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: 811-9098
AMERICAN BEACON MASTER TRUST
(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: December 31, 2004
Date of reporting period: December 31, 2004
ITEM 1. REPORT TO STOCKHOLDERS.
[LOGO OF AMERICAN AADVANTAGE FUNDS]
AMERICAN
AADVANTAGE FUNDS(R)
- ----------------------------------[LOGO]----------------------------------------
ANNUAL REPORT
DECEMBER 31, 2004
MONEY MARKET FUNDS
MONEY MARKET FUND
U.S. GOVERNMENT MONEY MARKET FUND
MUNICIPAL MONEY MARKET FUND
MANAGED BY AMR INVESTMENTS
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. 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.
CONTENTS
- --------------------------------------------------------------------------------
PRESIDENT'S MESSAGE ........................... 1
FINANCIAL HIGHLIGHTS MONEY MARKET FUND ........ 22
U.S. GOVERNMENT MONEY MARKET FUND ........... 24
MUNICIPAL MONEY MARKET FUND ................. 26
SCHEDULE OF INVESTMENTS
MONEY MARKET PORTFOLIO ...................... 29
U.S. GOVERNMENT MONEY MARKET PORTFOLIO ...... 31
MUNICIPAL MONEY MARKET PORTFOLIO ............ 32
ADDITIONAL INFORMATION ...........INSIDE BACK COVER
- --------------------------------------------------------------------------------
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 December 31, 2004
AMR INVESTMEMTS
[PHOTO OF WILLIAM F. QUINN]
FELLOW SHAREHOLDERS:
Enclosed please find the Annual Report for the American AAdvantage Funds for
the twelve months ended December 31, 2004. During this time, the money market
series of the American AAdvantage Funds performed well versus their peers.
The year began with the lowest Fed Funds rate in 45 years at 1.0%. The U.S.
economy in 2004 can best be characterized as experiencing modest inflation with
a benign outlook. As a result, the Federal Reserve Board felt comfortable
increasing the short-term interest rate by 125 basis points to 2.25%. Even at
this level, the "real" interest rate is below historical levels.
The Cash Management Class of the American AAdvantage Funds produced strong
relative returns for the period. The Money Market Fund-Cash Management Class
returned 1.30% for the year, outperforming the Lipper Institutional Money Market
Average return of 1.00%. The U.S. Government Money Market - Management Class
outpaced the Lipper Institutional U.S. Government Money Market Average with a
return of 1.22% versus 0.99% for the Average. Despite rising rates, the Money
Market Fund-Cash Management Class continued to surpass its Lipper peer group
over all time periods.
Looking forward, record trade deficits caused by a combination of the lower
value of the dollar and higher crude prices will have to be watched closely.
Although we expect continued increases in the Fed Funds rate, continued
unfettered trade deficit increases could cause the Fed to tighten more
aggressively. Thus, we will continue to actively manage the duration and quality
of the money market portfolios as we evaluate economic growth, inflation, and
the direction of interest rates.
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
ECONOMIC OVERVIEW
================================================================================
The year began with an improving economic environment. However, while growth
indicators were robust, the labor market remained muted until the March
employment report was released in April. In March, U.S. employers created
353,000 new non-farm jobs, thereby removing the critical missing link between a
transitory cyclical rebound and the onset of a period of prolonged economic
expansion. The strong employment data caused a sharp sell-off in the fixed
income market in anticipation that the Federal Open Market Committee (FOMC)
would soon begin to raise the overnight Fed Funds rate. The first rate hike of
25 basis points occurred at the June 30th FOMC meeting, bringing the overnight
Fed Funds target to 1.25%. The FOMC continued its tightening policy of 25 basis
points at each of the remaining Fed meetings, bringing the Fed Funds target to
2.25% by the end of 2004.
Toward the end of the year, the U.S. economy gathered momentum, buoyed by a
decisive result of the November Presidential election. Monthly non-farm payroll
growth averaged over 200K, crude prices fell from their record highs, broad
equity indexes rallied, and most retailers reported a strong holiday shopping
season. Going forward, as long as productivity keeps pace with wage growth in a
gradually tightening labor market, it appears the Fed has no incentive of
abandoning its "measured" (25 basis point rate increases) policy adjustment
stance absent a sharp rise in commodity prices or a sharp fall in the U.S.
dollar.
2
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND(R)
================================================================================
As evidence mounted that money market interest rates would head higher in
the second half of the year, the weighted-average maturity of the American
AAdvantage Money Market Fund was allowed to roll down from above 50 days to
about 30 days. This strategy enabled the Fund to take advantage of higher
overnight rates. The rolldown became even more beneficial when the Fed raised
the overnight rate 25 basis points to 1.25% from 1.00% at the JuneFOMC meeting.
A shorter average maturity was maintained as the market began to anticipate
further interest rate increases by the Fed. A large position in variable rate
securities will likely be maintained in conjunction with a concentration in
overnight investments as the weighted-average maturity of the Fund will likely
remain in the 30 to 40 day range until evidence emerges that the Fed has
completed its current tightening cycle.
For the twelve months ended December 31, 2004, the total return of the Cash
Management Class of the American AAdvantage Money Market Fund was 1.30%. The
Fund outperformed the Lipper Institutional Money Market Average return of 1.00%
by 30 basis points. Lipper Analytical Services ranked the Cash Management Class
of the Fund 22nd among 304 and 37th among 260 Institutional Money Market Funds
for the one-year and three-years ended December 31, 2004, respectively.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2004
[CHART OF CASH MANAGEMENT CLASS]
AMERICAN AADVANTAGE LIPPER INSTITUTIONAL
MONEY MARKET FUND MONEY MARKET FUND AVERAGE
1 YEAR 1.30 1.00
3 YEARS* 1.37 1.13
5 YEARS* 2.92 2.67
10 YEARS* 4.24 4.03
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
==============================
AS OF 12/31/04
------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3).................. 1.30% 2.92% 4.24%
Institutional Class (1)...................... 1.20% 2.87% 4.22%
PlanAhead Class (1).......................... 0.93% 2.57% 3.91%
Platinum Class (1,2)......................... 0.46% 2.14% 3.54%
1 Past performance is not indicative of future performance. An investment in
the American AAdvantage Money Market Fund is neither insured nor guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Although the Fund seeks to preserve the value of an investment at $1.00 per
share, it is possible to lose money by investing in this Fund. Fund
performance in the table above does not reflect the deduction of taxes a
shareholder would pay on distributions or the redemption of shares.
2 Fund performance for the ten-year period represents the total returns
achieved by the Institutional Class from 1/1/95 up to 11/8/95, the inception
date of the Platinum Class, and the returns of the Platinum Class since
inception of the Class. Expenses of the Platinum Class are higher than those
of the Institutional Class. Therefore, total returns shown are higher than
they would have been had the Platinum Class been in place since 1/1/95.
3 Fund performance for the five and ten-year periods represents the total
returns achieved by the Institutional Class from 1/1/95 up to 12/1/01, the
inception date of the Cash Management Class and the returns of the Cash
Management Class since its inception. Expenses of the Cash Management Class
are lower than those of the Institutional Class. Therefore, total returns
shown are lower than they would have been had the Cash Management Class been
in place since 1/1/95.
3
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND(R) -- CONTINUED
================================================================================
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2004
CASH
MANAGEMENT INSTITUTIONAL PLANAHEAD PLATINUM
CLASS CLASS CLASS CLASS
----------- ------------- ----------- -----------
7-day Current Yield* 2.15% 2.01% 1.79% 1.39%
7-day Effective Yield* 2.18% 2.03% 1.80% 1.40%
30-day Yield* 2.04% 1.90% 1.67% 1.22%
Weighted
Average
Maturity 35 Days 35 Days 35 Days 35 Days
Moody's Rating Aaa N/A N/A N/A
S&P Rating AAAm N/A N/A N/A
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
------------
Goldman Sachs Group 5.5%
Bank of Scotland Treasury Services plc 5.4%
Toyota Motor Credit Corporation 4.8%
SouthTrust Bank 4.7%
National City Bank 4.6%
ABN AMRO Bank 4.6%
Wells Fargo and Company 4.5%
Royal Bank of Canada 3.7%
Societe Generale 3.7%
Fifth Third Bank 3.6%
*Percent of net assets portion of AMR Investment Services Money Market
Portfolio.
ASSET ALLOCATION AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
------------
Bank CDs, TDs, and Notes 45.5%
Corporate Notes 41.8%
Repurchase Agreements 9.7%
Funding Agreements 2.8%
Net Other Assets 0.2%
*Percent of net assets portion of AMR Investment Services Money Market
Portfolio.
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to
compare these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the Fund's
actual return). You may compare the ongoing costs of investing in the Fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be
4
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MONEY MARKET FUND(R) -- CONTINUED
================================================================================
subject to a custodial IRA fee of $12 that is typically deducted each December.
If your account was subject to a custodial IRA fee during the period, your costs
would have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
---------- ---------- ---------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,008.08 $0.76
Hypothetical (5% return before expenses) $1,000.00 $1,024.38 $0.76
INSTITUTIONAL CLASS
Actual $1,000.00 $1,007.51 $1.31
Hypothetical (5% return before expenses) $1,000.00 $1,023.83 $1.32
PLANAHEAD CLASS
Actual $1,000.00 $1,006.26 $2.56
Hypothetical (5% return before expenses) $1,000.00 $1,022.58 $2.58
PLATINUM CLASS
Actual $1,000.00 $1,003.85 $4.97
Hypothetical (5% return before expenses) $1,000.00 $1,020.18 $5.01
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.08%, 0.13%, 0.26%, and 0.50% for the Cash Management,
Institutional, PlanAhead, and Platinum Classes, respectively, multiplied by
the average account value over the period, multiplied by the number derived
by dividing the number of days in the most recent fiscal half-year (184) by
days in the year (366) to reflect the half-year period.
5
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM)
================================================================================
At the beginning of the year, the investment manager to the American
AAdvantage U.S. Government Money Market Fund maintained the Fund's
weighted-average maturity between 50 and 60 days. This strategy was accomplished
primarily by purchasing fixed rate agencies with maturities of six to nine
months. In April, the fixed income market began to sell off sharply after the
release of the strong March employment data and in anticipation of a Fed rate
hike. In response, the weighted-average maturity of the Fund was shortened by
investing the proceeds of maturing securities in overnight repurchase agreements
or short dated agencies. This strategy proved to be a good move as the FOMC
implemented its first rate hike of 25 basis points at the June 30th meeting.
This increase took the overnight Fed Funds target to 1.25%. As the FOMC
continued its monetary tightening policy of 25 basis points at each of the
remaining Fed meetings, the Fund continued to buy variable rate and short dated
fixed rate agencies. The year ended with the Fed Funds target at 2.25%, 125
basis points higher than at the start of 2004. In response to monetary policy,
the weighted-average maturity of the Fund was shortened to around 15 days by
year-end.
For the twelve months ended December 31, 2004, the total return of the Cash
Management Class of the American AAdvantage U.S. Government Money Market Fund
was 1.22%. The Fund outperformed the Lipper Institutional U.S. Government Money
Market Average return of 0.99% by 23 basis points. Lipper Analytical Services
ranked the Cash Management Class of the Fund 15th among 142, 11th among 104, and
13th among 56 Institutional U.S. Government Money Market Funds for the one-year,
five-years and ten-years ended December 31, 2004, respectively.
CASH MANAGEMENT CLASS TOTAL RETURNS AS OF DECEMBER 31, 2004
[CHART OF CASH MANAGEMENT CLASS]
AMERICAN AADVANTAGE U.S. LIPPER INSTITUTIONAL U.S.
GOVERNMENT MONEY MARKET FUND GOVERNMENT MONEY MARKET FUND AVERAGE
1 YEAR 1.22 0.99
3 YEARS* 1.31 1.08
5 YEARS* 2.85 2.61
10 YEARS* 4.10 3.95
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
==============================
AS OF 12/31/04
------------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
Cash Management Class (1,3).............. 1.22% 2.85% 4.10%
PlanAhead Class (1)...................... 0.85% 2.48% 3.73%
Platinum Class (1,2)..................... 0.42% 2.07% 3.39%
1 Past performance is not indicative of future performance. An investment in
the American AAdvantage U.S. Government Money Market Fund is neither insured
nor guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of an
investment at $1.00 per share, it is possible to lose money by investing in
this Fund. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the redemption
of shares.
2 Fund performance for the ten-year period represents the total returns
achieved by the Cash Management Class from 1/1/95 up to 11/8/95, the inception
date of the Platinum Class, and the returns of the Platinum Class since
inception of the Class. Expenses of the Platinum Class are higher than those
of the Cash Management Class. Therefore, total returns shown are higher than
they would have been had the Platinum Class been in existence since 1/1/95.
3 Prior to December 1, 2001, the Cash Management Class of the Fund was known as
the Institutional Class.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2004
CASH
MANAGEMENT PLANAHEAD PLATINUM
CLASS CLASS CLASS
----------- ----------- -----------
7-day Current Yield* 2.08% 1.68% 1.29%
7-day Effective Yield* 2.10% 1.69% 1.29%
30-day Yield* 2.00% 1.61% 1.21%
Weighted Average Maturity 15 Days 15 Days 15 Days
Moody's Rating Aaa N/A N/A
S&P Rating AAAm N/A N/A
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
ASSET ALLOCATION AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
-----------
Government Securities 53.5%
Repurchase Agreements 52.4%
Net Other Liabilities -5.9%
*Percent of net assets portion of AMR Investment Services U.S. Government Money
Market Portfolio.
6
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND(SM) -- CONTINUED
================================================================================
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs:(1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about
hypothetical account values and hypothetical expenses based on the Fund's
actual expense ratio and an assumed 5% per year rate of return before expenses
(not the Fund's actual return). You may compare the ongoing costs of investing
in the Fund with other funds by contrasting this 5% hypothetical example and the
5% hypothetical examples that appear in the shareholder reports of the other
funds. The hypothetical account values and expenses may not be used to estimate
the actual ending account balance or expenses you paid for the period.
Shareholders of the PlanAhead Class that invest in the Fund through an IRA may
be subject to a custodial IRA fee of $12 that is typically deducted each
December. If your account was subject to a custodial IRA fee during the period,
your costs would have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
---------- ---------- ---------------
CASH MANAGEMENT CLASS
Actual $1,000.00 $1,007.70 $0.96
Hypothetical (5% return before expenses) $1,000.00 $1,024.18 $0.97
PLANAHEAD CLASS
Actual $1,000.00 $1,005.85 $2.80
Hypothetical (5% return before expenses) $1,000.00 $1,022.34 $2.83
PLATINUM CLASS
Actual $1,000.00 $1,003.66 $4.99
Hypothetical (5% return before expenses) $1,000.00 $1,020.16 $5.03
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.10%, 0.28%, and 0.50% for the Cash Management, PlanAhead, and
Platinum Classes, respectively, multiplied by the average account value over
the period, multiplied by the number derived by dividing the number of days
in the most recent fiscal half-year (184) by days in the year (366) to
reflect the half-year period.
7
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM)
================================================================================
The investment manager to the American AAdvantage Municipal Money Market
Fund targeted a neutral weighted-average maturity in the first half of the year,
focusing on variable rate demand notes (VRDNs) backed by either bond insurance
or a bank letter of credit. As it became apparent the Fed would raise interest
rates 25 basis points at the June FOMC meeting, the Fund maintained a high
concentration in VRDNs and the investment manager allowed the average maturity
to roll down. The investment manager will continue to focus purchases on the
VRDN market and buy selective fixed rate instruments when opportunites surface
in this rising interest rate environment.
For the twelve months ended December 31, 2004, the total return of the
PlanAhead Class of the American AAdvantage Municipal Money Market Fund was 0.31%
as compared to the Lipper Tax-Exempt Money Market Average return of 0.56%.
PLANAHEAD CLASS TOTAL RETURNS AS OF DECEMBER 31, 2004
[CHART OF PLANAHEAD CLASS]
AMERICAN AADVANTAGE LIPPER TAX-EXEMPT
MUNICIPAL MONEY MARKET FUND MONEY MARKET FUND AVERAGE
1 YEAR $0.31 $0.56
3 YEARS* 0.52 0.63
5 YEARS* 1.48 1.52
10 YEARS* 2.31 2.30
[END CHART]
*Annualized
ANNUALIZED TOTAL RETURNS
============================
AS OF 12/31/04
----------------------------
1 YEAR 5 YEARS 10 YEARS
------ ------- --------
PlanAhead Class (1)...................... 0.31% 1.48% 2.31%
Platinum Class (1,2)..................... 0.31% 1.20% 2.03%
1 Past performance is not indicative of future performance. An investment in
the American AAdvantage Municipal Money Market Fund is neither insured nor
guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. Although the Fund seeks to preserve the value of an
investment at $1.00 per share, it is possible to lose money by investing in
this Fund. Fund performance in the table above does not reflect the
deduction of taxes a shareholder would pay on distributions or the
redemption of shares.
2 Fund performance for the ten-year period represents the total returns
achieved by the Institutional Class, a former Class of the Fund, from
1/1/95 up to 11/8/95, the inception date of the Platinum Class, and the
returns of the Platinum Class since inception of the Class. Expenses of the
Platinum Class are higher than those of the Institutional Class. Therefore,
total returns shown are higher than they would have been had the Platinum
Class been in place since 1/1/95.
PORTFOLIO STATISTICS AS OF DECEMBER 31, 2004
PLANAHEAD PLATINUM
CLASS CLASS
----------- ----------
7-day Current Yield* 0.98% 0.98%
7-day Effective Yield* 0.98% 0.98%
30 day Yield* 0.73% 0.73%
Weighted Average Maturity 5 Days 5 Days
*Annualized. You may call 1-800-388-3344 to obtain the Fund's current seven day
yield.
TOP TEN HOLDINGS AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
-----------
Moffat County, Colorado Pollution Control 9.4%
Michigan State Housing Development Authority 5.2%
Alachua County, Florida Housing Financial Authority 5.2%
Village of Richton Park, Illinois-Industrial Development Revenue Bonds 5.1%
Gulf Coast Waste Disposal Authority (Texas) 4.8%
Industrial Development Authority of the City of Mesa, Arizona 4.8%
Ohio Water Development Authority 4.8%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds 4.8%
Calcasieu Parish Public Trust Authority 4.5%
Brazos Harbor Industrial Development Corporation 4.3%
*Percent of net assets portion of AMR Investment Services Municipal Money Market
Portfolio.
8
PERFORMANCE OVERVIEW
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND(SM) -- CONTINUED
================================================================================
ASSET ALLOCATION AS OF DECEMBER 31, 2004
% OF
NET ASSETS*
------------
Municipal Obligations 92.3%
Other Investments 7.5%
Net Other Assets 0.2%
*Percent of net assets portion of AMR Investment Services Municipal Money
Market Portfolio.
FUND EXPENSE EXAMPLE
As a shareholder of the Fund, you incur two types of costs: (1) transaction
costs and (2) ongoing costs, including management fees, administrative service
fees, and other Fund expenses. The examples below are intended to help you
understand the ongoing cost (in dollars) of investing in the Fund and to compare
these costs with the ongoing costs of investing in other mutual funds.
The examples are based on an investment of $1,000 invested at the beginning
of the period in each Class and held for the entire period from July 1, 2004
through December 31, 2004.
ACTUAL EXPENSES
The "Actual" lines of the table provide information about actual account
values and actual expenses. You may use the information in this line, together
with the amount you invested, to estimate the expenses that you paid over the
period. Simply divide your account value by $1,000 (for example, an $8,600
account value divided by $1,000 = 8.6), then multiply the result by the number
in the first line under the heading "Expenses Paid During Period" to estimate
the expenses you paid on your account during this period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
HYPOTHETICAL EXAMPLE FOR COMPARISON PURPOSES
The "Hypothetical" lines of the table provide information about hypothetical
account values and hypothetical expenses based on the Fund's actual expense
ratio and an assumed 5% per year rate of return before expenses (not the Fund's
actual return). You may compare the ongoing costs of investing in the Fund with
other funds by contrasting this 5% hypothetical example and the 5% hypothetical
examples that appear in the shareholder reports of the other funds. The
hypothetical account values and expenses may not be used to estimate the actual
ending account balance or expenses you paid for the period. Shareholders of the
PlanAhead Class that invest in the Fund through an IRA may be subject to a
custodial IRA fee of $12 that is typically deducted each December. If your
account was subject to a custodial IRA fee during the period, your costs would
have been $12 higher.
You should also be aware that the expenses shown in the table highlight only
your ongoing costs and do not reflect any transaction costs charged by the Fund.
Similarly, the expense examples for other funds do not reflect any transaction
costs charged by those funds, such as sales charges (loads), redemption fees or
exchange fees. Therefore, the "Hypothetical" lines of the table are useful in
comparing ongoing costs only and will not help you determine the relative total
costs of owning different funds. If you were subject to any transaction costs
during the period, your costs would have been higher.
BEGINNING ENDING
ACCOUNT ACCOUNT EXPENSES PAID
VALUE VALUE DURING PERIOD*
7/1/04 12/31/04 7/1/04-12/31/04
----------- ---------- ---------------
PLANAHEAD CLASS
Actual $1,000.00 $1,002.43 $5.06
Hypothetical (5% return before expenses) $1,000.00 $1,020.08 $5.11
PLATINUM CLASS
Actual $1,000.00 $1,002.53 $4.97
Hypothetical (5% return before expenses) $1,000.00 $1,020.17 $5.02
*Expenses are equal to the Fund's annualized expense ratios for the six-month
period of 0.51% and 0.50% for the PlanAhead and Platinum Classes,
respectively, multiplied by the average account value over the period,
multiplied by the number derived by dividing the number of days in the most
recent fiscal half-year (184) by days in the year (366) to reflect the
half-year period.
9
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
American AAdvantage Money Market Fund
American AAdvantage U.S. Government Money Market Fund
American AAdvantage Municipal Money Market Fund
We have audited the accompanying statements of assets and liabilities of the
American AAdvantage Money Market Fund, the American AAdvantage U.S. Government
Money Market Fund, and the American AAdvantage Municipal Money Market Fund,
(collectively, "the Funds") (separate funds comprising the American AAdvantage
Funds) as of December 31, 2004, and the related statements of operations for the
year then ended, the statements of changes in net assets for each of the two
years in the period then ended, and the 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 standards of the Public Company
Accounting Oversight Board (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 consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for purposes of expressing an opinion on the effectiveness of the Funds'
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements and financial
highlights, assessing the accounting principles used and significant estimates
made by management, and 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 December 31, 2004, the results of
their operations for the year then ended, the changes in their net assets for
each of the two years in the period then ended, and the financial highlights for
each of the periods indicated therein, in conformity with U.S. generally
accepted accounting principles.
/s/ Ernst & Young LLP
Chicago, Illinois
February 18, 2005
10
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
ASSETS:
Investment in Portfolio, at value .......................... $ 646,212 $ 40,639 $ 5,176
Receivable for fund shares sold ............................ 90 - -
Receivable from Manager for expense ........................
reimbursement (Note 2) ..................................... 15 2 3
Prepaid expenses ..................................... 31 13 8
Other assets ............................................... - - 2
------------ ----------- ----------
TOTAL ASSETS .......................................... 646,348 40,654 5,189
------------ ----------- ----------
LIABILITIES:
Payable for fund shares redeemed ........................... 2 - -
Dividends payable .......................................... 42 46 -
Administrative service and service fees payable
(Note 2) ................................................. 80 3 2
Distribution fees payable (Note 2) ......................... 11 - 1
Other liabilities .......................................... 84 29 8
------------ ----------- ----------
TOTAL LIABILITIES ...................................... 219 78 11
------------ ----------- ----------
NET ASSETS ..................................................... $ 646,129 $ 40,576 $ 5,178
============ =========== ==========
ANALYSIS OF NET ASSETS:
Paid-in-capital ............................................ 646,129 40,576 5,178
------------ ----------- ----------
NET ASSETS ..................................................... $ 646,129 $ 40,576 $ 5,178
============ =========== ==========
Shares outstanding (no par value):
Cash Management Class ...................................... 434,586,902 28,591,053 N/A
============ =========== ==========
Institutional Class ........................................ 34,145,844 N/A N/A
============ =========== ==========
PlanAhead Class ............................................ 132,438,353 5,370,156 1,706,173
============ =========== ==========
Platinum Class ............................................. 44,958,356 6,615,365 3,471,946
============ =========== ==========
Net asset value per share, offering and redemption price per share:
Cash Management Class ...................................... $ 1.00 $ 1.00 N/A
============ =========== ==========
Institutional Class ........................................ $ 1.00 N/A N/A
============ =========== ==========
PlanAhead Class ............................................ $ 1.00 $ 1.00 $ 1.00
============ =========== ==========
Platinum Class ............................................. $ 1.00 $ 1.00 $ 1.00
============ =========== ==========
See accompanying notes
- --------------------------------------------------------------------------------
11
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO:
Interest income ............................................ $6,074 $610 $87
Portfolio expenses ......................................... (475) (51) (8)
------ ---- ---
NET INVESTMENT INCOME ALLOCATED FROM PORTFOLIO ......... 5,599 559 79
------ ---- ---
FUND EXPENSES:
Administrative service fees (Note 2):
Cash Management Class .................................. 89 17 -
Institutional Class .................................... 84 - -
PlanAhead Class ........................................ 165 14 3
Platinum Class ......................................... 316 45 26
Transfer agent fees:
Cash Management Class .................................. 32 7 -
Institutional Class .................................... 8 - -
PlanAhead Class ........................................ 38 4 3
Platinum Class ......................................... 18 3 3
Professional fees ......................................... 8 4 -
Registration fees and expenses ............................ 47 28 31
Distribution fees - Platinum Class (Note 2) ............... 122 17 10
Service Fees - PlanAhead Class (Note 2) ................... 414 34 8
Other expenses ............................................ 46 6 4
------ ---- ---
TOTAL FUND EXPENSES ................................. 1,387 179 88
------ ---- ---
LESS WAIVER AND REIMBURSEMENT OF EXPENSES (NOTE 2) ............. 140 38 28
------ ---- ---
NET FUND EXPENSES ................................... 1,247 141 60
------ ---- ---
NET INVESTMENT INCOME .......................................... 4,352 418 19
------ ---- ---
REALIZED GAIN ALLOCATED FROM PORTFOLIO:
Net realized gain on investments .......................... 15 3 -
------ ---- ---
NET GAIN ON INVESTMENTS ............................. 15 3 -
------ ---- ---
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS ........... $4,367 $421 $19
====== ==== ===
See accompanying notes
- --------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
13
AMERICAN AADVANTAGE FUNDS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
MONEY MARKET
=========================
YEAR ENDED DECEMBER 31,
=========================
2004 2003
-------- --------
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ...................................... $ 4,352 $ 4,684
Net realized gain on investments ........................... 15 5
----------- -----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS 4,367 4,689
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS:
Net investment income:
Cash Management Class ..................................... (1,707) (672)
Institutional Class ....................................... (883) (2,597)
PlanAhead Class ........................................... (1,553) (1,034)
Platinum Class ............................................ (209) (378)
Net realized gain on investments:
Cash Management Class ..................................... (5) -
Institutional Class ....................................... (3) (3)
PlanAhead Class ........................................... (5) (1)
Platinum Class ............................................ (2) (1)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS: ......................... (4,367) (4,686)
----------- -----------
CAPITAL SHARE TRANSACTIONS:
Proceeds from sales of shares .............................. 2,055,052 3,048,924
Reinvestment of dividends and distributions ................ 4,040 3,467
Cost of shares redeemed .................................... (1,865,342) (4,150,353)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS FROM CAPITAL SHARE
TRANSACTIONS ......................................... 193,750 (1,097,962)
----------- -----------
NET INCREASE (DECREASE) IN NET ASSETS ......................... 193,750 (1,097,959)
NET ASSETS:
Beginning of period ........................................ 452,379 1,550,338
----------- -----------
END OF PERIOD .............................................. $ 646,129 $ 452,379
=========== ===========
See accompanying notes
- --------------------------------------------------------------------------------
14
================================================================================
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
============================= ==========================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
============================= ==========================
2004 2003 2004 2003
- --------- --------- -------- ---------
(IN THOUSANDS)
$ 418 $ 946 $ 19 $ 40
3 3 - -
- --------- --------- -------- ---------
421 949 19 40
- --------- --------- -------- ---------
(297) (227) - -
- - - (6)
(93) (675) (7) (17)
(28) (44) (12) (17)
(2) (1) - -
- - - -
(1) (2) - -
- - - -
- --------- --------- -------- ---------
(421) (949) (19) (40)
- --------- --------- -------- ---------
163,517 351,780 16,442 21,327
48 57 19 32
(178,586) (629,499) (17,626) (94,625)
- --------- --------- -------- ---------
(15,021) (277,662) (1,165) (73,266)
- --------- --------- -------- ---------
(15,021) (277,662) (1,165) (73,266)
55,597 333,259 6,343 79,609
- --------- --------- -------- ---------
$ 40,576 $ 55,597 $ 5,178 $ 6,343
========= ========= ======== =========
See accompanying notes
- --------------------------------------------------------------------------------
15
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
================================================================================
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 with separate series. The following series are included in this report:
American AAdvantage Money Market, American AAdvantage U.S. Government Money
Market and American AAdvantage Municipal Money Market Funds (each a "Fund" and
collectively, the "Funds").
Each Fund has multiple classes of shares designed to meet the needs of
different groups of investors. Differences between the classes include the
services offered to and the expenses borne by each class. 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. Effective
October 9, 2003, the Institutional Class of the Municipal Money Market Fund
was no longer offered.
Each Fund invests all of its investable assets in the corresponding
portfolio of the AMR Investment Services Trust, an open-end diversified
management investment company, as follows:
AMERICAN AADVANTAGE: --> INVESTS ASSETS IN --> AMR INVESTMENT SERVICES TRUST:
- ------------------- ------------------------------
Money Market Fund Money Market Portfolio
U.S. Government Money Market Fund U.S. Government Money Market Portfolio
Municipal Money Market Fund Municipal Money Market Portfolio
Each AMR Investment Services Trust Portfolio has the same investment
objectives as its corresponding Fund. The value of such investment reflects each
Fund's proportionate interest in the net assets of the corresponding portfolio
(11.95%, 16.29% and 14.67% at December 31, 2004 of the AMR Investment Services
Trust Money Market, U.S. Government Money Market and Municipal Money Market
Portfolios, respectively) (each a "Portfolio" and collectively the
"Portfolios"). The financial statements of the Portfolios are included elsewhere
in this report and should be read in conjunction with the Funds' financial
statements.
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.
The following is a summary of the significant accounting policies followed
by the Funds.
Valuation of Investments
The Funds record their investment in the Portfolios at fair value. Valuation
of securities by the Portfolios is discussed in Note 1 of the Portfolios' Notes
to Financial Statements, which are included elsewhere in this report.
Investment Income and Dividends to Shareholders
Each Fund records its share of net investment income (loss) and realized
gain (loss) in the Portfolio each day. All net investment income (loss) and
realized gain (loss) of each Portfolio are allocated pro rata among the
corresponding Fund and other investors in each Portfolio at the time of such
determination. The Funds generally declare dividends daily from net investment
income and net short-term capital gain, if any, payable monthly.
- --------------------------------------------------------------------------------
16
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
Dividends to shareholders are determined in accordance with federal income
tax principles that may treat certain transactions differently than U.S.
generally accepted accounting principles.
Federal Income and Excise Taxes
It is the policy of each of the Funds to comply with the requirements of
subchapter M 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 tax provision is required.
All dividends paid by the Municipal Money Market Fund were "exempt-interest
dividends" and therefore are 100% free of any regular federal income tax.
Approximately 22% of interest earned was derived from investments in certain
private activity bonds for purposes of the federal alternative minimum tax
calculation.
Allocation of Income, Expenses, Gains and Losses
Income, expenses (other than those attributable to a specific class), gains
and losses are allocated daily to each class of shares based upon the relative
proportion of net assets represented by such class. Operating expenses
directly attributable to a specific class are charged against the operations of
that class.
Valuation of Shares
The price per share is calculated separately for each class of each Fund on
each day on which shares are offered for sale and orders accepted or upon
receipt of a redemption request. With respect to a class of a Fund, price per
share is computed by dividing the value of the class' pro rata allocation of
the Fund's investments and other assets, less liabilities, by the number of
class shares outstanding.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Administrative Services Agreement
The Manager and the Trust entered into an Administrative Services Agreement
that 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
- --------------------------------------------------------------------------------
17
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
annualized fee of 0.10% of the average daily net assets of each of the
Institutional, PlanAhead and Platinum Classes of the Funds.
The Trust has adopted an Administrative Services Plan with respect to the
Platinum Class of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.55% of the average daily
net assets of the Platinum Class of each Fund.
A separate Administrative Services Plan has been adopted for the Cash
Management Class of the Funds. As compensation for providing administrative
services, the Manager receives an annualized fee of 0.07% of the average daily
net assets of the Cash Management Class of each Fund.
Distribution Plan
The Trust, except for the Platinum Class of the Funds, has adopted a
"defensive" Distribution Plan (the "Plan") in accordance with Rule 12b-1 under
the Act, pursuant to which no fees may be charged to the Funds for distribution
purposes. However, the Plan authorizes the fees received 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 Platinum Class of the Funds. Under
the Distribution Plan, as compensation for distribution assistance, the Manager
receives an annualized fee of 0.25% of the average daily net assets of each
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 Agreement
The Manager and the Trust entered into a Service Agreement which obligates
the Manager to oversee additional shareholder servicing of the PlanAhead Class.
As compensation for performing the duties required under the Service Agreement,
the Manager receives 0.25% based on the daily net assets of the PlanAhead Class.
Reimbursement and Waiver of Expenses
The Manager contractually agreed to reimburse each Cash Management Class
Fund for other expenses through December 31, 2004 to the extent that total
annual fund operating expenses exceed 0.15% and 0.19% for the Money Market and
U.S. Government Money Market Funds, respectively.
The Manager contractually agreed to reimburse the Platinum Class of each
Fund for other expenses through December 31, 2004 to the extent that total
annual fund operating expenses exceed 0.99%. In addition, the Manager agreed to
voluntarily waive additional fees to the extent necessary to preserve a certain
- --------------------------------------------------------------------------------
18
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
minimum level of returns for PlanAhead and Platinum Class Fund shareholders.
During the year ended December 31, 2004, the Manager waived or reimbursed
expenses as follows:
FUND AMOUNT
- ---- --------
Money Market Fund
Cash Management Class ........................................ $103,320
Platinum Class ............................................... 36,932
U.S. Government Money Market Fund
Cash Management Class ........................................ 25,824
PlanAhead Class .............................................. 1,317
Platinum Class ............................................... 11,270
Municipal Money Market Fund
PlanAhead Class .............................................. 3,180
Platinum Class ............................................... 24,416
Expense Reimbursement Plan
The Funds have adopted an Expense Reimbursement Plan whereby the Manager
may seek repayment of fees waived or expenses reimbursed for a period of up to
three years. However, reimbursement will occur only if the Class' average net
assets have grown or expenses have declined sufficiently to allow reimbursement
without causing its expense ratio to exceed the previously agreed upon
contractual expense limit. The following waived fees or reimbursed expenses are
subject to potential recovery expiring in:
U.S. GOVERNMENT MUNICIPAL
YEAR MONEY MARKET MONEY MARKET MONEY MARKET
- ---- ------------ --------------- ------------
2006 $ 83,552 $77,375 $18,920
2007 140,252 38,411 27,596
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. In addition, 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. Retired trustees and their
spouses receive American Airlines flight benefits, plus reimbursement of any tax
liability relating to such benefits, up to a maximum annual value of $40,000.
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. SUBSEQUENT EVENT
Subsequent to December 31, 2004, AMR Investment Services, Inc. will become
American Beacon Advisors, Inc. and the American AAdvantage Funds will be known
as the American Beacon Funds. The name change becomes effective March 1, 2005.
- --------------------------------------------------------------------------------
19
AMERICAN AADVANTAGE FUNDS
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
4. CAPITAL SHARE TRANSACTIONS
The tables below summarize the activity in capital shares for each class of
the Funds (in thousands). Each share is valued at $1.00:
Year Ended December 31, 2004
- ----------------------------
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
Shares sold ............................... 1,085,469 466,560 437,252 65,771
Reinvestment of dividends ................. 1,712 710 1,407 211
Shares redeemed ........................... (769,990) (592,216) (433,193) (69,943)
--------- -------- -------- -------
Net increase (decrease) in shares
outstanding ............................ 317,191 (124,946) 5,466 (3,961)
========= ======== ======== =======
CASH MANAGEMENT
U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- --------------- --------------- --------------
Shares sold ............................... 90,815 68,510 4,192
Reinvestment of dividends ................. - 20 28
Shares redeemed ........................... (84,284) (89,944) (4,358)
--------- --------- ------
Net increase (decrease) in shares
outstanding ............................ 6,531 (21,414) (138)
========= ========= ======
MUNICIPAL MONEY MARKET FUND PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- --------------- --------------
Shares sold ............................... 5,961 10,481
Reinvestment of dividends ................. 7 12
Shares redeemed ........................... (7,335) (10,291)
------ -------
Net increase (decrease) in shares
outstanding ............................ (1,367) 202
====== =======
Year Ended December 31, 2003
- ----------------------------
CASH MANAGEMENT
MONEY MARKET FUND CLASS INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- ----------------- --------------- ------------------- --------------- --------------
Shares sold ............................... 1,008,426 1,783,321 190,773 66,404
Reinvestment of dividends ................. 641 1,880 801 145
Shares redeemed ........................... (898,314) (2,101,032) (220,137) (930,870)
--------- ---------- -------- --------
Net increase (decrease) in shares
outstanding ............................ 110,753 (315,831) (28,563) (864,321)
========= ========== ======== ========
CASH MANAGEMENT
U.S. GOVERNMENT MONEY MARKET FUND CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------------- --------------- --------------- --------------
Shares sold ............................... 96,111 247,807 7,862
Reinvestment of dividends ................. 18 17 22
Shares redeemed ........................... (112,380) (396,154) (120,965)
--------- --------- -------
Net decrease in shares outstanding ........ (16,251) (148,330) (113,081)
========= ========= =======
MUNICIPAL MONEY MARKET FUND INSTITUTIONAL CLASS PLANAHEAD CLASS PLATINUM CLASS
- --------------------------- ------------------- --------------- --------------
Shares sold ............................... 3,638 4,262 13,427
Reinvestment of dividends ................. 5 17 10
Shares redeemed ........................... (4,774) (8,552) (81,299)
------- ------- --------
Net decrease in shares outstanding ........ (1,131) (4,273) (67,862)
======= ======= ========
- --------------------------------------------------------------------------------
20
- --------------------------------------------------------------------------------
21
AMERICAN AADVANTAGE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
====================================================
YEAR ENDED DECEMBER 31, ONE MONTH
================================= ENDED
DECEMBER 31,
2004 2003 2002 2001(B)
-------- -------- ------ ------------
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- ------ -------
Net investment income (A)...................... 0.01 0.01 0.02 -(D)
Less dividends from net investment income (0.01) (0.01) (0.02) -(D)
-------- -------- ------ -------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ====== =======
Total return...................................... 1.30% 1.08% 1.73% 0.19%(C)
======== ======== ====== =======
Ratios and supplemental data:
Net assets, end of period (in thousands) $434,587 $117,395 $6,641 $15,006
Ratios to average net assets (annualized)(A):
Expenses .................................... 0.15% 0.16% 0.19% 0.19%
Net investment income ....................... 1.34% 1.03% 1.73% 1.96%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager.................................... 0.08% 0.08% 0.03% -
INSTITUTIONAL CLASS
============================================================
YEAR ENDED DECEMBER 31,
============================================================
2004 2003 2002 2001 2000
------- -------- -------- -------- --------
Net asset value, beginning of period.............. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- -------- -------- -------- --------
Net investment income (A)...................... 0.01 0.01 0.02 0.04 0.06
Less dividends from net investment income (0.01) (0.01) (0.02) (0.04) (0.06)
------- -------- -------- -------- --------
Net asset value, end of period.................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======== ======== ======== ========
Total return ..................................... 1.20% 0.97% 1.67% 4.15% 6.45%
======= ======== ======== ======== ========
Ratios and supplemental data:
Net assets, end of period (in thousands) $34,146 $159,092 $474,922 $805,843 $886,608
Ratios to average net assets (annualized)(A):
Expenses..................................... 0.24% 0.27% 0.24% 0.25% 0.24%
Net investment income ....................... 1.05% 1.00% 1.68% 4.13% 6.17%
Decrease reflected in above expense ratio
due to absorption of expenses by the
Manager.................................... - - - - -
- -----------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of the AMR Investment Services Money Market Portfolio.
(B) The Money Market Fund commenced sales of a fourth class of shares
designated as "Cash Management Class" on December 1, 2001.
(C) Not annualized.
(D) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
22
======================================================== ===========================================================
PLANAHEAD CLASS PLATINUM CLASS
======================================================== ===========================================================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
======================================================== ===========================================================
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
- -------- -------- -------- -------- -------- ------- ------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- -------- -------- -------- -------- -------- ------- ------- -------- -------- --------
0.01 0.01 0.01 0.04 0.06 -(D) -(D) 0.01 0.03 0.06
(0.01) (0.01) (0.01) (0.04) (0.06) -(D) -(D) (0.01) (0.03) (0.06)
- -------- -------- -------- -------- -------- ------- ------- -------- -------- --------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ======== ======= ======= ======== ======== ========
0.93% 0.70% 1.37% 3.83% 6.14% 0.46% 0.25% 0.98% 3.45% 5.69%
======== ======== ======== ======== ======== ======= ======= ======== ======== ========
$132,438 $126,972 $155,535 $163,825 $299,304 $44,958 $48,920 $913,240 $868,395 $800,196
0.51% 0.54% 0.54% 0.55% 0.54% 0.99% 0.96% 0.93% 0.93% 0.97%
0.94% 0.71% 1.36% 3.83% 5.95% 0.43% 0.38% 0.97% 3.36% 5.54%
- - - - - 0.07% 0.13% 0.01% - -
- --------------------------------------------------------------------------------
23
AMERICAN AADVANTAGE U.S. GOVERNMENT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
CASH MANAGEMENT CLASS
===========================================================
YEAR ENDED DECEMBER 31,
===========================================================
2004 2003 2002 2001(B) 2000
------- ------- ------- ------- -------
Net asset value, beginning of period ................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------- ------- ------- ------- -------
Net investment income (A) ......................... 0.01 0.01 0.02 0.04 0.06
Less dividends from net investment income.......... (0.01) (0.01) (0.02) (0.04) (0.06)
------- ------- ------- ------- -------
Net asset value, end of period....................... $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======= ======= ======= ======= =======
Total return......................................... 1.22% 1.04% 1.67% 4.09% 6.31%
======= ======= ======= ======= =======
Ratios and supplemental data:
Net assets, end of period (in thousands)........... $28,591 $22,060 $38,310 $66,302 $36,391
Ratios to average net assets (annualized) (A):
Expenses ....................................... 0.19% 0.19% 0.19% 0.25% 0.26%
Net investment income .......................... 1.21% 1.04% 1.69% 3.74% 6.16%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager........ 0.10% 0.18% 0.04% - -
- -----------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of the AMR Investment Services U.S. Government Money Market Portfolio.
(B) Prior to December 1, 2001, the Cash Management Class of the American
AAdvantage U.S. Government Money Market Fund was known as the Institutional
Class of the American AAdvantage U.S. Government Money Market Fund. The
Institutional Class had a higher expense structure than the Cash Management
Class.
(C) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
24
========================================================= =========================================================
PLANAHEAD CLASS PLATINUM CLASS
========================================================= =========================================================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
========================================================= =========================================================
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
- ------ -------- -------- ------- ------- ------ ------ -------- ------- ------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------ -------- -------- ------- ------- ------ ------ -------- -------- -------
-(C) 0.01 0.01 0.04 0.06 -(C) -(C) 0.01 0.03 0.05
-(C) (0.01) (0.01) (0.04) (0.06) -(C) -(C) (0.01) (0.03) (0.05)
- ------ -------- -------- ------- ------- ------ ------ -------- -------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ======== ======== ======= ======= ====== ====== ======== ======== =======
0.85% 0.61% 1.30% 3.79% 5.95% 0.42% 0.24% 0.90% 3.37% 5.53%
====== ======== ======== ======= ======= ====== ====== ======== ======== =======
$5,370 $26,785 $175,115 $78,934 $65,795 $6,615 $6,752 $119,833 $112,670 $78,857
0.56% 0.58% 0.55% 0.55% 0.60% 0.98% 1.00% 0.95% 0.95% 1.00%
0.68% 0.72% 1.25% 3.59% 5.81% 0.40% 0.31% 0.88% 3.20% 5.40%
0.01% 0.04% - - - 0.17% 0.20% 0.03% - -
- --------------------------------------------------------------------------------
25
AMERICAN AADVANTAGE MUNICIPAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
(For a share outstanding throughout the period)
================================================================================
PLANAHEAD CLASS
==========================================================
YEAR ENDED DECEMBER 31,
==========================================================
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Net asset value, beginning of period .................. $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
------ ------ ------ ------ ------
Net investment income (A):........................... -(B) -(B) 0.01 0.02 0.04
Less dividends from net investment income............ -(B) -(B) (0.01) (0.02) (0.04)
------ ------ ------ ------ ------
Net asset value, end of period ........................ $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ====== ====== ======
Total return .......................................... 0.31% 0.32% 0.93% 2.25% 3.61%
====== ====== ====== ====== ======
Ratios and supplemental data:
Net assets, end of period (in thousands):............ $1,706 $3,072 $7,346 $3,669 $5,175
Ratios to average net assets (annualized) (A):
Expenses ......................................... 0.94% 0.81% 0.57% 0.58% 0.63%
Net investment income ............................ 0.24% 0.36% 0.94% 2.30% 3.48%
Decrease reflected in above expense ratio due to
absorption of expenses by the Manager ........... 0.10% 0.12% - - -
- -----------------
(A) The per share amounts and ratios reflect income and expenses assuming
inclusion of the Fund's proportionate share of the income and expenses
of the AMR Investment Services Municipal Money Market Portfolio.
(B) Amount is less than $0.01 per share.
- --------------------------------------------------------------------------------
26
=====================================================================
PLATINUM CLASS
=====================================================================
YEAR ENDED DECEMBER 31,
=====================================================================
2004 2003 2002 2001 2000
- ------ ------ ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
- ------ ------ ------- ------- -------
-(B) -(B) -(B) 0.02 0.03
-(B) -(B) -(B) (0.02) (0.03)
- ------ ------ ------- ------- -------
$ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
====== ====== ======= ======= =======
0.31% 0.20% 0.51% 1.82% 3.21%
====== ====== ======= ======= =======
$3,472 $3,271 $71,132 $59,427 $89,602
0.97% 1.01% 0.99% 1.00% 1.02%
0.29% 0.21% 0.52% 1.87% 3.17%
0.61% 0.34% 0.02% - -
- --------------------------------------------------------------------------------
27
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Trustees
AMR Investment Services Money Market Portfolio
AMR Investment Services U.S. Government Money Market Portfolio
AMR Investment Services Municipal Money Market Portfolio
We have audited the accompanying statements of assets and liabilities of the
AMR Investment Services Money Market Portfolio, the AMR Investment Services
U.S. Government Money Market Portfolio, and the AMR Investment Services
Municipal Money Market Portfolio (collectively, "the Portfolios") (separate
portfolios comprising the AMR Investment Services Trust), including the
schedules of investments, as of December 31, 2004, and the related statements
of operations for the year then ended, the statements of changes in net assets
for each of the two years in the period then ended, and the financial
highlights for each of the five years in the period then ended. These financial
statements and financial highlights are the responsibility of the Portfolios'
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 standards of the Public Company
Accounting Oversight Board (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 consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for purposes of expressing an opinion
on the effectiveness of the Portfolios' internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements and financial highlights, assessing the accounting
principles used and significant estimates made by management, and evaluating
the overall financial statement presentation. Our procedures included
confirmation of securities owned as of December 31, 2004, by correspondence
with the custodian and brokers or by other appropriate auditing procedures
where replies from brokers were not received. 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 Portfolios of the AMR Investment Services Trust at December 31,
2004, the results of their operations for the year then ended, the changes in
their net assets for each of the two years in the period then ended, and the
financial highlights for each of the five years in the period then ended, in
conformity with U.S. generally accepted accounting principles.
/s/ Ernest & Young LLP
Chicago, Illinois
February 18, 2005
- --------------------------------------------------------------------------------
28
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE B) - 9.74%
Goldman Sachs, 2.29%, Due 1/3/2005 .............................................. $526,451 $ 526,451
----------
TOTAL REPURCHASE AGREEMENTS ............................................... 526,451
----------
EURODOLLAR TIME DEPOSITS - 12.02%
ABN AMRO Bank, 2.18%, Due 1/3/2005 .............................................. 250,000 250,000
Royal Bank of Canada, 2.125%, Due 1/3/2005 ...................................... 200,000 200,000
Societe Generale, 2.25%, Due 1/3/2005 ........................................... 200,000 200,000
----------
TOTAL EURODOLLAR TIME DEPOSITS ............................................ 650,000
----------
VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES (NOTE D) - 33.46%
Bank One, NA, 2.46%, Due 2/10/2005 .............................................. 25,000 25,007
Barclays Bank, 2.449%, Due 9/29/2005 ............................................ 50,000 49,968
Bayerische Landesbank, 2.21%, Due 5/9/2005 ...................................... 75,000 75,011
BNP Paribas, 2.265%, Due 8/23/2005 .............................................. 65,000 64,976
Canadian Imperial Bank, 2.42%, Due 6/15/2005 .................................... 100,000 99,985
Credit Lyonnais, 2.385%, Due 9/12/2005 .......................................... 97,000 96,956
Credit Suisse First Boston Corporation, 2.559%, Due 9/26/2005 ................... 150,000 150,034
Fifth Third Bank, 2.21%, Due 11/14/2005 ......................................... 197,000 196,906
National City Bank,
2.13%, Due 1/3/2005 .......................................................... 200,000 200,000
2.19%, Due 5/9/2005 .......................................................... 50,000 50,002
Societe Generale, 2.045%, Due 1/30/2006 ......................................... 50,000 49,954
SouthTrust Bank,
2.216%, Due 8/12/2005 ........................................................ 150,000 149,976
2.549%, Due 9/29/2005 ........................................................ 64,000 64,017
2.43%, 12/14/2005 ............................................................ 40,000 39,989
SunTrust Bank, 2.02%, Due 10/3/2005 ............................................. 55,500 55,514
Toronto Dominion Bank, 2.38%, 9/12/2005 ......................................... 100,000 99,952
UBS AG, 2.03%, Due 1/30/2006 .................................................... 50,000 49,954
Unicredito Italiano, 2.439%, 12/19/2005 ......................................... 166,000 165,916
US Bank, NA, 2.485%, Due 12/29/2005 ............................................. 125,000 124,970
----------
TOTAL VARIABLE RATE CERTIFICATES OF DEPOSIT AND BANK NOTES ................ 1,809,087
----------
VARIABLE RATE PROMISSORY NOTES (NOTE D) - 5.55%
Goldman Sachs Group, 2.28%, Due 8/9/2005 ........................................ 300,000 300,000
----------
TOTAL VARIABLE RATE PROMISSORY NOTES ...................................... 300,000
----------
VARIABLE RATE FUNDING AGREEMENTS (NOTES A AND D) - 2.77%
Metropolitan Life Insurance Company,
2.48%, Due 11/21/2005 ........................................................ 100,000 100,000
2.56%, Due 12/1/2005 ......................................................... 50,000 50,000
----------
TOTAL VARIABLE RATE FUNDING AGREEMENTS .................................... 150,000
----------
MEDIUM-TERM NOTES - 36.28%
FIXED RATE - 5.41%
Bank of Scotland Treasury Services plc, 2.53%, Due 3/14/2005 .................... 292,360 292,403
----------
TOTAL FIXED RATE .......................................................... 292,403
----------
VARIABLE RATE (NOTE D) - 30.87%
American Honda Finance Corporation,
2.183%, Due 1/13/2005 ........................................................ 25,000 25,001
2.386%, Due 2/11/2005 ........................................................ 10,000 10,002
2.14%, Due 4/11/2005, 144A (Note C) .......................................... 60,000 60,021
2.11%, Due 10/7/2005 ......................................................... 25,000 25,018
Caterpillar Financial Services, 2.35%, Due 8/15/2005 ............................ 71,000 71,038
Citigroup, Incorporated, 2.28%, Due 2/7/2005 .................................... 170,965 170,983
Credit Suisse First Boston Corporation, 2.278%, Due 4/5/2005 .................... 45,000 45,032
See accompanying notes
- --------------------------------------------------------------------------------
29
AMR INVESTMENT SERVICES MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
General Electric Capital Corporation, 2.51%, Due 1/17/2006 ...................... $180,000 $ 180,000
General Electric Company, 2.15%, Due 10/24/2005 ................................. 43,975 44,002
Merrill Lynch & Company, Incorporated,
2.37%, Due 1/13/2005 .......................................................... 124,000 124,014
2.37%, Due 1/18/2005 .......................................................... 20,000 20,003
Monumental Global Funding II, 144A (Note C)
2.146%, Due 7/1/2005 .......................................................... 87,000 87,069
2.06%, Due 7/6/2005 ........................................................... 55,000 55,015
Paccar Financial Corporation,
2.04%, Due 4/15/2005 .......................................................... 35,000 35,001
2.00%, Due 7/11/2005 .......................................................... 50,000 49,996
2.44%, Due 9/16/2005 .......................................................... 40,000 39,993
Salomon Smith Barney Holdings, Incorporated, 2.086%, Due 4/1/2005 ............... 100,000 100,030
Toyota Motor Credit Corporation,
2.058%, Due 1/14/2005 ......................................................... 50,000 50,001
2.266%, Due 2/11/2005 ......................................................... 50,000 50,002
2.451%, Due 6/22/2005 ......................................................... 41,500 41,494
2.02%, Due 10/7/2005 .......................................................... 70,000 70,007
2.28%, Due 11/18/2005 ......................................................... 50,000 50,003
US Bancorp, 2.65%, Due 9/16/2005 ................................................ 20,000 20,025
Wells Fargo and Company,
2.57%, Due 3/24/2005 .......................................................... 80,000 80,015
2.379%, Due 9/29/2005 ......................................................... 15,000 15,008
2.373%, Due 1/13/2006, 144A (Note C) .......................................... 150,000 150,000
----------
TOTAL VARIABLE RATE ........................................................ 1,668,773
----------
TOTAL MEDIUM-TERM NOTES .................................................... 1,961,176
----------
TOTAL INVESTMENTS - 99.82% (Cost $5,396,714) .................................... 5,396,714
----------
OTHER ASSETS, NET OF LIABILITIES - 0.18% ........................................ 9,707
----------
TOTAL NET ASSETS - 100%.......................................................... $5,406,421
==========
- --------------
Based on the cost of investments of $5,396,714 for federal
income tax purposes at December 31, 2004, there was no unrealized appreciation
or depreciation of investments.
(A) Obligation is subject to an unconditional put back to the issuer with ninety
calendar days notice.
(B) Collateral held at Bank of New York for Goldman Sachs, 4.50% -6.50%, Due
11/1/2009 - 12/1/2034, Total Value - $536,980.
(C) 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 $352,105 or 6.51% of net assets.
(D) The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
See accompanying notes
- --------------------------------------------------------------------------------
30
AMR INVESTMENT SERVICES U.S. GOVERNMENT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ----------
(DOLLARS IN THOUSANDS)
REPURCHASE AGREEMENTS (NOTE A) - 52.40%
Banc of America Securities, LLC, 2.23%, Due 1/4/2005 ...................... $ 15,000 $ 15,000
Goldman Sachs, 2.29%, Due 1/3/2005 ........................................ 50,737 50,737
UBS Tri Party,
2.20%, Due 1/3/2005 ..................................................... 45,000 45,000
2.25%, Due 1/3/2005 ..................................................... 20,000 20,000
--------
TOTAL REPURCHASE AGREEMENTS .......................................... 130,737
--------
U.S. GOVERNMENT AGENCY INSTRUMENTS - 53.45%
Federal Home Loan Bank,
Discount Note, 2.15%, Due 1/21/2005 (Note B) ............................ 4,000 3,995
Variable Rate Note, 1.11%, Due 7/26/2005 (Note C)........................ 15,000 14,998
Variable Rate Note, 1.10%, Due 8/2/2005 (Note C)......................... 15,000 14,999
Variable Rate Note, 0.993%, Due 10/5/2005 (Note C)....................... 5,000 4,998
Federal Home Loan Mortgage Corporation,
Discount Note, 2.29%, Due 1/24/2005 (Note B) ............................ 3,600 3,595
Discount Note, 2.29%, Due 2/1/2005 (Note B) ............................. 5,000 4,990
Agency Note, 3.875%, Due 2/15/2005 ...................................... 10,000 10,020
Discount Note, 2.395%, Due 3/15/2005 (Note B)............................ 10,000 9,951
Variable Rate Note, 1.085%, Due 9/9/2005 (Note C) ....................... 5,000 5,001
Federal National Mortgage Association,
Discount Note, 2.30%, Due 2/4/2005 (Note B) ............................. 3,100 3,093
Agency Note, 1.375%, Due 2/11/2005 ...................................... 20,000 19,980
Discount Note, 2.40%, Due 2/23/2005 (Note B)............................. 1,495 1,490
Discount Note, 2.39%, Due 3/4/2005 (Note B) ............................. 5,000 4,979
Variable Rate Note, 0.98%, Due 10/3/2005 (Note C)........................ 10,000 9,995
Variable Rate Note, 1.47%, Due 10/3/2005 (Note C)........................ 6,300 6,297
Variable Rate Note, 1.05%, Due 12/9/2005 (Note C)........................ 15,000 14,992
--------
TOTAL U.S. GOVERNMENT AGENCY INSTRUMENTS ............................. 133,373
--------
TOTAL INVESTMENTS - 105.85% (COST $264,110) ............................... 264,110
--------
LIABILITIES, NET OF OTHER ASSETS - (5.85%)................................. (14,591)
--------
TOTAL NET ASSETS - 100% ................................................... $249,519
========
- -------------
Based on the cost of investments of $264,110 for federal income tax purposes at
December 31, 2004, there was no unrealized appreciation or depreciation of
investments.
(A) Collateral held at Bank of New York for Banc of America Securities, LLC,
5.00%, Due 4/1/2034, Total Value - $15,300; and Goldman Sachs, 5.50%, Due
2/1/2019 - 11/1/2034, Total Value - $51,751; and at JP Morgan Chase Bank for
UBS Securities, LLC, 2.851 - 4.102%, Due 11/1/2033 - 12/1/2034, Total
Value - $66,103.
(B) Rates represent discount rate.
(C) The coupon rate shown on floating or adjustable rate securities represents
the rate at period end. The due date on these types of securities reflects
the final maturity date.
See accompanying notes
- --------------------------------------------------------------------------------
31
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- --------
(DOLLARS IN THOUSANDS)
MUNICIPAL OBLIGATIONS (NOTE A) - 92.27%
ARIZONA - 4.82%
Industrial Development Authority of the City of Mesa, Arizona-Variable Rate Revenue
Bonds-Series 199B (Discovery Health Systems), 1.99%, Due 1/1/2029, LOC MBIA ................ $1,700 $ 1,700
-------
TOTAL ARIZONA ........................................................................... 1,700
-------
COLORADO - 9.35%
Moffat County, Colorado Pollution Control Revenue Bonds, Series 1984 (Ute Electric
Company Project), Bond Insurance - Ambac Assurance Corporation, 1.95%,
Due 7/1/2010, SPA Societe Generale ......................................................... 3,300 3,300
-------
TOTAL COLORADO .......................................................................... 3,300
-------
FLORIDA - 5.19%
Alachua County, Florida Housing Financial Authority, Multifamily Housing Revenue Bonds,
Series 2001 (University Cove Apartment Project), 2.02%, Due 6/15/2034,
LOC SouthTrust Bank, NA .................................................................... 1,830 1,830
-------
TOTAL FLORIDA............................................................................ 1,830
-------
ILLINOIS - 8.13%
Solid Waste Disposal Facility Revenue Bonds for the County of Lake, Illinois, Series 1996
(Countryside Landfill Inc. Project), 2.07%, Due 4/1/2021, LOC JP Morgan Chase Bank ......... 1,070 1,070
Village of Richton Park, Illinois-Industrial Development Revenue Bonds-Series 1997
(Avatar Corporation Project), 2.19%, Due 4/1/2027, LOC Fifth Third Bank .................... 1,800 1,800
-------
TOTAL ILLINOIS .......................................................................... 2,870
-------
INDIANA - 4.76%
Fort Wayne, Indiana Industrial Economic Development Revenue Bonds, Series 1989
(ND-Tech Corporation Project), 2.03%, Due 7/1/2009, LOC Societe Generale ................... 1,000 1,000
City of Garrett, Indiana, Variable Rate Economic Development Revenue Bonds, Series 1991
(Group Dekko Int'l Project), 2.05%, Due 12/1/2011, LOC Bank One ............................ 680 680
-------
TOTAL INDIANA ........................................................................... 1,680
-------
KENTUCKY - 5.99%
Carroll County, Kentucky Solid Waste Disposal Revenue Bonds, Series 2001
(North American Stainless, L.P.), 2.01%, Due 5/1/2031, LOC Fifth Third Bank ................ 1,100 1,100
County of Breckinridge, Kentucky Association of Counties Leasing Trust, Lease Program
Revenue Bonds, Series 2001A, 2.00%, Due 2/1/2031, LOC US Bank .............................. 1,015 1,015
-------
TOTAL KENTUCKY .......................................................................... 2,115
-------
LOUISIANA - 4.50%
Calcasieu Parish Public Trust Authority, Waste Disposal Revenue Bonds, Series 1997
(WPT Corporation Project), 2.05%, Due 12/1/2027, LOC JP Morgan Chase Bank .................. 1,589 1,589
-------
TOTAL LOUISIANA ......................................................................... 1,589
-------
MARYLAND - 4.76%
Montgomery County, Maryland Variable Rate Housing Revenue Bonds, Series 1997, Issue I
(The Grand), 2.01%, Due 6/1/2030, LOC Federal National Mortgage Association ................ 1,680 1,680
-------
TOTAL MARYLAND .......................................................................... 1,680
-------
MICHIGAN - 10.23%
Michigan Higher Education Student Loan Authority, Student Loan Revenue Bonds, Series XII-X,
Bond Insurance - Ambac Assurance Corporation, 2.03%, Due 9/1/2031, SPA Lloyds TSB........... 1,000 1,000
Michigan State Hospital Finance Authority, Hospital Equipment Loan Program Bonds, Series A,
2.01%, Due 12/1/2023, LOC National City Bank NA ............................................ 775 775
See accompanying notes
- --------------------------------------------------------------------------------
32
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2004
================================================================================
PAR
AMOUNT VALUE
-------- ------
(DOLLARS IN THOUSANDS)
Michigan State Housing Development Authority Variable Rate Limited Obligation Multifamily
Housing Revenue Refunding Bonds, 2.03%, Due 6/1/2018, LOC Bank of New York ................... $1,835 $ 1,835
-------
TOTAL MICHIGAN ............................................................................ 3,610
-------
NEVADA - 2.83%
Nevada Housing Divison-Variable Rate Demand Multi-Unit Housing Revenue Bonds-Series 2004
(Sundance Village Apartments), 2.00%, Due 10/1/2035, LOC Citibank ............................ 1,000 1,000
-------
TOTAL NEVADA .............................................................................. 1,000
-------
NEW YORK - 2.83%
New York City Municipal Water Finance Authority, Water and Sewer Revenue Bonds, Series 1993C
Adjustable Rate Fiscal Bonds, 2.10%, Due 6/15/2022, Bond Insurance - Financial
Guaranty Insurance Company ................................................................... 1,000 1,000
-------
TOTAL NEW YORK ............................................................................ 1,000
-------
OHIO - 4.82%
Ohio Water Development Authority, Environmental Improvement Revenue Bonds, Series 2000B
(Waste Management, Incorporated Project), 2.09%, Due 7/1/2020, LOC Fleet National Bank ....... 1,700 1,700
-------
TOTAL OHIO ................................................................................ 1,700
-------
PENNSYLVANIA - 8.32%
Berks County Industrial Development Authority Manufacturing Facilities Revenue Bonds,
Series 1995 (Grafika Commerial Printing Inc.), 2.09%, Due 9/1/2010,
LOC First Union National Bank ................................................................ 1,035 1,035
Chartiers Valley, Pennsylvania Industrial and Commercial Development Authority
Commercial Development Bonds (William Penn Plaza Project), 2.05%,
Due 12/1/2016, LOC PNC Bank, NA .............................................................. 900 900
Delaware Valley, Pennsylvania Regional Finance Authority
(Bucks, Chester, Delaware and Montgomery Counties)-Local Government Revenue Bonds-
Series 1986 (Bi-Modal Multi-Term Format/Mode 1 Bonds), 1.98%, Due 8/1/2016,
LOC Toronto Domion ........................................................................... 1,000 1,000
-------
TOTAL PENNSYLVANIA ........................................................................ 2,935
-------
TEXAS - 12.48%
Brazos Harbor Industrial Development Corporation Solid Waste Disposal Revenue Bonds,
Series 2002 (Republic Waste Services of Texas, Ltd. Project), 2.05%, Due 12/1/2024,
LOC Bank of America Corporation............................................................... 1,500 1,500
City of Midlothian, Texas Industrial Development Corporation, Environmental Facilities
Revenue Bonds, Series 1999 (Holnam Texas Limited Partnership Project) 2.03%,
Due 9/1/2031, LOC Bank One ................................................................... 1,200 1,200
Gulf Coast Waste Disposal Authority (Texas), Enviromental Facilities Revenue Bonds,
Series 2002 (Waste Corporation of Texas, L.P. Project), 2.04%, Due 9/1/2022,
LOC - Wells Fargo Texas ...................................................................... 1,705 1,705
-------
TOTAL TEXAS ............................................................................... 4,405
-------
UTAH - 3.26%
Morgan County, Utah Solid Waste Disposal Revenue Bonds, Series 1996
(Holman, Inc. Project), 2.05%, Due 8/1/2031, LOC Wachovia Bank, NA ........................... 1,150 1,150
-------
TOTAL UTAH ................................................................................ 1,150
-------
TOTAL MUNICIPAL OBLIGATIONS ............................................................... 32,564
-------
See accompanying notes
- --------------------------------------------------------------------------------
33
AMR INVESTMENT SERVICES MUNICIPAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS - CONTINUED
December 31, 2004
================================================================================
SHARES VALUE
-------- -------
(DOLLARS IN THOUSANDS)
OTHER INVESTMENTS - 7.54%
Dreyfus Municipal Cash Management Plus, Inc. ............................. 42,044 $ 42
Federated Municipal Obligations Fund ..................................... 1,563,186 1,563
BlackRock Provident MuniCash Fund ........................................ 1,056,159 1,056
-------
TOTAL OTHER INVESTMENTS ............................................. 2,661
-------
TOTAL INVESTMENTS - 99.81% (COST $35,225) ................................ 35,225
-------
OTHER ASSETS, NET OF LIABILITIES - 0.19% ................................. 69
-------
TOTAL NET ASSETS - 100% .................................................. $35,294
=======
Based on the cost of investments of $35,225 for federal income tax purposes at
December 31, 2004, there was no unrealized appreciation or depreciation of
investments.
(A) Rates associated with money market securities represent yield to maturity
or yield to next reset date.
See accompanying notes
- --------------------------------------------------------------------------------
34
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF ASSETS AND LIABILITIES
December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
ASSETS:
Investments in securities at value (cost - $4,870,263,
$133,373 and $35,225, respectively) ..................... $4,870,263 $133,373 $35,225
Repurchase agreements (cost - $526,451,
$130,737 and $0 respectively) .......................... 526,451 130,737 -
Dividends and interest receivable .......................... 10,311 443 77
---------- -------- -------
TOTAL ASSETS ......................................... 5,407,025 264,553 35,302
---------- -------- -------
LIABILITIES:
Payable for investments purchased .......................... - 15,000 -
Management and investment advisory fees payable (Note 2).... 422 22 4
Other liabilities .......................................... 182 12 4
---------- -------- -------
TOTAL LIABILITIES .................................... 604 15,034 8
---------- -------- -------
NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS....... $5,406,421 $249,519 $35,294
========== ======== =======
See accompanying notes
- --------------------------------------------------------------------------------
35
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF OPERATIONS
Year Ended December 31, 2004
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
============ =============== ============
(IN THOUSANDS)
INVESTMENT INCOME:
Interest income ........................................... $77,015 $3,739 $511
------- ------ ----
TOTAL INVESTMENT INCOME .............................. 77,015 3,739 511
------- ------ ----
EXPENSES:
Management and investment advisory fees (Note 2)........... 5,461 265 41
Custodian fees ............................................ 382 19 3
Professional fees. ........................................ 132 3 1
Other expenses. ........................................... 125 11 2
------- ------ ----
TOTAL EXPENSES ....................................... 6,100 298 47
------- ------ ----
NET INVESTMENT INCOME .......................................... 70,915 3,441 464
------- ------ ----
REALIZED GAIN ON INVESTMENTS:
Net realized gain on investments .......................... 208 15 -
------- ------ ----
NET GAIN ON INVESTMENTS ............................. 208 15 -
------- ------ ----
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $71,123 $3,456 $464
======= ====== ====
See accompanying notes
- --------------------------------------------------------------------------------
36
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
STATEMENTS OF CHANGES IN NET ASSETS
================================================================================
U.S. GOVERNMENT MUNICIPAL
MONEY MARKET MONEY MARKET MONEY MARKET
=========================== ========================= =======================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
=========================== ========================= =======================
2004 2003 2004 2003 2004 2003
=========================== ========================= =======================
(IN THOUSANDS)
INCREASE (DECREASE) IN NET ASSETS:
OPERATIONS:
Net investment income ..................... $ 70,915 $ 52,671 $ 3,441 $ 3,099 $ 464 $ 496
Net realized gain on investments .......... 208 42 15 9 - -
------------ ------------ ----------- ----------- ------- --------
TOTAL INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS ....................... 71,123 52,713 3,456 3,108 464 496
------------ ------------ ----------- ----------- ------- --------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS:
Contributions ............................. 59,602,193 55,478,689 1,351,736 1,085,963 56,379 81,957
Withdrawals ............................... (59,216,512) (57,817,456) (1,340,743) (1,324,638) (61,336) (154,776)
------------ ------------ ----------- ----------- ------- --------
NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM TRANSACTIONS IN
INVESTORS' BENEFICIAL INTERESTS ....... 385,681 (2,338,767) 10,993 (238,675) (4,957) (72,819)
------------ ------------ ----------- ----------- ------- --------
NET INCREASE (DECREASE) IN NET ASSETS 456,804 (2,286,054) 14,449 (235,567) (4,493) (72,323)
------------ ------------ ----------- ----------- ------- --------
NET ASSETS:
Beginning of period ....................... 4,949,617 7,235,671 235,070 470,637 39,787 112,110
------------ ------------ ----------- ----------- ------- --------
END OF PERIOD ............................. $ 5,406,421 $ 4,949,617 $ 249,519 $ 235,070 $35,294 $39,787
============ ============ =========== =========== ======= =======
See accompanying notes
- --------------------------------------------------------------------------------
37
AMR INVESTMENT SERVICES TRUST PORTFOLIOS
FINANCIAL HIGHLIGHTS
================================================================================
MONEY MARKET
===============================================
YEAR ENDED DECEMBER 31,
===============================================
2004 2003 2002 2001 2000
------ ------ ------ ------ ------
Total return ....................................................... 1.34% 1.13% 1.81% 4.30% N/A
Ratios to average net assets (annualized):
Expenses ...................................................... 0.11% 0.11% 0.11% 0.11% 0.11%
Net investment income ......................................... 1.30% 1.14% 1.81% 3.95% 6.40%
- --------------------------------------------------------------------------------
38
================================================================================
U.S. GOVERNMENT MONEY MARKET MUNICIPAL MONEY MARKET
============================================= ============================================
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
============================================= ============================================
2004 2003 2002 2001 2000 2004 2003 2002 2001 2000
- ---- ----- ----- ----- ----- ---- ----- ----- ----- -----
1.30% 1.11% 1.74% 4.24% N/A 1.18% 1.08% 1.39% 2.71% N/A
0.11% 0.12% 0.12% 0.11% 0.13% 0.11% 0.12% 0.12% 0.13% 0.13%
1.30% 1.13% 1.71% 3.99% 6.27% 1.14% 1.05% 1.39% 2.71% 4.05%
- --------------------------------------------------------------------------------
39
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS
December 31, 2004
================================================================================
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 that was organized as a trust under the laws of the
Commonwealth of Massachusetts pursuant to a Declaration of Trust dated as of
November 1, 2004. Prior to November 1, 2004, the Trust was organized as a trust
under the laws of the State of New York. Beneficial interests in the Trust are
divided into separate series, each having distinct investment objectives and
policies. These financial statements relate to the AMR Investment Services Money
Market Portfolio, AMR Investment Services U.S. Government Money Market Portfolio
and AMR Investment Services Municipal Money Market Portfolio (each a "Portfolio"
and collectively the "Portfolios"). The assets of each Portfolio belong only to
that Portfolio, and the liabilities of each Portfolio are borne solely by that
Portfolio and no other.
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 Portfolios.
Security Valuation
Securities of the Portfolios are valued at fair value, which approximates
amortized cost. In the event that a deviation of 1/2 of 1% or more exists
between the $1.00 per share price of the Portfolios, calculated at amortized
cost, and the price per share calculated by reference to market quotations, or
if there is any other deviation that the Trust's Board of Trustees (the "Board")
believes would result in a material dilution to shareholders or purchasers, the
Board will promptly consider the appropriate action that should be initiated.
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security
purchase or sale. Interest income is earned from settlement date, recorded on
the accrual basis, and adjusted, if necessary, for amortization of premiums or
accretion of discounts on investment grade short-term securities and zero coupon
instruments. For financial and tax reporting purposes, realized gains and losses
are determined on the basis of specific lot identification.
Federal Income and Excise Taxes
The Portfolios will be treated as partnerships for federal income tax
purposes. As such, each investor in a Portfolio will be taxed on its share of
the Portfolio's ordinary income and capital gains. It is intended that each
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.
Repurchase Agreements
Under the terms of a repurchase agreement, securities are acquired by a
Portfolio from a securities dealer or a bank that are subject to resale at a
later date. Repurchase agreements are fully collateralized by U.S. Treasury or
U.S. Government agency securities. All collateral is held at the custodian bank,
State Street Bank and Trust Company, or at subcustodian banks. The collateral is
monitored daily by the Manager Portfolio so that the collateral's market value
exceeds the carrying value of the repurchase agreement plus accrued interest.
- --------------------------------------------------------------------------------
40
AMR INVESTMENT SERVICES TRUST
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 2004
================================================================================
Use of Estimates
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles 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.
Other
Under the Trust's organizational documents, its officers and directors are
indemnified against certain liability arising out of the performance of their
duties to the Trust. In the normal course of business, the Trust enters into
contracts that provide indemnification to the other party or parties against
potential costs or liabilities. The Trust's maximum exposure under these
arrangements is dependent on claims that may be made in the future and,
therefore, cannot be estimated. The Trust has had no prior claims or losses
pursuant to any such agreement.
2. TRANSACTIONS WITH AFFILIATES
Management Agreement
The Trust and the Manager are parties to a Management Agreement that
obligates the Manager to provide or oversee the provision of all administrative,
investment advisory and portfolio management services. The Manager serves as the
sole investment adviser to each of the Portfolios. As compensation for
performing the duties required under the Management Agreement, the Manager
receives from the Portfolios 0.10% of the average daily net assets of each of
the Portfolios.
Interfund Lending Program
Pursuant to an exemptive order by the Securities and Exchange Commission,
the Portfolios, along with other registered investment companies having
management contracts with the Manager, may participate in an interfund lending
program. This program provides an alternative credit facility allowing the
Portfolios to lend money to other participating series managed by the Manager.
For the year ended December 31, 2004, the Money Market Portfolio earned $1,070
under the credit facility. This amount is included in interest income on the
financial statements.
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. In addition, 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. Retired trustees and their
spouses receive American Airlines flight benefits, plus reimbursement of any tax
liability relating to such benefits, up to a maximum annual value of $40,000.
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. SUBSEQUENT EVENT
Subsequent to December 31, 2004, the AMR Investment Services Money Market
Portfolios will become the American Beacon Master Money Market Portfolios. The
name change becomes effective March 1, 2005.
- --------------------------------------------------------------------------------
41
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited)
================================================================================
A special meeting of shareholders of the American AAdvantage Funds (the
"Trust") was held on August 11, 2004. The meeting related to each series of the
Trust (the "Funds"). The purpose of the meeting was to consider proposals
regarding: (i) re-election of the five current Trustees and the election of
three additional Trustees; (ii) changes to certain fundamental investment
policies of the Funds; and (iii) the adoption of an amendment to the Declaration
of Trust of the Trust to permit the Trustees to amend the Declaration of Trust
in the future without shareholder approval under certain circumstances. Certain
of the Funds ("Feeder Funds") currently operate under a "master-feeder"
structure, pursuant to which a Feeder Fund seeks its investment objective by
investing all of its investable assets in a corresponding portfolio (each a
"Portfolio") of the AMR Investment Services Trust ("AMR Trust") that has an
identical investment objective to the Feeder Fund. Interestholders of the AMR
Trust, principally the Feeder Funds, held a separate meeting to elect Trustees
and to vote on proposed changes to certain fundamental investment policies of
the Portfolios of the corresponding Feeder Funds. In addition, the
interestholders voted on whether to approve a Conversion Agreement pursuant to
which the AMR Trust would convert from a New York common trust to a
Massachusetts business trust. Shareholders of each Feeder Fund were asked to
provide voting instructions to the AMR Trust meeting. Each Feeder Fund cast its
votes at the AMR Trust meeting in the same proportion as the votes cast by the
Feeder Fund's shareholders.
Proposals 1, 3, 4, and 6 were Trust-level matters and therefore required a
majority of the shareholders of the Trust to vote to achieve a quorum. Proposals
2 and 5 were Fund-level matters and therefore required a majority of the
shareholders of a Fund to vote to achieve a quorum for that Fund. A quorum of
the Trust was present for Proposals 1 and 4, and each proposal was approved by
shareholders. Except for the Money Market and Municipal Money Market Funds, a
quorum of each Fund was present for Proposals 2 and 5, and each proposal was
approved by shareholders. A quorum of the Trust was present for Proposals 3 and
6, but there were not enough votes in favor of either proposal for shareholder
approval.
Proposals 2 and 5 for the Money Market and Municipal Money Market Funds and
Proposals 3 and 6 for the Trust were adjourned to a second special meeting of
shareholders on August 24, 2004. A quorum was still not present for the Money
Market and Municipal Money Market Funds with respect to Proposals 2 and 5 at the
August 24th meeting, so those matters were adjourned to a third special meeting
of shareholders on September 17, 2004. A quorum of the Trust was present for
Proposals 3 and 6, but the votes were not recorded and the Trust adjourned these
matters to the September 17th meeting to coincide with the other Fund-level
matters.
At the September 17th meeting, a quorum was present for the Money Market and
Municipal Money Market Funds, and Proposals 2 and 5 were approved by
shareholders. In addition, a quorum of the Trust was present for Proposals 3 and
6, and each proposal was approved by shareholders.
The final voting results for each Proposal are presented on the following
page. The vote tallies for Proposals 1, 3, 4, and 6 include votes cast by
shareholders of Funds not contained in this annual report.
- --------------------------------------------------------------------------------
42
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(1) Elected the following Trustees to the Trust's Board of Trustees: W. Humphrey
Bogart, Brenda A. Cline, Alan D. Feld, Richard A. Massman, Stephen D.
O'Sullivan, William F. Quinn, R. Gerald Turner, and Kneeland Youngblood.
TRUST
------------------------------------------
FOR WITHHELD
----- --------
Bogart 650,590,849.241 14,422,434.627
Cline 650,579,020.453 14,434,263.415
Feld 645,570,380.770 19,442,903.098
Massman 650,575,979.241 14,437,304.627
O'Sullivan 650,346,585.401 14,666,698.477
Quinn 650,521,466.241 14,492,457.627
Turner 647,812,023.453 17,201,260.415
Youngblood 650,456,805.241 14,556,478.627
(2)(a) Approved a change to the fundamental investment limitation on investments
in commodities.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 226,730,052.110 4,564,294.000 32,904,356.120
Against 3,074,933.700 406,295.000 195,123.000
Abstain 11,729,088.080 87,615.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(b) Approved a change to the fundamental investment limitation on lending
securities.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,577,475.230 4,564,294.000 32,865,110.120
Against 7,139,911.580 406,295.000 195,122.000
Abstain 11,816,687.080 87,615.000 39,247.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(c) Approved the deletion of the fundamental investment limitation on
affiliated transactions.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 220,180,992.310 3,477,061.000 32,904,360.120
Against 9,573,919.500 1,493,528.000 195,119.000
Abstain 11,779,162.080 87,615.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(d) Approved a change to the fundamental investment limitation on the
issuance of senior securities.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,154,012.230 4,071,626.000 32,904,360.120
Against 7,530,585.580 894,226.000 195,119.000
Abstain 11,849,476.080 92,352.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
- --------------------------------------------------------------------------------
43
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(2)(e) Approved a change to the fundamental investment limitation on borrowing.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,583,327.230 4,071,626.000 32,904,360.120
Against 7,121,635.580 898,963.000 195,119.000
Abstain 11,829,111.080 87,615.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(2)(f) Approved a change to the fundamental investment limitation on
concentration of investments in the banking industry.
MONEY MKT
---------------
For 222,743,754.230
Against 7,112,587.580
Abstain 11,677,732.080
(3) Approved an amendment to the Trust's Declaration of Trust.
MONEY MKT
---------------
For 510,760,770.656
Against 27,955,243.657
Abstain 24,870,260.385
Broker Non-Votes* 36,787,359.000
(4) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Investment Services Trust (the "AMR Trust") to elect a Board of
Trustees.
TRUST
------------------------------------------
FOR WITHHELD
----- --------
Bogart 440,288,258.060 8,585,009.017
Cline 440,282,948.530 8,590,318.547
Feld 440,288,258.060 8,585,009.017
Massman 440,288,258.060 8,585,009.017
O'Sullivan 440,282,948.530 8,590,318.547
Quinn 440,288,258.060 8,585,009.017
Turner 440,282,948.530 8,590,318.547
Youngblood 440,288,258.060 8,585,009.017
- --------------------------------------------------------------------------------
44
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(5)(a) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
investments in commodities with respect to the corresponding portfolio
of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 226,456,630.110 4,564,294.000 32,904,356.120
Against 3,292,749.700 188,638.000 195,123.000
Abstain 11,784,694.080 305,272.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(b) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
lending securities with respect to the corresponding portfolio of the AMR
Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 221,981,421.230 4,564,294.000 32,865,110.120
Against 7,550,777.580 188,638.000 195,122.000
Abstain 12,001,875.080 305,272.000 39,247.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(c) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve the deletion of the fundamental investment
limitation on affiliated transactions with respect to the corresponding
portfolio of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 220,151,923.310 3,477,061.000 32,904,360.120
Against 9,345,520.500 1,275,871.000 195,119.000
Abstain 12,036,630.080 305,272.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(d) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
the issuance of senior securities with respect to the corresponding
portfolio of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,172,054.230 4,070,791.000 32,865,114.120
Against 7,337,242.580 676,569.000 195,119.000
Abstain 12,024,777.080 310,844.000 39,246.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
- --------------------------------------------------------------------------------
45
SPECIAL MEETING OF SHAREHOLDERS
(Unaudited) - (Continued)
================================================================================
(5)(e) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a change to the fundamental investment limitation on
borrowing with respect to the corresponding portfolio of the AMR Trust.
MONEY MKT MUNI MONEY MKT GOV MONEY MKT
--------------- -------------- ---------------
For 222,003,125.310 4,071,626.000 32,904,360.120
Against 7,526,537.500 681,306.000 195,119.000
Abstain 12,004,411.080 305,272.000 0.000
Broker Non-Votes* 0.000 0.000 8,934,287.000
(5)(f) Authorized the Trust, on behalf of the Money Market Fund, to vote at a
meeting of the AMR Trust to approve a change to the fundamental
investment limitation on concentration of investments in the banking
industry with respect to the corresponding portfolio of the AMR Trust.
MONEY MKT
---------------
For 222,335,064.310
Against 7,345,953.500
Abstain 11,853,056.080
(6) Authorized the Trust, on behalf of each Fund, to vote at a meeting of the
AMR Trust to approve a Conversion Agreement.
TRUST
---------------
For 312,363,071.187
Against 20,695,326.179
Abstain 12,389,615.881
Broker Non-Votes* 20,115,849.000
- ---------------
*Certain broker-dealers, third party administrators and other intermediaries who
offer Fund shares to their clients vote on behalf of their clients in favor of
routine proposals (e.g., Proposals 1 and 4), while entering a "non-vote" for
all non-routine proposals. If the underlying clients do not themselves vote the
non-routine proposals, the shares remain in the broker non-vote category and
effectively count as "against" votes.
- --------------------------------------------------------------------------------
46
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-seven
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.
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
INTERESTED TRUSTEES
TERM
----
Lifetime of Trust
until removal,
resignation or
retirement*
William F. Quinn** (56) President and President (1986-Present) and Director (2001-Present), AMR Investment
Trustee since 1987 Services, Inc.; Chairman (1989-2003) and Director (1979-1989, 2003-Present),
and AMR Trust American Airlines Federal Credit Union; Director, Crescent Real Estate Equities,
since 1995 Inc. (1994-Present); Director, Pritchard, Hubble & Herr, LLC (investment adviser)
(2001-Present); Director of Investment Committee, Southern Methodist University
Endowment Fund (1996-Present); Member of Advisory Board, Southern Methodist
University Cox School of Business (1999-2002); Member of Pension Manager
Committee, New York Stock Exchange (1997-1998, 2000-2002); Vice Chairman,
Committee for the Investment of Employee Benefits (2004-Present); Chairman of
Defined Benefit Sub-Committee, Committee for the Investment of Employee Benefits
(1982-2004); Director, United Way of Metropolitan Tarrant County (1988-2000,
2004-Present); Trustee, American AAdvantage Select Funds (1999-Present); Trustee,
American AAdvantage Mileage Funds (1995-Present).
Alan D. Feld** (68) Trustee since 1996 Partner, Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present);
Director, Clear Channel Communications (1984-Present); Trustee, CenterPoint
Properties, Inc. (1994-Present); Trustee, American AAdvantage Select Funds
(1999-Present); Trustee, American AAdvantage Mileage Funds (1996-Present).
NON-INTERESTED TRUSTEES
TERM
----
Lifetime of Trust
until removal,
resignation or
retirement*
W. Humphrey Bogart (60) Trustee since 2004 Consultant, New River Canada Ltd. (mutual fund servicing company)
(1998-2003); Board Member, Baylor University Medical Center Foundation
(1992-2004); Trustee, American AAdvantage Select Funds (2004-Present);
Trustee, American AAdvantage Mileage Funds (2004-Present).
Brenda A. Cline (44) Trustee since 2004 Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art
Foundation (1993-Present); Trustee, Texas Christian University (1998-Present);
Trustee, W.I. Cook Foundation, Inc. (d/b/a Cook Children's Health Foundation)
(2001-Present); Trustee, American AAdvantage Select Funds (2004-Present);
Trustee, American AAdvantage Mileage Funds (2004-Present).
- --------------------------------------------------------------------------------
47
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST - (CONTINUED)
(Unaudited)
================================================================================
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
NON-INTERESTED TRUSTEES (CONT.)
Richard A. Massman (61) Trustee since 2004 Senior Vice President and General Counsel, Hunt Consolidated, Inc.
(holding company engaged in energy, real estate, farming, ranching and
venture capital activities) (1994-Present); Trustee, American AAdvantage
Select Funds (2004-Present); Trustee, American AAdvantage Mileage Funds
(2004-Present).
Stephen D. O'Sullivan (69) Trustee of Trust Consultant (1994-Present); Trustee, American AAdvantage Select Funds
since 1987 (1999-Present); Trustee, American AAdvantage Mileage Funds (1995-
and AMR Trust Present).
since 1995
R. Gerald Turner (59) Trustee since 2001 President, Southern Methodist University (1995-Present); Director,
225 Perkins Admin. Bldg. ChemFirst (1986-2002); Director, J.C. Penney Company, Inc.
Southern Methodist Univ. (1996-Present); Director, California Federal Preferred Capital Corp.
Dallas, Texas 75275 (2001-2003); Director, Kronus Worldwide Inc. (chemical manufacturing)
(2003-Present); Director, First Broadcasting Investment Partners, LLC
(2003-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;
Trustee, American AAdvantage Select Funds (2001-Present); Trustee, American
AAdvantage Mileage Funds (2001-Present).
Kneeland Youngblood (49) Trustee since 1996 Managing Partner, Pharos Capital Group, LLC (a private equity firm)
100 Crescent Court (1998-Present); Director, Burger King Corporation (2004-Present); Trustee,
Suite 1740 The Hockaday School (1997-Present); Director, Starwood Hotels and Resorts
Dallas, Texas 75201 (2001-Present); Member, Council on Foreign Relations (1995-Present);
Director, Just For the Kids (1995-2001); Director, L&B Realty Advisors
(1998-2000); Trustee, Teachers Retirement System of Texas (1993-1999);
Director, Starwood Financial Trust (1998-2001); Trustee, St. Mark's School
of Texas (2002-Present); Trustee, American AAdvantage Select Funds
(1999-Present); Trustee, American AAdvantage Mileage Funds (1996-Present).
OFFICERS
TERM
----
One Year
Brian E. Brett (44) VP since 2004 Vice President, Director of Sales, AMR Investment Services, Inc.
(2004-Present); Regional Vice President, Neuberger Berman, LLC
(investment adviser) (1996-2004).
Nancy A. Eckl (42) VP of Trust since Vice President, Trust Investments, AMR Investment Services, Inc.
1990 and AMR (1990-Present).
Trust since 1995
Michael W. Fields (50) VP of Trust since Vice President, Fixed Income Investments, AMR Investment Services, Inc.
1989 and AMR (1988-Present).
Trust since 1995
Barry Y. Greenberg (41) VP since 1995 and Vice President, Legal, Compliance and Administration, AMR Investment
Secretary since Services, Inc. (1995-Present); Director, Pritchard, Hubble & Herr, LLC
2004 (investment adviser) (2004-Present).
Rebecca L. Harris (38) Treasurer since Vice President, Finance, AMR Investment Services, Inc. (1995-Present).
1995
- --------------------------------------------------------------------------------
48
TRUSTEES AND OFFICERS OF THE TRUST
AND THE AMR INVESTMENT SERVICES TRUST - (CONTINUED)
(Unaudited)
================================================================================
POSITION, TERM OF
OFFICE AND LENGTH
OF TIME SERVED PRINCIPAL OCCUPATION(s) DURING PAST 5 YEARS
NAME, AGE AND ADDRESS WITH EACH TRUST AND CURRENT DIRECTORSHIPS
- --------------------- ------------------ -------------------------------------------
OFFICERS (CONT.)
John B. Roberson (46) VP of Trust since Vice President, Client Relations & Special Projects, AMR Investment
1989 and AMR Services, Inc. (2004-Present); Vice President, Director of Sales, AMR
Trust since 1995 Investment Services, Inc. (1991-2004); Director, Pritchard, Hubble & Herr,
LLC (investment adviser) (2001-Present).
- -----------------
* 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 Messrs. Quinn and O'Sullivan.
** Messrs. Quinn and Feld are deemed to be "interested persons" of the Trust and
AMR Trust, as defined by the 1940 Act. Mr. Quinn is President of the Manager.
Mr. Feld's law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided
legal services within the past two years to one or more of the Trust's and
AMR Trust's sub-advisers.
- --------------------------------------------------------------------------------
49
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:
o information we receive from you on applications or other forms;
o information about your transactions with us or our service providers; and
o information we receive from third parties.
We do not disclose any nonpublic personal information about our shareholders or
former shareholders to anyone, except as permitted by law.
We restrict access to your nonpublic personal information to those employees or
service providers who need to know that information to provide products or
services to you. To ensure the confidentiality of your nonpublic information, we
maintain safeguards that comply with federal standards.
- --------------------------------------------------------------------------------
50
[LOGO OF AMR]
- --------------------------------------------------------------------------------
51
[LOGO OF AMR]
- --------------------------------------------------------------------------------
52
AMERICAN
AADVANTAGE FUNDS(R)
================================================================================
DELIVERY OF DOCUMENTS
To reduce expenses, your financial institution may mail only one copy of the
Prospectus, Annual Report and Semi-Annual Report to those addresses shared by
two or more accounts. If you wish to receive individual copies of these
documents, please contact your financial institution. Delivery of individual
copies will commence thirty days after receiving your request.
If you invest in the Funds through a financial institution, you may be able to
receive the Funds' regulatory mailings, such as the Prospectus, Annual Report
and Semi- Annual Report, by e-mail. If you are interested in this option, please
go to www.icsdelivery.com and search for your financial institution's name or
contact your financial institution directly.
TO OBTAIN MORE INFORMATION ABOUT THE FUNDS:
[LOGO] [LOGO]
BY E-MAIL: ON THE INTERNET:
American_AAdvantage.Funds@aa.com Visit our website at www.aafunds.com
- --------------------------------------------------------------------------------
[LOGO] [LOGO]
BY TELEPHONE: BY MAIL:
Cash Management Class PlanAhead Class(R) Cash Management Class
Institutional Class ------------------ Institutional Class
- -------------------- Call (800) 388-3344 Platinum Class(SM) PlanAhead Class(R)
Call (800) 658-5811 ------------------ ------------------
Platinum Class(SM) American AAdvantage Funds American AAdvantage Funds
------------------- 4151 Amon Carter Blvd., MD 2450 P.O. Box 219643
Call (800) 967-9009 Fort Worth, TX 76155 Kansas City, MO 64121-9643
- --------------------------------------------------------------------------------
AVAILABILITY OF QUARTERLY PORTFOLIO SCHEDULES
In addition to the Schedule of Investments provided in each semiannual and
annual report, each Fund files a complete schedule of its portfolio holdings
with the Securities and Exchange Commission ("SEC") on Form N-Q as of the first
and third fiscal quarters. The Funds' Forms N-Q are available on the SEC's
website at www.sec.gov. The Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room, 450 Fifth Street, NW, Washington, DC 20549.
Information regarding the operation of the SEC's Public Reference Room may be
obtained by calling 1-800-SEC-0330. A complete schedule of each Fund's portfolio
holdings is also available on the Funds' website (www.aafunds.com) approximately
thirty days after the end of each fiscal quarter.
AVAILIABILITY OF PROXY VOTING POLICY AND RECORDS
A description of the policies and procedures that the Funds use to determine how
to vote proxies relating to portfolio securities is available in each Fund's
Statement of Additional Information, which may be obtained free of charge by
calling 1-800-967-9009 or by accessing the SEC's website at www.sec.gov. Each
Fund's proxy voting record for the most recent year ended June 30 is filed
annually with the SEC on Form N-PX. The Funds' Forms N-PX are available on the
SEC's website at www.sec.gov. Each Fund's proxy voting record may also be
obtained by calling 1-800-967-9009.
FUND SERVICE PROVIDERS:
CUSTODIAN TRANSFER AGENT INDEPENDENT REGISTERED DISTRIBUTOR
STATE STREET BANK AND TRUST BOSTON FINANCIAL DATA SERVICES PUBLIC ACCOUNTING FIRM FORESIDE FUND SERVICES
Boston, Massachusetts Kansas City, Missouri ERNST & YOUNG LLP Portland, Maine
Chicago, Illinois
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. PlanAhead Class and American AAdvantage Money Market Fund are
registered service marks of AMR Investment Services, Inc. Platinum Class,
American AAdvantage U.S. Government Money Market Fund, and American AAdvantage
Municipal Money Market Fund are service marks of AMR Investment Services, Inc.
- --------------------------------------------------------------------------------
533227
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.
(a)
<Table>
<Caption>
Audit Fees Fiscal Year Ended
- ---------- -----------------
$36,217 10/31/2003
$66,344 12/31/2003
$39,460 10/31/2004
$64,764 12/31/2004
</Table>
(b)
<Table>
<Caption>
Audit-Related Fees Fiscal Year Ended
- ------------------ -----------------
$0 10/31/2003
$0 12/31/2003
$3,500* 10/31/2004
$0 12/31/2004
</Table>
<FN>
* For review of the registration statement of a feeder fund to the Trust
</FN>
(c)
<Table>
<Caption>
Tax Fees Fiscal Year Ended
- -------- -----------------
$1,500* 10/31/2003
$3,000* 12/31/2003
$24,000** 10/31/2004
$0 12/31/2004
</Table>
<FN>
* For review of 2002 tax returns
** For professional services related to the collectibility of tax reclaims
in France
</FN>
(d)
<Table>
<Caption>
All Other Fees Fiscal Year Ended
- -------------- -----------------
$0 10/31/2003
$0 12/31/2003
$0 10/31/2004
$0 12/31/2004
</Table>
(e)(1) Pursuant to its charter, the Trust's audit committee shall have the
following duties and powers pertaining to pre-approval of audit and
non-audit services provided by the Trust's principal accountant:
- to approve, prior to appointment, the engagement of auditors to
annually audit and provide their opinion on the Trust's financial
statements, and, in connection therewith, to review and evaluate
matters potentially affecting the independence and capabilities of
the auditors;
- to approve, prior to appointment, the engagement of the auditors to
provide non-audit services to the Trust, an investment adviser to
any series of the Trust or any entity controlling, controlled by,
or under common control with an investment adviser that provides
ongoing services to the Trust, if the engagement relates directly
to the operations and financial reporting of the Trust;
- to review the arrangements for and scope of the annual audit and
any special audits; and
- to review and approve the fees proposed to be charged to the Trust
by the auditors for each audit and non-audit service.
The audit committee may delegate any portion of its authority, including the
authority to grant pre-approvals of audit and permitted non-audit services,
to a subcommittee of one or more members. Any decisions of the subcommittee
to grant pre-approvals shall be presented to the full audit committee at its
next regularly scheduled meeting.
(e)(2) None of the fees disclosed in paragraphs (b) through (d) above were
approved by the audit committee pursuant to paragraph (c)(7)(i)(C) of
Rule 2-01 of Regulation S-X.
(f) Not applicable.
(g)
<Table>
<Caption>
Aggregate Non-Audit Fees for Services Rendered to the:
- ------------------------------------------------------
Adviser's Affiliates Providing
Registrant Adviser Ongoing Services to Registrant Fiscal Year Ended
- ---------- ------- ------------------------------ -----------------
$1,500 $0 N/A 10/31/2003
$3,000 $0 N/A 12/31/2003
$27,500 $0 N/A 10/31/2004
$0 $0 N/A 12/31/2004
</Table>
(h) Not applicable.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
Not applicable.
ITEM 6. SCHEDULE OF INVESTMENTS.
The schedules of investments for the Money Market Portfolio, the Municipal
Money Market Portfolio and the U.S. Government Money Market Portfolio of the
American Beacon Master Trust (formerly known as the AMR Investment Services
Trust) are included in the American AAdvantage Funds shareholder report
presented in Item 1.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES.
Not applicable.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Trust has made no material changes to the procedures by which shareholders
may recommend nominees to the Trust's Board of Trustees since the Trust last
disclosed such procedures in Schedule 14A.
ITEM 11. CONTROLS AND PROCEDURES.
(a) 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.
(b) There were no changes in the Trust's internal control over financial
reporting during the second fiscal quarter of the period covered by
this report that has materially affected, or is reasonably likely to
materially affect, the Trust's internal control over financial
reporting.
ITEM 12. 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.
(a)(3) Not applicable.
(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 Beacon Master Trust
By /s/ William F. Quinn
--------------------
William F. Quinn
President
Date: March 9, 2005
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: March 9, 2005
By /s/ Rebecca L. Harris
---------------------
Rebecca L. Harris
Treasurer
Date: March 9, 2005