[Federal Register Volume 61, Number 110 (Thursday, June 6, 1996)]
[Notices]
[Pages 28912-28914]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-14178]



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SECURITIES AND EXCHANGE COMMISSION
[Investment Company Act Rel. No. 21995; 812-9974]


American AAdvantage Funds, et al.; Notice of Application

May 30, 1996.
AGENCY: Securities and Exchange Commission (``SEC'').

ACTION: Notice of Application for Exemption under the Investment 
Company Act of 1940 (``Act'').

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APPLICANTS: Amrican AAdvantage Funds (the ``AAdvantage Trust''), 
American AAdvantage Mileage Funds (the ``Mileage Trust''), AMR 
Investment Services Trust (the ``AMR Trust,'' collectively with the 
AAdvantge Trust and the Mileage Trust, the ``Trusts''), and AMR 
Investment Services, Inc. (``Manager''), on behalf of themselves and 
all future investment companies or series funds of the Trusts that 
employ the ``multi-manager'' structure described in the application and 
are advised by the Manager or an entity controlling, controlled by, or 
under common control (within the meaning of section 2(a)(9) of the Act) 
with the Manager.

Relevant Act Sections: Exemption requested under section 6(c) of the 
Act from the provisions of section 15(a) and rule 18f-2.

SUMMARY OF APPLICATION: Applicants seek a conditional order permitting 
the Manager, as investment adviser to the Trusts, to enter into sub-
advisory contracts on behalf of one or more series funds of the Trusts 
without obtaining prior shareholder approval.

FILING DATES: The application was filed on January 29, 1996, and 
amended on May 6, 1996.

HEARING OR NOTIFICATION OF HEARING: An order granting the application 
will be issued unless the SEC orders a hearing. Interested persons may 
request a hearing by writing to the SEC's Secretary and serving 
applicants with a copy of the request, personally or by mail. Hearing 
requests should be received by the SEC by 5:30 p.m. on June 24, 1996, 
and should be accompanied by proof of service on applicants, in the 
form of an affidavit or, for lawyers, a certificate of service. Hearing 
requests should state the nature of the writer's interest, the reason 
for the request, and the issues contested. Persons who wish to be 
notified of a hearing may request such notification by writing to the 
SEC's Secretary.

ADDRESSES: Secretary, SEC, 450 Fifth Street, NW., Washington, DC 20549. 
Applicants, 4333 Amon Carter Boulevard, MD 5645, Forth Worth, Texas 
76155.

FOR FURTHER INFORMATION CONTACT:
Courtney S. Thornton, Senior Counsel, at (202) 942-0583, or David M. 
Goldenberg, Branch Chief, at (202) 942-0564 (Division of Investment 
Management, Office of Investment Company Regulation).

SUPPLEMENTARY INFORMATION: The following is a summary of the 
application. The complete application may be obtained for a fee from 
the SEC's Public Reference Branch.

Applicants' Representations

    1. The AAdvantage Trust, which currently has eight series funds 
(the ``AAdvantage Funds''), and the Mileage Trust, which currently has 
seven series funds (the ``Mileage Funds,'' collectively with the 
AAdvantage Funds, the ``Funds''), are Massachusetts business trusts 
registered under the Act as open-end management investment companies. 
Each Fund is a separate investment series of the AAdvantage Trust or 
the Mileage Trust and has distinct investment objectives and policies. 
Because applicants believe that returns can be enhanced by careful 
selection and blending of styles of several investment managers within 
a single asset class, three of the Funds have operated as ``multi-
manager'' funds (the ``Multi-Manager Funds'') since their organization 
in 1987. Each of the Multi-Manager Funds has relied upon at least two 
sub-advisers with different investment styles (the ``Money Managers'') 
for the provision of investment advisory services.
    2. The Funds implemented a ``master-feeder'' structure on November 
1, 1995. Under this structure, each Fund (other than the American 
AAdvantage Short-Term Income Fund, which invests directly in investment 
securities) invests all of its investable assets in a corresponding 
series fund (``Portfolio'') of the AMR Trust, a New York common law 
trust that is registered under the Act as an open-end management 
investment company.\1\ Each of the seven Portfolios has investment 
objectives identical to those of the corresponding Funds.
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    \1\ Interests in the AMR Trust are offered to the Advantage 
Trust and the Mileage Trust pursuant to an exemption from 
registration under the private offering exemption contained in 
section 4(2) of the Securities Act of 1933.
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    3. With the conversion of the majority of the Funds to a master-
feeder structure, the three Portfolios in which the Multi-Manager Funds 
invest were structured as multi-manager investment vehicles employing 
tow or more Money Managers (the ``Multi-Manager Portfolios''). Each 
Money Manager provides investment advisory services for the Multi-
Manager Portfolios and their corresponding Funds pursuant to a separate 
investment advisory agreement (the ``Money Manager Agreement'') with 
the Manager, who pays the fees of the Money Managers out of the 
investment advisory fees it receives from the Trusts. As long as a Fund 
invests all of its investable assets in a corresponding Multi-Manager 
Portfolio, however, a Money Manager will receive an advisory fee only 
on behalf of the Multi-Manager Portfolio and not on behalf of the 
corresponding Fund(s). The Manager currently serves as the sole 
investment adviser to the non-Multi-Manager Portfolios, to which the 
requested relief will not apply unless they elect to employ two or more 
Money Managers.
    4. The Manager, a wholly-owned subsidiary of AMR Corporation, the 
parent corporation of American Airlines, Inc., is registered as an 
investment adviser under the Investment Advisers Act of 1940. The 
Manager provides the Trusts with administrative and asset management 
services, including the oversight of all investment advisory and 
portfolio management services for the Funds and the Portfolios pursuant 
to investment advisory contracts (the ``Management Agreements''). 
However, as a result of the master-feeder structure, all investment 
management for the Multi-

[[Page 28913]]

Manager Funds takes place at the Portfolio level, rather than at the 
Fund level. As part of its responsibilities, the Manager recommends and 
supervisors the Money Managers, subject to the oversight and approval 
of the board of trustees (the ``Board'') of the applicable Trusts. To 
discharge its duties, the Manager from time to time recommends the 
replacement or addition of Money Managers and/or changes in the Money 
Manager Agreements.
    5. At a recent shareholders meeting, shareholders of the Funds and 
the Portfolios approved the adoption of a policy that would permit the 
Manager to hire Money Managers and modify Money Manager Agreements 
solely with Board approval, without prior shareholder approval. 
Accordingly, applicants request an exemption from section 15(a) and 
rule 18f-2 to permit the Money Managers to act as investment advisers 
to one or more Portfolios or Funds pursuant to a written contract that 
has not been approved by the shareholders of the applicable Portfolios 
or Funds.\2\
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    \2\ The requested relief would not apply to any of the Funds 
unless they decide to invest their assets directly and employ two or 
more Money Managers to provide investment advisory services as 
described in the application.
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Applicants' Legal Analysis

    1. Section 15(a) of the Act makes it unlawful for any person to act 
as investment adviser to a registered investment company except 
pursuant to a written contract that has been approved by a majority of 
the investment company's outstanding voting securities. Rule 18f-2 
provides that each series or class of stock in a series company 
affected by a matter must approve such matter if the Act requires 
shareholder approval.
    2. Applicants assert that by choosing the invest in a Fund that 
invests its assets in a Multi-Manager Portfolio, investors have 
indicated their reliance upon the Manager to select and monitor the 
Portfolio's sub-advisers. Applicants believe that unless the Multi-
Manager Portfolios have the ability to act promptly upon the Manager's 
recommendations with respect to the Money Managers, investors' 
expectations are frustrated and the Funds and their shareholders could 
be seriously disadvantaged in certain circumstances.
    3. Applicants contend that the structure of the Multi-Manager 
Portfolios is unlike that of a conventional mutual fund in that it 
divides responsibility for general management and investment advisory 
services between the Manager and the Money Managers. Applicants argue 
that because shareholders rely upon the Manager to manage the 
Portfolios' sub-advisers, the selection or change of a Money Manager is 
not an event that significantly alters the nature of shareholders' 
investment, nor does it implicate the policy concerns regarding 
shareholder approval. Applicants assert that investors will continue to 
exercise control over their relationship with the Manager, the party 
they have chosen to hold accountable for investment results and related 
services, by voting on matters relating to the Management Agreement.
    4. Applicants believe that requiring shareholder approval of a new 
or amended Money Manager Agreement prior to its effective date is not 
necessary to effect the policies and purposes of the act, particularly 
as doing so will increase expenses and delay prompt implementation of 
action the Manager has determined is most beneficial to the 
shareholders of the Multi-Manager Portfolios and the corresponding 
Funds. Applicants also assert that even though shareholders will not 
vote on Money Manager changes, they will receive an information 
statement that includes all the information about a new Money Manager 
or Money Manager Agreement that would be included in a proxy statement. 
In addition, applicants state that all fees payable by the Manager to 
the Money Manager will be disclosed in the prospectus of the applicable 
Fund.
    5. Finally, applicants argue that, unlike the normal fund/adviser 
relationship, the relationship between the Manager and a Money Manager 
is entirely arm's length. Applicants assert that the terms of the 
requested order will ensure that there can be no significant financial 
interest between the directors, officers, and trustees of the Trusts 
and the Manager and the Money Managers themselves (other than through a 
pooled investment vehicle that is not controlled by any such director, 
officer, or trustee).
    6. Section 6(c) of the Act provides that the SEC may exempt any 
person, security, or transaction from any provision of the Act, if and 
to the extent that such exemption is necessary or appropriate in the 
public interest and consistent with the protection of investors and the 
policies and purposes fairly intended by the policies and provisions of 
the Act. Applicants believe that the requested relief meets this 
standard.

Applicants' Conditions

    Applicants agree that the requested exemption will be subject to 
the following conditions:
    1. Before a Fund or a Portfolio may rely on the order requested in 
the application, the operation of the Fund or the Portfolio in the 
manner described in the application will be approved by a majority of 
the outstanding voting securities, as defined in the Act, of the Fund 
and the Portfolio or, in the case of a new Fund whose public 
shareholders purchased shares on the basis of a prospectus containing 
the disclosure contemplated by condition 2 below, by the sole initial 
shareholder(s) before offering shares of such Fund to the public.
    2. Any Fund relying on the requested relief will disclose in its 
prospectuses the existence, substance, and effect of any order granted 
pursuant to the application.
    3. The Manager will provide management and administrative services 
to the Funds and the Portfolios, and, subject to the review and 
approval of their respective Boards, will: set the overall investment 
strategies of the Funds and the Portfolios; recommend Money Managers; 
allocate, and when appropriate, reallocate the assets of the Funds and 
the Portfolios among Money Managers; monitor and evaluate the 
investment performance of the Money Mangers, including their compliance 
with the investment objectives, policies, and restrictions of the Funds 
and the Portfolios; and manage short-term investments of the Funds and 
the Portfolios.
    4. A majority of each Board will be persons each of whom is not an 
``interested person'' of the Trust (as defined in section 2(a)(19) of 
the Act) (the ``Independent Trustees''), and the nomination of new or 
additional Independent Trustees will be placed within the discretion of 
the then existing Independent Trustees.
    5. The Trusts will not enter into Money Manager Agreements with any 
Money Manager that is an ``affiliated person,'' as defined in section 
2(a)(3) of the Act, of the Funds, the Portfolios, or the Manger other 
than by reason of serving as a Money Manager to one or more of the 
Funds or the Portfolios (an ``Affiliated Money Manager'') without such 
agreement, including the compensation to be paid thereunder, being 
approved by the shareholders of the applicable Fund and Portfolio.
    6. When a change of Money Manager is proposed for a Fund or a 
Portfolio with an Affiliated Money Manager, the Board of the applicable 
Trust, including

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a majority of the Independent Trustees, will make a separate finding, 
reflected in the Board minutes of the Trust, that any such change of 
Money Manager is in the best interest of the Trust and its shareholders 
and does not involve a conflict of interest from which the Manager or 
Affiliated Money Manager derives an inappropriate advantage.
    7. No director, trustee, or officer of a Trust or the Manager will 
own directly or indirectly (other than through a pooled investment 
vehicle that is not controlled by any such director, trustee, or 
officer) any interest in a Money Manager except for ownership of 
interests in the Manager or any entity that controls, is controlled by, 
or under common control with the Manager, or ownership of less than 1% 
of the outstanding securities of any class of equity or debt securities 
of any publicly traded company that is either a Money Manager or 
controls, is controlled by, or is under common control with a Money 
Manager.
    8. Within 90 days of the hiring of any new Money Manager or the 
implementation of any proposed material change in a Money Manager 
Agreement, the affected Fund and Portfolio will furnish their 
shareholders with all information about the new Money Manager or Money 
Manager Agreement that would be included in a proxy statement. Such 
information will include any change in such disclosure caused by the 
addition of a new Money Manager or any proposed material change in the 
Money Manager Agreement of a Fund or a Portfolio. The Fund and the 
Portfolio will meet this condition by providing shareholders, within 90 
days of the hiring of a Money Manager or the implementation of any 
material change to the terms of a Money Manager Agreement, with an 
information statement meeting the requirements of Regulation 14C and 
Schedule 14C under the Securities Exchange Act of 1934 (the ``Exchange 
Act''). The information statement also will meet the requirements of 
Item 22 of Schedule 14A under the Exchange Act.

    For the SEC, by the Division of Investment Management, under 
delegated authority.
Jonathan G. Katz,
Secretary.
[FR Doc. 96-14178 Filed 6-05-96; 8:45 am]
BILLING CODE 8010-01-M