPMENT - 3.31%
Avaya, Incorporated+............... 3,900 50
Cisco Systems, Incorporated+....... 56,000 1,175
Corning, Incorporated+............. 2,600 29
Juniper Networks, Incorporated+*... 6,300 113
Lucent Technologies,
Incorporated+.................... 1,200 4
Qualcomm, Incorporated............. 5,200 247
-------
TOTAL COMMUNICATIONS
EQUIPMENT.................... 1,618
-------
COMPUTERS & PERIPHERALS - 4.05%
Dell, Incorporated+................ 23,600 852
EMC Corporation+................... 4,900 68
Hewlett Packard Company............ 4,000 89
International Business Machines
Corporation...................... 2,700 242
Lexmark International,
Incorporated+.................... 1,700 125
NCR Corporation+................... 3,900 140
Network Appliance, Incorporated+... 5,700 141
SanDisk Corporation+............... 4,000 322
-------
TOTAL COMPUTERS &
PERIPHERALS.................. 1,979
-------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.20%
Arrow Electronics, Incorporated+... 1,100 23
Avnet, Incorporated+............... 1,400 27
Intersil Corporation+.............. 700 18
Thermo Electron Corporation+....... 1,400 31
-------
TOTAL ELECTRONIC EQUIPMENT &
INSTRUMENTS.................. 99
-------
INTERNET SOFTWARE & SERVICES - 0.10%
Electronic Arts, Incorporated+..... 500 50
-------
TOTAL INTERNET SOFTWARE &
SERVICES..................... 50
-------
IT CONSULTING & SERVICES - 1.49%
Accenture Limited+................. 12,700 297
Affiliated Computer Services,
Incorporated+.................... 300 15
BearingPoint, Incorporated+........ 3,700 35
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
36
AMERICAN AADVANTAGE LARGE CAP GROWTH FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
Computer Sciences Corporation+..... 4,300 $ 170
SunGard Data Systems,
Incorporated+.................... 7,500 210
-------
TOTAL IT CONSULTING &
SERVICES..................... 727
-------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 9.14%
Altera Corporation+................ 21,800 441
Analog Devices, Incorporated+...... 2,200 98
Intel Corporation.................. 61,900 2,046
Linear Technology Corporation...... 100 4
LSI Logic Corporation+............. 6,600 61
Maxim Integrated Products,
Incorporated..................... 13,900 691
National Semiconductor
Corporation+..................... 8,500 345
Novellus Systems, Incorporated+.... 3,500 145
QLogic Corporation+................ 2,300 129
Texas Instruments, Incorporated.... 10,700 309
Xilinx, Incorporated+.............. 6,400 203
-------
TOTAL SEMICONDUCTOR EQUIPMENT &
PRODUCTS..................... 4,472
-------
SOFTWARE - 6.56%
Adobe Systems, Incorporated........ 7,400 324
BMC Software, Incorporated+........ 13,300 231
Citrix Systems, Incorporated+...... 7,600 192
Computer Associates International,
Incorporated..................... 13,200 310
Microsoft Corporation.............. 71,100 1,859
Oracle Corporation+................ 7,400 89
Siebel Systems, Incorporated+...... 4,300 54
Take-Two Interactive Software,
Incorporated+.................... 1,700 67
VERITAS Software Corporation+...... 2,300 83
-------
TOTAL SOFTWARE................. 3,209
-------
TOTAL INFORMATION TECHNOLOGY... 12,154
-------
MATERIALS - 1.39%
CHEMICALS - 0.81%
Eastman Chemical Company........... 400 13
Monsanto Company................... 13,600 340
Praxair, Incorporated.............. 600 42
-------
TOTAL CHEMICALS................ 395
-------
CONTAINERS & PACKAGING - 0.16%
Sealed Air Corporation+............ 1,500 80
-------
TOTAL CONTAINERS & PACKAGING... 80
-------
</Table>
<Table>
<Caption>
SHARES VALUE
--------- ---------
(DOLLARS IN THOUSANDS)
METALS & MINING - 0.42%
Alcoa, Incorporated................ 2,700 $ 85
Freeport-McMoRan Copper & Gold,
Incorporated..................... 1,100 43
United States Steel Corporation.... 3,200 76
-------
TOTAL METALS & MINING.......... 204
-------
TOTAL MATERIALS................ 679
-------
TELECOMMUNICATION SERVICES - 1.08%
DIVERSIFIED TELECOMMUNICATION - 0.23%
Scientific-Atlanta, Incorporated... 1,200 36
Verizon Communications,
Incorporated..................... 2,300 77
-------
TOTAL DIVERSIFIED
TELECOMMUNICATION............ 113
-------
WIRELESS TELECOMMUNICATION SERVICE - 0.85%
AT&T Wireless Services,
Incorporated+.................... 46,500 337
Sprint Corporation+................ 10,700 47
United States Cellular
Corporation+..................... 1,000 34
-------
TOTAL WIRELESS
TELECOMMUNICATION SERVICE.... 418
-------
TOTAL TELECOMMUNICATION
SERVICES..................... 531
-------
UTILITIES - 0.06%
PG&E Corporation+.................. 700 17
Pinnacle West Capital
Corporation...................... 300 11
-------
TOTAL UTILITIES................ 28
-------
TOTAL COMMON STOCK............. 48,015
-------
SHORT-TERM INVESTMENTS - 2.51%
American AAdvantage Money Market
Select Fund...................... 979,268 979
AMR Investments Enhanced Yield
Business Trust................... 125,000 125
iShares Russell 1000 Growth Index
Fund............................. 2,670 120
-------
TOTAL SHORT-TERM INVESTMENTS... 1,224
-------
TOTAL INVESTMENTS - 100.64% (COST
$44,302)......................... 49,239
-------
LIABILITIES, NET OF OTHER
ASSETS - (0.64%)................. (312)
-------
TOTAL NET ASSETS - 100%............ $48,927
=======
</Table>
- ---------------
* - All or a portion of this security is on loan at October 31, 2003. See Note 4
+ - non-income producing
See accompanying notes
- --------------------------------------------------------------------------------
37
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
COMMON STOCK - 89.41%
CONSUMER DISCRETIONARY - 23.01%
AUTO COMPONENTS - 1.78%
Aftermarket Technology
Corporation+................ 8,870 $ 105
American Axle & Manufacturing
Holdings, Incorporated+..... 26,200 907
Arvinmeritor, Incorporated.... 71,900 1,207
Bandag, Incorporated.......... 3,600 116
Borg-Warner Automotive,
Incorporated................ 28,000 2,229
Cooper Tire & Rubber
Company..................... 77,200 1,518
Dana Corporation.............. 156,000 2,540
--------
TOTAL AUTO COMPONENTS..... 8,622
--------
AUTOMOBILES - 0.04%
Monaco Coach Corporation+*.... 7,600 183
--------
TOTAL AUTOMOBILES......... 183
--------
HOTELS RESTAURANTS & LEISURE - 4.90%
Aztar Corporation+............ 27,900 583
Bally Total Fitness Holdings
Corporation+*............... 25,600 170
Bob Evans Farms,
Incorporated................ 42,500 1,256
California Pizza Kitchen,
Incorporated+*.............. 109,300 2,033
CEC Entertainment,
Incorporated+............... 13,900 680
Isle of Capri Casinos,
Incorporated+*.............. 111,500 2,325
Jack in the Box,
Incorporated+............... 177,100 3,221
Kerzner International
Limited+*................... 78,900 2,915
Lone Star Steakhouse & Saloon,
Incorporated................ 114,100 2,495
Magna Entertainment
Corporation+*............... 104,200 465
Mandalay Resort Group......... 119,800 4,702
Papa John's International,
Incorporated+*.............. 36,800 968
Ryan's Family Steak Houses,
Incorporated+............... 35,150 490
Sonic Corporation+*........... 51,400 1,429
--------
TOTAL HOTELS RESTAURANTS &
LEISURE................. 23,732
--------
HOUSEHOLD DURABLES - 5.61%
American Greetings
Corporation+................ 33,500 715
Beazer Homes USA,
Incorporated+*.............. 94,400 9,393
Furniture Brands
International,
Incorporated+*.............. 159,800 3,877
La-Z-Boy, Incorporated........ 65,700 1,327
</Table>
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
Libbey, Incorporated.......... 11,300 $ 300
M.D.C. Holdings,
Incorporated................ 5,017 338
Maytag Corporation............ 96,100 2,441
Standard Pacific
Corporation................. 9,800 469
Toll Brothers,
Incorporated+............... 26,000 958
The Toro Company.............. 14,600 726
Tupperware Corporation........ 44,900 676
WCI Communities,
Incorporated+*.............. 273,100 5,954
--------
TOTAL HOUSEHOLD
DURABLES................ 27,174
--------
INTERNET & CATALOG RETAIL - 0.09%
School Specialty,
Incorporated+*.............. 15,600 435
--------
TOTAL INTERNET & CATALOG
RETAIL.................. 435
--------
LEISURE EQUIPMENT & PRODUCTS - 1.01%
The Boyds Collection,
Limited+*................... 48,600 243
Brunswick Corporation......... 91,600 2,718
Callaway Golf Company......... 25,200 410
JAKKS Pacific,
Incorporated+*.............. 18,800 244
Nautilus Group,
Incorporated*............... 33,400 521
Polaris Industries,
Incorporated*............... 8,900 762
--------
TOTAL LEISURE EQUIPMENT &
PRODUCTS................ 4,898
--------
MEDIA - 0.52%
R.H. Donnelley Corporation+... 13,400 575
Reader's Digest Association,
Incorporated................ 100,700 1,483
Scholastic Corporation+....... 14,700 455
--------
TOTAL MEDIA............... 2,513
--------
MULTILINE RETAIL - 1.67%
BJ's Wholesale Club,
Incorporated+............... 244,100 6,271
Burlington Coat Factory
Warehouse Corporation....... 52,100 1,118
Dillard's, Incorporated....... 11,400 184
ShopKo Stores,
Incorporated+*.............. 32,800 508
--------
TOTAL MULTILINE RETAIL.... 8,081
--------
SPECIALTY RETAIL - 5.55%
Advance Auto Parts,
Incorporated+*.............. 19,800 1,549
Barnes & Noble,
Incorporated+............... 67,900 2,023
Borders Group,
Incorporated+............... 78,500 1,778
Brookstone, Incorporated+..... 127,850 2,612
Buckle, Incorporated+......... 16,200 363
Cato Corporation*............. 22,900 483
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
38
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
Foot Locker, Incorporated..... 310,000 $ 5,549
Genesco, Incorporated+*....... 171,600 2,891
Handleman Company+............ 26,900 477
Hollywood Entertainment
Corporation+................ 44,200 672
Hughes Supply, Incorporated... 18,200 703
The Men's Wearhouse,
Incorporated+*.............. 92,300 2,719
Payless Shoesource,
Incorporated+............... 19,200 254
Rent-A-Center,
Incorporated+............... 8,750 274
Stage Stores,
Incorporated+*.............. 85,387 2,457
Too, Incorporated+............ 28,100 464
United Auto Group,
Incorporated+*.............. 29,900 777
United Rentals,
Incorporated+............... 1,400 24
Zale Corporation+............. 15,600 807
--------
TOTAL SPECIALTY RETAIL.... 26,876
--------
TEXTILES & APPAREL - 1.84%
Brown Shoe Company,
Incorporated................ 4,300 149
Phillips-Van Heusen
Corporation................. 35,500 608
Russell Corporation........... 39,200 717
Skechers U.S.A.,
Incorporated+*.............. 9,000 68
The Warnaco Group,
Incorporated+............... 421,300 7,352
--------
TOTAL TEXTILES &
APPAREL................. 8,894
--------
TOTAL CONSUMER
DISCRETIONARY........... 111,408
--------
CONSUMER STAPLES - 2.94%
BEVERAGES - 0.46%
Adolph Coors Company.......... 39,600 2,220
--------
TOTAL BEVERAGES........... 2,220
--------
FOOD & DRUG RETAILING - 0.88%
Duane Reade, Incorporated+.... 9,200 127
Pathmark Stores,
Incorporated+*.............. 268,100 1,836
Ruddick Corporation........... 56,900 908
Winn-Dixie Stores,
Incorporated*............... 174,400 1,411
--------
TOTAL FOOD & DRUG
RETAILING............... 4,282
--------
FOOD PRODUCTS - 1.13%
American Italian Pasta
Company+*................... 56,000 2,141
Del Monte Foods Company+...... 214,500 2,040
Interstate Bakeries
Corporation................. 13,300 195
</Table>
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
Sensient Technologies
Corporation................. 57,700 $ 1,108
--------
TOTAL FOOD PRODUCTS....... 5,484
--------
PERSONAL PRODUCTS - 0.08%
Playtex Products,
Incorporated+............... 61,200 368
--------
TOTAL PERSONAL PRODUCTS... 368
--------
TOBACCO - 0.39%
Dimon, Incorporated........... 34,500 248
Schweitzer Mauduit
International,
Incorporated................ 13,000 346
Universal Corporation......... 30,200 1,316
--------
TOTAL TOBACCO............. 1,910
--------
TOTAL CONSUMER STAPLES.... 14,264
--------
ENERGY - 4.23%
ENERGY EQUIPMENT & SERVICES - 0.65%
GulfMark Offshore,
Incorporated+*.............. 6,419 90
Oceaneering International,
Incorporated+............... 60,100 1,386
Offshore Logistics,
Incorporated+............... 28,100 613
Oil States International,
Incorporated+............... 76,500 937
Veritas DGC, Incorporated+.... 11,100 98
--------
TOTAL ENERGY EQUIPMENT &
SERVICES................ 3,124
--------
OIL & GAS - 3.58%
Berry Petroleum Company....... 11,400 207
Chesapeake Energy
Corporation*................ 249,900 2,981
Cimarex Energy Company+....... 32,900 673
Encore Acquisition Company+*.. 136,200 3,133
The Houston Exploration
Company+.................... 35,800 1,253
Newfield Exploration
Company+.................... 68,300 2,714
Stelmar Shipping Limited+*.... 147,100 2,899
Stone Energy Corporation+..... 34,300 1,240
Teekay Shipping Corporation... 45,900 2,209
--------
TOTAL OIL & GAS........... 17,309
--------
TOTAL ENERGY.............. 20,433
--------
FINANCIALS - 20.77%
BANKS - 7.73%
Anchor BanCorp Wisconsin,
Incorporated................ 28,696 715
Bank Hawaii Corporation....... 73,700 2,904
Berkshire Hill Bancorp,
Incorporated................ 43,942 1,581
Chemical Financial
Corporation................. 18,310 636
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
39
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
City National Corporation..... 10,900 $ 656
Colonial Bancgroup,
Incorporated................ 152,300 2,388
Commercial Federal
Corporation................. 53,900 1,387
Community Bank System,
Incorporated................ 10,000 488
Community First Bankshares,
Incorporated................ 6,400 174
Corus Bankshares,
Incorporated................ 10,900 641
Cullen/Frost Bankers,
Incorporated................ 56,500 2,190
Downey Financial Corporation.. 34,100 1,565
First Citizens Bancshares,
Incorporated................ 6,800 775
First Federal Capital
Corporation................. 21,934 482
First Republic Bank*.......... 10,600 379
FirstFed Financial
Corporation+................ 13,000 585
FirstMerit Corporation........ 56,705 1,462
Gold Banc Corporation,
Incorporated................ 18,100 234
Greater Bay Bancorp*.......... 63,700 1,717
Hudson United Bancorp......... 21,200 769
International Bancshares
Corporation................. 12,500 574
Irwin Financial
Corporation*................ 22,900 642
Klamath First Bancorp,
Incorporated................ 68,900 1,667
MAF Bancorp, Incorporated..... 5,400 226
NetBank, Incorporated......... 14,000 192
Old National Bancorp.......... 14,320 318
PFF Bancorp, Incorporated..... 11,200 418
Provident Financial Group,
Incorporated*............... 21,761 641
Republic Bancorp,
Incorporated................ 44,290 643
Roslyn Bancorp,
Incorporated................ 75,100 2,023
Sky Financial Group,
Incorporated................ 2,655 65
Tierone Corporation+.......... 25,600 606
Timberland Bancorp,
Incorporated................ 14,800 357
The Trust Company of New
Jersey...................... 8,947 281
Trustmark Corporation......... 47,500 1,352
Unizan Financial
Corporation*................ 24,900 508
Washington Federal,
Incorporated................ 80,500 2,120
Webster Financial Corporation
of Waterbury................ 55,900 2,499
Westcorp, Incorporated*....... 14,054 532
--------
TOTAL BANKS............... 37,392
--------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
DIVERSIFIED FINANCIALS - 2.31%
Brookfield Homes Corporation.. 241,600 $ 5,231
Credit Acceptance
Corporation+*............... 900 11
Friedman, Billings, Ramsey
Group, Incorporated......... 166,000 3,307
IndyMac Bancorp,
Incorporated................ 68,300 2,008
Walter Industries,
Incorporated................ 51,200 608
--------
TOTAL DIVERSIFIED
FINANCIALS.............. 11,165
--------
INSURANCE - 5.88%
Alfa Corporation.............. 3,270 42
Allmerica Financial
Corporation+................ 350,800 9,342
American Financial Group,
Incorporated................ 81,600 1,817
AmerUs Group Company*......... 47,800 1,804
Commerce Group, Incorporated.. 38,600 1,534
Crawford & Company*........... 5,800 41
Delphi Financial Group,
Incorporated................ 4,300 217
FBL Financial Group,
Incorporated*............... 32,700 853
First American Corporation.... 95,000 2,722
Fremont General Corporation*.. 63,500 1,056
Landamerica Financial Group,
Incorporated................ 22,900 1,145
National Western Life
Insurance Company+.......... 2,500 360
Protective Life Corporation... 84,400 2,740
Reinsurance Group of America,
Incorporated................ 56,100 2,241
StanCorp Financial Group,
Incorporated................ 7,700 485
Stewart Information Services
Corporation+................ 12,900 402
Triad Guaranty,
Incorporated+*.............. 16,100 794
UICI+......................... 57,100 854
--------
TOTAL INSURANCE........... 28,449
--------
REAL ESTATE - 4.85%
American Financial Realty
Trust, 144A (Note A)+....... 338,100 5,126
Arden Realty, Incorporated.... 60,300 1,687
La Quinta Corporation+*....... 191,900 1,184
LNR Property Corporation...... 162,700 6,654
MI Developments,
Incorporated+*.............. 315,500 7,988
The St. Joe Company........... 25,900 856
--------
TOTAL REAL ESTATE......... 23,495
--------
TOTAL FINANCIALS.......... 100,501
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
40
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
HEALTH CARE - 5.53%
BIOTECHNOLOGY - 0.11%
Albany Molecular Research,
Incorporated+*.............. 36,900 $ 542
--------
TOTAL BIOTECHNOLOGY....... 542
--------
HEALTH CARE EQUIPMENT & SUPPLIES - 1.00%
Bausch & Lomb, Incorporated... 36,700 1,767
CONMED Corporation+........... 400 8
Haemonetics Corporation+*..... 101,300 2,336
Mine Safety Appliances
Company..................... 7,500 425
Sola International,
Incorporated+............... 19,000 326
--------
TOTAL HEALTH CARE
EQUIPMENT & SUPPLIES.... 4,862
--------
HEALTH CARE PROVIDERS & SERVICES - 4.30%
AMN Healthcare Services,
Incorporated+*.............. 44,300 670
Beverly Enterprises,
Incorporated+*.............. 26,100 158
Cross Country Healthcare,
Incorporated+*.............. 14,595 203
Genesis Health Ventures,
Incorporated+............... 36,582 984
Humana Inc+................... 88,400 1,794
LifePoint Hospitals,
Incorporated+............... 163,800 4,211
Orthodontic Centers of
America, Incorporated+*..... 26,800 237
Owens & Minor, Incorporated... 13,600 277
Pacificare Health Systems,
Incorporated+............... 27,800 1,654
Rotech Healthcare,
Incorporated+*.............. 192,800 5,398
Service Corporation
International+.............. 74,700 362
Stewart Enterprises,
Incorporated+............... 91,700 374
Sunrise Assisted Living,
Incorporated+*.............. 25,600 740
US Oncology, Incorporated+.... 344,501 3,769
--------
TOTAL HEALTH CARE
PROVIDERS & SERVICES.... 20,831
--------
PHARMACEUTICALS - 0.12%
Enzon Pharmaceuticals,
Incorporated+*.............. 53,500 597
--------
TOTAL PHARMACEUTICALS..... 597
--------
TOTAL HEALTH CARE......... 26,832
--------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
INDUSTRIALS - 15.92%
AEROSPACE & DEFENSE - 1.09%
GenCorp, Incorporated*........ 33,400 $ 316
Kaman Corporation............. 16,800 205
Precision Castparts
Corporation................. 62,000 2,550
Triumph Group,
Incorporated+*.............. 18,200 594
United Defense Industrials,
Incorporated+............... 49,100 1,591
--------
TOTAL AEROSPACE &
DEFENSE................. 5,256
--------
BUILDING PRODUCTS - 0.54%
NCI Building Systems,
Incorporated+............... 13,400 291
Universal Fastener Products,
Incorporated................ 13,600 403
Watsco, Incorporated.......... 3,600 77
York International
Corporation................. 46,500 1,848
--------
TOTAL BUILDING PRODUCTS... 2,619
--------
COMMERCIAL SERVICES & SUPPLIES - 7.50%
Allied Waste Industries,
Incorporated+............... 124,000 1,399
BISYS Group, Incorporated+.... 86,000 1,230
Bowne & Company,
Incorporated................ 238,300 3,575
Brinks Company................ 19,600 393
Convergys Corporation+........ 74,700 1,200
CSG Systems International,
Incorporated+............... 60,500 695
Deluxe Corporation............ 45,300 1,829
John H. Harland Company....... 34,300 934
Heidrick & Struggles
International,
Incorporated+*.............. 181,000 3,575
Herman Miller, Inc............ 29,600 680
Interpool, Incorporated....... 21,100 308
Kelly Services,
Incorporated................ 197,000 4,827
Mac Gray Corporation+......... 39,100 194
McGrath Rentcorp.............. 900 26
NCO Group, Incorporated+...... 12,900 307
New England Business Service,
Incorporated................ 10,000 291
Spherion Corporation+*........ 522,900 4,549
Valassis Communications,
Incorporated+*.............. 398,100 10,311
--------
TOTAL COMMERCIAL SERVICES
& SUPPLIES.............. 36,323
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
41
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
CONSTRUCTION & ENGINEERING - 0.38%
EMCOR Group, Incorporated+.... 18,300 $ 690
The Shaw Group,
Incorporated+*.............. 37,700 515
URS Corporation+.............. 28,500 624
--------
TOTAL CONSTRUCTION &
ENGINEERING............. 1,829
--------
ELECTRICAL EQUIPMENT - 1.05%
Acuity Brands, Incorporated... 15,300 329
Brady Corporation............. 71,100 2,510
Genlyte Group, Incorporated+.. 15,800 745
Rayovac Corporation+.......... 39,800 654
Tecumseh Products Company..... 15,700 643
Wesco International,
Incorporated+............... 31,200 216
--------
TOTAL ELECTRICAL
EQUIPMENT............... 5,097
--------
INDUSTRIAL CONGLOMERATES - 0.18%
Pentair, Incorporated......... 19,700 808
Standex International
Corporation................. 3,100 79
--------
TOTAL INDUSTRIAL
CONGLOMERATES........... 887
--------
MACHINERY - 3.24%
Albany International
Corporation................. 8,052 249
Flowserve Corporation+*....... 149,000 3,049
Harsco Corporation............ 66,000 2,528
Joy Global, Incorporated+..... 175,100 3,337
Kaydon Corporation*........... 95,300 2,265
Lincoln Electric Holdings,
Incorporated................ 32,400 790
Terex Corporation+*........... 137,200 3,095
Thomas Industries,
Incorporated*............... 10,100 305
Watts Industries,
Incorporated................ 2,300 41
--------
TOTAL MACHINERY........... 15,659
--------
MARINE - 1.01%
Alexander & Baldwin,
Incorporated................ 99,400 3,082
Kirby Corporation+............ 48,800 1,434
Overseas Shipholding Group,
Incorporated................ 13,000 354
--------
TOTAL MARINE.............. 4,870
--------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
TRANSPORTATION - 0.93%
J.B. Hunt Transport Services,
Incorporated+*.............. 93,700 $ 2,378
USF Corporation............... 66,800 2,132
--------
TOTAL TRANSPORTATION...... 4,510
--------
TOTAL INDUSTRIALS......... 77,050
--------
INFORMATION TECHNOLOGY - 3.40%
COMMUNICATIONS EQUIPMENT - 0.09%
Black Box Corporation......... 10,600 456
--------
TOTAL COMMUNICATIONS
EQUIPMENT............... 456
--------
ELECTRONIC EQUIPMENT & INSTRUMENTS - 0.56%
IKON Office Solutions,
Incorporated 180,300 1,515
Tech Data Corporation+........ 35,700 1,175
--------
TOTAL ELECTRONIC EQUIPMENT
& INSTRUMENTS........... 2,690
--------
IT CONSULTING & SERVICES - 1.10%
Bearingpoint, Incorporated+... 484,600 4,555
Investment Technology Group,
Incorporated+............... 39,900 792
--------
TOTAL IT CONSULTING &
SERVICES................ 5,347
--------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.03%
ESS Technology,
Incorporated+............... 12,000 167
--------
TOTAL SEMICONDUCTOR
EQUIPMENT & PRODUCTS.... 167
--------
SOFTWARE - 1.62%
Activision, Incorporated+..... 138,850 2,095
Compuware Corporation+........ 279,000 1,568
Mentor Graphics
Corporation+*............... 150,800 2,526
Parametric Technology
Corporation+................ 532,800 1,657
--------
TOTAL SOFTWARE............ 7,846
--------
TOTAL INFORMATION
TECHNOLOGY.............. 16,506
--------
MATERIALS - 5.69%
CHEMICALS - 4.03%
Agrium, Incorporated.......... 161,100 2,476
Celanese AG*.................. 56,700 1,956
FMC Corporation+.............. 166,000 4,650
H.B. Fuller Company*.......... 105,500 2,614
IMC Global, Incorporated...... 231,500 1,618
Lubrizol Corporation.......... 34,700 1,051
Lyondell Chemical Company*.... 132,200 1,891
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
42
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
Millennium Chemicals,
Incorporated+............... 80,300 $ 805
PolyOne Corporation+.......... 509,300 2,460
--------
TOTAL CHEMICALS........... 19,521
--------
CONSTRUCTION MATERIALS - 1.15%
Centex Construction Products,
Incorporated................ 2,700 146
Insituform Technologies,
Incorporated+*.............. 139,600 1,996
Lafarge North America,
Incorporated................ 76,600 2,765
Lennox International,
Incorporated*............... 39,200 648
--------
TOTAL CONSTRUCTION
MATERIALS............... 5,555
--------
CONTAINERS & PACKAGING - 0.13%
Silgan Holdings,
Incorporated+............... 19,479 623
--------
TOTAL CONTAINERS &
PACKAGING............... 623
--------
METALS & MINING - 0.38%
Quanex Corporation............ 18,700 749
Steel Dynamics,
Incorporated+*.............. 58,470 1,089
--------
TOTAL METALS & MINING..... 1,838
--------
TOTAL MATERIALS........... 27,537
--------
TELECOMMUNICATION SERVICES - 0.19%
Metrocall Holdings,
Incorporated+............... 28,500 926
--------
TOTAL TELECOMMUNICATION
SERVICES................ 926
--------
UTILITIES - 7.73%
ELECTRIC UTILITIES - 5.09%
Alliant Corporation*.......... 167,000 4,018
Black Hills Corporation....... 38,700 1,245
Cleco Corporation............. 58,200 975
DPL Inc....................... 154,900 2,822
Duquesne Light Holdings,
Incorporated................ 91,600 1,472
Great Plains Energy,
Incorporated................ 84,700 2,700
Hawaiian Electric Industries,
Incorporated*............... 28,200 1,291
Northeast Utilities........... 286,500 5,398
</Table>
<Table>
<Caption>
SHARES VALUE
------------ --------
(DOLLARS IN THOUSANDS)
NSTAR......................... 21,200 $ 990
OGE Energy Corporation*....... 104,400 2,381
PNM Resources, Incorporated*.. 30,100 851
UIL Holdings Corporation*..... 11,200 421
WPS Resources Corporation..... 2,000 89
--------
TOTAL ELECTRIC
UTILITIES............... 24,653
--------
GAS UTILITIES - 2.64%
AGL Resources, Incorporated... 78,000 2,196
National Fuel Gas Company..... 99,500 2,224
Nicor, Incorporated*.......... 54,200 1,858
ONEOK, Incorporated........... 107,500 2,138
Peoples Energy Corporation*... 27,500 1,112
Vectren Corporation........... 83,400 1,968
WGL Holdings, Incorporated.... 46,000 1,272
--------
TOTAL GAS UTILITIES....... 12,768
--------
TOTAL UTILITIES........... 37,421
--------
TOTAL COMMON STOCK........ 432,878
--------
<Caption>
PAR
AMOUNT
------------
SHORT-TERM INVESTMENTS - 26.86%
U. S. TREASURY BILLS - 0.79%
1.00%, Due 12/11/2003 (Note
B).......................... $ 3,850 3,846
--------
TOTAL U. S. TREASURY
BILLS................... 3,846
--------
<Caption>
SHARES
------------
OTHER SHORT-TERM INVESTMENTS - 26.07%
American AAdvantage Money
Market Select Fund.......... 105,083,390 105,083
AMR Investments Enhanced Yield
Business Trust.............. 20,949,386 20,949
--------
TOTAL OTHER SHORT-TERM
INVESTMENTS............. 126,032
--------
TOTAL SHORT-TERM
INVESTMENTS............. 129,878
--------
TOTAL INVESTMENTS - 116.27%
(COST $501,189)............. 562,756
--------
LIABILITIES, NET OF OTHER
ASSETS - (16.27%)........... (78,728)
--------
TOTAL NET ASSETS - 100%....... $484,028
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $5,126 or 1.06% of net assets.
(B) At October 31, 2003, security held as collateral for open futures contracts.
* - All or a portion of this security is on loan at October 31, 2003. See Note
4.
+ - non-income producing
See accompanying notes
- --------------------------------------------------------------------------------
43
AMERICAN AADVANTAGE EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
STOCKS - 95.92%
ARGENTINA COMMON STOCK - 0.09%
Tenaris S.A., ADR................ 1,900 $ 52
-------
TOTAL ARGENTINA COMMON
STOCK...................... 52
-------
BRAZIL - 8.33%
BRAZIL PREFERRED STOCK - 1.49%
Companhia Vale do Rio Doce,
ADR............................ 7,688 311
Petroleo Brasileiro S.A., ADR.... 16,816 366
Telesp - Telecommunicacoes de Sao
Paulo S.A.+.................... 10,500,000 150
-------
TOTAL BRAZIL PREFERRED
STOCK...................... 827
-------
BRAZIL COMMON STOCK - 6.84%
Aracruz Celulose S.A., ADR....... 2,200 62
Banco Bradesco S.A.+............. 25,625,000 108
Banco Bradesco S.A., ADR+*....... 2,421 51
Banco Itau Holding Financeira
S.A. .......................... 421,000 34
Banco Itau Holding Financeira
S.A., ADR+..................... 9,336 381
Brasil Telecom Participacoes
S.A., ADR...................... 2,100 77
Companhia Brasileira de
Distribuicao Grupo Pao de
Acucar, ADR.................... 7,200 145
Companhia de Bebidas das
Americas, ADR.................. 14,359 304
Companhia de Saneamento Basico do
Estado de Sao Paulo+........... 4,650,000 208
Companhia de Tecidos Norte de
Minas.......................... 2,500,000 170
Companhia Energetica de Minas
Gerais+........................ 19,891,213 295
Companhia Energetica de Minas
Gerais, ADR+................... 5,000 73
Companhia Siderurgica Nacional
S.A., ADR...................... 2,500 103
Duratex S.A.+.................... 3,100,000 78
Empresa Brasileira de Aeronautica
S.A. (Embraer), ADR............ 11,210 291
Petroleo Brasileiro S.A., ADR.... 33,002 776
Tele Celular Sul Participacoes
S.A., ADR*..................... 7,550 93
Tele Norte Leste Participacoes
S.A., ADR*..................... 5,500 78
Telecomunicacoes Brasileiras
S.A., ADR*..................... 4,660 160
Telemar Norte Leste S.A.+........ 3,500,000 71
Telemig Celular Participacoes
S.A. .......................... 20,000,000 32
Ultrapar Participacoes S.A.,
ADR*........................... 3,500 39
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Unibanco - Uniao de Bancos
Brasileiros S.A., GDR.......... 5,200 $ 115
Votorantim Celulose e Papel S.A.,
ADR............................ 2,050 56
-------
TOTAL BRAZIL COMMON STOCK.... 3,800
-------
TOTAL BRAZIL................. 4,627
-------
CHINA COMMON STOCK - 3.55%
BYD Company Limited.............. 47,000 123
China Mobile (Hong Kong)
Limited........................ 137,000 389
China Mobile (Hong Kong) Limited,
ADR*........................... 15,900 225
China Oilfield Services
Limited........................ 386,000 112
China Shipping Development
Company Limited................ 132,000 87
CNOOC Limited.................... 242,000 457
Chunghwa Telecom Company Limited,
ADR............................ 15,100 234
Huaneng Power International,
Incorporated................... 92,000 141
Sinopec Shanghai Petrochemical
Company Limited................ 301,000 85
TPV Technology Limited........... 239,000 122
-------
TOTAL CHINA COMMON STOCK..... 1,975
-------
EGYPT COMMON STOCK - 1.01%
Commercial International Bank.... 5,480 40
Commercial International Bank,
GDR, 144A (Note A)............. 15,300 103
Egyptian Company for Mobile
Services (MobiNil)+............ 2,900 33
Misr International Bank S.A.E.,
GDR, 144A (Note A)............. 26,562 32
Orascom Construction Industries
S.A.E.......................... 9,741 108
Orascom Construction Industries
S.A.E., GDR.................... 7,861 153
Suez Cement Company, GDR, 144A
(Note A)....................... 11,969 90
-------
TOTAL EGYPT COMMON STOCK..... 559
-------
HONG KONG COMMON STOCK - 2.75%
Asia Aluminum Holdings Limited... 332,000 66
AviChina Industry & Technology
Company Limited+............... 296,000 61
China Merchants Holdings
International Company Limited.. 50,000 68
China Resources Enterprises
Limited*....................... 221,000 260
China Unicom Limited*............ 144,000 136
Fountain Set (Holdings) Limited.. 115,000 80
The Grande Holdings Limited...... 37,000 39
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
44
AMERICAN AADVANTAGE EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Hopewell Highway Infrastructure
Limited+....................... 111,000 $ 63
PICC Property & Casualty Company
Limited+....................... 22,000 5
Qingling Motors Company Limited.. 492,000 91
Shandong International Power
Development Company Limited.... 658,000 212
Shanghai Industrial Holdings
Limited*....................... 113,000 226
Shougang Concord Century Holdings
Limited........................ 285,000 37
Sinopec Yizheng Chemical Fibre
Company Limited................ 835,000 174
Victory City International
Holdings Limited............... 27,000 11
-------
TOTAL HONG KONG COMMON
STOCK...................... 1,529
-------
HUNGARY COMMON STOCK - 1.81%
Egis Gyogyszergyar Reszvnytarsas
AG+............................ 603 23
Gedeon Richter Rt................ 3,092 318
Magyar Olaj-es Gazipari
Reszvenytarsasag............... 7,865 244
Magyar Tavkozlesi Rt............. 68,142 245
Magyar Tavkozlesi Rt., ADR....... 2,274 41
OTP Bank Rt.+.................... 10,900 134
-------
TOTAL HUNGARY COMMON STOCK... 1,005
-------
INDIA COMMON STOCK - 7.13%
Bajaj Auto Limited, GDR, 144A
(Note A)....................... 2,750 56
Bharat Petroleum Corporation
Limited........................ 15,733 119
GAIL (India) Limited, GDR........ 5,650 120
GAIL (India) Limited, GDR, 144A
(Note A)....................... 8,100 172
Gujarat Ambuja Cements Limited,
GDR............................ 16,050 91
Hindalco Industries Limited, GDR,
144A (Note A).................. 10,700 264
Hindalco Industries Limited, GDR,
144A (Note A)+................. 5,000 123
ICICI Bank Limited+.............. 21,700 119
ICICI Bank Limited, ADR.......... 14,000 178
Indian Hotels Company Limited+... 9,250 72
Infosys Technologies Limited,
ADR*........................... 1,800 152
ITC Limited...................... 15,200 291
ITC Limited, GDR................. 8,450 173
Larsen & Toubro Limited, GDR..... 3,850 67
Mahanagar Telephone Nigam
Limited........................ 47,000 112
Mahanagar Telephone Nigam
Limited, ADR*.................. 42,150 204
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Ranbaxy Laboratories Limited,
GDR............................ 4,620 $ 106
Reliance Industries Limited...... 44,405 476
Reliance Industries Limited, GDR,
144A (Note A).................. 5,060 121
Satyam Computer Services
Limited........................ 38,000 257
State Bank of India, GDR+........ 9,000 270
State Bank of India, GDR, 144A
(Note A)....................... 3,700 111
Tata Engineering, GDR............ 33,100 278
Tata Tea Limited, GDR............ 4,500 27
-------
TOTAL INDIA COMMON STOCK..... 3,959
-------
INDONESIA COMMON STOCK - 3.04%
Hindustan Petroleum Corporation
Limited........................ 17,000 123
NIIT Limited..................... 24,232 94
PT Astra Agro Lestari Tbk........ 290,000 59
PT Astra International Tbk+...... 327,538 168
PT Bank Central Asia Tbk......... 218,000 90
PT Bank Mandiri+................. 491,500 55
PT Bank Rakyat Indonesia+........ 391,000 41
PT Gudang Garam Tbk.............. 101,400 157
PT Hanjaya Mandala Sampoerna
Tbk............................ 141,000 72
PT Indocement Tunggal Prakarsa
Tbk+........................... 157,000 36
PT Indofood Sukses Makmur Tbk.... 1,714,000 141
PT Indonesian Satellite
Corporation Tbk................ 123,000 173
PT Ramayana Lestari Sentosa Tbk.. 250,000 138
PT Telekomunikasi Indonesia...... 483,500 341
-------
TOTAL INDONESIA COMMON
STOCK...................... 1,688
-------
ISRAEL COMMON STOCK - 1.49%
Bank Hapoalim Limited+........... 133,280 281
Check Point Software
Technologies+.................. 24,290 413
ECI Telecom Limited+............. 3,711 18
Supersol Limited................. 52,000 115
-------
TOTAL ISRAEL COMMON STOCK.... 827
-------
MALAYSIA COMMON STOCK - 2.87%
Astro All Asia Networks plc+..... 41,000 51
Commerce Asset-Holding Berhad.... 179,000 207
Genting Berhad................... 44,700 218
Magnum Corporation Berhad........ 109,000 81
Malayan Banking Berhad........... 89,800 241
Malaysia International Shipping
Corporation Berhad............. 62,900 202
Perusahaan Otomobil Nasional
Berhad......................... 35,000 75
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
45
AMERICAN AADVANTAGE EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Resorts World Berhad............. 25,000 $ 72
Sime Darby Berhad................ 212,000 312
SP Setia Berhad.................. 81,499 77
YTL Corporation Berhad........... 46,000 56
-------
TOTAL MALAYSIA COMMON
STOCK...................... 1,592
-------
MEXICO COMMON STOCK - 8.28%
America Movil S.A. De C.V., ADR.. 22,355 532
Apasco S.A. de C.V. ............. 7,700 58
Cemex S.A. de C.V. .............. 45,825 220
Cemex S.A. de C.V., ADR.......... 7,100 170
Coca-Cola Femsa, S.A. de C.V.,
ADR+*.......................... 18,875 381
Controladora Commercial Mexicana
S.A. de C.V.+.................. 224,000 186
Desc S.A. de C.V. ............... 389,400 121
Embotelladoras Arca S.A. ........ 18,000 33
Fomento Economico Mexicano, S.A.
de C.V.+....................... 4,000 14
Fomento Economico Mexicano, S.A.
de C.V., ADR................... 1,079 39
Grupo Aeroportuario del Sureste
S.A. de C.V., ADR.............. 7,530 130
Grupo Continential, S.A. ........ 97,850 135
Grupo Financiero BBVA Bancomer,
S.A. de C.V.+.................. 453,100 385
Grupo Financiero BBVA Bancomer,
S.A. de C.V., ADR+............. 3,900 66
Grupo Televisa, S.A., ADR........ 1,400 54
Kimberly-Clark de Mexico, S.A. de
C.V. .......................... 175,500 425
Organizacion Soriana S.A. de
C.V.+.......................... 38,000 83
Telefonos de Mexico, S.A. de
C.V., ADR...................... 39,478 1,269
Wal-Mart de Mexico, S.A. de C.V.,
A Shares....................... 25,700 67
Wal-Mart de Mexico, S.A. de C.V.,
Series C....................... 82,926 231
-------
TOTAL MEXICO COMMON STOCK.... 4,599
-------
PHILIPPINES COMMON STOCK - 0.49%
ABS-CBN Broadcasting
Corporation+................... 85,000 44
Bank of the Philippine Islands... 160,780 132
Manila Electric Company.......... 176,900 66
Philippine Long Distance
Telephone Company+............. 2,400 33
-------
TOTAL PHILIPPINES COMMON
STOCK...................... 275
-------
POLAND COMMON STOCK - 1.64%
Bank Pekao SA.................... 2,264 65
Bank Pekao SA, GDR+.............. 1,439 41
Bank Przemyslowo-Handlowy SA..... 1,567 136
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
KGHM Polska Miedz SA+............ 35,191 $ 226
Polski Koncern Naftowy Orlen SA.. 42,547 272
Polski Koncern Naftowy Orlen SA,
GDR............................ 1,600 20
Telekomunikacja Polska SA+....... 43,400 152
-------
TOTAL POLAND COMMON STOCK.... 912
-------
RUSSIA - 4.44%
RUSSIA PREFERRED STOCK - 0.08%
JSC Surgutneftegaz, ADR.......... 1,328 42
-------
TOTAL RUSSIA PREFERRED
STOCK...................... 42
-------
RUSSIA COMMON STOCK - 4.36%
JSC Surgutneftegaz, ADR*......... 17,011 403
LUKOIL Oil Company, ADR+......... 10,727 867
Mining and Metallurgical Company
Norilsk Nickel, ADR............ 11,249 582
Mobile Telesystems, ADR.......... 800 62
Mobile Telesystems, GDR, 144A
(Note A)+...................... 1,800 121
RAO Gazprom, ADR................. 2,200 53
RAO Gazprom+..................... 7,200 173
Yukos Oil Company, ADR........... 3,621 164
-------
TOTAL RUSSIA COMMON STOCK.... 2,425
-------
TOTAL RUSSIA................. 2,467
-------
SOUTH AFRICA COMMON STOCK - 14.65%
ABSA Group Limited............... 31,100 180
African Bank Investments
Limited........................ 33,600 40
Anglo American plc............... 82,213 1,679
Anglo American Platinum
Corporation Limited............ 2,400 103
AngloGold Limited................ 4,100 159
AngloGold Limited, ADR........... 1,300 50
Aveng Limited.................... 64,300 76
Bidvest Group Limited............ 66,330 404
Dimension Data Holdings plc+..... 164,900 92
FirstRand Limited+............... 188,595 223
Gold Fields Limited.............. 12,375 177
Gold Fields Limited, ADR......... 5,500 79
Harmony Gold Mining Company
Limited........................ 2,806 43
Harmony Gold Mining Company
Limited, ADR................... 800 12
Illovo Sugar Limited............. 45,000 49
Impala Platinum Holdings
Limited........................ 2,829 260
Imperial Holdings Limited........ 13,100 115
Metro Cash and Carry Limited+.... 485,852 151
MTN Group Limited+............... 58,040 208
Nampak Limited................... 186,200 351
Naspers Limited.................. 11,700 55
Nedcor Limited................... 59,100 540
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
46
AMERICAN AADVANTAGE EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Old Mutual....................... 245,787 $ 426
Sanlam Limited+.................. 154,050 190
Sappi Limited.................... 26,056 330
Sappi Limited, ADR............... 1,520 19
Sasol Limited.................... 59,302 774
Sasol Limited, ADR............... 3,425 45
Shoprite Holdings Limited........ 102,000 111
Standard Bank Group Limited...... 70,540 342
Steinhoff International Holdings
Limited+....................... 147,724 150
Telkom South Africa Limited+..... 30,500 237
Telkom South Africa Limited,
ADR+*.......................... 1,750 54
Tiger Brands Limited............. 25,550 272
The Tongaat-Hulett Group
Limited........................ 30,000 144
-------
TOTAL SOUTH AFRICA COMMON
STOCK...................... 8,140
-------
SOUTH KOREA - 16.86%
SOUTH KOREA PREFERRED STOCK - 0.41%
Daishin Securities Company
Limited+....................... 3,310 25
Samsung Electronics Company
Limited+....................... 1,030 205
-------
TOTAL SOUTH KOREA PREFERRED
STOCK...................... 230
-------
SOUTH KOREA COMMON STOCK - 16.45%
Cheil Communications,
Incorporated................... 950 116
Chohung Bank+.................... 18,350 59
CJ Corporation................... 4,430 221
Daewoo Shipbuilding & Marine
Engineering Company Limited+... 17,720 238
Daishin Securities Company
Limited........................ 11,450 165
Good Morning Shinhan Securities
Company Limited+............... 14,360 59
Hankook Tire Company Limited+.... 11,570 80
Honam Petrochemical Corporation.. 4,070 163
Hyundai Department Store Company
Limited........................ 7,580 192
Hyundai Development Company...... 5,440 50
Hyundai Mobis.................... 10,060 388
Hyundai Motor Company Limited.... 7,010 234
Inchon Iron & Steel Company
Limited, GDR, 144A (Note A).... 10,500 67
Kangwon Land Incorporated+....... 11,300 143
Kia Motors Corporation........... 23,000 161
Kookmin Bank..................... 11,531 421
Kookmin Bank, ADR................ 7,800 287
Korea Electric Power
Corporation.................... 35,590 687
Korea Exchange Bank Credit
Services Company Limited+...... 22,857 129
KT Corporation, ADR.............. 17,600 347
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
KT&G Corporation................. 6,140 $ 118
KT&G Corporation, GDR, 144A (Note
A)............................. 25,400 248
LG Card Company Limited.......... 18,739 191
LG Electronics, Incorporated..... 475 25
POSCO............................ 3,420 399
POSCO, ADR....................... 1,400 41
Samsung Corporation.............. 31,960 236
Samsung Electro Mechanics Company
Limited........................ 180 6
Samsung Electronics Company
Limited........................ 4,600 1,827
Samsung Fire & Marine Insurance
Company Limited................ 2,330 133
Samsung SDI Company Limited...... 8,580 884
Shinhan Financial Group Company
Limited........................ 7,590 109
STX Corporation.................. 3,700 28
STX Shipbuilding Company
Limited+....................... 6,000 100
SK Telecom Company Limited....... 2,720 480
Tong Yang Confectionery
Corporation.................... 1,550 106
-------
TOTAL SOUTH KOREA COMMON
STOCK...................... 9,138
-------
TOTAL SOUTH KOREA............ 9,368
-------
TAIWAN COMMON STOCK - 11.90%
Accton Technology Corporation.... 159,396 99
Acer, Incorporated............... 62,888 93
Advanced Semiconductor
Engineering, Incorporated+..... 126,683 117
Advanced Semiconductor
Engineering, Incorporated,
ADR+*.......................... 18,309 86
Asia Optical Company,
Incorporated................... 32,200 212
Asustek Computer, Incorporated... 73,125 174
AU Optronics Corporation......... 141,000 190
Catcher Technology Company
Limited........................ 15,000 44
Cathay Financial Holding Company
Limited........................ 115,000 190
Chinatrust Financial Holding
Company Limited................ 157,387 165
CTCI Corporation................. 104,000 78
Delta Electronics,
Incorporated................... 45,000 57
Elan Microelectronics
Corporation+................... 133,060 121
Evergreen Marine Corporation..... 167,880 147
First Financial Holding Company
Limited+....................... 84,000 56
Fubon Financial Holding Company
Limited........................ 116,000 122
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
47
AMERICAN AADVANTAGE EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Grand Hall Enterprise Company
Limited........................ 7,000 $ 34
Hon Hai Precision Industry
Company Limited................ 63,100 282
Infortrend Technology,
Incorporated................... 14,640 46
Kaulin Manufacturing Company
Limited........................ 33,000 53
Largan Precision Company
Limited........................ 10,440 112
Nan Ya Plastics Corporation...... 239,366 319
Nien Hsing Textile Company
Limited........................ 30,000 31
Novatek Microelectronics
Corporation Limited............ 25,550 80
Phoenixtec Power Company
Limited........................ 87,355 104
Pihsiang Machinery Manufacturing
Company Limited................ 2,600 8
Polaris Securities Company
Limited+....................... 306,920 153
President Chain Store
Corporation.................... 86,048 133
Quanta Computer, Incorporated+... 127,820 348
Richtek Technology Corporation+.. 12,896 68
SinoPac Holdings................. 501,736 272
Standard Foods Corporation, GDR,
144A (Note A).................. 27,272 35
Sunplus Technology Company
Limited+....................... 33,000 57
Taishin Financial Holdings
Company Limited+............... 226,000 160
Taiwan Cellular Corporation...... 418,635 376
Taiwan Cement Corporation........ 321,480 162
Taiwan Navigation Company
Limited........................ 107,600 71
Taiwan Semiconductor
Manufacturing Company
Limited+....................... 260,315 513
United Microelectronics
Corporation+................... 604,529 553
United Microelectronics
Corporation, ADR+*............. 21,402 112
Waffer Technology Company
Limited........................ 34,000 74
Ya Hsin Industrial Company
Limited........................ 142,000 194
Yaego Corporation+............... 371,000 177
Yuanta Core Pacific Securities
Company........................ 133,423 83
Zyxel Communications
Corporation.................... 23,000 50
-------
TOTAL TAIWAN COMMON STOCK.... 6,611
-------
</Table>
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
THAILAND COMMON STOCK - 3.42%
Bangkok Bank Public Company
Limited+....................... 115,600 $ 271
BEC World Public Company
Limited........................ 5,600 35
Charoen Pokphand Foods Public
Company Limited+............... 445,000 55
Italian-Thai Development Public
Company Limited+............... 51,400 108
Kasikornbank Public Company
Limited+....................... 258,100 288
Kasikornbank Public Company
Limited, NVDR+................. 82,800 88
Krung Thai Bank Public Company
Limited........................ 740,000 158
Land & Houses Public Company
Limited........................ 433,600 147
PTT Exploration and Production
Public Company Limited......... 37,200 177
The Siam Cement Public Company
Limited, NVDR+................. 36,600 185
Siam Commercial Bank Public
Company Limited+............... 303,000 313
Siam Makro Public Company
Limited+....................... 51,600 44
Thai Plastic and Chemicals Public
Company Limited+............... 7,200 28
-------
TOTAL THAILAND COMMON
STOCK...................... 1,897
-------
TURKEY COMMON STOCK - 2.05%
Akbank T.A.S..................... 41,216,452 193
Akcansa Cimento A.S.............. 23,471,200 82
Arcelik A.S...................... 24,646,150 119
Enka Insaat ve Sanayi A.S........ 2,137,923 75
Ford Otomotiv Sanayi A.S.+....... 2,692,000 15
Hurriyet Gazetecilik ve
Matbaacilik A.S.+.............. 64,338,800 170
Tofas Turk Otomobil Fabrikasi
A.S.+.......................... 29,961,607 48
Tupras-Turkiye Petrol
Rafinerileri A.S............... 9,230,000 75
Turkcell Iletisim Hizmetleri
A.S.+.......................... 15,384,300 117
Turkiye Garanti Bankasi A.S.+.... 33,974,600 80
Turkiye Is Bankasi (Isbank)+..... 26,951,900 136
Trakya Cam Sanayii A.S........... 9,942,000 29
-------
TOTAL TURKEY COMMON STOCK.... 1,139
-------
VENEZUELA COMMON STOCK - 0.12%
Compania Anonima Nacional
Telfonos de Venezuela, ADR..... 4,309 64
-------
TOTAL VENEZUELA COMMON
STOCKS..................... 64
-------
TOTAL STOCKS................. 53,285
-------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
48
AMERICAN AADVANTAGE EMERGING MARKETS FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
SHORT TERM INVESTMENTS - 6.39%
American AAdvantage Money Market
Select Fund.................... 2,296,863 $ 2,297
AMR Investments Enhanced Yield
Business Trust................. 1,250,000 1,250
-------
TOTAL SHORT TERM
INVESTMENTS................ 3,547
-------
TOTAL INVESTMENTS - 102.31% (COST
$44,407)....................... 56,832
-------
LIABILITIES, NET OF OTHER
ASSETS - (2.31%)............... (1,285)
-------
TOTAL NET ASSETS - 100%.......... $55,547
=======
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $1,543 or 2.78% of net assets.
* - All or a portion of this security is on loan at October 31, 2003. See Note
4.
+ - non-income producing
AMERICAN AADVANTAGE EMERGING MARKETS FUND
EMERGING MARKETS SECTOR DIVERSIFICATION
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
NET ASSETS
----------
Consumer Discretionary...................................... 8.33%
Consumer Staples............................................ 7.37%
Energy...................................................... 9.18%
Financials.................................................. 17.58%
Health Care................................................. 0.82%
Industrials................................................. 10.55%
Information Technology...................................... 13.11%
Materials................................................... 12.94%
Short-Term Investments...................................... 6.39%
Telecommunication Services.................................. 12.32%
Utilities................................................... 3.72%
Other Liabilities........................................... (2.31%)
-------
NET ASSETS............................................. 100.00%
=======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
49
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
CORPORATE BONDS - 91.12%
CONSUMER DISCRETIONARY - 29.87%
AUTO COMPONENTS - 5.24%
Advanced Accessory Systems LLC, 10.75%, Due 6/15/2011, 144A
(Note A).................................................. $ 1,750 $ 1,873
American Axle & Manufacturing Holdings, Incorporated, 9.75%,
Due 3/1/2009.............................................. 750 801
ArvinMeritor, Incorporated, 8.75%, Due 3/1/2012............. 2,000 2,100
Asbury Automotive Group, Incorporated, 9.00%, Due
6/15/2012................................................. 2,100 2,184
Collins & Aikman Corporation, 10.75%, Due 12/31/2011*....... 1,675 1,407
Dana Corporation,
6.25%, Due 3/1/2004....................................... 1,000 1,007
7.00%, Due 3/1/2029....................................... 1,250 1,109
GenCorp, Incorporated, 9.50%, Due 8/15/2013, 144A (Note
A)*....................................................... 2,850 2,914
LDM Technologies, Incorporated, 10.75%, Due 1/15/2007....... 1,650 1,650
--------
TOTAL AUTO COMPONENTS................................... 15,045
--------
HOTELS, RESTAURANTS & LEISURE - 8.97%
Aztar Corporation,
8.875%, Due 5/15/2007..................................... 1,440 1,505
9.00%, Due 8/15/2011...................................... 1,000 1,080
Booth Creek Ski Holdings, Incorporated, 12.50%, Due
3/15/2007................................................. 2,500 2,487
Carmike Cinemas, Incorporated, 10.375%, Due 2/1/2009........ 2,960 3,108
Chumash Casino & Resort Enterprises, 9.00%, Due 7/15/2010,
144A (Note A)............................................. 1,250 1,369
Horseshoe Gaming, LLC, 8.625%, Due 5/15/2009................ 6,674 7,099
MTR Gaming Group, Incorporated, 9.75%, Due 4/1/2010*........ 700 737
Regal Cinemas Corporation, 9.375%, Due 2/1/2012............. 3,371 3,809
Town Sports International, Incorporated, 9.625%, Due
4/15/2011................................................. 500 536
Turning Stone Casino Resort, 9.125%, Due 12/15/2010, 144A
(Note A).................................................. 3,710 4,021
--------
TOTAL HOTELS, RESTAURANTS & LEISURE..................... 25,751
--------
HOUSEHOLD DURABLES - 0.87%
American Greetings Corporation,
11.75%, Due 7/15/2008..................................... 500 571
6.10%, Due 8/1/2028....................................... 1,900 1,931
--------
TOTAL HOUSEHOLD DURABLES................................ 2,502
--------
MEDIA - 6.27%
American Lawyer Media, Incorporated, 9.75%, Due
12/15/2007................................................ 1,000 951
Capitol Records, Incorporated, 8.375%, Due 8/15/2009, 144A
(Note A).................................................. 1,000 1,020
Dex Media West LLC, 9.875%, Due 10/1/2013, 144A (Note A).... 900 1,024
EchoStar Communications Corporation,
5.75%, Due 10/1/2008...................................... 1,475 1,469
9.125%, Due 1/15/2009..................................... 195 219
9.375%, Due 2/1/2009...................................... 4,350 4,600
General Motors Corporation, 7.125%, Due 7/15/2013*.......... 2,950 3,070
Houghton Mifflin Company,
8.25%, Due 2/1/2011....................................... 630 666
9.875%, Due 2/1/2013...................................... 2,500 2,703
PEI Holdings, Incorporated, 11.00%, Due 3/15/2010........... 2,000 2,260
--------
TOTAL MEDIA............................................. 17,982
--------
RETAIL - 7.35%
AutoNation, Incorporated, 9.00%, Due 8/1/2008............... 3,070 3,500
Dollar General Corporation, 8.625%, Due 6/15/2010........... 3,180 3,550
Group 1 Automotive, Incorporated, 8.25%, Due 8/15/2013, 144A
(Note A).................................................. 1,000 1,085
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
50
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
NationsRent, Incorporated, 9.50%, Due 10/15/2013, 144A (Note
A)........................................................ $ 1,250 $ 1,294
Pep Boys, Incorporated
6.71%, Due 11/3/2004...................................... 1,000 1,005
7.00%, Due 6/1/2005....................................... 700 709
6.88%, Due 3/6/2006....................................... 1,000 1,008
Samsonite Corporation, 10.75%, Due 6/15/2008................ 3,000 3,150
United Rentals (North America), Incorporated,
10.75%, Due 4/15/2008*.................................... 1,967 2,208
10.75%, Due 4/18/2008..................................... 500 561
Woolworth Corporation, 8.50%, Due 1/15/2022................. 2,900 3,020
--------
TOTAL RETAIL............................................ 21,090
--------
TEXTILES & APPAREL - 1.17%
Dan River, Incorporated, 12.75%, Due 4/15/2009, 144A (Note
A)........................................................ 1,500 420
Payless ShoeSource, Incorporated, 8.25%, Due 8/1/2013, 144A
(Note A).................................................. 2,500 2,437
Phillips-Van Heusen Corporation, 7.75%, Due 11/15/2023...... 500 495
--------
TOTAL TEXTILES & APPAREL................................ 3,352
--------
TOTAL CONSUMER DISCRETIONARY............................ 85,722
--------
CONSUMER STAPLES - 4.74%
Advantica Restaurant Group, Incorporated, 12.75, Due
9/30/2007................................................. 1,500 1,523
Borden, Incorporated,
9.20%, Due 3/15/2021...................................... 2,250 1,935
7.875%, Due 2/15/2023..................................... 2,400 2,040
Corn Products International, Incorporated,
8.25%, Due 7/15/2007...................................... 1,000 1,110
8.45%, Due 8/15/2009...................................... 1,600 1,796
Herbalife International, Incorporated, 11.75%, Due
7/15/2010................................................. 2,975 3,421
Jack in the Box, Incorporated, 8.375%, Due 4/15/2008........ 1,750 1,794
--------
TOTAL CONSUMER STAPLES.................................. 13,619
--------
ENERGY - 12.61%
Calpine Corporation, 8.50%, Due 7/15/2010*.................. 2,100 1,922
Citgo Petroleum Corporation, 11.375%, Due 2/1/2011.......... 1,500 1,695
Cleco Corporation, 7.00%, Due 5/1/2008...................... 1,500 1,479
Coastal Corporation, 6.20%, Due 5/15/2004*.................. 2,000 1,995
Compton Petroleum Corporation, 9.90%, Due 5/15/2009......... 1,500 1,642
Comstock Resources, Incorporated, 11.25%, Due 5/1/2007...... 1,943 2,108
Dynegy Holdings, Incorporated, 10.125%, Due 7/15/2013....... 2,400 2,604
Edison International, 6.875%, Due 9/15/2004................. 2,500 2,578
El Paso Production Holdings Company, 7.75%, Due 6/1/2013,
144A (Note A)............................................. 3,350 3,216
Energy Partners Limited, 8.75%, Due 8/1/2010................ 1,000 1,030
Ferrellgas Partners, Limited, 8.75%, Due 6/15/2012.......... 1,500 1,635
Frontier Oil Corporation, 11.75%, Due 11/15/2009............ 1,000 1,130
Nevada Power Company, 6.20%, Due 4/15/2004.................. 1,400 1,407
Newfield Exploration Company, 8.375%, Due 8/15/2012......... 1,000 1,105
Paramount Resources Limited, 7.875%, Due 11/1/2010.......... 1,500 1,493
PG&E Gas Transmission, Northwest Company, 7.80%, Due
6/1/2025.................................................. 2,500 2,462
Sierra Pacific Power Company, 8.00%, Due 6/1/2008........... 1,900 1,995
Star Gas Partners, Limited Partnership, 10.25%, Due
2/15/2013................................................. 3,425 3,682
Tennessee Gas Pipeline Company, 8.375%, Due 6/15/2032....... 1,000 1,013
--------
TOTAL ENERGY............................................ 36,191
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
51
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
FINANCIALS - 4.52%
DIVERSIFIED FINANCIALS - 3.10%
Dana Credit Corporation, 8.375%, Due 8/15/2007.............. $ 750 $ 778
Thornburg Mortgage, Incorporated, 8.00%, 5/15/2013.......... 2,500 2,625
Xerox Credit Corporation, 6.10%, Due 12/16/2003............. 5,500 5,500
--------
TOTAL DIVERSIFIED FINANCIALS............................ 8,903
--------
INSURANCE - 0.52%
Provident Companies, Incorporated, 7.00%, Due 7/15/2018..... 1,500 1,496
--------
TOTAL INSURANCE......................................... 1,496
--------
REAL ESTATE - 0.90%
HMH Properties, Incorporated, 7.875%, Due 8/1/2005.......... 2,503 2,576
--------
TOTAL REAL ESTATE....................................... 2,576
--------
TOTAL FINANCIALS........................................ 12,975
--------
HEALTH CARE - 10.85%
BIOTECHNOLOGY - 1.51%
aaiPharma Incorporated, 11.00%, Due 4/1/2010................ 3,900 4,329
--------
TOTAL BIOTECHNOLOGY..................................... 4,329
--------
EQUIPMENT & SUPPLIES - 0.99%
Bausch & Lomb, Incorporated,
6.75%, Due 12/15/2004..................................... 880 911
7.125%, Due 8/1/2028...................................... 1,972 1,937
--------
TOTAL EQUIPMENT & SUPPLIES.............................. 2,848
--------
HEALTHCARE PROVIDERS & SERVICES - 8.35%
Beverly Enterprises, Incorporated, 9.00%, Due 2/15/2006..... 1,705 1,739
Mallinckrodt Group, Incorporated, 6.50%, Due 11/15/2007..... 900 947
National Health Investors, 7.30%, Due 7/16/2007............. 1,000 991
NDCHealth Corporation, 10.50%, Due 12/1/2012................ 1,800 2,007
Pacificare Health Systems, Incorporated, 10.75%, Due
6/1/2009.................................................. 2,500 2,875
Senior Housing Properties Trust,
8.625%, Due 1/15/2012..................................... 1,500 1,635
7.875%, Due 4/15/2015..................................... 875 921
Tenet Healthcare Corporation, 7.375%, Due 2/1/2013*......... 5,800 5,626
Triad Hospitals, Incorporated, 11.00%, Due 5/15/2009........ 2,000 2,206
Vicar Operating, Incorporated, 9.875%, Due 12/1/2009........ 1,116 1,244
US Oncology, Incorporated, 9.625%, Due 2/1/2012............. 3,550 3,781
--------
TOTAL HEALTHCARE PROVIDERS & SERVICES................... 23,972
--------
TOTAL HEALTH CARE....................................... 31,149
--------
INFORMATION TECHNOLOGY - 1.86%
COMMUNICATIONS EQUIPMENT - 1.11%
Corning, Incorporated,
7.00%, Due 3/15/2007...................................... 1,300 1,300
6.30%, Due 3/1/2009....................................... 1,900 1,891
--------
TOTAL COMMUNICATIONS EQUIPMENT.......................... 3,191
--------
SEMICONDUCTOR EQUIPMENT & PRODUCTS - 0.69%
Flextronics International Limited, 6.50%, Due 5/15/2013,
144A (Note A)............................................. 2,000 1,975
--------
TOTAL SEMICONDUCTOR EQUIPMENT & PRODUCTS................ 1,975
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
52
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
SOFTWARE - 0.06%
Peregrine Systems, Incorporated, 6.50%, Due 8/15/2007....... $ 174 $ 162
--------
TOTAL SOFTWARE.......................................... 162
--------
TOTAL INFORMATION TECHNOLOGY............................ 5,328
--------
INDUSTRIALS - 11.28%
AEROSPACE & ENGINEERING - 1.25%
BE Aerospace, Incorporated, 8.50%, Due 10/1/2010, 144A (Note
A)........................................................ 750 773
K & F Industries, Incorporated, 9.625%, Due 12/15/2010...... 2,000 2,240
Transdigm, Incorporated, 8.375%, Due 7/15/2011, 144A (Note
A)........................................................ 550 584
--------
TOTAL AEROSPACE & ENGINEERING........................... 3,597
--------
CONSTRUCTION & ENGINEERING - 4.42%
Interline Brands, Incorporated, 11.50%, Due 5/15/2011, 144A
(Note A).................................................. 3,500 3,780
K. Hovnanian Enterprises, Incorporated, 8.875%, Due
4/1/2012*................................................. 2,700 2,943
KB Home, 9.50%, Due 2/15/2011............................... 1,450 1,610
Schuler Homes, Incorporated, 9.375%, Due 7/15/2009.......... 1,500 1,682
Standard-Pacific Corporation, 8.50%, Due 4/1/2009........... 1,000 1,050
Technical Olympic USA, Incorporated, 9.00%, Due 7/1/2010.... 1,000 1,066
Toll Corporation, 8.25%, Due 12/1/2011...................... 500 555
--------
TOTAL CONSTRUCTION & ENGINEERING........................ 12,686
--------
COMMERCIAL SERVICES & SUPPLIES - 4.86%
Advanstar Communications, Incorporated,
8.63%, Due 8/15/2008...................................... 1,250 1,300
10.75%, Due 8/15/2010..................................... 2,500 2,656
AGCO Corporation, 8.50%, Due 3/15/2006...................... 1,340 1,340
Corrections Corporation of America, 7.50%, Due 5/1/2011,
144A (Note A)............................................. 900 940
IMCO Recycling, Incorporated, 10.375%, Due 10/15/2010....... 625 619
Sheridan Acquisition Corporation, 10.25%, Due 8/15/2011,
144A (Note A)............................................. 750 784
United Components, Incorporated, 9.375%, Due 6/15/2013, 144A
(Note A).................................................. 1,500 1,537
UNOVA, Incorporated,
6.875%, Due 3/15/2005..................................... 1,000 1,000
7.00%, Due 3/15/2008...................................... 1,000 960
Xerox Corporation,
7.15%, Due 8/1/2004....................................... 1,000 1,025
7.625%, Due 6/15/2013..................................... 1,750 1,785
--------
TOTAL COMMERCIAL SERVICES & SUPPLIES.................... 13,946
--------
MACHINERY - 0.75%
Joy Global, Incorporated, 8.75%, Due 3/15/2012.............. 1,950 2,155
--------
TOTAL MACHINERY......................................... 2,155
--------
TOTAL INDUSTRIAL........................................ 32,384
--------
MATERIALS - 10.06%
CHEMICALS - 4.01%
FMC Corporation,
6.75%, Due 5/5/2005....................................... 2,000 2,035
7.00%, Due 5/15/2008...................................... 2,200 2,189
IMC Global, Incorporated,
11.25%, Due 6/1/2011...................................... 3,500 3,614
Methanex Corporation, 7.75%, Due 8/15/2005.................. 1,000 1,052
Nalco Company, 8.875%, Due 11/15/2013, 144A (Note A)........ 1,000 1,040
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
53
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Westlake Chemical Corporation, 8.75%, Due 7/15/2011, 144A
(Note A)*................................................. $ 1,500 $ 1,583
--------
TOTAL CHEMICALS......................................... 11,513
--------
CONTAINERS & PACKAGING - 3.89%
Crown Holdings, Incorporated,
9.50%, Due 3/1/2011....................................... 2,250 2,497
10.875%, Due 3/1/2013..................................... 2,000 2,280
Owens-Brockway Glass Containers, Incorporated,
8.875%, Due 2/15/2009, 144A (Note A)...................... 2,990 3,244
8.75%, Due 11/15/2012..................................... 1,250 1,369
Owens-Illinois, Incorporated, 7.15%, Due 5/15/2005.......... 750 769
Silgan Holdings, Incorporated, 6.75%, Due 11/15/2013, 144A
(Note A).................................................. 1,000 1,001
--------
TOTAL CONTAINERS & PACKAGING............................ 11,160
--------
PAPER & FOREST PRODUCTS - 2.16%
Appleton Papers, Incorporated, 12.50%, Due 12/15/2008....... 1,000 1,105
Boise Cascade Corporation, 7.00%, Due 11/1/2013............. 2,050 2,100
Fort James Corporation, 6.70%, Due 11/15/2003............... 3,000 3,000
--------
TOTAL PAPER & FOREST PRODUCTS........................... 6,205
--------
TOTAL MATERIALS......................................... 28,878
--------
TELECOMMUNICATION SERVICES - 5.33%
Cincinnati Bell, Incorporated, 7.25%, Due 7/15/2013, 144A
(Note A).................................................. 2,000 2,040
Dobson Communications Corporation, 8.875%, Due 10/1/2013,
144A (Note A)............................................. 2,850 2,893
FairPoint Communications, Incorporated, 11.875%, Due
3/1/2010.................................................. 2,000 2,340
GST Equipment Funding, Incorporated, 13.25%, Due
5/1/2007*................................................. 2,500 87
Qwest Capital Funding, Incorporated, 5.875%, Due 8/3/2004... 750 747
Qwest Services Corporation,
13.00%, Due 12/15/2007, 144A (Note A)*.................... 2,500 2,838
13.50%, Due 12/15/2010, 144A (Note A)..................... 3,000 3,502
US West Communication, 8.875%, Due 6/1/2031................. 800 840
--------
TOTAL TELECOMMUNICATION SERVICES........................ 15,287
--------
TOTAL CORPORATE BONDS................................... 261,533
--------
<Caption>
SHARES
-----------
COMMON STOCKS - 0.20%
Peregrine Systems, Incorporated*............................ 28,000 567
--------
TOTAL COMMON STOCKS..................................... 567
--------
SHORT TERM INVESTMENTS - 15.71%
American AAdvantage Money Market Select Fund................ 20,891,341 20,891
Short-Term Investment Company Liquid Asset Fund............. 1,763,727 1,764
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
54
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Bunge Asset Funding Corp. Discount Commercial Paper, Due
11/3/2003................................................. $ 6,970 6,970
Credit Suisse First Boston Tri Party Repo, 1.113%, Due
11/3/2003, (Note B)....................................... 8,500 8,500
Morgan Stanley Tri Party Repo, 1.113%, Due 11/3/2003, (Note
C)........................................................ 7,000 7,000
--------
TOTAL SHORT TERM INVESTMENTS............................ 45,125
--------
TOTAL INVESTMENTS - 107.03% (COST $295,872)................. 307,225
--------
LIABILITIES, NET OF OTHER ASSETS - (7.03%).................. (20,190)
--------
TOTAL NET ASSETS - 100%..................................... $287,035
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $49,187 or 17.14% of net assets.
(B) Collateral held at J.P.Morgan Chase consists of Continental Airlines Inc,
7.918%, Due 5/1/2010, Market Value - $6,059, Niagara Mohawk Power, 7.75%,
Due 10/1/2008, Market Value - $55, Brascan Corporation, 7.375%, Due
3/1/2033, Market Value - $1,867 and 7.125%, Due 12/16/2003, Market
Value - $679.
(C) Collateral held at the Bank of New York consists of Reed Elsevier Capital,
6.125%, Due 8/1/2006, Market Value - $1,362, Public Service Electric & Gas,
5.0%, Due 1/1/2013, Market Value - $1,084, Dow Chemical, 6.125%, Due
2/1/2011, Market Value - $1,906, 5.97%, Due 1/15/2009, Market Value - $506
and 6.85%, Due 8/15/2013, Market Value - $2,282.
* - All or a portion of this security is on loan at October 31, 2003. See note
4.
See accompanying notes
- --------------------------------------------------------------------------------
55
AMERICAN AADVANTAGE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
U.S. TREASURY OBLIGATIONS - 1.05%
8.75%, Due 8/15/2020........................................ $ 750 $ 1,065
--------
TOTAL U.S. TREASURY OBLIGATIONS......................... 1,065
--------
U.S. AGENCY OBLIGATIONS - 0.57%
Federal National Mortgage Association, 6.625%, Due
11/15/2010................................................ 500 571
--------
TOTAL U.S. AGENCY OBLIGATIONS........................... 571
--------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.53%
Federal Home Loan Mortgage Corporation, 5.13%, Due
10/15/2008................................................ 500 535
--------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS........... 535
--------
ASSET-BACKED SECURITIES - 7.18%
Citibank Credit Card Master Trust I 1999-7 A, 6.90%, Due
10/15/2007................................................ 2,000 2,179
DaimlerChrysler Auto Trust, 4.63%, Due 12/6/2006............ 2,000 2,066
Honda Auto Receivables Owner Trust 2002-3, 3.00%, Due
5/18/2006................................................. 1,000 1,012
Honda Auto Receivables Owner Trust 2003-4, 2.79%, Due
3/16/2009................................................. 2,000 1,997
--------
TOTAL ASSET-BACKED SECURITIES........................... 7,254
--------
CORPORATE BONDS - 68.50%
BANKS - 13.83%
Banco Popular North America Inc,
6.125%, Due 10/15/2006.................................... 500 544
4.25%, Due 4/1/2008....................................... 300 303
Bank of America Corporation,
4.32%, Due 2/22/2005...................................... 1,420 1,467
7.40%, Due 1/15/2011...................................... 350 409
Bank One Corporation,
7.125%, Due 5/15/2007..................................... 300 338
4.90%, Due 4/30/2015...................................... 300 292
Branch Banking and Trust Company, 4.875%, Due 1/15/2013..... 450 447
Capital One Bank, 6.50%, Due 7/30/2004...................... 1,077 1,112
Citigroup, Incorporated, 6.20%, Due 3/15/2009............... 350 388
Credit Suisse First Boston, 6.50%, Due 5/1/2008............. 500 553
First Tennessee Bank, NA, 5.75%, Due 12/1/2008.............. 300 325
FleetBoston Financial Corporation,
8.625%, Due 1/15/2007..................................... 200 232
3.85%, Due 2/15/2008...................................... 350 354
J P Morgan Chase & Company, 6.75%, Due 8/15/2008............ 450 507
HSBC Bank USA, Incorporated, 7.00%, Due 11/1/2006........... 1,500 1,689
ING Bank, NV, 5.125%, Due 5/1/2015, 144A (Note A)........... 300 296
St. George Bank Limited, 7.15%, Due 10/15/2005, 144A (Note
A)........................................................ 1,510 1,645
US Bank, NA, 6.375%, Due 8/1/2011........................... 200 222
Wachovia Corporation, 6.40%, Due 4/1/2008................... 1,500 1,653
Washington Mutual, Incorporated,
2.40%, Due 11/3/2005...................................... 1,000 999
4.375%, Due 1/15/2008..................................... 200 205
--------
TOTAL BANKS............................................. 13,980
--------
FINANCE - 37.82%
Aegon, NV, 8.00%, Due 8/15/2006............................. 225 257
Allstate Corporation, 2.50%, Due 6/20/2008, 144A, (Note
A)........................................................ 300 284
American General Finance Corporation, 5.875%, Due
12/15/2005................................................ 540 579
American Honda Finance Corporation, 2.875%, Due 4/3/2006,
144A (Note A)............................................. 650 657
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
56
AMERICAN AADVANTAGE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Bear Stearns Companies, Incorporated,
3.00%, Due 3/30/2006...................................... $ 500 $ 506
2.875%, Due 7/2/2008...................................... 300 289
Boeing Capital Corporation, 5.40%, Due 11/30/2009........... 700 723
Caterpillar Financial Services Corporation, 2.35%, Due
9/15/2006*................................................ 1,500 1,483
Cendant Corporation, 6.875%, Due 8/15/2006.................. 1,100 1,209
Countrywide Home Loan, Incorporated
3.50%, Due 12/19/2005..................................... 1,250 1,275
3.25%, Due 5/21/2008...................................... 300 292
Credit Suisse First Boston USA, Incorporated, 5.875%, Due
8/1/2006*................................................. 1,500 1,620
Ford Motor Credit Company, 7.375%, Due 10/28/2009........... 1,700 1,758
General Electric Capital Corporation, 7.375%, Due
1/19/2010*................................................ 350 408
General Motors Acceptance Corporation,
6.75%, Due 1/15/2006...................................... 1,000 1,066
7.25%, Due 3/2/2011....................................... 1,000 1,054
Goldman Sachs Group, Incorporated,
7.35%, Due 10/1/2009...................................... 525 608
4.75%, Due 7/15/2013...................................... 675 652
John Hancock Global Funding,
5.625%, Due 6/27/2006..................................... 1,400 1,503
3.75%, Due 9/30/2008...................................... 1,000 993
Heller Financial, Incorporated, 6.375%, Due 3/15/2006....... 2,500 2,728
Household Finance Corporation,
5.75%, Due 1/30/2007...................................... 250 270
7.875%, Due 3/1/2007...................................... 200 230
Lehman Brothers Holdings, Incorporated, 3.50%, Due
8/7/2008*................................................. 1,000 985
International Lease Finance Corporation, 6.375%, Due
3/15/2009................................................. 1,750 1,919
MassMutual Global Funding II, 3.80%, Due 4/15/2009, 144A
(Note A).................................................. 2,000 1,993
Merrill Lynch & Company, Incorporated, 6.56%, Due
12/16/2007................................................ 450 504
Metlife, Incorporated, 3.911%, Due 5/15/2005................ 1,000 1,033
Monumental Global Funding, 3.85%, Due 3/3/2008, 144A (Note
A)........................................................ 450 452
Morgan Stanley Dean Witter & Company, 6.10%, Due
4/15/2006................................................. 550 596
PHH Corporation, 6.00%, Due 3/1/2008*....................... 300 321
Prudential Financial, Incorporated, 3.75%, Due 5/1/2008..... 300 299
Prudential Insurance Company of America, 6.375%, Due
7/23/2006, 144A (Note A).................................. 2,000 2,193
Salomon, Incorporated, 6.75%, Due 1/15/2006................. 2,000 2,178
SLM Corporation, 5.125%, Due 8/27/2012*..................... 450 452
Sprint Capital Corporation, 7.90%, Due 3/15/2005............ 1,500 1,607
Synovus Financial Corporation,
7.25%, Due 12/15/2005..................................... 1,500 1,654
4.875%, Due 2/15/2013..................................... 300 294
Transamerica Corporation, 6.75%, Due 11/15/2006............. 1,000 1,110
Verizon Global Funding Corporation, 4.375%, Due 6/1/2013.... 200 187
--------
TOTAL FINANCE........................................... 38,221
--------
INDUSTRIAL - 16.09%
Allied Waste North America, Incorporated, 10.00%, Due
8/1/2009*................................................. 400 435
AmeriPath, Incorporated, 10.50%, Due 4/1/2013............... 400 422
Anheuser Busch Companies, Incorporated, 6.50%, Due
1/1/2028.................................................. 200 216
AT&T Broadband Corporation, 8.375%, Due 3/15/2013........... 500 604
AT&T Wireless Services, Incorporated, 7.35%, Due 3/1/2006... 600 658
Bally's Health & Tennis Corporation, 10.50%, Due 7/15/2011,
144A (Note A)............................................. 400 414
BHP Finance (USA) Limited, 4.80%, Due 4/15/2013............. 300 299
Coca-Cola Enterprises, Incorporated, 2.50%, Due 9/15/2006... 2,000 1,991
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
57
AMERICAN AADVANTAGE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
Computer Sciences Corporation, 3.50%, Due 4/15/2008......... $ 200 $ 198
Conagra Foods, Incorporated, 7.00%, Due 10/1/2028........... 200 219
Continental Cablevision, Incorporated, 8.30%, Due
5/15/2006................................................. 250 280
DaimlerChrysler North America, 4.75%, Due 1/15/2008......... 450 450
Deutsche Telekom International,
8.25%, Due 6/15/2005...................................... 175 191
3.875%, Due 7/22/2008..................................... 500 498
Dole Food Company, Incorporated, 8.875%, Due 3/15/2011...... 400 432
Dell Computer Corporation, 6.55%, Due 4/15/2008............. 200 223
Equistar Chemicals, LP, 10.625%, Due 5/1/2011, 144A (Note
A)........................................................ 400 418
First Data Corporation, 3.375%, Due 8/1/2008................ 1,000 987
Freeport-McMoRan Copper & Gold, Incorporated, 10.125%, Due
2/1/2010.................................................. 400 456
Georgia-Pacific Corporation, 8.00%, Due 1/15/2014........... 400 430
Jacuzzi Brands, Incorporated, 9.625%, Due 7/1/2010, 144A
(Note A).................................................. 400 424
Hertz Corporation, 4.70%, Due 10/2/2006..................... 500 494
International Business Machines Corporation, 4.75%, Due
11/29/2012................................................ 200 200
Legrand SA, 8.50%, Due 2/15/2025............................ 400 420
Leucadia National Corporation, 7.00%, Due 8/15/2013, 144A
(Note A).................................................. 400 393
Mediacom Communications Corporation, 9.50%, Due
1/15/2013*................................................ 400 380
Northrop Grumman Corporation, 7.125%, Due 2/15/2011......... 500 575
Occidental Petroleum Corporation, 6.75%, Due 1/15/2012...... 200 225
Premcor Refining Group, Incorporated, 7.50%, Due
6/15/2015................................................. 400 409
Pope & Talbot, Incorporated, 8.375%, Due 6/1/2013........... 355 346
Royal Caribbean Cruises Limited, 7.50%, Due 10/15/2027...... 400 372
Safeway, Incorporated, 3.80%, Due 8/15/2005................. 300 306
Shopping Center Associates, 7.625%, Due 5/15/2005, 144A
(Note A).................................................. 665 718
Verizon Virginia, 4.625%, Due 3/15/2013..................... 600 574
Vodafone Group plc, 3.95%, Due 1/30/2008 *.................. 200 203
Xerox Corporation, 7.625%, Due 6/15/2013.................... 400 408
--------
TOTAL INDUSTRIAL........................................ 16,268
--------
UTILITY - 0.76%
Calpine Corporation, 8.50%, Due 2/15/2011*.................. 500 358
Teco Energy, Incorporated, 7.50%, Due 6/15/2010............. 400 411
--------
TOTAL UTILITY........................................... 769
--------
TOTAL CORPORATE BONDS................................... 69,238
--------
CONVERTIBLE BONDS - 9.51%
CONSUMER DISCRETIONARY - 0.92%
General Motors Corporation, 6.25%, Due 7/15/2033*........... 16 447
Lear Corporation, 0.00%, Due 2/20/2022+..................... 950 482
--------
TOTAL CONSUMER DISCRETIONARY............................ 929
--------
ENERGY - 0.41%
Centerpoint Energy, Incorporated, 3.75%, Due 5/15/2023, 144A
(Note A).................................................. 390 418
--------
TOTAL ENERGY............................................ 418
--------
FINANCIALS - 1.02%
QLT, Incorporated, 3.00%, Due 9/15/2023, 144A (Note A)...... 250 294
Quanta Services, Incorporated, 4.50%, Due 10/1/2023, 144A
(Note A).................................................. 55 60
Silicon Valley Bancshares, 0.00%, Due 6/15/2008+............ 240 281
Travelers Property Casualty Corporation, 4.50%, Due
4/15/2032................................................. 17 395
--------
TOTAL FINANCIALS........................................ 1,030
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
58
AMERICAN AADVANTAGE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- --------
(DOLLARS IN THOUSANDS)
HEALTH CARE - 1.23%
Invitrogen Corporation, 2.00%, Due 8/1/2023, 144A (Note
A)........................................................ $ 250 $ 292
Pharmaceutical Resources, Incorporated, 2.875%, Due
9/30/2010, 144A (Note A).................................. 180 206
Roche Holdings, Incorporated, 0.00%, Due 1/19/2015, 144A
(Note A)+................................................. 460 354
Watson Pharmaceuticals, Incorporated, 1.75%, Due 3/15/2023,
144A (Note A)............................................. 335 391
--------
TOTAL HEALTH CARE....................................... 1,243
--------
INDUSTRIALS - 5.93%
Agilent Technologies, Incorporated, 3.00%, Due 12/1/2021.... 240 248
Andrew Corporation, 3.25%, Due 8/15/2013, 144A (Note A)..... 425 533
Carnival Corporation, 0.00%, Due 10/24/2021+................ 715 464
Computer Associates International, Incorporated, 5.00%, Due
3/15/2007................................................. 330 400
Comverse Technology, Incorporated, 0.00%, Due 5/15/2023+.... 370 441
Corning, Incorporated, 3.50%, Due 11/1/2008................. 85 109
Cypress Semiconductor Corporation, 1.25%, Due 6/15/2008,
144A (Note A)............................................. 385 587
Electronic Data Systems Corporation, 3.875%, Due 7/15/2023,
144A (Note A)............................................. 200 199
Four Seasons Hotel, Incorporated, 0.00%, Due 9/23/2029+..... 375 121
General Mills, Incorporated, 0.00%, Due 10/28/2022+*........ 350 243
Halliburton Company, 3.125%, Due 7/15/2023, 144A (Note A)... 210 211
International Game Technology, 0.00%, Due 1/29/2033+........ 315 232
Juniper Networks, Incorporated, 0.00, Due 6/15/2008, 144A
(Note A)+................................................. 215 244
Kaydon Corporation, 4.00%, Due 5/23/2023.................... 230 243
Keane, Incorporated, 2.00%, Due 6/15/2013, 144A (Note A).... 200 196
Liberty Media Corporation, 0.75%, Due 3/30/2023, 144A (Note
A)........................................................ 355 383
LSI Logic Corporation, 4.00%, Due 5/15/2010, 144A (Note
A)........................................................ 228 254
STMicroelectronics NV, 0.00%, Due 7/5/2013+................. 240 259
Tyco International Group S.A., 2.75%, Due 1/15/2018, 144A
(Note A).................................................. 375 414
VERITAS Software Corporation, 0.25%, Due 8/1/2013, 144A,
(Note A).................................................. 200 215
--------
TOTAL INDUSTRIALS....................................... 5,996
--------
TOTAL CONVERTIBLE BONDS................................. 9,616
--------
<Caption>
SHARES
-----------
CONVERTIBLE PREFERRED STOCK - 2.62%
CONSUMER DISCRETIONARY - 0.43%
Ford Motor Company Capital Trust II......................... 9,400 437
--------
TOTAL CONSUMER DISCRETIONARY............................ 437
--------
ENERGY - 0.63%
Kerr-McGee Corporation...................................... 8,500 362
New York Community Capital Trust V+......................... 3,800 274
--------
TOTAL ENERGY............................................ 636
--------
FINANCIALS - 0.43%
Prudential Financial, Incorporated.......................... 7,100 438
--------
TOTAL FINANCIALS........................................ 438
--------
INDUSTRIALS - 0.74%
Northrop Grumman Corporation+............................... 3,900 394
Raytheon Company+........................................... 7,000 353
--------
TOTAL INDUSTRIALS....................................... 747
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
59
AMERICAN AADVANTAGE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
----------- --------
(DOLLARS IN THOUSANDS)
TELECOMMUNICATION SERVICES - 0.39%
Alltel Corporation+*........................................ 7,960 $ 390
--------
TOTAL TELECOMMUNICATION SERVICES........................ 390
--------
TOTAL CONVERTIBLE PREFERRED STOCK....................... 2,648
--------
COMMON STOCK - 6.41%
CONSUMER DISCRETIONARY - 1.14%
Home Depot, Incorporated.................................... 13,600 504
International Game Technology*.............................. 7,800 255
McDonald's Corporation...................................... 15,500 388
--------
TOTAL CONSUMER DISCRETIONARY............................ 1,147
--------
FINANCIALS - 1.40%
Humana, Incorporated+....................................... 21,000 426
MBIA, Incorporated*......................................... 9,300 554
Washington Mutual, Incorporated*............................ 10,000 438
--------
TOTAL FINANCIALS........................................ 1,418
--------
HEALTH CARE - 0.27%
Invitrogen Corporation+*.................................... 4,300 273
--------
TOTAL HEALTH CARE....................................... 273
--------
INFORMATION TECHNOLOGY - 3.15%
Avaya, Incorporated+*....................................... 39,500 511
Brooks Automation, Incorporated+*........................... 22,200 554
Cisco Systems, Incorporated+................................ 22,700 476
EMC Corporation+............................................ 41,000 567
Juniper Networks, Incorporated+*............................ 16,300 293
Mentor Graphics Corporation+*............................... 11,905 199
Synopsys, Incorporated+*.................................... 10,800 343
VERITAS Software Corporation+............................... 6,500 235
--------
TOTAL INFORMATION TECHNOLOGY............................ 3,178
--------
INDUSTRIALS - 0.45%
Cendant Corporation+*....................................... 22,500 460
--------
TOTAL INDUSTRIALS....................................... 460
--------
TOTAL COMMON STOCK...................................... 6,476
--------
SHORT-TERM INVESTMENTS - 13.96%
American AAdvantage Money Market Select Fund................ 14,107,323 14,107
--------
TOTAL SHORT-TERM INVESTMENTS............................ 14,107
--------
TOTAL INVESTMENTS - 110.33% (COST $111,195)................. 111,510
--------
LIABILITIES, NET OF OTHER ASSETS - (10.33%)................. (10,438)
--------
TOTAL NET ASSETS - 100%..................................... $101,072
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $15,138 or 14.98% of net assets.
* - All or a portion of this security is on loan at October 31, 2003. See Note
4.
+ - non-income producing
See accompanying notes
- --------------------------------------------------------------------------------
60
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. TREASURY OBLIGATIONS - 6.64%
U.S. TREASURY BONDS - 4.22%
7.50%, Due 11/15/2016*...................................... $ 1,000 $ 1,265
8.125%, Due 8/15/2019*...................................... 825 1,107
6.875%, Due 8/15/2025....................................... 1,370 1,661
6.25%, Due 5/15/2030*....................................... 600 686
5.375% Due 2/15/2031*....................................... 915 946
--------
TOTAL U.S. TREASURY BONDS............................... 5,665
--------
U.S. TREASURY NOTES - 2.42%
2.625%, Due 5/15/2008*...................................... 802 786
3.00%, Due 7/15/2012*....................................... 1,049 1,147
3.625%, Due 5/15/2013*...................................... 1,375 1,317
--------
TOTAL U.S. TREASURY NOTES............................... 3,250
--------
TOTAL U.S. TREASURY OBLIGATIONS......................... 8,915
--------
U.S. AGENCY OBLIGATIONS - 4.35%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 3.54%
5.125%, Due 10/15/2008*..................................... 500 535
5.00%, Due 3/1/2018......................................... 2,217 2,253
6.00%, Due 1/1/2033......................................... 918 942
6.00%, Due 8/1/2033......................................... 995 1,021
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 4,751
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 0.81%
7.25%, Due 5/15/2030........................................ 900 1,089
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 1,089
--------
TOTAL U.S. AGENCY OBLIGATIONS........................... 5,840
--------
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 26.53%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 0.80%
Pool #G11202, 6.00%, Due 11/1/2016.......................... 527 548
Pool #G00738, 8.00%, Due 7/1/2027........................... 486 525
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 1,073
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 15.35%
Pool #323223, 6.50%, Due 7/1/2013........................... 275 289
Pool #439957, 6.00%, Due 11/1/2013.......................... 351 366
Pool #488099, 5.50%, Due 2/1/2014........................... 908 938
Pool #323788, 6.50%, Due 6/1/2014........................... 143 150
Pool #323789, 6.00%, Due 6/1/2014........................... 405 422
Pool #557390, 7.50%, Due 10/1/2015.......................... 147 157
Pool #535846, 6.00%, Due 4/1/2016........................... 1,050 1,092
Pool #545449, 6.50%, Due 2/1/2017........................... 1,120 1,179
Pool #545823, 5.50%, Due 8/1/2017........................... 1,085 1,118
Pool #100293, 9.50%, Due 8/1/2029........................... 352 389
Pool #599321, 7.00%, Due 7/1/2031........................... 260 274
Pool #545759, 6.50%, Due 7/1/2032........................... 355 369
Pool #705607, 6.00%, Due 6/1/2033........................... 447 459
Pool #713706, 5.50%, Due 8/1/2033........................... 1,911 1,929
Pool #730570, 6.00%, Due 8/1/2033........................... 1,020 1,047
Pool #727223, 5.50%, Due 9/1/2033........................... 742 749
Pool #741901, 5.50%, Due 10/1/2033.......................... 750 757
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
61
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
TBA, 15 yr, 6.00%........................................... $ 1,923 $ 2,000
TBA, 30 yr, 6.50%........................................... 1,883 1,956
TBA, 30 yr, 7.00%........................................... 830 874
TBA, 30 yr, 7.50%........................................... 949 1,011
TBA 15 yr, 4.50%............................................ 3,100 3,094
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 20,619
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 10.38%
Pool #780921, 7.00%, Due 11/15/2013......................... 666 711
Pool #780085, 11.50%, Due 8/15/2018......................... 250 276
Pool #780400, 7.00%, Due 12/15/2025......................... 975 1,037
Pool #780454, 7.00%, Due 10/15/2026......................... 722 768
Pool #780509, 6.50%, Due 2/15/2027.......................... 498 523
Pool #002379, 8.00%, Due 2/20/2027.......................... 461 495
Pool #780615, 6.50%, Due 8/15/2027.......................... 996 1,046
Pool #780680, 6.50%, Due 11/15/2027......................... 830 872
Pool #780747, 6.50%, Due 3/15/2028.......................... 1,522 1,596
Pool #780936, 7.50%, Due 12/15/2028......................... 675 724
Pool #781273, 6.00%, Due 4/15/2031.......................... 1,183 1,223
Pool #550284, 7.00%, Due 8/15/2031.......................... 198 210
Pool #574846, 7.00%, Due 11/15/2031......................... 319 338
Pool #552404, 7.50%, Due 2/15/2032.......................... 55 59
Pool #555732, 6.50%, Due 3/15/2032.......................... 409 428
Pool #579750, 6.00%, Due 9/15/2032.......................... 2,784 2,877
Pool #553235, 6.00%, Due 5/15/2033.......................... 738 763
--------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.......... 13,946
--------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS........... 35,638
--------
NON-AGENCY MORTGAGE-BACKED OBLIGATIONS - 0.39%
General Electric Commercial Mortgage Corporation, 4.17%, Due
7/10/2037................................................. 515 518
--------
TOTAL NON-AGENCY MORTGAGE-BACKED OBLIGATIONS............ 518
--------
CORPORATE OBLIGATIONS - 59.30%
FINANCIAL - 32.30%
Aegon, N.V., 8.00%, Due 8/15/2006........................... 300 342
American General Finance Corporation, 5.375%, Due
9/1/2009.................................................. 360 381
Banco Popular North America Inc, 4.25%, Due 4/1/2008........ 400 405
Bank of America Corporation, 7.40%, Due 1/15/2011........... 950 1,109
Bank One Corporation,
7.125%, Due 5/15/2007..................................... 350 394
2.625%, Due 6/30/2008..................................... 570 544
4.90%, Due 4/30/2015...................................... 400 390
Boeing Capital Corporation, 5.40%, Due 11/30/2009........... 650 672
Bear Stearns Companies, Incorporated, 2.875%, Due
7/2/2008.................................................. 400 385
BHP Finance (USA) Limited, 4.80%, Due 4/15/2013............. 400 398
Branch Banking & Trust Company, 4.875%, Due 1/15/2013....... 750 745
Capital One,
6.70%, Due 5/15/2008...................................... 900 981
5.75%, Due 9/15/2010...................................... 235 246
Caterpillar Financial Services, 2.50%, Due 10/3/2006........ 650 645
Cendant Corporation, 6.875%, Due 8/15/2006.................. 995 1,093
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
62
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Citigroup, Incorporated,
6.20%, Due 3/15/2009...................................... $ 950 $ 1,054
6.50%, Due 1/18/2011...................................... 625 703
6.00%, Due 10/31/2033..................................... 415 413
Countrywide Home Loan, Incorporated,
3.50%, Due 12/19/2005*.................................... 750 765
3.25%, Due 5/21/2008...................................... 1,045 1,019
5.50%, Due 8/25/2033...................................... 876 873
Credit Suisse First Boston, 6.50%, Due 5/1/2008............. 600 664
Deutsche Telekom International, 8.00%, Due 6/15/2010........ 350 421
John Deere Capital Corporation, 4.125%, Due 7/15/2005....... 790 818
First Tennessee Bank, NA, 5.75%, Due 12/1/2008.............. 475 515
Fleet Norstar Financial Group, Incorporated, 8.625%, Due
1/15/2007................................................. 400 464
FleetBoston Financial Corporation, 3.85%, Due 2/15/2008..... 550 557
Ford Motor Credit Company,
6.50%, Due 1/25/2007...................................... 405 418
7.375, Due 10/28/2009..................................... 1,400 1,448
General Electric Capital Corporation,
3.25%, Due 6/15/2009...................................... 805 777
7.375%, Due 1/19/2010..................................... 800 933
General Motors Acceptance Corporation,
6.125%, Due 8/28/2007..................................... 320 337
7.25%, Due 3/2/2011....................................... 1,000 1,054
8.375%, Due 7/15/2033..................................... 525 554
Goldman Sachs Group, Incorporated,
7.35%, Due 10/1/2009...................................... 725 839
4.75%, Due 7/15/2013...................................... 675 652
5.25%, Due 10/15/2013..................................... 500 501
John Hancock Global Funding, 3.75%, Due 9/30/2008........... 500 497
Household Finance Corporation,
5.75%, Due 1/30/2007...................................... 750 810
7.875%, Due 3/1/2007...................................... 400 459
6.375%, Due 11/27/2012.................................... 410 446
4.75%, Due 7/15/2013...................................... 600 580
ING Bank, NV, 5.125%, Due 5/1/2015, 144A (Note A)........... 400 395
International Lease Finance Corporation, 6.375%, Due
3/15/2009................................................. 1,625 1,782
Kerr McGee Corporation, 5.875%, Due 9/15/2006............... 475 509
KeyCorp Limited, 4.625%, Due 5/16/2005...................... 290 302
Merrill Lynch & Company, Incorporated,
6.56%, Due 12/16/2007..................................... 750 839
3.125%, Due 7/15/2008..................................... 675 659
Monumental Global Funding, 3.85%, Due 3/3/2008, 144A (Note
A)........................................................ 750 754
J P Morgan Chase & Company, 6.75%, Due 8/15/2008............ 625 704
Morgan Stanley Dean Witter Discover & Company, 4.34%, Due
6/13/2041................................................. 495 499
PHH Corporation, 6.00%, Due 3/1/2008*....................... 400 428
PNC Funding Corporation, 7.50%, Due 11/1/2009............... 685 803
Prudential Financial, Incorporated,
3.75%, Due 5/1/2008....................................... 750 748
4.50%, Due 7/15/2013...................................... 675 644
SLM Corporation,
3.95%, Due 8/15/2008...................................... 505 508
5.125%, Due 8/27/2012..................................... 750 753
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
63
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Sprint Capital Corporation,
7.90%, Due 3/15/2005...................................... $ 600 $ 643
6.125%, Due 11/15/2008.................................... 375 395
Synovus Financial Corporation, 4.875%, Due 2/15/2013........ 400 391
Travelers Property Casualty Corporation, 5.00%, Due
3/15/2013*................................................ 375 374
US Bank, NA,
5.70%, Due 12/15/2008..................................... 510 553
6.375%, Due 8/1/2011...................................... 645 717
Verizon Global Funding Corporation, 4.375%, Due 6/1/2013.... 400 373
Wachovia Bank Commercial Mortgage Trust, 3.989%, Due
6/15/2035................................................. 730 682
Wachovia Corporation, 4.95%, Due 11/1/2006.................. 320 339
Washington Mutual Financial Corporation, 6.875%, Due
5/15/2011................................................. 250 281
Washington Mutual, Incorporated, 4.375%, Due 1/15/2008...... 400 410
Wells Fargo & Company, 6.45%, Due 2/1/2011.................. 550 615
--------
TOTAL FINANCIAL......................................... 43,401
--------
INDUSTRIAL - 22.79%
Allstate Corporation,
2.50%, Due 6/20/2008, 144A (Note A)....................... 400 378
5.375%, Due 12/1/2006..................................... 555 598
Anheuser Busch Companies, Incorporated, 6.50%, Due
1/1/2028.................................................. 500 540
AT&T Broadband Corporation, 8.375%, Due 3/15/2013........... 748 904
AT&T Wireless Services, Incorporated,
7.35%, Due 3/1/2006....................................... 800 878
8.125%, Due 5/1/2012...................................... 430 499
8.75%, Due 3/1/2031....................................... 475 571
Atlantic Richfield Company,
9.125%, Due 3/1/2011...................................... 330 426
8.50%, Due 4/1/2012....................................... 450 564
AutoZone, Incorporated, 4.375%, Due 6/1/2013................ 455 424
Bristol Myers Squibb Company, 4.00%, Due 8/15/2008, 144A
(Note A).................................................. 540 547
Bunge Limited Finance Corporation, 7.80%, Due 10/15/2012.... 500 576
Campbell Soup Company, 5.00%, Due 12/3/2012................. 350 355
Clear Channel Communications,
4.25%, Due 5/15/2009...................................... 405 402
5.75%, Due 1/15/2013...................................... 310 321
Comcast Cable Communications,
7.625%, Due 2/15/2008..................................... 380 427
6.75%, Due 1/30/2011...................................... 385 426
Computer Sciences Corporation, 3.50%, Due 4/15/2008......... 400 396
Conagra Foods, Incorporated,
7.125%, Due 10/1/2026..................................... 590 676
7.00%, Due 10/1/2028...................................... 400 438
ConocoPhillips, 3.625%, Due 10/15/2007...................... 575 578
Continental Cablevision, Incorporated, 8.30%, Due
5/15/2006................................................. 250 280
DaimlerChrysler North America, 4.75%, Due 1/15/2008......... 965 964
Dell Computer Corporation, 6.55%, Due 4/15/2008............. 400 446
Harley Davidson Motorcycle, 2.69%, Due 4/15/2011............ 650 645
Hertz Corporation, 4.70%, Due 10/2/2006..................... 450 445
Hewlett Packard Company, 5.75%, Due 12/15/2006.............. 620 670
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
64
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
International Business Machines Corporation,
4.875%, Due 10/1/2006..................................... $ 665 $ 705
4.75%, Due 11/29/2012..................................... 400 400
Kroger Company, 7.375%, Due 3/1/2005........................ 550 587
Lockheed Martin Corporation, 7.20%, Due 5/1/2036............ 770 900
Martin Marietta Material, Incorporated, 6.90%, Due
8/15/2007................................................. 300 326
Norfolk Southern Corporation, 7.05%, Due 5/1/2037........... 615 674
Northrop Grumman Corporation, 7.125%, Due 2/15/2011......... 860 988
Occidental Petroleum Corporation,
4.25%, Due 3/15/2010...................................... 575 574
6.75%, Due 1/15/2012...................................... 400 450
Pepsi Bottling Group, Incorporated, 7.00%, Due 3/1/2029..... 575 658
Reed Elsevier Capital, Incorporated, 6.125%, Due 8/1/2006... 735 801
Safeway, Incorporated, 3.80%, Due 8/15/2005................. 400 408
Simon Property Group, 7.625%, Due 5/15/2005, 144A (Note
A)........................................................ 850 918
Target Corporation, 7.00%, Due 7/15/2031.................... 550 621
Time Warner, Incorporated, 7.625%, Due 4/15/2031............ 350 391
Tyson Foods, Incorporated, 6.625%, Due 10/1/2004............ 660 685
Union Oil Company of California, 7.90%, Due 4/18/2008....... 100 114
Union Pacific Corporation, 6.50%, Due 4/15/2012............. 550 610
Univision Communications, Incorporated, 3.875%, Due
10/15/2008................................................ 390 385
Verizon Communications, Incorporated, 6.36%, Due
4/15/2006................................................. 550 598
Verizon Virginia, 4.625%, Due 3/15/2013..................... 800 765
Verizon Wireless Capital LLC, 5.375%, Due 12/15/2006........ 635 678
Viacom, Incorporated, 5.625%, Due 8/15/2012................. 495 523
Vodafone Group plc, 3.95%, Due 1/30/2008.................... 400 405
Wal-Mart Stores, Incorporated, 7.55%, Due 2/15/2030......... 550 675
Walt Disney Company, 5.375%, Due 6/1/2007................... 360 384
Weyerhaeuser Company, 5.95%, Due 11/1/2008.................. 380 407
Wyeth Corporation, 6.70%, Due 3/15/2011..................... 550 618
--------
TOTAL INDUSTRIAL........................................ 30,622
--------
UTILITIES - 3.98%
AEP Texas Central Company, 6.65%, Due 2/15/2033............. 155 160
Appalachian Power Company, 5.95%, Due 5/15/2033............. 230 215
Consolidated Natural Gas Company, 6.875%, Due 10/15/2026.... 550 608
Devon Energy Corporation, 2.75%, Due 8/1/2006............... 515 514
Dominion Resources, Incorporated, 5.00%, Due 3/15/2013...... 300 297
Emerson Electrical Company, 5.00%, Due 12/15/2014........... 350 350
Enterprise Products Partners LP, 7.50%, Due 2/1/2011........ 260 300
FirstEnergy Corporation, 6.45%, Due 11/15/2011.............. 225 239
Marathon Oil Corporation, 5.375%, Due 6/1/2007.............. 500 534
MidAmerican Energy Holdings Company,
3.50%, Due 5/15/2008...................................... 760 739
5.875%, Due 10/1/2012..................................... 400 414
Oncor Electric Delivery Company, 7.25%, Due 1/15/2033....... 260 292
Xcel Energy, Incorporated, 7.00%, Due 12/1/2010............. 615 691
--------
TOTAL UTILITIES......................................... 5,353
--------
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
65
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
FOREIGN - 0.23%
United Mexican States, 7.50%, Due 4/8/2033.................. $ 300 $ 306
--------
TOTAL FOREIGN........................................... 306
--------
TOTAL CORPORATE OBLIGATIONS............................. 79,682
--------
ASSET-BACKED SECURITIES - 0.57%
MBNA Credit Card Master Trust, 2.65%, Due 11/15/2010........ 800 768
--------
TOTAL ASSET-BACKED SECURITIES........................... 768
--------
<Caption>
SHARES
-----------
SHORT-TERM INVESTMENTS - 8.83%
American AAdvantage Money Market Select Fund................ 9,229,022 9,229
AMR Investments Enhanced Yield Business Trust............... 2,637,652 2,638
--------
TOTAL SHORT-TERM INVESTMENTS............................ 11,867
--------
TOTAL INVESTMENTS - 106.61% (COST $141,837)................. 143,228
--------
LIABILITIES, NET OF OTHER ASSETS - (6.61%).................. (8,882)
--------
TOTAL NET ASSETS - 100%..................................... $134,346
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $2,992 or 2.23% of net assets.
* - All or a portion of this security is on loan at October 31, 2003. See Note
4.
See accompanying notes
- --------------------------------------------------------------------------------
66
AMERICAN AADVANTAGE SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 7.75%
FEDERAL HOME LOAN MORTGAGE CORPORATION - 1.77%
REMIC, M H-1 A, 10.15%, Due 4/15/2006....................... $ 1 $ 1
Pool #E44213, 7.00%, Due 1/1/2008........................... 471 496
Pool #G10084, 6.50%, Due 3/1/2008........................... 710 743
Pool #E00228, 6.50%, Due 7/1/2008........................... 531 559
--------
TOTAL FEDERAL HOME LOAN MORTGAGE CORPORATION............ 1,799
--------
FEDERAL NATIONAL MORTGAGE ASSOCIATION - 3.91%
Pool #050763, 7.00%, Due 7/1/2008........................... 251 267
Pool #050952, 6.50%, Due 12/1/2008.......................... 597 630
Pool #252448, 5.50%, Due 4/1/2009........................... 578 607
Pool #313430, 6.50%, Due 3/1/2012........................... 590 622
Pool #323980, 6.00%, Due 4/1/2014........................... 933 973
Pool #545038, 6.00%, Due 9/1/2014........................... 831 867
--------
TOTAL FEDERAL NATIONAL MORTGAGE ASSOCIATION............. 3,966
--------
GOVERNMENT NATIONAL MORTGAGE ASSOCIATION - 2.07%
Pool # 780286, 7.00%, Due 6/15/2008......................... 694 738
Pool # 351992, 6.00%, Due 12/15/2008........................ 1,299 1,364
--------
TOTAL GOVERNMENT NATIONAL MORTGAGE ASSOCIATION.......... 2,102
--------
TOTAL U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS........... 7,867
--------
CORPORATE OBLIGATIONS - 77.49%
FINANCIAL - 59.44%
American General Finance Corporation, 6.75%, Due
11/15/2004................................................ 1,000 1,052
American Honda Finance Corporation, 2.875%, Due 4/3/2006,
144A (Note A)............................................. 1,150 1,163
Bank of America Corporation, 5.25%, Due 2/1/2007............ 2,000 2,136
Bank One Corporation, 7.625%, Due 8/1/2005.................. 2,000 2,188
Bear Stearns Companies, Incorporated, 3.00%, Due
3/30/2006................................................. 2,000 2,026
Boeing Capital Corporation, 5.65%, Due 5/15/2006............ 1,252 1,335
Capital One Bank, 6.50%, Due 7/30/2004...................... 2,000 2,065
Caterpillar Financial Services, 2.35%, Due 9/15/2006*....... 2,500 2,472
Citigroup, Incorporated, 6.75%, Due 12/1/2005............... 2,000 2,179
Countrywide Funding Corporation, 3.50%, Due 12/19/2005...... 2,200 2,243
FleetBoston Financial Corporation, 3.85%, Due 2/15/2008..... 2,500 2,531
Ford Motor Credit Company, 7.50%, Due 3/15/2005............. 2,500 2,627
General Electric Capital Corporation, 2.75%, Due
9/25/2006*................................................ 1,000 1,000
General Motors Acceptance Corporation, 6.75%, Due
1/15/2006................................................. 3,000 3,199
Goldman Sachs Group, Incorporated, 7.625%, Due 8/17/2005.... 2,000 2,195
Heller Financial, Incorporated, 6.375%, Due 3/15/2006....... 2,500 2,728
Household Finance Corporation, 8.00%, Due 5/9/2005.......... 3,000 3,268
International Lease Finance Corporation, 2.95%, Due
5/23/2006................................................. 2,000 2,006
John Hancock Global Funding, 5.625%, Due 6/27/2006.......... 1,000 1,074
Merrill Lynch & Company, Incorporated, 7.00%, Due
3/15/2006................................................. 1,660 1,822
MetLife, Incorporated, 3.911%, Due 5/15/2005................ 2,500 2,582
Monumental Global Funding, 5.20%, Due 1/30/2007, 144A (Note
A)........................................................ 1,200 1,293
Prudential Insurance Company of America, 6.375%, Due
7/23/2006, 144A (Note A).................................. 3,000 3,289
Simon Property Group, L.P., 7.75%, Due 8/15/2004, 144A (Note
A)........................................................ 1,090 1,140
SLM Corporation, 2.90%, Due 7/1/2005........................ 2,000 2,037
Synovus Financial Corporation, 7.25%, Due 12/15/2005........ 2,500 2,757
Wachovia Corporation, 6.40%, Due 4/1/2008................... 2,500 2,755
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
67
AMERICAN AADVANTAGE SHORT-TERM BOND FUND
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PAR
AMOUNT VALUE
----------- ---------
(DOLLARS IN THOUSANDS)
Washington Mutual Financial Corporation, 2.40%, Due
11/3/2005................................................. $ 1,000 $ 999
Wells Fargo & Company, 5.125%, Due 2/15/2007................ 2,000 2,132
--------
TOTAL FINANCIAL......................................... 60,293
--------
INDUSTRIAL - 18.05%
AT&T Wireless Services, Incorporated, 7.35%, Due 3/1/2006... 1,400 1,536
Cendant Corporation, 6.875%, Due 8/15/2006.................. 2,140 2,352
Computer Sciences Corporation, 7.50%, Due 8/8/2005.......... 1,000 1,092
Conagra Foods, Incorporated, 9.875%, Due 11/15/2005......... 1,000 1,143
Continental Cablevision, Incorporated, 8.30%, Due
5/15/2006................................................. 1,960 2,195
DaimlerChrysler North America, 7.40%, Due 1/20/2005......... 2,000 2,114
Deutsche Telekom International Finance Corporation, 8.25%,
Due 6/15/2005............................................. 325 355
Hertz Corporation, 4.70%, Due 10/2/2006..................... 600 593
Kroger Company, 7.375%, Due 3/1/2005........................ 1,000 1,068
Northrop Grumman Corporation, 7.00%, Due 3/1/2006........... 2,000 2,209
Sprint Capital Corporation, 7.90%, Due 3/15/2005............ 400 428
Unilever Capital Corporation, 6.875%, Due 11/1/2005......... 1,000 1,092
Verizon Wireless Capital LLC, 5.375%, Due 12/15/2006........ 2,000 2,136
--------
TOTAL INDUSTRIAL........................................ 18,313
--------
TOTAL CORPORATE OBLIGATIONS............................. 78,606
--------
ASSET-BACKED SECURITIES - 12.31%
American Express Credit Account Master Trust 2000-1 A,
7.20%, Due 9/17/2007...................................... 2,395 2,564
Capital Auto Receivables Asset Trust 2002-2 A4, 4.50%, Due
10/15/2007................................................ 2,000 2,074
Chase Credit Card Owner Trust 1999-3 A, 6.66%, Due
1/15/2007................................................. 2,000 2,083
Chemical Master Credit Card Trust 1996-2 A, 5.98%, Due
9/15/2008................................................. 3,000 3,179
Discover Card Master Trust 1999-6 A, 6.85%, Due 7/17/2007... 2,438 2,586
--------
TOTAL ASSET-BACKED SECURITIES........................... 12,486
--------
<Caption>
SHARES
-----------
SHORT-TERM INVESTMENTS - 4.64%
American AAdvantage Money Market Select Fund................ 4,701,589 4,702
--------
TOTAL SHORT-TERM INVESTMENTS............................ 4,702
--------
TOTAL INVESTMENTS - 102.19% (COST $102,675)................. 103,661
--------
LIABILITIES, NET OF OTHER ASSETS - (2.19%).................. (2,222)
--------
TOTAL NET ASSETS - 100%..................................... $101,439
========
</Table>
- ---------------
(A) Security exempt from registration under Rule 144A of the Securities Act of
1933. These securities may be resold in transactions exempt from
registration, normally to qualified institutional buyers. At the period end,
the value of these securities amounted to $6,885 or 6.79% of net assets.
* - All or a portion of this security is on loan at October 31, 2003. See Note
4.
See accompanying notes
- --------------------------------------------------------------------------------
68
(AMERICAN EAGLE LOGO)
- --------------------------------------------------------------------------------
69
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
LARGE CAP LARGE CAP
BALANCED VALUE GROWTH
----------- ----------- ----------
(IN THOUSANDS)
ASSETS:
Investments in securities, at value*.................... $ 619,308 $ 675,160 $ 49,239
Investments in Portfolio, at value...................... -- -- --
Cash.................................................... -- -- 29
Cash denominated in foreign currency (cost $773 Emerging
Markets).............................................. -- -- --
Dividends and interest receivable....................... 2,581 854 30
Receivable for investments sold......................... 1,084 1,356 276
Receivable for fund shares sold......................... 491 398 160
Receivable for variation margin on open futures
contracts............................................. 49 40 --
Other assets............................................ -- 4 --
----------- ----------- ----------
TOTAL ASSETS........................................ 623,513 677,812 49,734
----------- ----------- ----------
LIABILITIES:
Payable for investments purchased....................... 3,894 196 315
Payable upon return of securities loaned................ 38,976 33,294 403
Payable for fund shares redeemed........................ 155 2 --
Payable for variation margin on open futures
contracts............................................. -- -- --
Dividends payable....................................... -- -- --
Management and investment advisory fees payable (Note
2).................................................... 421 502 82
Other liabilities....................................... 93 106 7
----------- ----------- ----------
TOTAL LIABILITIES................................... 43,539 34,100 807
----------- ----------- ----------
NET ASSETS.................................................. $ 579,974 $ 643,712 $ 48,927
=========== =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital......................................... 523,566 612,186 59,715
Undistributed net investment income..................... 11,918 7,137 89
Accumulated net realized gain (loss).................... (11,567) (55,686) (15,819)
Unrealized appreciation (depreciation) of investments,
futures contracts and foreign currency................ 56,057 80,075 4,942
----------- ----------- ----------
NET ASSETS.................................................. $ 579,974 $ 643,712 $ 48,927
=========== =========== ==========
Shares outstanding (no par value):
Institutional Class..................................... 695,816 1,505,299 109
=========== =========== ==========
PlanAhead Class......................................... 1,074,330 1,417,425 N/A
=========== =========== ==========
Service Class........................................... N/A N/A N/A
=========== =========== ==========
AMR Class............................................... 44,250,862 38,777,478 8,920,547
=========== =========== ==========
Net asset value, offering and redemption price per share:
Institutional Class..................................... $ 12.99 $ 15.62 $ 5.47
=========== =========== ==========
PlanAhead Class......................................... $ 12.40 $ 15.05 N/A
=========== =========== ==========
Service Class........................................... N/A N/A N/A
=========== =========== ==========
AMR Class............................................... $ 12.60 $ 15.44 $ 5.48
=========== =========== ==========
*Cost of investments........................................ $ 564,625 $ 596,321 $ 44,302
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
70
- --------------------------------------------------------------------------------
<Table>
<Caption>
SMALL CAP INTERNATIONAL EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
VALUE EQUITY MARKETS BOND INCOME BOND BOND
----------- ------------- ---------- ----------- ----------- ------------ -----------
(IN THOUSANDS)
$ 562,756 $ -- $ 56,832 $ 307,225 $ 111,510 $ 143,228 $ 103,661
-- 1,212,199 -- -- -- -- --
-- -- -- 11 -- -- --
-- -- 779 -- -- -- --
313 -- 89 6,366 1,028 1,436 1,308
1,790 -- 368 6,897 247 1,413 1,085
3,071 11,109 217 3,621 99 133 8
-- -- -- -- -- -- --
88 -- -- -- -- -- 2
----------- ----------- ---------- ----------- ----------- ----------- -----------
568,018 1,223,308 58,285 324,120 112,884 146,210 106,064
----------- ----------- ---------- ----------- ----------- ----------- -----------
3,853 -- 488 9,433 1,510 3,508 999
79,214 -- 2,132 24,245 9,940 8,212 3,548
14 467 -- 2,199 -- 105 43
278 -- -- -- -- -- --
-- -- -- 639 254 1 9
557 188 94 471 86 28 26
74 93 24 98 22 10 --
----------- ----------- ---------- ----------- ----------- ----------- -----------
83,990 748 2,738 37,085 11,812 11,864 4,625
----------- ----------- ---------- ----------- ----------- ----------- -----------
$ 484,028 $ 1,222,560 $ 55,547 $ 287,035 $ 101,072 $ 134,346 $ 101,439
=========== =========== ========== =========== =========== =========== ===========
407,691 1,212,686 46,886 271,986 101,190 141,442 109,736
1,892 8,624 292 -- -- -- (924)
12,561 (152,977) (4,062) 3,696 (433) (8,487) (8,359)
61,884 154,227 12,431 11,353 315 1,391 986
----------- ----------- ---------- ----------- ----------- ----------- -----------
$ 484,028 $ 1,222,560 $ 55,547 $ 287,035 $ 101,072 $ 134,346 $ 101,439
=========== =========== ========== =========== =========== =========== ===========
5,524,773 46,724,929 334,927 15,041,515 N/A 97,963 401,704
=========== =========== ========== =========== =========== =========== ===========
4,193,937 11,562,938 46,674 11,705,367 10,149,779 135,314 620,001
=========== =========== ========== =========== =========== =========== ===========
88 86 N/A 104 N/A N/A N/A
=========== =========== ========== =========== =========== =========== ===========
20,308,138 20,767,643 4,832,645 N/A N/A 12,879,454 9,873,019
=========== =========== ========== =========== =========== =========== ===========
$ 16.21 $ 15.46 $ 10.62 $ 10.73 N/A $ 10.45 $ 9.32
=========== =========== ========== =========== =========== =========== ===========
$ 15.95 $ 15.34 $ 10.55 $ 10.73 $ 9.96 $ 10.31 $ 9.33
=========== =========== ========== =========== =========== =========== ===========
$ 15.92 $ 15.31 N/A $ 10.73 N/A N/A N/A
=========== =========== ========== =========== =========== =========== ===========
$ 16.13 $ 15.54 $ 10.66 N/A N/A $ 10.24 $ 9.31
=========== =========== ========== =========== =========== =========== ===========
$ 501,189 N/A $ 44,407 $ 295,872 $ 111,195 $ 141,837 $ 102,675
</Table>
- --------------------------------------------------------------------------------
71
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
Year Ended October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
LARGE CAP LARGE CAP SMALL CAP
BALANCED VALUE GROWTH VALUE
-------- --------- --------- ---------
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income......................................... $ 9,447 $ 484 $ 7 $ 280
Dividend income (net of foreign taxes of $81, $154 $0,
$11, $0, $110, $0, $0, $0, $0, respectively).......... 8,226 13,775 391 3,859
Investment Income allocated from the Portfolio.......... -- -- -- --
Income derived from commission recapture................ 23 111 4 46
Income derived from securities lending, net............. 59 31 1 82
Expenses allocated from the AMR Investment Services
Portfolio............................................. -- -- -- --
Other income............................................ 1 22 -- --
-------- -------- ------- --------
TOTAL INVESTMENT INCOME............................. 17,756 14,423 403 4,267
-------- -------- ------- --------
EXPENSES:
Management and investment advisory fees (Note 2)........ 1,580 1,837 229 1,442
Administrative service fees (Note 2):
Institutional Class................................... 23 55 -- 48
PlanAhead Class....................................... 28 44 -- 101
Transfer agent fees:
Institutional Class................................... 1 4 -- 5
PlanAhead Class....................................... 8 10 -- 24
Service Class......................................... -- -- -- 7
AMR Class............................................. 26 22 1 17
Fund Accounting fees.................................... 246 261 15 113
Professional fees....................................... 25 30 -- 15
Registration fees and expenses.......................... 19 18 1 24
Service Fees -- PlanAhead Class (Note 2)................ 28 44 -- 101
Other expenses.......................................... 94 79 6 60
-------- -------- ------- --------
Total expenses...................................... 2,078 2,404 252 1,957
-------- -------- ------- --------
Less fees waived (Note 2)............................... -- -- -- 7
-------- -------- ------- --------
NET EXPENSES........................................ 2,078 2,404 252 1,950
-------- -------- ------- --------
NET INVESTMENT INCOME....................................... 15,678 12,019 151 2,317
-------- -------- ------- --------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments........................................... 6,535 (8,654) (889) 5,725
Foreign currency transactions......................... -- -- -- --
Futures contracts..................................... 9,226 7,330 66 8,404
Net realized loss allocated from the Portfolio.......... -- -- -- --
Change in net unrealized appreciation or depreciation
of:
Investments........................................... 66,152 128,670 8,067 95,640
Foreign currency translations......................... -- -- -- --
Futures contracts..................................... (156) 1,198 3 11
Change in net unrealized gain allocated from the
Portfolio............................................. -- -- -- --
-------- -------- ------- --------
NET GAIN (LOSS) ON INVESTMENTS...................... 81,757 128,544 7,247 109,780
-------- -------- ------- --------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $ 97,435 $140,563 $ 7,398 $112,097
======== ======== ======= ========
</Table>
- ---------------
(1) Commencement of Operations June 30, 2003.
See accompanying notes
- --------------------------------------------------------------------------------
72
- --------------------------------------------------------------------------------
<Table>
<Caption>
INTERNATIONAL EMERGING HIGH YIELD ENHANCED INTERMEDIATE SHORT-TERM
EQUITY MARKETS BOND INCOME(1) BOND BOND
------------- -------- ---------- --------- ------------ ----------
(IN THOUSANDS)
$ -- $ 14 $16,316 $ 902 $ 9,347 $5,268
-- 979 -- 72 -- --
27,597 -- -- -- -- --
-- -- -- -- -- --
-- 8 39 2 53 4
(4,917) -- -- -- -- --
-- -- -- -- -- --
-------- ------- ------- ----- ------- ------
22,680 1,001 16,355 976 9,400 5,272
-------- ------- ------- ----- ------- ------
-- 347 1,273 108 507 271
1,503 6 267 -- 121 16
305 -- 220 77 10 10
125 -- 34 -- 16 --
93 -- 27 6 2 1
7 -- 4 -- -- --
5 2 -- -- 8 6
-- 220 50 9 52 30
62 8 13 4 21 15
50 28 24 6 22 20
305 -- 220 77 10 10
148 15 41 4 26 11
-------- ------- ------- ----- ------- ------
2,603 626 2,173 291 795 390
-------- ------- ------- ----- ------- ------
7 -- 112 -- -- --
-------- ------- ------- ----- ------- ------
2,596 626 2,061 291 795 390
-------- ------- ------- ----- ------- ------
20,084 375 14,294 685 8,605 4,882
-------- ------- ------- ----- ------- ------
-- 912 5,981 (433) 5,796 107
-- 558 -- -- -- --
-- -- -- -- -- --
(14,862) -- -- -- -- --
-- 14,437 13,317 315 (3,389) (879)
-- 1,420 -- -- -- --
-- -- -- -- -- --
290,167 -- -- -- -- --
-------- ------- ------- ----- ------- ------
275,305 17,327 19,298 (118) 2,407 (772)
-------- ------- ------- ----- ------- ------
$295,389 $17,702 $33,592 $ 567 $11,012 $4,110
======== ======= ======= ===== ======= ======
</Table>
- --------------------------------------------------------------------------------
73
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS)
- --------------------------------------------------------------------------------
<Table>
<Caption>
BALANCED LARGE CAP VALUE LARGE CAP GROWTH SMALL CAP VALUE
---------------------- ---------------------- ----------------------- -----------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
---------------------- ---------------------- ----------------------- -----------------------
2003 2002 2003 2002 2003 2002 2003 2002
--------- ---------- --------- ---------- ---------- ---------- ---------- ----------
INCREASE (DECREASE) IN NET
ASSETS:
OPERATIONS:
Net investment income... $ 15,678 $ 22,820 $ 12,019 $ 13,729 $ 151 $ 85 $ 2,317 $ 2,581
Net realized gain (loss)
on investments,
futures contracts, and
foreign currency
transactions.......... 15,761 (19,434) (1,324) (41,557) (823) (8,539) 14,129 5,775
Change in net unrealized
appreciation or
depreciation of
investments, futures
contracts, and foreign
currency
translations.......... 65,996 (31,940) 129,868 (39,427) 8,070 1,396 95,651 (30,512)
Change in unrealized
gain (loss) allocated
from the Portfolio.... -- -- -- -- -- -- -- --
-------- --------- -------- --------- ------- ------- -------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS RESULTING
FROM OPERATIONS... 97,435 (28,554) 140,563 (67,255) 7,398 (7,058) 112,097 (22,156)
-------- --------- -------- --------- ------- ------- -------- --------
DISTRIBUTIONS TO
SHAREHOLDERS:
Net investment income:
Institutional Class... (105) (5,693) (502) (211) -- -- (11) (22)
PlanAhead Class....... (421) (435) (333) (222) -- -- (371) (7)
AMR Class............. (22,194) (20,504) (12,821) (14,794) (107) (29) (2,228) (1,747)
Net realized gain on
investments:
Institutional Class... -- (1,030) -- (121) -- -- (125) (156)
PlanAhead Class....... -- (84) -- (149) -- -- (849) (64)
AMR Class............. -- (3,458) -- (7,694) -- -- (4,420) (9,735)
-------- --------- -------- --------- ------- ------- -------- --------
NET DISTRIBUTIONS TO
SHAREHOLDERS...... (22,720) (31,204) (13,656) (23,191) (107) (29) (8,004) (11,731)
-------- --------- -------- --------- ------- ------- -------- --------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of
shares................ 72,230 111,202 37,911 85,242 24,357 20,300 236,616 199,422
Reinvestment of
dividends and
distributions......... 22,704 31,145 13,368 23,106 107 29 8,003 11,729
Cost of shares
redeemed.............. (96,756) (271,864) (83,291) (145,685) (10,846) (9,029) (83,990) (99,330)
Shares acquired from
merger................ -- -- -- -- -- -- -- --
Redemption fees......... -- -- -- -- -- -- -- --
-------- --------- -------- --------- ------- ------- -------- --------
NET INCREASE
(DECREASE) IN NET
ASSETS FROM
CAPITAL SHARE
TRANSACTIONS...... (1,822) (129,517) (32,012) (37,337) 13,618 11,300 160,629 111,821
-------- --------- -------- --------- ------- ------- -------- --------
NET INCREASE (DECREASE) IN
NET ASSETS................ 72,893 (189,275) 94,895 (127,783) 20,909 4,213 264,722 77,934
-------- --------- -------- --------- ------- ------- -------- --------
NET ASSETS:
Beginning of period..... 507,081 696,356 548,817 676,600 28,018 23,805 219,306 141,372
-------- --------- -------- --------- ------- ------- -------- --------
END OF PERIOD*.......... $579,974 $ 507,081 $643,712 $ 548,817 $48,927 $28,018 $484,028 $219,306
======== ========= ======== ========= ======= ======= ======== ========
* Includes undistributed
net investment income
(loss) of............. $ 11,918 $ 14,238 $ 7,137 $ 8,825 $ 89 $ 56 $ 1,892 $ 2,192
======== ========= ======== ========= ======= ======= ======== ========
</Table>
- ---------------
(1) Commencement of Operations
See accompanying notes
- --------------------------------------------------------------------------------
74
- --------------------------------------------------------------------------------
<Table>
<Caption>
INTERNATIONAL EQUITY EMERGING MARKETS HIGH YIELD BOND ENHANCED INCOME(1) INTERMEDIATE BOND
------------------------ ---------------------- ---------------------- ------------------ ----------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, JUNE 30 TO YEAR ENDED OCTOBER 31,
------------------------ ---------------------- ---------------------- OCTOBER 31, ----------------------
2003 2002 2003 2002 2003 2002 2003 2003 2002
---------- ----------- --------- ---------- ---------- --------- ------------------ ---------- ---------
$ 20,084 $ 16,465 $ 375 $ 471 $ 14,294 $ 6,426 $ 685 $ 8,605 $ 8,707
(14,862) (78,487) 1,470 (1,557) 5,981 (1,471) (433) 5,796 (373)
-- -- 15,857 1,421 13,317 (1,561) 315 (3,389) (660)
290,167 (33,591) -- -- -- -- -- -- --
---------- ----------- ------- -------- --------- -------- -------- --------- --------
295,389 (95,613) 17,702 335 33,592 3,394 567 11,012 7,674
---------- ----------- ------- -------- --------- -------- -------- --------- --------
(15,830) (9,850) (12) (21) (8,012) (6,388) -- (1,957) (3,441)
(2,465) (1,966) -- -- (6,282) (38) (685) (153) (28)
(8,401) (6,474) (319) (366) -- -- -- (6,495) (5,238)
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
-- -- -- -- -- -- -- -- --
---------- ----------- ------- -------- --------- -------- -------- --------- --------
(26,696) (18,290) (331) (387) (14,294) (6,426) (685) (8,605) (8,707)
---------- ----------- ------- -------- --------- -------- -------- --------- --------
569,324 1,875,187 17,731 25,988 312,581 76,632 104,430 65,108 128,116
24,545 17,162 331 387 8,009 5,932 1 6,687 8,444
(542,508) (1,811,884) (14,387) (13,977) (161,695) (23,965) (3,241) (160,564) (71,882)
-- -- -- -- -- -- -- -- 101
815 268 -- -- -- -- -- -- --
---------- ----------- ------- -------- --------- -------- -------- --------- --------
52,176 80,733 3,675 12,398 158,895 58,599 101,190 (88,769) 64,779
---------- ----------- ------- -------- --------- -------- -------- --------- --------
320,869 (33,170) 21,046 12,346 178,193 55,567 101,072 (86,362) 63,746
---------- ----------- ------- -------- --------- -------- -------- --------- --------
901,691 934,861 34,501 22,155 108,842 53,275 -- 220,708 156,962
---------- ----------- ------- -------- --------- -------- -------- --------- --------
$1,222,560 $ 901,691 $55,547 $ 34,501 $ 287,035 $108,842 $101,072 $ 134,346 $220,708
========== =========== ======= ======== ========= ======== ======== ========= ========
$ 8,624 $ 22,632 $ 292 $ 260 $ -- $ -- $ -- $ -- $ --
========== =========== ======= ======== ========= ======== ======== ========= ========
<Caption>
SHORT-TERM BOND
-----------------------
YEAR ENDED OCTOBER 31,
-----------------------
2003 2002
---------- ----------
$ 4,882 $ 4,024
107 (545)
(879) (429)
-- --
-------- --------
4,110 3,050
-------- --------
(317) (321)
(181) (104)
(5,040) (4,120)
-- --
-- --
-- --
-------- --------
(5,538) (4,545)
-------- --------
31,785 56,909
5,349 4,451
(36,115) (44,870)
-- --
-- --
-------- --------
1,019 16,490
-------- --------
(409) 14,995
-------- --------
101,848 86,853
-------- --------
$101,439 $101,848
======== ========
$ (924) $ --
======== ========
</Table>
- --------------------------------------------------------------------------------
75
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
American AAdvantage Funds (the "Trust") is organized as a Massachusetts
business trust and is registered under the Investment Company Act of 1940 (the
"Act"), as amended, as a no load, open-end management investment company. These
financial statements and notes to the financial statements relate to the
American AAdvantage Balanced Fund, the American AAdvantage Large Cap Value Fund,
the American AAdvantage Large Cap Growth Fund, the American AAdvantage Small Cap
Value Fund, the American AAdvantage International Equity Fund, the American
AAdvantage Emerging Markets Fund, the American AAdvantage High Yield Bond Fund,
the American AAdvantage Enhanced Income Fund, the American AAdvantage
Intermediate Bond Fund and the American AAdvantage Short-Term Bond Fund (each a
"Fund" and collectively, the "Funds"), each a series of the Trust.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services to the Trust and other
investors.
Each Fund, except the Enhanced Income Fund, has multiple classes of shares.
Differences between the classes include the services offered to and the expenses
borne by each class and certain voting rights. Investment income, net capital
gains (losses) and all expenses incurred by the Funds are allocated based on
relative net assets of each class, except for service fees and certain other
fees and expenses related solely to one class of shares.
The American AAdvantage International Equity Fund (the "International
Fund") invests all of its investable assets in the International Equity
Portfolio (the "Portfolio") of the AMR Investment Services Trust, which has the
same investment objectives as the International Fund. The Portfolio is an
open-end management investment company registered under the Act. The value of
the investment in the Portfolio reflects the International Fund's proportionate
interest in the net assets of the Portfolio. At October 31, 2003 the
International Fund's investment was 94.49% of the Portfolio.
The financial statements of the Portfolio, including Notes to Financial
Statements, are included elsewhere in this report and should be read in
conjunction with the International Fund's financial statements. The Notes to
Financial Statements of the Portfolio includes a discussion of investment
valuation, security transactions and investment income, the Management Agreement
and securities lending.
Reorganization
On February 28, 2002, the American AAdvantage Intermediate Bond
Fund -- Plan Ahead Class acquired all the net assets of the American AAdvantage
Intermediate Bond Mileage Fund pursuant to a Plan of Reorganization approved by
the shareholders on February 20, 2002. The acquisition was accomplished by a
tax-free exchange of 9,983.218 shares of the Plan Ahead Class of the American
AAdvantage Intermediate Bond Fund for 9,904.962 shares of the American
AAdvantage Intermediate Bond Mileage Fund outstanding on February 28, 2002. On
that date the American AAdvantage Intermediate Bond Mileage Fund had net assets
of $101,130, including $16,041 of unrealized appreciation.
The following is a summary of the significant accounting policies followed
by the Funds.
- --------------------------------------------------------------------------------
76
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
Security Valuation
Equity securities that are primarily traded on domestic securities
exchanges are valued at the last quoted sales price on a designated exchange at
the close of trading on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading or, lacking any current sales, on the basis of
the last current bid price prior to the close of trading on the Exchange.
Securities that are primarily traded on foreign securities exchanges are
generally valued at the preceding closing values of such securities on their
respective exchanges where primarily traded. Over-the-counter equity securities
are valued on the basis of the last bid price on that date prior to the close of
trading. Securities traded on NASDAQ will be valued at the NASDAQ official
closing price.
Debt securities (other than short-term securities) normally are valued on
the basis of prices provided by a pricing service and may take into account
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Investment grade short-term
obligations with 60 days or less to maturity are valued using the amortized cost
method.
Securities for which the above valuation procedures are inappropriate, or
are deemed not to reflect fair value, are valued at fair value, as determined in
good faith and pursuant to procedures approved by the Trust's Board of Trustees
(the "Board").
Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in this
report.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
Dividend income is recorded on the ex-dividend date except certain
dividends from foreign securities which are recorded as soon as the information
is available to the Funds. Interest income is earned from settlement date,
recorded on the accrual basis, and adjusted, if necessary, for accretion of
discounts and amortization of premiums. For financial and tax reporting
purposes, realized gains and losses are determined on the basis of specific lot
identification.
The International Fund records its share of net investment income and
realized and unrealized gain (loss) in the Portfolio each day. All net
investment income and realized and unrealized gain (loss) of the Portfolio is
allocated pro rata among the International Fund and other investors in the
Portfolio at the time of such determination.
Currency Translation
All assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the bid price of such currencies
against U.S. dollars as last quoted by a recognized dealer. Income, expenses and
purchases and sales of investments are translated into U.S. dollars at the rate
of exchange prevailing on the respective dates of such transactions. The effect
- --------------------------------------------------------------------------------
77
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
of changes in foreign currency exchange rates on investments is separately
identified from the fluctuations arising from changes in market values of
securities held and is reported with all other foreign currency gains and losses
in the Fund's Statement of Operations.
Forward Foreign Currency Contracts
The Emerging Markets Fund may enter into forward foreign currency contracts
to hedge the exchange rate risk on investment transactions or to hedge the value
of fund securities denominated in foreign currencies. Forward foreign currency
contracts are valued at the forward exchange rate prevailing on the day of
valuation.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Fund from a securities dealer or a bank which are subject to resale at a later
date. Repurchase agreements are fully collateralized by U.S. Treasury or
Government agency securities. All collateral is held at the Fund's custodian
bank, State Street Bank and Trust Company, or at subcustodian banks. The
collateral is monitored daily by each Fund so that the collateral's market value
exceeds the carrying value of the repurchase agreement.
Futures Contracts
Futures contracts are contracts to buy or sell a standard quantity of
securities at a specified price on a future date. The Balanced, Large Cap Value,
Large Cap Growth, Small Cap Value, Emerging Markets, High Yield Bond and
Enhanced Income Funds may enter into financial 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. Upon entering into a futures contract, the Fund is
required to deposit with a financial intermediary an amount ("initial margin")
equal to a certain percentage of the face value indicated in the futures
contract. Subsequent payments ("variation margin") are made or received by the
Fund dependent upon the daily fluctuations in the value of the underlying
security and are recorded for financial reporting purposes as unrealized gains
or losses by the Fund. When entering into a closing transaction, the Fund will
realize a gain or loss equal to the difference between the value of the futures
contract to sell and the futures contract to buy. Futures contracts are valued
at the most recent settlement price established each day by the exchange on
which they are traded.
Dividends to Shareholders
Dividends from net investment income of the Balanced, Large Cap Value,
Large Cap Growth, Small Cap Value, International Equity and Emerging Markets
Funds normally will be declared and paid annually. The High Yield Bond, Enhanced
Income, Intermediate Bond and Short-Term Bond Funds generally declare dividends
from net investment income daily, payable monthly. Distributions, if any, of net
realized capital gains normally will be paid annually after the close of the
fiscal year in which realized.
Dividends are determined in accordance with income tax principles which may
treat certain transactions differently than generally accepted accounting
principles. Accordingly, the character of
- --------------------------------------------------------------------------------
78
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
distributions and composition of net assets for tax purposes may differ from
those reflected in the accompanying financial statements.
The tax character of distributions during the year ended October 31, 2003
and the fiscal year ended October 31, 2002 were as follows:
<Table>
<Caption>
LARGE CAP GROWTH
BALANCED LARGE CAP VALUE ---------------------
------------------------- ------------------------- YEAR ENDED
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
------------------------- ------------------------- ---------------------
2003 2002 2003 2002 2003 2002
----------- ----------- ----------- ----------- -------- --------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class................. $ 105,000 $ 5,693,000 $ 502,000 $ 211,000 $ -- $ --
Plan Ahead Class.................... 421,000 435,000 333,000 222,000 -- --
AMR Class........................... 22,194,000 20,504,000 12,821,000 14,794,000 107,000 29,000
LONG-TERM CAPITAL GAIN
Institutional Class................. -- 1,030,000 -- 121,000 -- --
Plan Ahead Class.................... -- 84,000 -- 149,000 -- --
AMR Class........................... -- 3,458,000 -- 7,694,000 -- --
----------- ----------- ----------- ----------- -------- --------
TOTAL DISTRIBUTIONS PAID........ $22,720,000 $31,204,000 $13,656,000 $23,191,000 $107,000 $ 29,000
----------- ----------- ----------- ----------- -------- --------
</Table>
<Table>
<Caption>
EMERGING MARKETS
SMALL CAP VALUE INTERNATIONAL EQUITY ---------------------
------------------------- ------------------------- YEAR ENDED
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, OCTOBER 31,
------------------------- ------------------------- ---------------------
2003 2002 2003 2002 2003 2002
----------- ----------- ----------- ----------- -------- --------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class................. $ 117,000 $ 119,000 $15,830,000 $ 9,850,000 $ 12,000 $ 21,000
Plan Ahead Class.................... 1,089,000 47,000 2,465,000 1,966,000 -- --
AMR Class........................... 5,971,000 7,821,000 8,401,000 6,474,000 319,000 366,000
LONG-TERM CAPITAL GAIN
Institutional Class................. 19,000 59,000 -- -- -- --
Plan Ahead Class.................... 130,000 24,000 -- -- -- --
AMR Class........................... 678,000 3,661,000 -- -- -- --
----------- ----------- ----------- ----------- -------- --------
TOTAL DISTRIBUTIONS PAID........ $ 8,004,000 $11,731,000 $26,696,000 $18,290,000 $331,000 $387,000
----------- ----------- ----------- ----------- -------- --------
</Table>
<Table>
<Caption>
HIGH YIELD BOND INTERMEDIATE BOND SHORT-TERM BOND
------------------------ ENHANCED INCOME ----------------------- -----------------------
YEAR ENDED OCTOBER 31, JUNE 30 TO YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
------------------------ OCTOBER 31, ----------------------- -----------------------
2003 2002 2003 2001 2002 2003 2002
----------- ---------- --------------- ---------- ---------- ---------- ----------
DISTRIBUTIONS PAID FROM:
ORDINARY INCOME
Institutional Class....... $ 6,546,000 $6,388,000 $ -- $1,957,000 $3,441,000 $ 316,000 $ 321,000
Plan Ahead Class.......... 6,220,000 38,000 685,000 153,000 28,000 181,000 104,000
AMR Class................. -- -- -- 6,370,000 5,238,000 5,040,000 4,120,000
LONG-TERM CAPITAL GAIN
Institutional Class....... -- -- -- -- -- -- --
Plan Ahead Class.......... -- -- -- -- -- -- --
AMR Class................. -- -- -- -- -- -- --
----------- ---------- -------- ---------- ---------- ---------- ----------
TOTAL DISTRIBUTIONS
PAID................ $12,766,000 $6,426,000 $685,000 $8,480,000 $8,707,000 $5,537,000 $4,545,000
----------- ---------- -------- ---------- ---------- ---------- ----------
</Table>
- --------------------------------------------------------------------------------
79
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
As of October 31, 2003, the components of distributable earnings were as
follows (in thousands):
<Table>
<Caption>
BALANCED LARGE CAP LARGE CAP SMALL CAP INTERNATIONAL EMERGING
FUND VALUE FUND GROWTH FUND VALUE FUND EQUITY FUND MARKETS FUND
-------- ---------- ------------- ---------- ------------- ------------
Cost basis of Investments for
federal income tax purposes..... $572,070 $607,714 $ 46,442 $503,149 $1,234,433 $45,736
Unrealized appreciation.......... 65,949 103,970 4,848 68,147 190,129 12,286
Unrealized depreciation.......... (18,711) (36,524) (2,051) (8,540) (54,318) (1,190)
-------- -------- -------- -------- ---------- -------
Net unrealized/(depreciation).... 47,238 67,446 2,797 59,607 135,811 11,096
Undistributed ordinary income.... 12,379 7,619 90 13,222 12,031 291
Undistributed long-term
gain/(loss)..................... (2,273) (42,322) (13,675) 3,495 (135,182) (2,733)
-------- -------- -------- -------- ---------- -------
Distributable earnings........... $57,344 $ 32,743 $(10,788) $ 76,324 $ 12,660 $ 8,654
======== ======== ======== ======== ========== =======
<Caption>
ENHANCED
HIGH YIELD INCOME INTERMEDIATE SHORT-TERM
BOND FUND FUND BOND FUND BOND FUND
---------- ------------- ------------- ----------
Cost basis of Investments for
federal income tax purposes..... $295,901 $111,195 $142,033 $103,705
Unrealized appreciation.......... 13,010 1,588 2,371 821
Unrealized depreciation.......... (1,686) (1,273) (1,176) (865)
-------- -------- -------- --------
Net unrealized/(depreciation).... 11,324 315 1,195 (44)
Undistributed ordinary income.... 4,478 287 501 545
Undistributed long-term
gain/(loss)..................... 866 (433) (8,269) (8,365)
-------- -------- -------- --------
Distributable earnings........... $ 16,668 $ 169 $ (6,573) $ (7,864)
======== ======== ======== ========
</Table>
The differences between book-basis and tax-basis unrealized
appreciation/(depreciation) is attributable primarily to the tax deferral of
losses from wash sales, the realization for tax purposes of unrealized
gains/(losses) on certain derivative instruments, the difference between book
and tax amortization for premium and market discount, and the realization for
tax purposes of unrealized gains/(losses) on investment in passive foreign
investment companies.
Federal Income and Excise Taxes
It is the policy of each of the Funds to comply with the requirements of
the Internal Revenue Code applicable to regulated investment companies and to
distribute substantially all net investment income as well as any net realized
capital gains on the sale of investments. Therefore, no federal income or excise
tax provision is required. At October 31, 2003, capital loss carryforward
positions for federal income tax purposes were as follows (in thousands):
<Table>
<Caption>
FUND AMOUNT EXPIRES
- ---- -------- -------
Balanced.................................................... $ 2,273 2010
Large Cap Value............................................. 42,322 2010-2011
Large Cap Growth............................................ 13,675 2008-2011
International Equity........................................ 135,182 2009-2011
Emerging Markets............................................ 2,733 2009-2010
Enhanced Income............................................. 433 2011
Intermediate Bond........................................... 8,269 2008-2010
Short-Term Bond............................................. 8,365 2004-2011
</Table>
Expenses
Expenses directly attributable to a Fund are charged to that Fund's
operations. Expenses directly attributable to a class of shares are charged to
that class. Expenses incurred by the Trust with respect to any two or more of
the Funds are allocated in proportion to the net assets of each Fund, except
where allocations of direct expenses to each Fund can otherwise be made fairly.
Each share of each Fund, regardless of class, bears equally those expenses that
are allocated to the Fund as a whole.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect
- --------------------------------------------------------------------------------
80
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
the amounts reported in the financial statements and accompanying notes. Actual
results may differ from those estimated.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement which
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, fund management and securities lending services. Investment
assets of the International Fund are invested in the Portfolio. Management Fees
paid by the Portfolio are discussed in Note 1 of the Portfolio's Notes to
Financial Statements which are included elsewhere in this report. Investment
assets of the Balanced, Large Cap Value, Large Cap Growth, Small Cap Value,
Emerging Markets, High Yield Bond, Enhanced Income and Intermediate Bond Funds
are managed by multiple investment advisers which have entered into separate
investment advisory agreements with the Manager. As compensation for performing
the duties required under the Management Agreement, the Manager receives from
the Balanced Fund, Large Cap Value Fund, Large Cap Growth Fund, Small Cap Value
Fund, Emerging Markets Fund, High Yield Bond Fund and Enhanced Income Fund an
annualized fee equal to .10% of the average daily net assets plus amounts paid
by the Manager to the investment advisors hired by the Manager to direct
investment activities of the Funds. The Manager receives an annualized fee of
..25% of the average daily net assets of the Intermediate Bond Fund and pays a
portion of their fee to an investment adviser hired by the Manager to direct
investment activities of a portion of the Fund. Management fees paid during the
year ended October 31, 2003 were as follows (dollars in thousands):
<Table>
<Caption>
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISERS MANAGER
----------- ---------- --------------- -----------
Balanced Fund...................................... .225%-.70% $1,580 $1,051 $529
Large Cap Value Fund............................... .225%-.70% 1,837 1,266 571
Large Cap Growth Fund.............................. .50%-.70% 229 192 37
Small Cap Value Fund............................... .35%-.60% 1,442 1,167 275
Emerging Markets Fund.............................. .80%-1.20% 347 306 41
High Yield Bond Fund............................... 0.65% 1,273 1,078 195
Enhanced Income Fund............................... .25%-.85% 108 77 31
Intermediate Bond Fund............................. .25% 507 217 290
</Table>
The Manager serves as the sole investment adviser to the Short-Term Bond
Fund. Pursuant to the Management Agreement, the Manager receives from the Fund
an annualized fee equal to .25% of the average daily net assets of the
Short-Term Bond Fund.
The Manager and the Investment Adviser of the High Yield Bond Fund have
each contractually agreed to waive a portion of their fees through October 31,
2003 to the extent that Total Fund Operating Expenses exceed 0.90%. During the
year ended October 31, 2003, management fees waived were as follows (in
thousands):
<Table>
<Caption>
WAIVED BY
INVESTMENT WAIVED BY
ADVISER MANAGER
---------- ---------
High Yield Bond Fund........................................ $56 $56
</Table>
- --------------------------------------------------------------------------------
81
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
As compensation for services provided by the Manager in connection with
securities lending activities, the lending Fund pays to the Manager, with
respect to cash collateral posted by borrowers, a fee up to 25% of the net
monthly interest income (the gross interest income earned by the investment of
cash collateral, less the amount paid to borrowers and related expenses) from
such activities and, with respect to loan fees paid by borrowers when a borrower
posts collateral other than cash, a fee up to 25% of such loan fees. During the
period, securities lending fees paid to the Manager were as follows (in
thousands):
<Table>
Balanced Fund............................................... $ 9
Large Cap Value Fund........................................ 5
Small Cap Value Fund........................................ 13
Emerging Markets Fund....................................... 1
High Yield Bond Fund........................................ 5
Intermediate Bond Fund...................................... 7
</Table>
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
which obligates the Manager to provide or oversee administrative and management
services to the Funds. As compensation for performing the duties required under
the Administrative Services Agreement, the Manager receives an annualized fee of
..25% of the average daily net assets of the Institutional, PlanAhead and Service
Classes of each of the Funds.
Distribution Plans
The Trust, except for the Service Class of the Funds, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Investment Company Act of 1940, pursuant to which no fees may be charged to
the Funds for distribution purposes. However, the Plan authorizes the management
fees received by the Manager and the investment advisers hired by the Manager to
be used for distribution purposes. Under this Plan, the Trust does not intend to
compensate the Manager or any other party, either directly or indirectly, for
the distribution of Trust shares.
A separate Distribution Plan (the "Distribution Plan") has been adopted
pursuant to Rule 12b-1 under the Act for the Service Class of the Funds. Under
the Distribution Plan, as compensation for distribution assistance, the Manager
receives an annual fee of 0.25% of the average daily net assets of the Service
Class. The fee will be payable without regard to whether the amount of the fee
is more or less than the actual expenses incurred in a particular month by the
Manager for distribution assistance.
Service Plans
The Manager and the Trust entered into Service Plans which obligates the
Manager to oversee additional shareholder servicing of the PlanAhead and Service
Classes. As compensation for performing the duties required under the Service
Plans, the Manager receives 0.25% based on the daily net assets of the PlanAhead
and Service Classes of each Fund.
- --------------------------------------------------------------------------------
82
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
Investment in Affiliated Funds
The Balanced, Large Cap Value, Large Cap Growth, Small Cap Value, Emerging
Markets, High Yield Bond, Enhanced Income, Intermediate Bond and Short-Term Bond
Funds may invest in the American AAdvantage Money Market Select Fund (the
"Select Fund"), an open-end management investment company managed by the
Manager. The Manager receives from the Select Fund an annualized fee equal to
0.10% of the average daily net assets. During the period, fees earned by the
Manager from the Select Fund on investments made by the Fund in the Select Fund
were as follows:
<Table>
Balanced.................................................... $68,191
Large Cap Value............................................. 58,786
Large Cap Growth............................................ 1,023
Emerging Markets............................................ 3,518
Small Cap Value............................................. 44,177
High Yield Bond............................................. 17,987
Enhanced Income............................................. 1,957
Intermediate Bond........................................... 29,344
Short Term Bond............................................. 4,043
</Table>
Income distributions in thousands from the Select Fund are recorded as
interest income in the accompanying financial statements and totaled $249, $287,
$5, $35, $13, $213, $20 and $34 during the period for the Balanced, Large Cap
Value, Large Cap Growth, Small Cap Value, Emerging Markets, Enhanced Income,
Intermediate Bond and Short-Term Bond Funds, respectively. Cash collateral
received by certain Funds in connection with securities lending is invested in
the Select Fund and the AMR Enhanced Yield Business Trust (the "Business
Trust"). See further discussion on securities lending in Note 4.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Unaffiliated Trustees and their spouses are provided
free unlimited air transportation on American. However, the Trust compensates
each Trustee with payments in an amount equal to the Trustee's income tax on the
value of this free airline travel. For the year ended October 31, 2003, the cost
of air transportation was not material to any of the Funds. One Trustee, as a
retiree of American, already receives flight benefits. This Trustee receives an
annual retainer of $40,000 plus $1,250 for each Board meeting attended. At
October 31, 2003, AMR Corporation and subsidiary companies and Employee Benefit
Trusts thereof owned 100% of AMR Class shares of the Funds.
Reimbursement of Expenses
The Manager reimbursed expenses totaling $6,829 and $6,830 for the Small
Cap Value and International Equity Funds, respectively during the year ended
October 31, 2003.
- --------------------------------------------------------------------------------
83
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investment transactions for the year ended October 31, 2003 (excluding
short-term investments) are as follows (in thousands):
<Table>
<Caption>
LARGE CAP LARGE CAP EMERGING HIGH YIELD ENHANCED INTERMEDIATE
BALANCED VALUE GROWTH SMALL CAP MKT BOND INCOME BOND SHORT-TERM
-------- --------- --------- --------- -------- ---------- -------- ------------ ----------
Purchases............ $338,890 $143,776 $64,562 $311,752 $35,663 $351,806 $149,647 $363,130 $87,755
Proceeds from
sales.............. $354,371 $173,760 $51,060 $193,893 $33,165 $201,117 $ 51,684 $434,256 $84,485
</Table>
The Intermediate Bond Fund had purchases and sales of U.S. Government
securities of $80,094 and $112,783, respectively.
4. SECURITIES LENDING
The Balanced, Large Cap Value, Large Cap Growth, Small Cap Value, Emerging
Markets, High Yield Bond, Enhanced Income, Intermediate Bond and Short-Term Bond
Funds participate in a securities lending program under which securities are
loaned to selected institutional investors. All such loans require
collateralization with cash, securities of the U.S. Government and its agencies
or letters of credit that will generally equal at least 100% of the market value
of the loaned securities plus accrued interest. The Funds bear the risk of delay
in recovery of, or even loss of rights in, the securities loaned should the
borrower of securities fail financially. The Funds receive interest on the
collateral less any fees and rebates paid to agents and transferees of
securities. The Funds also continue to receive income on the securities loaned,
and any gain or loss in the market price of securities loaned that may occur
during the term of the loan. At October 31, 2003, the Funds had securities on
loan as follows (in thousands):
<Table>
<Caption>
MARKET VALUE OF
FUND SECURITIES ON LOAN NON-CASH COLLATERAL CASH COLLATERAL
- ---- ------------------ ------------------- ---------------
Balanced................................ $ 38,207 $ -- $ 38,976
Large Cap Value......................... 32,431 -- 33,294
Large Cap Growth........................ 390 -- 403
Small Cap Value......................... 77,424 -- 79,214
Emerging Markets........................ 2,072 -- 2,132
High Yield Bond......................... 23,482 -- 24,245
Enhanced Income......................... 9,686 -- 9,940
Intermediate Bond....................... 8,093 -- 8,212
Short Term Bond......................... 3,475 -- 3,548
</Table>
The Custodian for each Fund, other than High Yield Bond, invested the cash
collateral in the Business Trust and the Select Fund. These amounts have been
included as investments in each Fund's Schedule of Investments and Statements of
Assets & Liabilities. Income earned on these investments is reported as Income
derived from securities lending in the Statements of Operations.
The Manager serves as Trustee and as investment adviser to the Business
Trust and the Select Fund. The Manager receives from the Business Trust and
Select Fund an annualized fee equal to 0.10% of the average daily net assets.
- --------------------------------------------------------------------------------
84
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
5. COMMISSION RECAPTURE
The Funds have established brokerage commission recapture arrangements with
certain brokers or dealers. If a Fund's investment adviser chooses to execute a
transaction through a participating broker, the broker rebates a portion of the
commission back to the Fund. Any collateral benefit received through
participation in the commission recapture program is directed exclusively to the
Fund.
6. FUTURES CONTRACTS
A summary of futures contracts at October 31, 2003 is as follows (in
thousands):
<Table>
<Caption>
UNREALIZED
MARKET APPRECIATION/
TYPE OF FUTURE EXPIRATION CONTRACTS VALUE (DEPRECIATION)
- -------------- ------------- --------- ------- --------------
BALANCED FUND:
S&P 500 Index......................................... December 2003 180 $47,228 $1,373
LARGE CAP VALUE FUND:
Emini S&P 500 Index................................... December 2003 160 41,980 1,236
LARGE CAP GROWTH FUND:
Emini S&P 500 Index................................... December 2003 11 577 5
SMALL CAP VALUE FUND:
Russell 2000 Index.................................... December 2003 191 50,457 317
</Table>
7. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each Class of
the Funds (in thousands):
Period Ended October 31, 2003
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- -------------------- ------------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------- ------- -------- ------- --------- ------- --------
Shares sold..................................... 381 $ 4,168 319 $ 3,669 5,544 $ 64,393
Reinvestment of dividends....................... 8 92 39 418 2,049 22,194
Shares redeemed................................. (513) (5,769) (261) (2,914) (7,735) (88,073)
------- -------- ------- ------- ------ --------
Net increase (decrease) in shares outstanding... (124) $ (1,509) 97 $ 1,173 (142) $ (1,486)
======= ======== ======= ======= ====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
------------------- -------------------- ------------------
LARGE CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- -------- ------- --------- ------- --------
Shares sold..................................... 559 $ 7,483 421 $ 5,507 1,874 $ 24,921
Reinvestment of dividends....................... 17 214 27 334 1,022 12,820
Shares redeemed................................. (791) (10,435) (349) (4,356) (5,346) (68,500)
------- -------- ------- ------- ------ --------
Net increase (decrease) in shares outstanding... (215) $ (2,738) 99 $ 1,485 (2,450) $(30,759)
======= ======== ======= ======= ====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS AMR CLASS
-------------------- --------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- ---------
Shares sold.................................. -- $ -- 5,050 $ 24,357
Reinvestment of dividends.................... -- -- 24 107
Shares redeemed.............................. -- -- (2,328) (10,846)
------- --------- ------- ---------
Net increase in shares outstanding........... -- $ -- 2,746 $ 13,618
======= ========= ======= =========
</Table>
- --------------------------------------------------------------------------------
85
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
-------------------- -------------------- ----------------- -------------------
SMALL CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- --------- ------- ------ ------- --------
Shares sold............ 5,804 $ 86,593 3,895 $ 50,470 -- $1 7,133 $ 99,552
Reinvestment of
dividends............ 12 135 107 1,219 -- -- 579 6,649
Shares redeemed........ (2,235) (27,191) (1,251) (16,693) -- -- (3,437) (40,106)
------- --------- ------- --------- ------- -- ------ --------
Net increase in shares
outstanding.......... 3,581 $ 59,537 2,751 $ 34,996 -- $1 4,275 $ 66,095
======= ========= ======= ========= ======= == ====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS AMR CLASS
INTERNATIONAL EQUITY -------------------- -------------------- ------------------- ------------------
FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- --------- ------- -------- ------- --------
Shares sold............ 17,587 $ 222,848 23,195 $ 310,919 -- $ 1 2,789 $ 35,557
Reinvestment of
dividends............ 1,158 13,713 207 2,431 -- -- 707 8,401
Shares redeemed*....... (16,430) (212,287) (20,177) (271,010) -- -- (4,456) (58,396)
------- --------- ------- --------- ------- -------- ------ --------
Net increase (decrease)
in shares
outstanding.......... 2,315 $ 24,274 3,225 $ 42,340 -- $ 1 (960) $(14,438)
======= ========= ======= ========= ======= ======== ====== ========
</Table>
* Net of Redemption Fees
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ------------------- ------------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- -------- ------- --------
Shares sold.................................... 88 $ 767 47 $ 406 1,889 $ 16,558
Reinvestment of dividends...................... 2 12 -- -- 42 319
Shares redeemed................................ -- -- -- -- (1,629) (14,387)
------- --------- ------- -------- ------ --------
Net increase in shares outstanding............. 90 $ 779 47 $ 406 302 $ 2,490
======= ========= ======= ======== ====== ========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS SERVICE CLASS
-------------------- ------------------- ------------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- -------- ------- --------
Shares sold.................................... 14,111 $ 146,141 16,319 $166,439 -- $ 1
Reinvestment of dividends...................... 683 7,122 89 887 -- --
Shares redeemed................................ (10,637) (107,921) (5,121) (53,774) -- --
------- --------- ------- -------- ------ --------
Net increase in shares outstanding............. 4,157 $ 45,342 11,287 $113,552 -- $ 1
======= ========= ======= ======== ====== ========
</Table>
<Table>
<Caption>
PLANAHEAD CLASS
--------------------
ENHANCED INCOME FUND SHARES AMOUNT
- -------------------- ------- ---------
Shares sold.................................... 10,478 $ 104,430
Reinvestment of dividends...................... -- 1
Shares redeemed................................ (329) (3,241)
------- ---------
Net increase in shares outstanding............. 10,149 $ 101,190
======= =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ------------------- ------------------
INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------- ------- --------- ------- -------- ------- --------
Shares sold.................................... 300 $ 3,165 1,175 $ 12,285 4,798 $ 49,658
Reinvestment of dividends...................... 13 142 5 50 628 6,495
Shares redeemed................................ (7,403) (79,198) (1,209) (12,736) (6,647) (68,630)
------- --------- ------- -------- ------ --------
Net decrease in shares outstanding............. (7,090) $ (75,891) (29) $ (401) (1,221) $(12,477)
======= ========= ======= ======== ====== ========
</Table>
- --------------------------------------------------------------------------------
86
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------------- -------------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- ----------- ------- ---------
Shares sold................................ 174 $ 1,640 889 $ 8,365 2,305 $ 21,780
Reinvestment of dividends.................. 16 150 17 160 535 5,039
Shares redeemed............................ (677) (6,395) (658) (6,206) (2,498) (23,514)
------- --------- ------- ----------- ------ ---------
Net increase (decrease) in shares
outstanding.............................. (487) $ (4,605) 248 $ 2,319 342 $ 3,305
======= ========= ======= =========== ====== =========
</Table>
Year Ended October 31, 2002
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------------- -------------------
BALANCED FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------- ------- --------- ------- ----------- ------- ---------
Shares sold................................ 3,527 $ 41,875 416 $ 4,967 5,439 $ 64,360
Reinvestment of dividends.................. 554 6,667 44 516 1,997 23,962
Shares redeemed............................ (16,328) (188,773) (507) (5,958) (6,696) (77,133)
------- --------- ------- ----------- ------ ---------
Net increase (decrease) in capital shares
outstanding.............................. (12,247) $(140,231) (47) $ (475) 740 $ 11,189
======= ========= ======= =========== ====== =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------------- -------------------
LARGE CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- ----------- ------- ---------
Shares sold................................ 1,292 $ 17,936 2,268 $ 30,589 2,534 $ 36,717
Reinvestment of dividends.................. 16 246 25 371 1,514 22,489
Shares redeemed............................ (282) (3,985) (1,852) (25,285) (8,442) (116,415)
------- --------- ------- ----------- ------ ---------
Net increase (decrease) in capital shares
outstanding.............................. 1,026 $ 14,197 441 $ 5,675 (4,394) $ (57,209)
======= ========= ======= =========== ====== =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS AMR CLASS
-------------------- ----------------------
LARGE CAP GROWTH FUND SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- -----------
Shares sold................................ -- $ -- 3,748 $ 20,300
Reinvestment of dividends.................. -- -- 5 29
Shares redeemed............................ -- -- (1,774) (9,029)
------- --------- ------- -----------
Net increase in capital shares
outstanding.............................. -- $ -- 1,979 $ 11,300
======= ========= ======= ===========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------------- -------------------
SMALL CAP VALUE FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- ----------- ------- ---------
Shares sold................................ 2,296 $ 32,038 1,910 $ 25,673 10,370 $ 141,711
Reinvestment of dividends.................. 14 178 6 70 927 11,481
Shares redeemed............................ (568) (6,849) (577) (7,272) (7,036) (85,209)
------- --------- ------- ----------- ------ ---------
Net increase in capital shares
outstanding.............................. 1,742 $ 25,367 1,339 $ 18,471 4,261 $ 67,983
======= ========= ======= =========== ====== =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------------- -------------------
INTERNATIONAL EQUITY FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ------------------------- ------- --------- ------- ----------- ------- ---------
Shares sold................................ 56,942 $ 789,155 76,125 $ 1,032,877 3,890 $ 53,155
Reinvestment of dividends.................. 625 8,727 142 1,961 461 6,474
Shares redeemed............................ (50,862) (712,783) (76,321) (1,039,202) (4,403) (59,899)
------- --------- ------- ----------- ------ ---------
Net increase (decrease) in capital shares
outstanding.............................. 6,705 $ 85,099 (54) $ (4,096) (52) $ (270)
======= ========= ======= =========== ====== =========
</Table>
- --------------------------------------------------------------------------------
87
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- ---------------------- -------------------
EMERGING MARKETS FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- --------------------- ------- --------- ------- ----------- ------- ---------
Shares sold................................ 18 $ 152 -- $ 1 3,113 $ 25,835
Reinvestment of dividends.................. 3 21 -- -- 49 366
Shares redeemed............................ -- -- -- -- (1,737) (13,977)
------- --------- ------- ----------- ------ ---------
Net increase in capital shares
outstanding.............................. 21 $ 173 -- $ 1 1,425 $ 12,224
======= ========= ======= =========== ====== =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS
-------------------- --------------------
HIGH YIELD BOND FUND SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- ---------
Shares sold.................................. 7,138 $ 71,171 566 $ 5,461
Reinvestment of dividends.................... 594 5,900 3 32
Shares redeemed.............................. (2,275) (22,513) (151) (1,452)
------- --------- ------- ---------
Net increase in capital shares outstanding... 5,457 $ 54,558 418 $ 4,041
======= ========= ======= =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- -------------------- -------------------
INTERMEDIATE BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- ---------------------- ------- --------- ------- --------- ------- ---------
Shares sold.................................. 3,344 $ 34,250 224 $ 2,267 9,032 $ 91,599
Reinvestment of dividends.................... 310 3,180 3 26 519 5,238
Shares redeemed.............................. (2,256) (23,199) (100) (1,015) (4,753) (47,668)
Shares acquired from merger.................. -- -- 10 101 -- --
------- --------- ------- --------- ------ ---------
Net increase in capital shares outstanding... 1,398 $ 14,231 137 $ 1,379 4,798 $ 49,169
======= ========= ======= ========= ====== =========
</Table>
<Table>
<Caption>
INSTITUTIONAL CLASS PLANAHEAD CLASS AMR CLASS
-------------------- -------------------- -------------------
SHORT-TERM BOND FUND SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
- -------------------- ------- --------- ------- --------- ------- ---------
Shares sold.................................. 2,306 $ 21,752 1,052 $ 9,909 2,674 $ 25,248
Reinvestment of dividends.................... 24 233 10 95 437 4,123
Shares redeemed.............................. (1,881) (17,746) (821) (7,729) (2,054) (19,395)
------- --------- ------- --------- ------ ---------
Net increase in capital shares outstanding... 449 $ 4,239 241 $ 2,275 1,057 $ 9,976
======= ========= ======= ========= ====== =========
</Table>
- --------------------------------------------------------------------------------
88
(AMERICAN EAGLE LOGO)
- --------------------------------------------------------------------------------
89
AMERICAN AADVANTAGE BALANCED FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------------------
YEAR ENDED OCTOBER 31,
-------------------------------------------------------
2003 2002 2001(D E G) 2000(B) 1999
------ ------ ----------- -------- --------
Net asset value, beginning of period........................ $10.97 $12.07 $ 12.27 $ 13.01 $ 14.56
------ ------ -------- -------- --------
Income from investment operations:
Net investment income(A C).............................. 0.30 0.11 0.51 0.58 0.50
Net gains (losses) on securities (both realized and
unrealized)(C)........................................ 1.85 (0.69) (0.03) (0.03) (0.39)
------ ------ -------- -------- --------
Total income (loss) from investment operations.............. 2.15 (0.58) 0.48 0.55 0.11
------ ------ -------- -------- --------
Less distributions:
Dividends from net investment income.................... (0.13) (0.44) (0.68) (0.51) (0.49)
Distributions from net realized gains on securities..... -- (0.08) -- (0.78) (1.17)
------ ------ -------- -------- --------
Total distributions......................................... (0.13) (0.52) (0.68) (1.29) (1.66)
------ ------ -------- -------- --------
Net asset value, end of period.............................. $12.99 $10.97 $ 12.07 $ 12.27 $ 13.01
====== ====== ======== ======== ========
Total return................................................ 19.77% (5.14)% 4.07% 5.13% 0.53%
====== ====== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $9,041 $8,994 $157,775 $260,880 $139,519
Ratios to average net assets (annualized):
Expenses(C)........................................... 0.63% 0.62% 0.62% 0.61% 0.59%
Net investment income(C).............................. 2.74% 3.12% 3.56% 4.39% 3.55%
Portfolio turnover rate(F).............................. 69% 84% 122% 121% 90%
</Table>
- ---------------
(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) Independence Investment LLC was removed as an investment adviser to the
Balanced Fund on November 30, 2000.
- --------------------------------------------------------------------------------
90
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS AMR CLASS
- ---------------------------------------------------------- --------------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
- ---------------------------------------------------------- --------------------------------------------------------------
2003 2002 2001(D E G) 2000(B) 1999 2003 2002 2001(D E G) 2000(B) 1999
- ------- ------- ----------- ------- ------- -------- -------- ----------- -------- --------
$ 10.81 $ 11.88 $ 12.08 $ 12.79 $ 14.35 $ 10.98 $ 12.06 $ 12.27 $ 13.02 $ 14.57
- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
0.36 0.41 0.51 0.53 0.44 0.34 0.48 0.56 0.61 0.54
1.66 (0.99) (0.06) -- (0.39) 1.78 (1.01) (0.05) (0.03) (0.39)
- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
2.02 (0.58) 0.45 0.53 0.05 2.12 (0.53) 0.51 0.58 0.15
- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
(0.43) (0.41) (0.65) (0.46) (0.44) (0.50) (0.47) (0.72) (0.55) (0.53)
-- (0.08) -- (0.78) (1.17) -- (0.08) -- (0.78) (1.17)
- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
(0.43) (0.49) (0.65) (1.24) (1.61) (0.50) (0.55) (0.72) (1.33) (1.70)
- ------- ------- ------- ------- ------- -------- -------- -------- -------- --------
$ 12.40 $ 10.81 $ 11.88 $ 12.08 $ 12.79 $ 12.60 $ 10.98 $ 12.06 $ 12.27 $ 13.02
======= ======= ======= ======= ======= ======== ======== ======== ======== ========
19.36% (5.18)% 3.84% 4.88% 0.22% 20.06% (4.71)% 4.38% 5.37% 0.83%
======= ======= ======= ======= ======= ======== ======== ======== ======== ========
$13,321 $10,561 $12,176 $11,643 $22,753 $557,612 $487,526 $526,405 $525,040 $840,935
0.94% 0.90% 0.84% 0.90% 0.90% 0.38% 0.35% 0.36% 0.35% 0.34%
2.40% 2.83% 3.29% 4.01% 3.21% 2.98% 3.39% 3.77% 4.54% 3.81%
69% 84% 122% 121% 90% 69% 84% 122% 121% 90%
</Table>
- --------------------------------------------------------------------------------
91
AMERICAN AADVANTAGE LARGE CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------------
2003 2002 2001(B G) 2000(E) 1999(D)
------- ------- --------- ------- -------
Net asset value, beginning of period.............. $ 12.55 $ 14.51 $ 15.83 $ 18.69 $ 20.93
------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss)(A C).............. 0.20 0.27 0.28 0.47 0.38
Net gains (losses) on securities (both realized
and unrealized)(C)........................... 3.16 (1.76) (0.61) 0.06 0.04
------- ------- ------- ------- -------
Total income (loss) from investment operations.... 3.36 (1.49) (0.33) 0.53 0.42
------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income........... (0.29) (0.30) (0.50) (0.34) (0.40)
Distributions from net realized gains on
securities................................... -- (0.17) (0.49) (3.05) (2.26)
------- ------- ------- ------- -------
Total distributions............................... (0.29) (0.47) (0.99) (3.39) (2.66)
------- ------- ------- ------- -------
Net asset value, end of period.................... $ 15.62 $ 12.55 $ 14.51 $ 15.83 $ 18.69
======= ======= ======= ======= =======
Total return...................................... 27.30% (10.83)% (2.21)% 4.81% 1.72%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)....... $23,512 $23,512 $10,081 $ 7,594 $45,039
Ratios to average net assets (annualized):
Expenses(C).................................. 0.66% 0.61% 0.64% 0.53% 0.59%
Net investment income(C)..................... 1.88% 1.82% 1.76% 3.71% 1.94%
Portfolio turnover rate(F)..................... 27% 34% 60% 58% 33%
</Table>
- ---------------
(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 adviser 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 adviser to the Large Cap Value Fund on December 1, 2000.
- --------------------------------------------------------------------------------
92
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS AMR CLASS
----------------------------------------------------- ----------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
----------------------------------------------------- ----------------------------------------------------------
2003 2002 2001(B G) 2000(E) 1999(D) 2003 2002 2001(B G) 2000(E) 1999(D)
----------- ------- --------- ------- ------- ----------- -------- --------- -------- ----------
$ 12.09 $ 14.00 $ 15.40 $ 18.41 $ 20.67 $ 12.40 $ 14.34 $ 15.75 $ 18.77 $ 21.03
------- ------- -------- ------- ------- -------- -------- -------- -------- ----------
0.10 0.25 0.26 0.60 0.35 0.29 0.31 0.34 0.65 0.49
3.11 (1.74) (0.62) (0.13) 0.01 3.06 (1.75) (0.63) (0.09) (0.02)
------- ------- -------- ------- ------- -------- -------- -------- -------- ----------
3.21 (1.49) (0.36) 0.47 0.36 3.35 (1.44) (0.29) 0.56 0.47
------- ------- -------- ------- ------- -------- -------- -------- -------- ----------
(0.25) (0.25) (0.55) (0.43) (0.36) (0.31) (0.33) (0.63) (0.53) (0.47)
-- (0.17) (0.49) (3.05) (2.26) -- (0.17) (0.49) (3.05) (2.26)
------- ------- -------- ------- ------- -------- -------- -------- -------- ----------
(0.25) (0.42) (1.04) (3.48) (2.62) (0.31) (0.50) (1.12) (3.58) (2.73)
------- ------- -------- ------- ------- -------- -------- -------- -------- ----------
$ 15.05 $ 12.09 $ 14.00 $ 15.40 $ 18.41 $ 15.44 $ 12.40 $ 14.34 $ 15.75 $ 18.77
======= ======= ======== ======= ======= ======== ======== ======== ======== ==========
26.99% (11.13)% (2.47)% 4.56% 1.41% 27.64% (10.62)% (1.98)% 5.08% 1.97%
======= ======= ======== ======= ======= ======== ======== ======== ======== ==========
$21,331 $15,941 $ 12,280 $11,507 $20,095 $598,869 $511,287 $654,239 $737,111 $1,384,358
0.95% 0.93% 0.89% 0.84% 0.90% 0.39% 0.36% 0.36% 0.34% 0.34%
1.57% 1.53% 1.54% 2.51% 1.62% 2.13% 2.06% 2.09% 3.07% 2.17%
27% 34% 60% 58% 33% 27% 34% 60% 58% 33%
</Table>
- --------------------------------------------------------------------------------
93
AMERICAN AADVANTAGE LARGE CAP GROWTH FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS AMR CLASS
------------------------------------------ -------------------------------------------
YEAR ENDED YEAR ENDED
OCTOBER 31, JULY 31 TO OCTOBER 31, JULY 31 TO
---------------------------- OCTOBER 31, ----------------------------- OCTOBER 31,
2003 2002 2001 2000 2003 2002 2001 2000
------- ------- ------- ----------- -------- ------- ------- -----------
Net asset value, beginning of period... $ 4.53 $ 5.66 $ 9.54 $10.00 $ 4.54 $ 5.67 $ 9.55 $ 10.00
------- ------- ------- ------ -------- ------- ------- -------
Income from investment operations:
Net investment income (loss)(A)..... 0.02 0.03 (0.01) -- 0.02 0.02 0.01 0.01
Net gains (losses) on securities
(both realized and
unrealized)(A).................... 0.94 (1.16) (3.86) (0.46) 0.93 (1.14) (3.87) (0.46)
------- ------- ------- ------ -------- ------- ------- -------
Total income (loss) from investment
operations............................ 0.96 (1.13) (3.87) (0.46) 0.95 (1.12) (3.86) (0.45)
------- ------- ------- ------ -------- ------- ------- -------
Less distributions:
Dividends from net investment
income............................ (0.02) -- (0.01) -- (0.01) (0.01) (0.02) --
------- ------- ------- ------ -------- ------- ------- -------
Total distributions.................... (0.02) -- (0.01) -- (0.01) (0.01) (0.02) --
------- ------- ------- ------ -------- ------- ------- -------
Net asset value, end of period......... $ 5.47 $ 4.53 $ 5.66 $ 9.54 $ 5.48 $ 4.54 $ 5.67 $ 9.55
======= ======= ======= ====== ======== ======= ======= =======
Total return........................... 21.15% (19.96)% (40.62)% (4.60)%(C) 21.09% (19.85)% (40.51)% (4.50)%(C)
======= ======= ======= ====== ======== ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in
thousands)........................ $ 1 $ 1 $ 1 $ 1 $ 48,926 $28,017 $23,804 $19,505
Ratios to average net assets
(annualized)(A):
Expenses.......................... 0.87% 0.87% 0.99% 0.99% 0.68% 0.67% 0.70% 0.74%
Net investment income (loss)...... 0.18% 0.06% (0.26)% -- 0.40% 0.30% 0.08% 0.25%
Decrease reflected in above
expense ratio due to absorption
of expenses by the Manager(A)... -- -- 0.02% 0.29% -- -- 0.02% 0.14%
Portfolio turnover rate(B).......... 138% 135% 85% 9%(C) 138% 135% 85% 9%(C)
</Table>
- ---------------
(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) The American AAdvantage Large Cap Growth Fund invested all of its
investable assets in its corresponding Portfolio through February 28, 2001.
Portfolio turnover rate through February 28, 2001 was that of the
Portfolio.
(C) Not annualized.
- --------------------------------------------------------------------------------
94
(AMERICAN EAGLE LOGO)
- --------------------------------------------------------------------------------
95
AMERICAN AADVANTAGE SMALL CAP VALUE FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------------
DECEMBER 31,
YEAR ENDED OCTOBER 31, 1998 TO
----------------------------------------- OCTOBER 31,
2003(D) 2002 2001(C) 2000 1999
-------- ------- ------- ------- ------------
Net asset value, beginning of period........................ $ 11.28 $ 11.69 $ 10.08 $ 9.07 $ 10.00
-------- ------- ------- ------- -------
Income from investment operations:
Net investment income (loss)(A).......................... (0.01) (0.01) 0.16 0.21 0.07
Net gains (losses) on securities (both realized and
unrealized)(A)......................................... 5.24 0.47 1.81 1.01 (1.00)
-------- ------- ------- ------- -------
Total income (loss) from investment operations.............. 5.23 0.46 1.97 1.22 (0.93)
-------- ------- ------- ------- -------
Less distributions:
Dividends from net investment income..................... (0.02) (0.11) (0.19) (0.04) --
Distributions from net realized gains on securities...... (0.28) (0.76) (0.17) (0.17) --
-------- ------- ------- ------- -------
Total distributions......................................... (0.30) (0.87) (0.36) (0.21) --
-------- ------- ------- ------- -------
Net asset value, end of period.............................. $ 16.21 $ 11.28 $ 11.69 $ 10.08 $ 9.07
======== ======= ======= ======= =======
Total return................................................ 47.45% 3.29% 20.16% 13.78% (9.30)%(E)
======== ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................. $ 89,579 $21,936 $ 2,364 $ 1,955 $ 2,117
Ratios to average net assets (annualized):
Expenses(A)............................................ 0.89% 0.82% 0.89% 0.92% 0.96%
Net investment income(loss)(A)......................... 0.60% 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)............................... 75% 81% 93% 63% 31%(E)
</Table>
- ---------------
(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) Barrow, Hanley, Mewhinney & Strauss, Inc. was added as an investment
adviser to the Small Cap Value Fund on September 18, 2003.
(E) Not annualized.
(F) Portfolio turnover rate is for the period November 1, 2002 through October
31, 2003.
- --------------------------------------------------------------------------------
96
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS AMR CLASS
- ------------------------------------------------------- ------------- ------------------------------------------------------
YEAR ENDED OCTOBER 31, MARCH 1 TO MAY 1 TO YEAR ENDED OCTOBER 31, MARCH 1 TO
------------------------------------- OCTOBER 31, OCTOBER 31, ---------------------------------------- OCTOBER 31,
2003(D) 2002 2001(C) 2000 1999 2003(D) 2003(D) 2002 2001(C) 2000 1999
------- ------- ------- ------- ----------- ------------- -------- -------- -------- ------- -----------
$ 11.22 $ 11.64 $ 10.08 $ 9.05 $ 9.13 $ 11.88 $ 11.30 $ 11.71 $ 10.10 $ 9.08 $ 9.13
------- ------- ------- ------- ------- --------- -------- -------- -------- ------- -------
0.05 0.06 0.15 0.08 0.02 -- 0.10 0.15 0.15 0.22 0.04
5.08 0.36 1.76 1.14 (0.10) 4.04 5.15 0.34 1.85 1.04 (0.09)
------- ------- ------- ------- ------- --------- -------- -------- -------- ------- -------
5.13 0.42 1.91 1.22 (0.08) 4.04 5.25 0.49 2.00 1.26 (0.05)
------- ------- ------- ------- ------- --------- -------- -------- -------- ------- -------
(0.12) (0.08) (0.18) (0.02) -- -- (0.14) (0.14) (0.22) (0.07) --
(0.28) (0.76) (0.17) (0.17) -- -- (0.28) (0.76) (0.17) (0.17) --
------- ------- ------- ------- ------- --------- -------- -------- -------- ------- -------
(0.40) (0.84) (0.35) (0.19) -- -- (0.42) (0.90) (0.39) (0.24) --
------- ------- ------- ------- ------- --------- -------- -------- -------- ------- -------
$ 15.95 $ 11.22 $ 11.64 $ 10.08 $ 9.05 $ 15.92 $ 16.13 $ 11.30 $ 11.71 $ 10.10 $ 9.08
======= ======= ======= ======= ======= ========= ======== ======== ======== ======= =======
47.12% 2.99% 19.58% 13.76% (0.88)%(E) 34.01%(E) 47.93% 3.54% 20.52% 14.19% (0.55)%(E)
======= ======= ======= ======= ======= ========= ======== ======== ======== ======= =======
$66,906 $16,190 $ 1,197 $ 440 $ 74 $ 1 $327,542 $181,180 $137,811 $53,715 $64,662
1.16% 1.11% 1.17% 1.18% 1.28% 1.49% 0.61% 0.56% 0.64% 0.68% 0.70%
0.39% 0.52% 1.06% 1.71% 0.57% (0.05)% 0.95% 1.09% 1.55% 1.89% 1.14%
-- -- -- 0.06% 0.18% 1,087.55% -- -- -- 0.06% 0.24%
75% 81% 93% 63% 31%(E) 75%(F) 75% 81% 93% 63% 31%(E)
</Table>
- --------------------------------------------------------------------------------
97
AMERICAN AADVANTAGE INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
--------------------------------------------------------
YEAR ENDED OCTOBER 31,
--------------------------------------------------------
2003(F) 2002 2001(E) 2000 1999(B)
-------- -------- -------- -------- --------
Net asset value, beginning of period........................ $ 12.10 $ 13.77 $ 17.95 $ 19.36 $ 16.93
-------- -------- -------- -------- --------
Income from investment operations:
Net investment income(A D)............................... 0.25 0.21 0.24 0.36 0.35
Net gains (losses) on securities (both realized and
unrealized)(D).......................................... 3.47 (1.62) (2.96) 0.18 2.92
-------- -------- -------- -------- --------
Total income (loss) from investment operations.............. 3.72 (1.41) (2.72) 0.54 3.27
-------- -------- -------- -------- --------
Less distributions:
Dividends from net investment income..................... (0.36) (0.26) (0.22) (0.31) (0.35)
Distributions from net realized gains on securities...... -- -- (1.24) (1.64) (0.49)
-------- -------- -------- -------- --------
Total distributions......................................... (0.36) (0.26) (1.46) (1.95) (0.84)
-------- -------- -------- -------- --------
Net asset value, end of period.............................. $ 15.46 $ 12.10 $ 13.77 $ 17.95 $ 19.36
======== ======== ======== ======== ========
Total return................................................ 31.61% (10.51)% (16.54)% 2.36% 19.98%
======== ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................. $722,333 $537,476 $519,151 $587,869 $601,923
Ratios to average net assets (annualized):
Expenses(D)............................................. 0.79% 0.75% 0.78% 0.72% 0.64%
Net investment income(D)................................ 1.97% 1.56% 1.54% 1.64% 2.00%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager (D)............. -- -- -- -- --
Portfolio turnover rate(C)............................... 44% 43% 36% 45% 63%
</Table>
- ---------------
(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 LLC and Independence Investment LLC as investment adviser 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 adviser to the International Equity Fund on
August 31, 2001.
(F) Independence Investment LLC was removed as an investment adviser to the
International Equity Fund on October 24, 2003.
(G) Not annualized
(H) Portfolio turnover rate is for the period November 1, 2002 through October
31, 2003.
- --------------------------------------------------------------------------------
98
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS SERVICE CLASS AMR CLASS
- ----------------------------------------------------- ------------- ----------------------------------------------------
YEAR ENDED OCTOBER 31, MAY 1 TO YEAR ENDED OCTOBER 31,
------------------------------------------------- OCTOBER 31, ----------------------------------------------------
2003(F) 2002 2001(E) 2000 1999(B) 2003(F) 2003(F) 2002 2001(E) 2000 1999(B)
-------- ------- -------- ------- ------- ------------- -------- -------- -------- -------- --------
$ 11.95 $ 13.58 $ 17.72 $ 19.13 $ 16.75 $ 12.18 $ 12.18 $ 13.86 $ 18.07 $ 19.46 $ 17.01
-------- ------- -------- ------- ------- ---------- -------- -------- -------- -------- --------
0.22 0.15 0.19 0.31 0.30 0.09 0.29 0.24 0.28 0.41 0.39
3.46 (1.56) (2.92) 0.18 2.89 3.04 3.46 (1.62) (2.98) 0.20 2.94
-------- ------- -------- ------- ------- ---------- -------- -------- -------- -------- --------
3.68 (1.41) (2.73) 0.49 3.19 3.13 3.75 (1.38) (2.70) 0.61 3.33
-------- ------- -------- ------- ------- ---------- -------- -------- -------- -------- --------
(0.29) (0.22) (0.17) (0.26) (0.32) -- (0.39) (0.30) (0.27) (0.36) (0.39)
-- -- (1.24) (1.64) (0.49) -- -- -- (1.24) (1.64) (0.49)
-------- ------- -------- ------- ------- ---------- -------- -------- -------- -------- --------
(0.29) (0.22) (1.41) (1.90) (0.81) -- (0.39) (0.30) (1.51) (2.00) (0.88)
-------- ------- -------- ------- ------- ---------- -------- -------- -------- -------- --------
$ 15.34 $ 11.95 $ 13.58 $ 17.72 $ 19.13 $ 15.31 $ 15.54 $ 12.18 $ 13.86 $ 18.07 $ 19.46
======== ======= ======== ======= ======= ========== ======== ======== ======== ======== ========
31.62% (10.57)% (16.79)% 2.08% 19.68% 25.70%(G) 31.77% (10.26)% (16.35)% 2.69% 20.27%
======== ======= ======== ======= ======= ========== ======== ======== ======== ======== ========
$177,425 $99,636 $113,948 $85,680 $60,602 $ 1 $322,801 $264,579 $301,762 $428,329 $602,593
1.10% 1.04% 1.10% 1.01% 0.93% 1.50% 0.52% 0.49% 0.52% 0.46% 0.39%
1.68% 1.35% 1.22% 1.43% 1.71% 1.33% 2.22% 1.81% 1.78% 1.92% 2.25%
-- -- -- -- -- 1,137.58% -- -- -- -- --
44% 43% 36% 45% 63% 44%(H) 44% 43% 36% 45% 63%
</Table>
- --------------------------------------------------------------------------------
99
AMERICAN AADVANTAGE EMERGING MARKETS FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-------------------------------------------
YEAR ENDED
OCTOBER 31, JULY 31 TO
---------------------------- OCTOBER 31,
2003 2002 2001 2000
------- ------ ------- -----------
Net asset value, beginning of period........................ $ 7.20 $ 6.64 $ 8.17 $ 10.00
------- ------ ------- -------
Income from investment operations:
Net investment income(A)................................ 0.04 0.09 0.11 --
Net gains (losses) on securities (both realized and
unrealized)(A)........................................ 3.43 0.56 (1.62) (1.83)
------- ------ ------- -------
Total income (loss) from investment operations.............. 3.47 0.65 (1.51) (1.83)
------- ------ ------- -------
Less distributions:
Dividends from net investment income.................... (0.05) (0.09) (0.01) --
Distributions from net realized gains on securities..... -- -- (0.01) --
------- ------ ------- -------
Total distributions......................................... (0.05) (0.09) (0.02) --
------- ------ ------- -------
Net asset value, end of period.............................. $ 10.62 $ 7.20 $ 6.64 $ 8.17
======= ====== ======= =======
Total return................................................ 48.45% 9.80% (18.52)% (18.30)%(C)
======= ====== ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 3,557 $1,769 $ 1,495 $ 1
Ratios to average net assets (annualized):
Expenses(A)........................................... 1.76% 1.51% 1.43% 1.87%
Net investment income (loss)(A)....................... 0.62% 1.11% 2.07% (0.47)%
Portfolio turnover rate(B).............................. 80% 94% 95% 23%(C)
</Table>
- ---------------
(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.
- --------------------------------------------------------------------------------
100
- --------------------------------------------------------------------------------
<Table>
<Caption>
AMR CLASS
PLANAHEAD CLASS -----------------------------------------------
- -------------------------------- YEAR ENDED
YEAR ENDED OCTOBER 1 TO OCTOBER 31, JULY 31 TO
OCTOBER 31, OCTOBER 31, ------------------------------- OCTOBER 31,
2003 2002 2003 2002 2001 2000
----------- ------------ ------- ------- ------- -----------
$ 7.19 $ 6.86 $ 7.22 $ 6.65 $ 8.18 $ 10.00
------- ------ ------- ------- ------- -------
0.09 -- 0.07 0.09 0.13 --
3.34 0.33 3.44 0.59 (1.63) (1.82)
------- ------ ------- ------- ------- -------
3.43 0.33 3.51 0.68 (1.50) (1.82)
------- ------ ------- ------- ------- -------
(0.07) -- (0.07) (0.11) (0.02) --
-- -- -- -- (0.01) --
------- ------ ------- ------- ------- -------
(0.07) -- (0.07) (0.11) (0.03) --
------- ------ ------- ------- ------- -------
$ 10.55 $ 7.19 $ 10.66 $ 7.22 $ 6.65 $ 8.18
======= ====== ======= ======= ======= =======
48.07% 4.81%(C) 48.84% 10.10% (18.40)% (18.20)%(C)
======= ====== ======= ======= ======= =======
$ 492 $ 1 $51,498 $32,731 $20,660 $17,308
2.08% 1.87% 1.50% 1.26% 1.30% 1.60%
0.57% (0.25)% 0.92% 1.35% 1.76% (0.19)%
80% 94%(D) 80%(C) 94% 95% 23%(C)
</Table>
- --------------------------------------------------------------------------------
101
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS SERVICE CLASS
--------------------------------------- PLANAHEAD CLASS -------------
YEAR ENDED -------------------------
OCTOBER 31, DECEMBER 29, 2000 YEAR ENDED MARCH 1 TO MAY 1 TO
------------------- TO OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2003 2002 2001 2003 2002 2003
-------- -------- ----------------- ----------- ----------- -------------
Net asset value, beginning of
period.............................. $ 9.63 $ 9.82 $ 10.00 $ 9.63 $10.10 $ 10.47
-------- -------- ------- -------- ------ --------
Income from investment operations:
Net investment income............. 0.78 0.80 0.71 0.75 0.50 0.29
Net gains (losses) on securities
(both realized and
unrealized)..................... 1.10 (0.19) (0.18) 1.10 (0.47) 0.32
-------- -------- ------- -------- ------ --------
Total income from investment
operations.......................... 1.88 0.61 0.53 1.85 0.03 0.61
-------- -------- ------- -------- ------ --------
Less distributions:
Dividends from net investment
income.......................... (0.78) (0.80) (0.71) (0.75) (0.50) (0.35)
-------- -------- ------- -------- ------ --------
Total distributions................... (0.78) (0.80) (0.71) (0.75) (0.50) (0.35)
-------- -------- ------- -------- ------ --------
Net asset value, end of period........ $ 10.73 $ 9.63 $ 9.82 $ 10.73 $ 9.63 $ 10.73
======== ======== ======= ======== ====== ========
Total return.......................... 20.11% 6.28% 5.33%(A) 19.57% (0.26)%(A) 5.46%(A)
======== ======== ======= ======== ====== ========
Ratios and supplemental data:
Net assets, end of period (in
thousands)...................... $161,380 $104,813 $53,275 $125,654 $4,029 $ 1
Ratios to average net assets
(annualized):
Expenses........................ 0.90% 0.90% 0.90% 1.24% 1.27% 1.71%
Net investment income........... 7.51% 8.02% 8.48% 7.11% 7.20% 6.51%
Decrease reflected in above
expense ratio due to
absorption of expenses by the
Manager....................... 0.10% 0.08% 0.17% -- -- 805.12%
Portfolio turnover rate........... 114% 163% 145%(A) 114% 163%(B) 114%(C)
</Table>
- ---------------
(A) Not annualized.
(B) Portfolio turnover rate is for the period November 1, 2001 through October
31, 2002.
(C) Portfolio turnover rate is for the period November 1, 2002 through October
31, 2003.
- --------------------------------------------------------------------------------
102
AMERICAN AADVANTAGE ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS
---------------
JUNE 30 TO
OCTOBER 31,
2003
---------------
Net asset value, beginning of period........................ $ 10.00
Income from investment operations:
Net investment income................................... 0.07(B)
Net losses on securities (both realized and
unrealized)............................................ (0.04)
--------
Total income from investment operations..................... 0.03
--------
Less distributions:
Dividends from net investment income.................... (0.07)
Distributions from net realized gains on securities..... --
--------
Total distributions......................................... (0.07)
--------
Net asset value, end of period.............................. $ 9.96
========
Total return................................................ 0.32%(A)
========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $101,072
Ratios to average net assets (annualized):
Expenses.............................................. 0.93%
Net investment income................................. 2.20%
Portfolio turnover rate................................. 57%(A)
</Table>
- ---------------
(A) Not annualized.
(B) Based on average shares outstanding.
- --------------------------------------------------------------------------------
103
AMERICAN AADVANTAGE INTERMEDIATE BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
-----------------------------------------------
YEAR ENDED OCTOBER 31,
-----------------------------------------------
2003 2002 2001 2000 1999
------- ------- ------- ------ --------
Net asset value, beginning of period........................ $ 10.42 $ 10.51 $ 9.72 $ 9.58 $ 10.50
------- ------- ------- ------ --------
Income from investment operations:
Net investment income(A)................................ 0.41 0.51 0.57 0.59 0.56
Net gains (losses) on securities (both realized and
unrealized)(A)........................................ 0.03 (0.09) 0.79 0.14 (0.63)
------- ------- ------- ------ --------
Total income (loss) from investment operations.............. 0.44 0.42 1.36 0.73 (0.07)
------- ------- ------- ------ --------
Less distributions:
Dividends from net investment income.................... (0.41) (0.51) (0.57) (0.59) (0.56)
Distributions from net realized gains on securities..... -- -- -- -- (0.29)
------- ------- ------- ------ --------
Total distributions......................................... (0.41) (0.51) (0.57) (0.59) (0.85)
------- ------- ------- ------ --------
Net asset value, end of period.............................. $ 10.45 $ 10.42 $ 10.51 $ 9.72 $ 9.58
======= ======= ======= ====== ========
Total return................................................ 4.31% 4.21% 14.36% 7.89% (0.83)%
======= ======= ======= ====== ========
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $ 1,024 $74,919 $60,842 $ 115 $205,218
Ratios to average net assets (annualized):
Expenses(A)........................................... 0.58% 0.56% 0.54% 0.59% 0.55%
Net investment income(A).............................. 4.02% 4.99% 5.55% 6.31% 5.62%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(A)............ -- -- -- -- --
Portfolio turnover rate(B).............................. 187% 185% 164% 102% 123%
</Table>
- ---------------
(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, 1998 through October
31, 1999.
- --------------------------------------------------------------------------------
104
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLAN AHEAD CLASS AMR CLASS
- ----------------------------------------------- -----------------------------------------------------
MARCH 1
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31, TO
------------------------------------------- --------------------------------------- OCTOBER 31,
2003 2002 2001 2000 1999 2003 2002 2001 2000 1999
------ ------ ------- ------ ------ -------- -------- ------- ------- -----------
$10.27 $10.34 $ 9.57 $ 9.63 $10.55 $ 10.22 $ 10.30 $ 9.53 $ 9.58 $ 9.95
------ ------ ------- ------ ------ -------- -------- ------- ------- -------
0.39 0.48 0.53 0.59 0.53 0.45 0.53 0.58 0.64 0.39
0.04 (0.07) 0.77 (0.06) (0.63) 0.02 (0.08) 0.77 (0.05) (0.37)
------ ------ ------- ------ ------ -------- -------- ------- ------- -------
0.43 0.41 1.30 0.53 (0.10) 0.47 0.45 1.35 0.59 0.02
------ ------ ------- ------ ------ -------- -------- ------- ------- -------
(0.39) (0.48) (0.53) (0.59) (0.53) (0.45) (0.53) (0.58) (0.64) (0.39)
-- -- -- -- (0.29) -- -- -- -- --
------ ------ ------- ------ ------ -------- -------- ------- ------- -------
(0.39) (0.48) (0.53) (0.59) (0.82) (0.45) (0.53) (0.58) (0.64) (0.39)
------ ------ ------- ------ ------ -------- -------- ------- ------- -------
$10.31 $10.27 $ 10.34 $ 9.57 $ 9.63 $ 10.24 $ 10.22 $ 10.30 $ 9.53 $ 9.58
====== ====== ======= ====== ====== ======== ======== ======= ======= =======
4.25% 4.10% 13.91% 5.76% (0.98)% 4.62% 4.57% 14.58% 6.39% (0.17)%(C)
====== ====== ======= ====== ====== ======== ======== ======= ======= =======
$1,395 $1,691 $ 300 $ 102 $1,545 $131,927 $144,098 $95,820 $40,555 $46,655
0.86% 0.86% 0.83% 0.87% 0.85% 0.32% 0.30% 0.30% 0.39% 0.30%
3.70% 4.60% 5.04% 6.07% 5.32% 4.32% 5.23% 5.84% 6.72% 6.12%
-- -- 0.01% 0.02% -- -- -- -- -- --
187% 185% 164% 102% 123% 187% 185% 164% 102% 123%(D)
</Table>
- --------------------------------------------------------------------------------
105
AMERICAN AADVANTAGE SHORT-TERM BOND FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
- --------------------------------------------------------------------------------
<Table>
<Caption>
INSTITUTIONAL CLASS
---------------------------------------------------
YEAR ENDED OCTOBER 31,
---------------------------------------------------
2003 2002 2001 2000 1999
------ ------ ------- ------ ------
Net asset value, beginning of period........................ $ 9.45 $ 9.62 $ 9.21 $ 9.30 $ 9.63
------ ------ ------- ------ ------
Income from investment operations:
Net investment income(B)................................ 0.37 0.42 0.57 0.62 0.53
Net gains (losses) on securities (both realized and
unrealized)(B)........................................ (0.04) (0.11) 0.41 (0.10) (0.29)
------ ------ ------- ------ ------
Total income from investment operations..................... 0.33 0.31 0.98 0.52 0.24
------ ------ ------- ------ ------
Less distributions:
Dividends from net investment income.................... (0.46) (0.48) (0.57) (0.61) (0.57)
------ ------ ------- ------ ------
Total distributions......................................... (0.46) (0.48) (0.57) (0.61) (0.57)
------ ------ ------- ------ ------
Net asset value, end of period.............................. $ 9.32 $ 9.45 $ 9.62 $ 9.21 $ 9.30
====== ====== ======= ====== ======
Total return................................................ 3.58% 3.37% 10.98% 5.83% 2.56%
====== ====== ======= ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands)................ $3,745 $8,396 $ 4,226 $3,687 $5,034
Ratios to average net assets (annualized):
Expenses(B)........................................... 0.54% 0.44% 0.51% 0.58% 0.62%
Net investment income(B).............................. 4.30% 4.47% 6.06% 6.61% 5.92%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager(B)............ -- -- -- -- --
Portfolio turnover rate(A).............................. 81% 63% 104% 89% 115%
</Table>
- ---------------
(A) 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.
(B) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses of
the AMR Investment Services Short-Term Bond Portfolio through February 28,
2002.
- --------------------------------------------------------------------------------
106
- --------------------------------------------------------------------------------
<Table>
<Caption>
PLANAHEAD CLASS AMR CLASS
- --------------------------------------------------- -------------------------------------------------------
YEAR ENDED OCTOBER 31, YEAR ENDED OCTOBER 31,
- --------------------------------------------------- -------------------------------------------------------
2003 2002 2001 2000 1999 2003 2002 2001 2000 1999
- ------ ------ ------- ------ ------ ------- ------- ------- ------- -------
$ 9.45 $ 9.62 $ 9.21 $ 9.30 $ 9.64 $ 9.44 $ 9.60 $ 9.20 $ 9.29 $ 9.62
- ------ ------ ------- ------ ------ ------- ------- ------- ------- -------
0.39 0.43 0.55 0.59 0.54 0.42 0.44 0.59 0.63 0.59
(0.08) (0.14) 0.41 (0.09) (0.33) (0.07) (0.11) 0.40 (0.09) (0.33)
- ------ ------ ------- ------ ------ ------- ------- ------- ------- -------
0.31 0.29 0.96 0.50 0.21 0.35 0.33 0.99 0.54 0.26
- ------ ------ ------- ------ ------ ------- ------- ------- ------- -------
(0.43) (0.46) (0.55) (0.59) (0.55) (0.48) (0.49) (0.59) (0.63) (0.59)
- ------ ------ ------- ------ ------ ------- ------- ------- ------- -------
(0.43) (0.46) (0.55) (0.59) (0.55) (0.48) (0.49) (0.59) (0.63) (0.59)
- ------ ------ ------- ------ ------ ------- ------- ------- ------- -------
$ 9.33 $ 9.45 $ 9.62 $ 9.21 $ 9.30 $ 9.31 $ 9.44 $ 9.60 $ 9.38 $ 9.29
====== ====== ======= ====== ====== ======= ======= ======= ======= =======
3.38% 3.16% 10.69% 5.56% 2.21% 3.82% 3.60% 11.07% 6.09% 2.83%
====== ====== ======= ====== ====== ======= ======= ======= ======= =======
$5,783 $3,520 $ 1,257 $ 489 $1,638 $91,911 $89,932 $81,370 $56,714 $66,767
0.86% 0.73% 0.75% 0.84% 0.84% 0.33% 0.30% 0.33% 0.33% 0.35%
4.00% 4.16% 5.76% 6.29% 5.75% 4.54% 4.63% 6.26% 6.88% 6.26%
-- 0.04% -- 0.10% 0.09% -- -- -- -- --
81% 63% 104% 89% 115% 81% 63% 104% 89% 115%
</Table>
- --------------------------------------------------------------------------------
107
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Shareholders and Board of Trustees
AMR Investment Services International Equity Portfolio
We have audited the accompanying statement of assets and liabilities,
including the schedule of investments, of the AMR Investment Services
International Equity Portfolio (the "Portfolio"), as of October 31, 2003, and
the related statement of operations for the year then ended, statements of
changes in net assets for the two years then ended and the financial highlights
for each of the five years then ended. These financial statements and financial
highlights are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements and
financial highlights based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights. Our procedures included
confirmation of investments owned as of October 31, 2003, by correspondence with
the custodian and brokers or other appropriate auditing procedures where replies
from brokers were not received. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred
to above present fairly, in all material respects, the financial position of the
AMR Investment Services International Equity Portfolio at October 31, 2003, the
results of its operations for the year then ended, the changes in its net assets
for the two years then ended and the financial highlights for each of the five
years then ended, in conformity with accounting principles generally accepted in
the United States.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
December 19, 2003
- --------------------------------------------------------------------------------
108
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
STOCKS - 92.49%
AUSTRALIA - 2.21%
AUSTRALIA PREFERRED STOCK - 0.20%
The News Corporation+*....... 345,000 $ 2,539
----------
TOTAL AUSTRALIA PREFERRED
STOCK.................. 2,539
----------
AUSTRALIA COMMON STOCK - 2.01%
Alumina Limited*............. 842,900 3,565
Australia & New Zealand
Banking Group Limited*..... 318,520 4,023
Australia & New Zealand
Banking Group Limited,
(Rights)+.................. 57,912 177
BHP Billiton Limited......... 928,800 7,724
Commonwealth Bank of
Australia*................. 125,000 2,439
Iluka Resources Limited*..... 387,194 1,283
Mayne Group Limited.......... 1,341,200 3,464
WMC Resources Limited+*...... 842,900 3,062
----------
TOTAL AUSTRALIA COMMON
STOCK.................. 25,737
----------
TOTAL AUSTRALIA.......... 28,276
----------
BELGIUM COMMON STOCK - 0.39%
Fortis+*..................... 282,500 5,038
----------
TOTAL BELGIUM COMMON
STOCK.................. 5,038
----------
CANADA COMMON STOCK - 2.41%
Alcan, Incorporated.......... 134,200 5,356
BCE, Incorporated............ 249,200 5,644
Celestica, Incorporated+..... 620,870 8,809
Husky Energy, Incorporated+.. 309,200 5,081
Manulife Financial
Corporation................ 200,265 6,078
----------
TOTAL CANADA COMMON
STOCK.................. 30,968
----------
DENMARK COMMON STOCK - 0.44%
Novo Nordisk A/S............. 156,400 5,625
----------
TOTAL DENMARK COMMON
STOCK.................. 5,625
----------
FINLAND COMMON STOCK - 1.61%
KCI Konecranes Oyj........... 124,600 3,724
M-real Oyj................... 214,800 1,895
Stora Enso Oyj............... 227,600 3,096
UPM-Kymmene Oyj.............. 640,100 11,980
----------
TOTAL FINLAND COMMON
STOCK.................. 20,695
----------
FRANCE COMMON STOCK - 8.35%
Accor S.A.*.................. 52,690 2,072
Aventis S.A.*................ 345,773 18,309
AXA*......................... 791,604 15,000
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
BNP Paribas S.A.*............ 265,827 $ 13,968
Compagnie Generale des
Etablissements Michelin*... 115,400 4,528
Credit Agricole S.A.*........ 228,300 4,849
Credit Agricole S.A.
(Rights)+.................. 228,300 53
Lagardere S.C.A.*............ 76,900 3,868
Pechiney S.A. ............... 55,600 3,073
PSA Peugeot Citroen S.A.*.... 151,614 6,504
Schneider Electric S.A.*..... 50,700 2,968
Societe BIC S.A.+*........... 57,447 2,379
Suez S.A.*................... 202,580 3,250
Total S.A.*.................. 124,057 19,282
Vinci S.A.*.................. 96,551 6,998
----------
TOTAL FRANCE COMMON
STOCK.................. 107,101
----------
GERMANY - 5.30%
GERMANY PREFERRED STOCK - 0.54%
Fresenius Medical Care AG.... 169,846 6,970
----------
TOTAL GERMANY PREFERRED
STOCK.................. 6,970
----------
GERMANY COMMON STOCK - 4.76%
BASF AG+*.................... 71,900 3,298
Bayer AG*.................... 111,600 2,682
Bayerische Motoren Werke
Aktiengesellschaft......... 44,600 1,785
Celesio AG*.................. 148,865 6,230
Deutsche Post AG............. 592,000 11,390
Deutsche Telekom AG+......... 464,100 7,310
E.ON AG+*.................... 94,500 4,777
Fresenius Medical Care AG*... 45,000 2,566
Hugo Boss AG................. 253,350 5,166
Merck KGaA................... 94,000 3,292
Muenchener Rueckversicherung-
Gesellschaft AG+*.......... 16,176 1,929
Muenchener Rueckversicherung-
Gesellschaft AG (Rights)+.. 16,176 134
Porsche AG................... 3,300 1,621
Siemens AG*.................. 76,400 5,151
Volkswagen AG................ 73,830 3,724
----------
TOTAL GERMANY COMMON
STOCK.................. 61,055
----------
TOTAL GERMANY............ 68,025
----------
HONG KONG COMMON STOCK - 2.25%
Cheung Kong Holdings
Limited.................... 531,000 4,427
CLP Holdings Limited+........ 630,000 2,839
Henderson Land Development
Company Limited............ 1,588,000 6,666
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
109
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Hutchison Whampoa Limited.... 177,000 $ 1,368
Swire Pacific Limited+....... 2,223,500 13,572
----------
TOTAL HONG KONG COMMON
STOCK.................. 28,872
----------
IRELAND COMMON STOCK - 2.67%
Allied Irish Banks plc....... 867,022 12,690
Bank of Ireland.............. 404,400 4,983
CRH plc...................... 248,125 4,462
Depfa Bank plc+.............. 58,044 6,498
Greencore Group.............. 1,543,341 5,562
----------
TOTAL IRELAND COMMON
STOCK.................. 34,195
----------
ITALY COMMON STOCK - 1.82%
Eni S.p.A.*.................. 925,947 14,704
Riunione Adriatica di Sicurta
S.p.A.*.................... 192,193 3,003
Snam Rete Gas S.p.A.+........ 763,200 2,875
Telecom Italia S.p.A.+....... 1,040,929 2,717
----------
TOTAL ITALY COMMON
STOCK.................. 23,299
----------
JAPAN COMMON STOCK - 12.01%
Acom Company Limited*........ 242,800 10,866
Canon, Incorporated*......... 342,000 16,550
DENSO Corporation............ 96,000 1,821
East Japan Railway Company*.. 1,395 6,319
FANUC Limited*............... 39,500 2,375
Hitachi Limited+*............ 522,000 3,067
Honda Motor Company
Limited.................... 288,200 11,378
Kao Corporation*............. 153,300 3,151
Komatsu Limited.............. 764,000 4,135
Konica Corporation........... 1,092,340 14,358
Japan Tobacco, Incorporated.. 139 928
NEC Corporation*............. 372,000 3,286
NEC Electronics
Corporation*............... 19,000 1,462
Nintendo Company Limited*.... 30,500 2,355
Nippon Telegraph & Telephone
Corporation+............... 913 4,078
Nissan Motor Company
Limited*................... 802,600 8,994
Nomura Holdings,
Incorporated*.............. 543,000 9,325
NTT DoCoMo, Incorporated..... 1,977 4,280
Promise Company Limited*..... 199,050 8,944
Rohm Company Limited......... 14,500 1,955
Sanyo Shinpan Finance Company
Limited.................... 145,800 4,960
Seiko Epson Corporation...... 63,700 2,295
Shin-Etsu Chemical Company
Limited.................... 52,600 1,957
Sompo Japan Insurance,
Incorporated............... 709,000 5,869
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Sony Corporation*............ 95,700 $ 3,334
Takeda Chemical Industries
Limited*................... 145,100 5,134
Takefuji Corporation*........ 139,930 8,286
Tokyo Gas Company Limited*... 772,000 2,647
----------
TOTAL JAPAN COMMON
STOCK.................. 154,109
----------
MEXICO COMMON STOCK - 0.28%
Telefonos de Mexico S.A. de
C.V., ADR.................. 111,700 3,591
----------
TOTAL MEXICO COMMON
STOCK.................. 3,591
----------
NETHERLANDS COMMON STOCK - 7.44%
ABN AMRO Holding N.V. ....... 521,071 10,933
Akzo Nobel N.V.*............. 119,326 3,773
CNH Global NV................ 77,320 1,033
Heineken N.V.*............... 123,600 4,411
IHC Caland N.V. ............. 64,180 2,738
ING Groep N.V. .............. 718,454 14,917
Koninklijke (Royal) KPN
N.V.+...................... 843,500 6,413
Koninklijke (Royal) Philips
Electronics N.V. .......... 1,062,998 28,657
Royal Dutch Petroleum
Company+*.................. 164,900 7,317
TPG N.V.+.................... 271,560 5,856
Vedior N.V. ................. 650,613 9,379
----------
TOTAL NETHERLANDS COMMON
STOCK.................. 95,427
----------
NEW ZEALAND COMMON STOCK - 0.71%
Carter Holt Harvey Limited... 2,333,889 2,624
Telecom Corporation of New
Zealand Limited............ 2,164,043 6,436
----------
TOTAL NEW ZEALAND COMMON
STOCK.................. 9,060
----------
NORWAY COMMON STOCK - 1.91%
Norsk Hydro ASA.............. 156,900 8,830
Statoil ASA.................. 183,700 1,727
Telenor ASA.................. 2,554,259 13,905
----------
TOTAL NORWAY COMMON
STOCK.................. 24,462
----------
PORTUGAL COMMON STOCK - 0.99%
Portugal Telecom, SGPS,
S.A. ...................... 1,504,989 12,649
----------
TOTAL PORTUGAL COMMON
STOCK.................. 12,649
----------
SINGAPORE COMMON STOCK - 1.92%
Creative Technology
Limited*................... 659,320 6,855
Development Bank of Singapore
Group Holdings Limited..... 579,795 4,762
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
110
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Oversea-Chinese Banking
Corporation Limited........ 576,650 $ 4,008
United Overseas Bank
Limited.................... 1,157,849 9,045
----------
TOTAL SINGAPORE COMMON
STOCK.................. 24,670
----------
SOUTH KOREA COMMON STOCK - 0.84%
Kookmin Bank, ADR*........... 140,510 5,164
Korea Electric Power
Corporation................ 86,860 1,677
LG Electronics,
Incorporated............... 76,760 3,976
----------
TOTAL SOUTH KOREA COMMON
STOCK.................. 10,817
----------
SPAIN COMMON STOCK - 4.30%
Altadis S.A.*................ 354,923 8,607
Antena 3 Television S.A+..... 4,635 151
Banco Popular Espanol S.A.*.. 90,200 4,690
Banco Santander Central
Hispano S.A.*.............. 662,134 6,350
Endesa S.A.+*................ 436,845 6,932
Iberdrola S.A. .............. 215,157 3,589
Repsol YPF S.A.+............. 446,600 7,788
Telefonica S.A.+............. 1,370,072 17,042
----------
TOTAL SPAIN COMMON
STOCK.................. 55,149
----------
SWEDEN COMMON STOCK - 2.50%
Atlas Copco AB............... 140,350 4,930
Autoliv, Incorporated+*...... 134,200 4,421
Electrolux AB................ 193,300 3,965
ForeningsSparbanken AB....... 223,400 3,723
Nordea AB.................... 475,000 2,954
Sandvik AB................... 111,900 3,329
Securitas AB................. 150,250 1,849
Stora Enso Oyj, Series A+.... 66,662 893
Stora Enso Oyj, Series R+.... 163,902 2,217
Volvo AB*.................... 135,560 3,788
----------
TOTAL SWEDEN COMMON
STOCK.................. 32,069
----------
SWITZERLAND COMMON STOCK - 7.23%
Adecco SA.................... 163,210 9,625
Clariant AG+................. 150,000 2,112
Compagnie Financiere
Richemont AG+.............. 226,400 5,095
Credit Suisse Group.......... 502,687 17,712
Geberit AG................... 15,982 6,583
Nestle SA+................... 17,800 3,919
Novartis AG.................. 141,187 5,382
SIG Holding AG............... 119,251 16,008
Swiss Reinsurance............ 140,710 8,857
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
UBS AG....................... 153,300 $ 9,414
Zurich Financial Services
AG+........................ 63,259 8,101
----------
TOTAL SWITZERLAND COMMON
STOCK.................. 92,808
----------
UNITED KINGDOM COMMON STOCK - 24.91%
Amersham plc*................ 401,920 4,987
Arriva plc................... 1,496,174 9,902
Aviva plc.................... 785,393 6,444
BAA plc...................... 278,600 2,203
BAE Systems plc+............. 3,292,405 10,224
Barclays plc................. 1,068,100 9,008
BHP Billiton plc............. 924,279 7,258
Boots Group plc.............. 636,300 7,693
BP plc....................... 1,263,030 8,766
Brambles Industries plc...... 700,641 2,122
British American Tobacco
Industries plc............. 551,101 6,663
BT Group plc+................ 1,649,053 5,191
Cable and Wireless plc+...... 1,452,300 3,358
Cadbury Schweppes plc........ 2,411,582 15,459
Celltech Group plc+.......... 171,700 1,337
Diageo plc................... 1,419,455 16,692
Dimension Data Holdings
plc+....................... 9,413,347 5,271
FirstGroup plc............... 895,952 4,580
GlaxoSmithKline plc+......... 762,200 16,323
Hanson plc................... 1,421,345 9,841
Hays plc..................... 3,548,019 7,345
HSBC Holdings plc............ 808,765 12,146
Imperial Chemical Industries
plc+....................... 723,981 2,380
Imperial Tobacco Group plc... 259,140 4,296
J. Sainsbury plc............. 429,500 2,064
Kesa Electricals plc......... 225,100 932
Kidde plc.................... 1,680,500 2,873
Kingfisher plc............... 1,349,739 6,470
Lloyds TSB Group plc......... 786,050 5,459
Marks & Spencer Group plc+... 434,561 2,122
National Grid Transco plc.... 381,170 2,434
Reed Elsevier plc+........... 626,560 4,870
Rentokil Initial plc......... 1,278,400 4,843
Reuters Group plc+........... 2,757,625 12,015
Rio Tinto plc................ 150,000 3,637
Rolls-Royce plc.............. 966,500 3,112
Royal Bank of Scotland Group
plc........................ 552,258 14,798
SABMiller plc+............... 85,983 726
Shell Transport & Trading
Company plc................ 1,781,756 11,127
Shire Pharmaceuticals Group
plc+....................... 323,900 2,454
Smiths Group plc............. 466,890 5,558
Standard Chartered plc....... 127,780 2,044
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
111
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
Tesco plc.................... 1,445,500 $ 5,795
TI Automotive+............... 681,500 --
Unilever plc................. 2,097,207 17,883
Vodafone Group plc........... 8,994,039 18,887
Wolseley plc................. 582,535 7,140
WPP Group plc................ 296,000 2,820
----------
TOTAL UNITED KINGDOM
COMMON STOCK........... 319,552
----------
TOTAL STOCKS............. 1,186,457
----------
<Caption>
PAR
AMOUNT
------------
FRANCE CORPORATE BONDS - 0.02%
AXA, 0.00%, Due
12/21/2004+................ $ 12 215
----------
TOTAL FRANCE CORPORATE
BONDS.................. 215
----------
</Table>
<Table>
<Caption>
SHARES VALUE
------------ ----------
(DOLLARS IN THOUSANDS)
SHORT TERM INVESTMENTS - 20.53%
American AAdvantage Money
Market Select Fund......... 90,688,532 90,689
AMR Investments Enhanced
Yield Business Trust....... 172,848,354 172,848
----------
TOTAL SHORT TERM
INVESTMENTS............ 263,537
----------
TOTAL INVESTMENTS - 113.04%
(COST $1,293,429).......... 1,450,209
----------
LIABILITIES, NET OF OTHER
ASSETS - (13.04%).......... (167,274)
----------
TOTAL NET ASSETS - 100%...... $1,282,935
==========
</Table>
- ---------------
* - All or a portion of this security is on loan at October 31, 2003. See Note
5.
+ - non-income producing
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
INTERNATIONAL EQUITY SECTOR DIVERSIFICATION
October 31, 2003
- --------------------------------------------------------------------------------
<Table>
<Caption>
PERCENT OF
NET ASSETS
----------
Consumer Discretionary...................................... 11.69%
Consumer Staples............................................ 8.09%
Energy...................................................... 6.60%
Financials.................................................. 23.99%
Health Care................................................. 6.13%
Industrials................................................. 14.17%
Information Technology...................................... 3.86%
Materials................................................... 6.87%
Short-Term Investments...................................... 20.53%
Telecommunications Services................................. 8.69%
Utilities................................................... 2.42%
Other Liabilities........................................... (13.04%)
-------
NET ASSETS............................................ 100.00%
=======
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
112
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
October 31, 2003 (in thousands)
- --------------------------------------------------------------------------------
<Table>
ASSETS:
Investments in securities, at value..................... $1,450,209
Cash.................................................... 12,465
Cash denominated in foreign currency (cost $38)......... 38
Unrealized appreciation on foreign currency contracts... 864
Dividends and interest receivable....................... 1,991
Reclaims receivable..................................... 13
Receivable for investments sold......................... 1,538
----------
TOTAL ASSETS........................................ 1,467,118
----------
LIABILITIES:
Payable for investments purchased....................... 653
Payable upon return of securities loaned................ 181,807
Payable for variation margin on open futures
contracts.............................................. 334
Management and investment advisory fees payable (Note
2)..................................................... 1,158
Other liabilities....................................... 231
----------
TOTAL LIABILITIES................................... 184,183
----------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS.... $1,282,935
==========
Cost of investments......................................... $1,293,429
</Table>
STATEMENT OF OPERATIONS
Year ended October 31, 2003 (in thousands)
- --------------------------------------------------------------------------------
<Table>
INVESTMENT INCOME:
Interest income......................................... $ 877
Dividend income (net of foreign taxes of $4,871)........ 26,632
Income derived from commission recapture (Note 6)....... 198
Income derived from securities lending, net (Note 5).... 1,468
--------
TOTAL INVESTMENT INCOME............................. 29,175
--------
EXPENSES:
Management and investment advisory fees (Note 2)........ 3,890
Custodian fees.......................................... 1,189
Professional fees....................................... 50
Other expenses.......................................... 71
--------
TOTAL EXPENSES...................................... 5,200
--------
NET INVESTMENT INCOME....................................... 23,975
--------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain (loss) on:
Investments........................................... (68,266)
Foreign currency transactions......................... 40,931
Futures contracts..................................... 11,634
Change in net unrealized appreciation or depreciation
of:
Investments........................................... 206,247
Foreign currency contracts and translations........... 100,990
Futures contracts..................................... (518)
--------
NET GAIN ON INVESTMENTS............................. 291,018
--------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS........ $314,993
========
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
113
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED
OCTOBER 31,
------------------------
2003 2002
---------- -----------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income................................... $ 23,975 $ 20,039
Net realized loss on investments, futures contracts and
foreign currency transactions.......................... (15,701) (82,834)
Change in net unrealized appreciation or depreciation of
investments, futures contracts and foreign currency
translations........................................... 306,719 (35,456)
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS.......................................... 314,993 (98,251)
---------- -----------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions........................................... 571,390 1,880,250
Withdrawals............................................. (552,053) (1,824,540)
---------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS..... 19,337 55,710
---------- -----------
NET INCREASE (DECREASE) IN NET ASSETS....................... 334,330 (42,541)
---------- -----------
NET ASSETS:
Beginning of period..................................... 948,605 991,146
---------- -----------
END OF PERIOD........................................... $1,282,935 $ 948,605
========== ===========
</Table>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS:
- --------------------------------------------------------------------------------
<Table>
<Caption>
YEAR ENDED OCTOBER 31,
------------------------------------------------
2003 2002 2001 2000 1999 1998
------ ------- ----- ----- ----- -----
TOTAL RETURN................................................ 31.97% (10.25%) N/A N/A N/A N/A
RATIOS TO AVERAGE NET ASSETS:
Expenses................................................ 0.49% 0.47% 0.49% 0.44% 0.37% 0.53%
Net investment income................................... 2.26% 1.86% 1.82% 1.93% 2.27% 2.29%
PORTFOLIO TURNOVER RATE..................................... 44% 43% 36% 45% 63% 24%
</Table>
See accompanying notes
- --------------------------------------------------------------------------------
114
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
October 31, 2003
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
AMR Investment Services Trust (the "Trust") is registered under the
Investment Company Act of 1940, as amended, as a no-load, open-end management
investment company which was organized as a trust under the laws of the State of
New York pursuant to a Declaration of Trust dated as of June 27, 1995 and
amended on August 11, 1995. The AMR Investment Services International Equity
Portfolio (the "Portfolio") is one of the portfolios of the Trust. The Portfolio
commenced active operations on November 1, 1995. The Declaration of Trust
permits the Board of Trustees (the "Board") to issue beneficial interests in the
Portfolio.
AMR Investment Services, Inc. (the "Manager") is a wholly-owned subsidiary
of AMR Corporation, the parent company of American Airlines, Inc. ("American"),
and was organized in 1986 to provide business management, advisory,
administrative and asset management consulting services.
The following is a summary of the significant accounting policies followed
by the Portfolio.
Security Valuation
Equity securities that are primarily traded on domestic securities
exchanges are valued at the last quoted sales price on a designated exchange at
the close of trading on the New York Stock Exchange (the "Exchange") on each day
the Exchange is open for trading or, lacking any current sales, on the basis of
the last current bid price prior to the close of trading on the Exchange.
Portfolio securities that are primarily traded on foreign securities exchanges
are generally valued at the preceding closing values of such securities on their
respective exchanges where primarily traded. Over-the-counter equity securities
are valued on the basis of the last bid price on that date prior to the close of
trading.
Debt securities (other than short-term securities) normally are valued on
the basis of prices provided by a pricing service and may take into account
appropriate factors such as institution-size trading in similar groups of
securities, yield, quality, coupon rate, maturity, type of issue, trading
characteristics and other market data. In some cases, the prices of debt
securities may be determined using quotes obtained from brokers.
Investments in mutual funds are valued at the closing net asset value per
share of the mutual fund on the day of valuation. Investment grade short-term
obligations with 60 days or less to maturity are valued using the amortized cost
method.
Securities for which the above valuation procedures are inappropriate or
are deemed not to reflect fair value are valued at fair value, as determined in
good faith and pursuant to procedures approved by the Board.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale.
Dividend income is recorded on the ex-dividend date except certain
dividends from foreign securities which are recorded as soon as the information
is available to the Portfolio. Interest income is earned from settlement date,
recorded on the accrual basis, and adjusted, if necessary, for accretion of
discounts and amortization of premiums. For financial and tax reporting
purposes, realized gains and losses are determined on the basis of specific lot
identification.
- --------------------------------------------------------------------------------
115
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
There is uncertainty regarding the collectibility of tax reclaims by the
Portfolio due to its partnership status for federal income tax purposes. As
such, the Portfolio did not accrue tax reclaims totaling $1,506,000 during the
period. Upon determination of the Portfolio's entitlement to benefits under
foreign tax treaties, if any, tax reclaim income will be accrued.
Currency Translation
All assets and liabilities initially expressed in foreign currency values
are converted into U.S. dollar values at the bid price of such currencies
against U.S. dollars as last quoted by a recognized dealer. Income, expenses and
purchases and sales of investments are translated into U.S. dollars at the rate
of exchange prevailing on the respective dates of such transactions. The effect
of changes in foreign currency exchange rates on investments is separately
identified from the fluctuations arising from changes in market values of
securities held and is reported with all other foreign currency gains and losses
in the Fund's Statement of Operations.
Forward Foreign Currency Contracts
The Portfolio may enter into forward foreign currency contracts to hedge
the exchange rate risk on investment transactions or to hedge the value of
portfolio securities denominated in foreign currencies. Forward foreign currency
contracts are valued at the forward exchange rate prevailing on the day of
valuation.
Futures Contracts
The Portfolio may enter into financial futures contracts which are
contracts to buy a standard quantity of securities at a specified price on a
future date. The Portfolio may purchase or sell futures contracts and options on
futures contracts as a method for keeping assets readily convertible to cash if
needed to meet shareholder redemptions or for other needs while maintaining
exposure to the stock market. Upon entering into a futures contract, the
Portfolio is required to deposit with a financial intermediary an amount
("initial margin") equal to a certain percentage of the face value indicated in
the futures contract. Subsequent payments ("variation margin") are made or
received by the Portfolio dependent upon the daily fluctuations in the value of
the underlying security and are recorded for financial reporting purposes as
unrealized gains or losses by the Portfolio. When entering into a closing
transaction, the Portfolio will realize a gain or loss equal to the difference
between the value of the futures contract to sell and the futures contract to
buy. Futures contracts are valued at the most recent settlement price
established each day by the exchange on which they are traded.
Federal Income and Excise Taxes
The Portfolio will be treated as a partnership for federal income tax
purposes. As such, each investor will be taxed on its share of the Portfolio's
ordinary income and capital gains. It is intended that the Portfolio's assets
will be managed in such a way that an investor in the Portfolio will be able to
satisfy the requirements of subchapter M of the Internal Revenue Code.
- --------------------------------------------------------------------------------
116
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from those
estimated.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement which
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory, portfolio management and securities lending services.
Investment assets of the Portfolio are managed by multiple investment advisers
which have entered into separate investment advisory agreements with the
Manager. As compensation for performing the duties required under the Management
Agreement, the Manager receives from the Portfolio an annualized fee equal to
..10% of the average daily net assets plus amounts paid by the Manager to the
investment advisors hired by the Manager to direct investment activities of the
Portfolio. Management fees paid during the period were as follows (dollars in
thousands):
<Table>
<Caption>
AMOUNTS PAID TO NET AMOUNTS
MANAGEMENT MANAGEMENT INVESTMENT RETAINED BY
FEE RATE FEE ADVISORS MANAGER
---------- ---------- --------------- -----------
International Equity Portfolio..................... .25%-.60% $3,890 $2,829 $1,061
</Table>
As compensation for services provided by the Manager in connection with
securities lending activities, the Portfolio pays to the Manager, with respect
to cash collateral posted by borrowers, a fee up to 25% of the net monthly
interest income (the gross interest income earned by the investment of cash
collateral, less the amount paid to borrowers and related expenses) from such
activities and, with respect to loan fees paid by borrowers when a borrower
posts collateral other than cash, a fee up to 25% of such loan fees. During the
period, the Portfolio paid securities lending fees of $237,000 to the Manager.
Investment in Affiliated Funds
The Portfolio may invest in the American AAdvantage Money Market Select
Fund (the "Select Fund"), an open-end management investment company managed by
the Manager. The Manager receives from the Select Fund an annualized fee equal
to 0.10% of the average daily net assets. During the period, the Manager earned
fees from the Select Fund totaling $119,000 on the Portfolio's investment in the
Select Fund. Income distributions from the Select Fund are recorded as interest
income in the accompanying financial statements and totaled $651,000 during the
year ended October 31, 2003 for the Portfolio.
Other
Certain officers or Trustees of the Trust are also current or former
officers or employees of the Manager or American. The Trust makes no direct
payments to its officers. Unaffiliated Trustees and their spouses are provided
free unlimited air transportation on American. However, the Trust compensates
each Trustee with payments in an amount equal to the Trustee's income tax on the
- --------------------------------------------------------------------------------
117
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
value of this free airline travel. For the year ended October 31, 2003, the cost
of air transportation was not material to the Portfolio. One Trustee, as a
retiree of American, already receives flight benefits. This Trustee receives an
annual retainer of $40,000 plus $1,250 for each Board meeting attended.
3. INVESTMENT TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investments,
other than short-term obligations, (in thousands), for the year ended October
31, 2003 were $433,694 and $418,534, respectively.
4. COMMITMENTS
In order to protect itself against a decline in the value of particular
foreign currencies against the U.S. dollar, the Portfolio has entered into
forward contracts to deliver or receive foreign currency in exchange for U.S.
dollars as described below. The Portfolio bears the market risk that arises from
changes in foreign exchange rates, and accordingly, the unrealized gain (loss)
on these contracts is reflected in the accompanying financial statements. The
Portfolio also bears the credit risk if the counterparty fails to perform under
the contract. At October 31, 2003, the Portfolio had outstanding forward foreign
currency contracts as follows:
<Table>
<Caption>
SETTLEMENT UNREALIZED
CONTRACTS TO RECEIVE DATE VALUE GAIN
- -------------------- ---------- ------- ----------
(AMOUNTS IN THOUSANDS)
5,250 Australian Dollar.......................................... 12/17/03 $ 3,699 $146
6,400 Canadian Dollar............................................ 12/17/03 4,841 79
17,400 Euro Currency.............................................. 12/17/03 20,175 91
1,700,000 Japanese Yen............................................... 12/17/03 15,463 127
11,500 Pound Sterling............................................. 12/17/03 19,435 375
8,900 Swiss Franc................................................ 12/17/03 6,662 46
11,000 Swedish Krona.............................................. 12/17/03 1,406 0
------- ----
Total contracts to receive (Payable amount $70,817)................... $71,681 $864
======= ====
</Table>
The Portfolio may purchase securities with delivery or payment to occur at
a later date. At the time the Portfolio enters into a commitment to purchase a
security, the transaction is recorded and the value of the security is reflected
in the net asset value. The value of the security may vary with market
fluctuations. No interest accrues to the Portfolio until payment takes place.
5. SECURITIES LENDING
The Portfolio participates in a securities lending program under which
securities are loaned to selected institutional investors. All such loans
require collateralization with cash, securities of the U.S. Government and its
agencies or letters of credit that will generally equal at least 100% of the
market value of the loaned securities plus accrued interest. The Portfolio may
bear the risk of delay in recovery of, or even loss of rights in, the securities
loaned should the borrower of securities fail financially. The Portfolio
receives the interest on the collateral less any fees and rebates paid to agents
and transferees of securities. The Portfolio also continues to receive income on
the securities
- --------------------------------------------------------------------------------
118
AMR INVESTMENT SERVICES TRUST INTERNATIONAL EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS -- CONTINUED
October 31, 2003
- --------------------------------------------------------------------------------
loaned, and any gain or loss in the market price of securities loaned that may
occur during the term of the loan will be for the account of the Portfolio.
At October 31, 2003, securities with a market value of approximately
$171,957,000 were loaned by the Portfolio. Cash collateral held by the custodian
for the Portfolio in an investment in the AMR Investments Enhanced Yield
Business Trust and the American AAdvantage Money Market Select Fund (the
"Funds") totaled $181,807,000. The Manager serves as Trustee and as investment
adviser to the Funds. The Manager receives from the Funds annualized fees equal
to 0.10% of the average daily net assets.
6. COMMISSION RECAPTURE
The Portfolio has established brokerage commission recapture arrangements
with certain brokers or dealers. If a Portfolio investment adviser chooses to
execute a transaction through a participating broker, the broker rebates a
portion of the commission back to the Portfolio. Any collateral benefit received
through participation in the commission recapture program is directed
exclusively to the Portfolio.
7. FUTURES CONTRACTS
A summary of obligations under these financial instruments at October 31,
2003 is as follows:
<Table>
<Caption>
UNREALIZED
MARKET APPRECIATION/
TYPE OF FUTURE EXPIRATION CONTRACTS VALUE (DEPRECIATION)
- -------------- ------------- --------- ------------ --------------
France CAC 40 Index................................ December 2003 287 $ 11,290,294 $ 250,562
Germany DAX Index.................................. December 2003 73 7,762,798 323,510
UK FTSE 100 Index.................................. December 2003 422 30,771,348 132,867
Hang Seng Index.................................... November 2003 27 2,102,611 225
Italy MIB 30 Index................................. December 2003 29 4,387,851 67,755
Japan Nikkei 300 Index............................. December 2003 155 2,835,356 (26,789)
Tokyo FE TOPIX Index............................... December 2003 259 24,654,876 (456,770)
Spain IBEX 35 Index................................ November 2003 49 4,063,990 67,400
Sweden OMX Index................................... November 2003 339 2,687,260 10,460
Canada S&PCDA 60 Index............................. December 2003 121 8,012,503 89,843
Australia SPI Index................................ December 2003 106 6,127,922 22,138
------------ ---------
$104,696,808 $ 481,202
============ =========
</Table>
- --------------------------------------------------------------------------------
119
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST
(Unaudited)
- --------------------------------------------------------------------------------
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-five
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. The Trust's Statement of Additional Information contains additional
information about the Trustees and is available without charge by calling
1-800-658-5811.
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (55) Trustee since 1987 President, AMR Investment Services, Inc. (1986-Present);
and President Chairman (1989-2003) and Director (2003-Present), American
since 1986 Airlines Federal Credit Union; Director, Crescent Real
Estate Equities, Inc. (1994-Present); Director, MW
Pritchard, Hubble & Herr, LLC (2001-Present); Member,
Southern Methodist University Cox School of Business
Advisory Board (1999-2002); Director, Southern Methodist
University Endowment Fund Investment Committee
(1996-Present); Member, New York Stock Exchange Pension
Manager Committee (1997-1998, 2000-2002); 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).
<Caption>
NON-INTERESTED TRUSTEES
TERM
------------------
Lifetime of Trust
until removal,
resignation or
retirement*
Stephen D. O'Sullivan (68) Trustee since 1987 Consultant (1994-Present); Trustee, American AAdvantage
Mileage Funds (1995-Present); Trustee, American AAdvantage
Select Funds (1999-Present).
</Table>
- --------------------------------------------------------------------------------
120
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST -- CONTINUED
(Unaudited)
- --------------------------------------------------------------------------------
<Table>
<Caption>
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH THE TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ----------------- -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
R. Gerald Turner (57) Trustee since 2001 President, Southern Methodist University (1995-Present);
225 Perkins Admin. Bldg. Director, ChemFirst (1986-Present); Director, J.C. Penney
Southern Methodist Univ. Company, Inc. (1996-Present); Director, California Federal
Dallas, Texas 75275 Preferred Capital Corp. (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
100 Crescent Court equity firm) (1998-Present); Trustee, The Hockaday School
Suite 1740 (1997-Present); Director, Starwood Hotels and Resorts
Dallas, Texas 75201 (2001-Present); Member, 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 Mileage Funds (1996-Present); Trustee, American
AAdvantage Select Funds (1999-Present).
<Caption>
OFFICERS
TERM
------------------
One Year
Nancy A. Eckl (41) VP since 1990 Vice President, Trust Investments, AMR Investment Services,
Inc. (1990-Present).
Michael W. Fields (49) VP since 1989 Vice President, Fixed Income Investments, AMR Investment
Services, Inc. (1988-Present).
Barry Y. Greenberg (40) VP and Assistant Vice President, Legal and Compliance, AMR Investment
Secretary since Services, Inc. (1995-Present).
1995
Rebecca L. Harris (36) Treasurer since Vice President, Finance, AMR Investment Services, Inc.
1995 (1995- Present).
John B. Roberson (45) VP since 1989 Vice President, Director of Sales, AMR Investment Services,
Inc. (1991-Present).
Robert J. Zutz (50) Secretary since Partner, Kirkpatrick & Lockhart LLP (law firm).
1800 Massachusetts Ave. NW 1998
2nd Floor
Washington, D.C. 20036
</Table>
- ---------------
* 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, 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 has provided legal services
within the past two years to one or more of the Trust's investment advisers.
- --------------------------------------------------------------------------------
121
AMERICAN AADVANTAGE FUNDS
PRIVACY POLICY
(Unaudited)
- --------------------------------------------------------------------------------
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 customers
or former customers 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.
- --------------------------------------------------------------------------------
122
(AMERICAN EAGLE LOGO)
(AMERICAN EAGLE LOGO)
(AMERICAN AADVANTAGE FUNDS LOGO)
- --------------------------------------------------------------------------------
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
<Table>
(GRAPHIC) (GRAPHIC)
BY E-MAIL: ON THE INTERNET:
american_aadvantage.funds@AA.com Visit our website at www.aafunds.com
</Table>
- --------------------------------------------------------------------------------
<Table>
(GRAPHIC) (GRAPHIC)
BY TELEPHONE: BY MAIL:
Institutional Class American AAdvantage Funds
Call (800) 658-5811 P.O. Box 619003, MD 2450
AMR Class(SM) DFW Airport, TX 75261-9003
Call (800) 345-2345
PlanAhead Class(R)
Call (800) 388-3344
</Table>
FUND SERVICE PROVIDERS:
<Table>
CUSTODIAN TRANSFER AGENT INDEPENDENT AUDITORS DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES ERNST & YOUNG LLP SWS FINANCIAL SERVICES
Boston, Massachusetts Kansas City, Missouri Chicago, Illinois Dallas, Texas
</Table>
This report is prepared for shareholders of the American AAdvantage Funds and
may be distributed to others only if preceded or accompanied by a current
prospectus.
- --------------------------------------------------------------------------------
American Airlines, Inc. 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 Small
Cap Value Fund, American AAdvantage International Equity Fund, American
AAdvantage Emerging Markets Fund, American AAdvantage High Yield Bond Fund,
American AAdvantage Enhanced Income Fund, American AAdvantage Intermediate Bond
Fund and American AAdvantage Short-Term Bond Fund are service marks of AMR
Investment Services, Inc.
[BACK COVER]
AR 10/03
529449
ITEM 2. CODE OF ETHICS.
The Trust has adopted a code of ethics that applies to its principal executive
and financial officers (the "Code"). The Trust did not amend the Code nor did
it grant any waivers to the provisions of the Code during the period covered by
the shareholder report presented in Item 1. The Code is filed herewith as
Exhibit 99.CODE ETH.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
The Trust's Board of Trustees has determined that Stephen O'Sullivan, a member
of the Trust's audit committee, is an "audit committee financial expert" as
defined in Form N-CSR. Mr. O'Sullivan is "independent" as defined in Form
N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not Applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not Applicable.
ITEM 6. [RESERVED]
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not Applicable.
ITEM 8. [RESERVED]
ITEM 9. CONTROLS AND PROCEDURES.
Based upon an evaluation within 90 days of the filing date of this report, the
principal executive and financial officers concluded that the disclosure
controls and procedures of the Trust are effective. There were no changes in
the Trust's internal control over financial reporting during the Trust's last
fiscal half-year that materially affected, or were reasonably likely to
materially affect, the Trust's internal control over financial reporting.
ITEM 10. EXHIBITS.
(a)(1) Filed herewith as EX-99.CODE ETH.
(a)(2) A separate certification for each principal executive officer and
principal financial officer of the Trust as required by Rule
30a-2(a) under the Investment Company Act of 1940 is attached hereto
as EX-99.CERT.
(b) The certifications required by Rule 30a-2(b) under the Investment
Company Act of 1940 are attached hereto as EX-99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant): American AAdvantage Funds
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: January 6, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: January 6, 2004
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: January 6, 2004