TWA Pilots’ DAP/401(k) Plan Quarterly Review alpa July 1997 Your DAP/401(k) Portfolio Dr. Jekyll or Mr. Hyde?

ight now, your DAP/401(k) holdings, the more , or risk, portfolio has a risk/return you should expect. The Moderate personality. But is it the Model Portfolio includes 65% A Message from the R one you gave it or has it . Captain Doe’s portfolio Investment Committee developed one of its own over time? contains 82-1/2% stocks, exposing With this anniversary issue of “Heads Up,” Are you overdiversified? Taking on him to more volatility risk from the the TWA Pilots DAP/401(k) Plan more risk than you have to? Have fluctuations of the market Investment Committee marks four full you added new funds without over the past three years. Since his years of operation under the self-directed reviewing your objectives? Or is your mix earned a slightly higher return, account structure put into place July portfolio out of balance because of you might ask yourself, “Was the 1, 1993. This -sought change in the the recent stock market boom? extra risk worth it?” former TWA Pilots Trust Annuity Plan (or Many TWA pilots may think they Suppose the stock markets had “B Plan”) was the culmination of persistent are taking conservative or moderate declined during this period. Captain efforts by a number of TWA pilots, working risks with their retirement savings Doe’s return would likely have in officer, representative and MEC because they started out with one of lagged behind the Moderate Model committee positions of the Air Line Pilots the Model Portfolios. They don’t because his portfolio had a greater Association, to provide a substantially count the stand-alone funds they exposure to stocks. If Captain Doe’s improved retirement investment vehicle added in the meantime, the return had been significantly higher for TWA pilots. We believe that the TWA selection they made through the than the Model Portfolio, he could Pilots DAP/401(k) Plan has met or Fidelity Funds Window, or the way justify the added risk. Otherwise, exceeded the expectations of these pilots in their modest stand-alone additions Captain Doe may want to recon- every respect, and we would like to have grown in value. sider his . If he acknowledge their role in bringing this In the aggregate, a portfolio’s total believes, for example, that interna- state-of-the-art retirement plan into return is the sum of its weighted tional or growth stocks are going to existence. While their names are too components’ returns. For example, increase in value faster, he might numerous to be listed here, they should “Captain John Doe” holds a stand pat. Otherwise, by selecting a and will be remembered by all TWA pilots portfolio with 50% in the Moderate Model Portfolio, he may realize for their vision and devotion to the highest Model Portfolio, 25% in the similar returns without risking so traditions of the Air Line Pilots Association. International Stock Fund and 25% much of his assets to stock Over the last four years, your Investment in the Fund. His volatility. Committee (composed of pilot, company, portfolio’s return will be the sum of A Simple Exercise and outside investment professional half the Moderate Model Portfolio members) has been mindful of the trust Use the table on page 2 to return, and a quarter each of the you have placed in us and the Plan staff to determine the equity exposure of International Stock and Growth ensure that your DAP/401(k) accounts are your own portfolio. Stock Funds’ returns. Suppose he administered to the very highest standards. wants to roughly estimate a 3- We believe we have achieved that year total return for that Portfolio Weight in 3-year Fund Weighted objective, and we are confident that the Investments Portfolio Return Return portfolio (see table to the right). (From (Weight in Portfolio x retirement investment vehicles provided to Heads Up) Fund Return) In this example, Captain Doe’s the TWA pilots in this plan are as good or Moderate 50% 12.53% 6.27% better than any available in the defined portfolio actually outperformed Model the Moderate Portfolio by a few contribution plan industry. We hope you International 25% 7.87% 1.97% are pleased with the results of our efforts, basis points. But at what Stock and that you are finding your personal increase in risk? You can Growth 25% 17.33% 4.33% consider exposure to the Stock financial goals more attainable through increased volatility of stocks as TOTAL 100% — 12.57% your participation in this very special a yardstick for risk—the higher defined contribution retirement plan, Source: TWA Pilots’ DAP 401(k) 3 year annualized designed by TWA pilots, for TWA pilots. your percentage of equity performance as reported in March 1997 “Heads Up.”

Continued on page 2

HEADS UP • JULY 1997 1 Your DAP/401(k) Portfolio cont. from front DAP/401(k) News 1. Identify the plan options you use and write averaged more than a percent less return New Fund Components the percentage of each in Column 2. than the Aggressive Model Portfolio at Since January 1, 1997, three new Example: Suppose a portfolio contains 20% the same exposure to equities. Moreover, , 45% Equity , funds have been added to the it would have also underperformed the 15% International Stock Fund, and 20% DAP/401(k) Plan options. Aggressive Growth Fund. Enter these Moderate Model Portfolio that has even percentages in Column 2. less exposure to equities. ■ In the International Fund, Janus Overseas replaces the Morgan 1234567 Stanley Emerging Markets and Morgan Stanley Instl Asia ex-Japan. Percent Percent of Stock/Stable Simulated Percent Weighted Option Invested Option Value Average Equity Average ■ In the Aggressive Stock Fund, the in Option in Stocks Ratio Annual Exposure Annual Return* Return* MFS Instl Emerging Equities and Franklin Small Cap Stable Value Example: 20% 0% 0/100 9.46% Example: 0% Example: 1.9% Growth replace American Century Conservative 100% 100/0 16.23% Equity Income 20th Vista and PIMCO Equity Index Example: 45% 100% 100/0 15.59% Example: 45% Example: 7% Opportunity. Growth Stock 100% 100/0 15.26% Please see the back page for fund International Example: 100% 100/0 13.83% Example: Example: component weightings. Stock Fund 15% 15% 2.1% Aggressive Example: 100% 100/0 14.22% Example: Example: Transfer Fees Growth Stock 20% 20% 2.8% Please remember that 12 transfers are Conservative 40% 40/60 12.53% Model Portfolio permitted per year, per plan. Additional activity will be charged at Moderate 65% 65/35 14.00% Model Portfolio $100 per transfer. For 1997, the Agressive 80% 80/20 14.85% numbers began accruing May 1. Model Portfolio Fidelity Funds 100% 100/0 ? Plan Communications Notebook Window** If you have lost or misplaced your TOTALS Example: Example: Example: Plan Communications Notebook, you 100% 80% 13.8% may order a new one for $15 from the Source: Simulated average annual returns based on 18-year results of the DAP/401(k) Funds’ benchmarks: ML DAP/401(k) Plan office at Govt. Agency 1-2.99 (Stable Value Fund), Russell 1000® Value Index (Conservative Equity Income Fund), 314-739-7373. Wilshire 5000 Index (Equity Index Fund), Russell 1000® Growth Index (Growth Stock Fund), MSCI EAFE Index ® (International Stock Fund), Russell 2000 Index (Aggressive Growth Stock Fund). Retirees Nearing Age 70-1/2... **Try to get as close to 18-year history with your Fidelty Funds, or their benchmarks, as you can. Please double-check your DAP/401(k) 2. Multiply Column 2 by the percentage of Model Portfolios beneficiary form for accuracy. If it is stocks in that fund shown in Column 3. not up-to-date, your minimum distrib- Enter the answer in Column 6. Does your portfolio’s equity exposure ution may be higher than necessary. Example: 20% Stable Value Fund x 0% equal or exceed that of any of the Model equity = 0% Portfolios? How do your returns Contact Benefits Express to review 45% Equity Index Fund x compare? If you have more equity your form or file a new one. 100% equity = 45% exposure and a lower or similar return, ALPA Retirement Planning Kit 15% International Fund x you may want to revisit your asset 100% equity = 15% allocation. Even if you have a higher Please contact TWA MEC Benefits 20% Aggressive Growth Fund x equity exposure and a higher return, it’s Specialist Mary Ulett at (314) 770- 100% equity = 20% always a good idea to review your needs, 8500 or CompuServe at 73714,64 to 3. Multiply Column 2 by your funds’ receive your kit. Include a payroll simulated average annual returns shown in risk tolerance and time horizon to Column 5. Enter the answers in Column 7. ensure your equity exposure is appro- number, intended retirement date and Example: 20% Stable Value Fund x 9.46% priate for you. your spouse’s name and birth date with your request. HU = 1.9% The Model Portfolios are highly diver- 45% Equity Index Fund x 15.59% = 7% sified, automatically rebalanced and 15% International Fund x have performed well when compared to 13.83% = 2.1% investment, but be sure to consistently their benchmark. You may want to 20% Aggressive Growth Fund x monitor your equity exposure. You may 14.22% = 2.8% consider re-allocating to the Model increase your risk/return potential with Portfolio that best suits your objectives. 4. Total Column 6 and then Column 7. other DAP/401(k) funds or decrease the Compare the equity exposure and Those who want to craft a portfolio risk/return potential by adding some of weighted return for your portfolio to the more precisely may choose from among the Stable Value Fund. Either way, you Model Portfolios alone. How do your the six stand-alone options or the 44 want to be in control of your equity exposure and return compare? Fidelity mutual funds available through DAP/401(k) investments. HU As you can see, over an eighteen year the Fidelity Funds Window. One of the period, this example portfolio would have Model Portfolios can be used as a core

2 HEADS UP • JULY 1997 Reviewing the DAP/401(k)’s Investment Options

Following is a brief review of each Growth Stock Fund Conservative Portfolio investment option and a performance comparison with its benchmark over the This option invests in stocks from Designed for who wish to limit past four years (annualized numbers, companies with higher historical or volatility and risk of principal, this July 1, 1993 through June 30, 1997). expected growth rates in sales or option invests in a 40% equity/60% earnings. The primary objective is capital stable value combination. The fund’s Plan Assets* appreciation. This is achieved by objective is income and capital preser- July 1, 1993 June 30, 1997 investing in securities of established, well vation. The benchmark is a composite of 401(k) $72 $160.6 known companies and smaller, lesser the underlying funds’ indexes. DAP $767 $1,153.9 known companies. The benchmark is Four-year performance comparison the Russell 1000® Growth Index. * In millions Benchmark 10.97% Four-year performance comparison Fund 10.92% Benchmark 21.58% Stable Value Fund Fund 17.59% Moderate Portfolio This option is designed to provide Designed to provide a balanced long- liquidity and safety of principal while International Stock Fund providing a higher return over time than term asset allocation suitable for a that offered by money market funds. It This option contains funds whose majority of participants, this option invests in a combination of traditional managers invest in securities across invests in a 65% equity/35% stable value investment contracts, -backed world markets. It may contain broadly mix. Its objective is capital growth and investment contracts, actively managed diversified portfolios and/or portfolios of income. Generally, more money is bonds and cash. The benchmark is the managers who have shown successful invested in this option than any other in Merrill Lynch 1-3 Year Government results in making more concentrated the plan. The benchmark is a composite Agency Index. country/currency/company investments. of the underlying funds’ indexes. The primary objective is longer-term Four-year performance comparison Four-year performance comparison growth of capital through a diversified Benchmark 5.38% Benchmark 13.74% portfolio of world market securities. The Fund 13.38% Fund 6.03% benchmark is the Morgan Stanley Capital International Europe Asia Far Conservative Equity Income Fund East (MSCI EAFE) Index. Aggressive Portfolio This option may include a range of value Four-year performance comparison Designed for participants with long time investment managers such as equity Benchmark 11.36% horizons and those willing to accept income, growth and income, etc. This Fund 14.92% more risk and higher volatility in their option avoids using managers whose investments. This option invests in an 80% equity/20% stable value mix. The style is viewed as speculative or who Aggressive Growth Stock Fund concentrate assets in single industries or fund’s objective is capital accumulation. sectors. It includes funds with the This option contains portfolios that The benchmark is a composite of the common attributes of relatively low typically include growth stocks of small underlying funds’ indexes. volatility and reasonable yields. to medium companies. The primary Four-year performance comparison The benchmark is the Russell 1000® objective is capital appreciation through Benchmark 15.17% Value Index. investment in equity securities with Fund 14.51% significantly better-than-average growth Four-year performance comparison prospects. This fund carries more risk, Benchmark 19.38% but the potential for higher returns, than Fidelity Funds Window Fund 17.57% the other DAP/401(k) funds. The This option allows DAP participants to benchmark is the Russell 2000® Index. invest in 44 mutual funds offered by Equity Index Fund Four-year performance comparison Fidelity Institutional Retirement Services This option is invested in a portfolio of Benchmark 15.94% Company. Participants may allocate diversified common stocks designed to Fund 14.47% between 1% and 100% of their money provide a return similar to that of the from the basic DAP options into a wide variety of mutual funds. There are broad stock market. The benchmark is TWA Stock Fund the Wilshire 5000 Index. approximately 500 DAP participants This fund is designed to give 401(k) with a total of $124.9 million currently Four-year performance comparison participants the opportunity to invest in the Fidelity Funds Window option. Benchmark 19.80% their retirement savings in TWA stock. HU Fund 19.35% The fund holds both TWA and cash for liquidity. Because it Note: Fund performance is reported net of invests in a single company stock, this all plan expenses. Benchmarks do not have fund carries the highest risk of all funds management or administrative fees. in the 401(k) plan.

HEADS UP • JULY 1997 3 TWA Pilots’ DAP/401(k) Plan Quarterly Review alpa July 1997

Fund Perf. Fund Perf. Fund Perf. Market Perf. Market Perf. Market Perf. TWA Pilots Directed Account Plan YTD 1 Year 3 Year Ann YTD 1 Year 3 Year Ann Stable Value Conservative Equity Index Fund Growth Stock Fund International Aggressive Growth Conservative Moderate Aggressive Fund Equity Income Fund Stock Fund Stock Fund Portfolio Portfolio Portfolio 35%

29.43% 30% 27.44% 26.27% 25.28% 25% 23.08% 23.77% 21.20% 21.27% 20% 18.03% 18.57% 17.32% 17.40% 16.83% 15.20% 14.95% 14.51% 15% 13.35% 13.37% 13.81% 10.07% 10.60% 10% 8.47% 6.54% 6.67% 6.03% 4.22% 5% 3.15%

0% Merrill Lynch Russell 1000® Wilshire 5000 Russell 1000® MSCI EAFE Russell 2000® Conservative Moderate Aggressive 1-3 Yr. Gov’t Agency Value Index Index Growth Index Index Index Composite Index Composite Index Composite Index

How To Read Performance: The graphic display above shows fund performance as arrows and shows market performance, represented by the benchmarks, as bars. Fund and market performance YTD runs through June 30, 1997. Fund performance is reported net of all expenses. One-year perfor- mance runs from July 1, 1996 through June 30, 1997. Three-year annualized performance runs from July 1, 1994 through June 30, 1997.

FUND COMPONENT WEIGHTING For New DAP/401(k) Investors: Making Ends Meet These tables represent component weighting for individual investment funds as of June 30, 1997. Weighting percentage does not include growth index fund target of $20 million. Starting out is difficult for many people. Value of First Year’s Savings Stable Value Fund Weighting Finding extra money can be a real Cash/BGI Money Market 5% challenge for any pilot on a first year’s One Year’s Total Total Total PRIMCO GIC 45% DAP After After After Wellington Bonds Liq 10%/Core 40% wage. Regardless, there can be real long Contributions Year 1 Year 25 Year 30 Conservative Equity Fund term benefits if you can get active in You don’t $864 ($825 $9,429 $15,514 BGI 100/0 U.S. TAA 20% your DAP/401(k) Plan right away. In fact, contribute, times one year’s Federated Stock Trust 20% you could earn much more than your but TWA growth at 10% Morgan Core 20% contributes real return) Neuberger/Berman Guardian 20% first year’s income—if you’re willing to 3.3% of a USAA Income Stock 20% make the sacrifice now and wait until $25,000 Equity Index Fund retirement for the payoff. income to BGI U.S. Equity Index 100% the DAP Growth Stock Fund As a first year pilot, TWA will contribute You con- $3,743 (TWA’s $40,856 $67,213 Fidelity Contrafund 20% 3.3% of your income to the DAP. For a tribute $825 plus your Fidelity OTC 20% 11% and $2,750 times one Janus Fund 20% $25,000 a year income, that amounts to TWA con- year’s growth at MFS Research 20% $825 or so. tributes 3.3% 10% real return) Vanguard US Growth 20% BGI Growth Index In the first year, you may contribute Real assumes a 14% rate of return International Stock Fund 11% of your income to the 401(k) Plan. minus 4% for inflation. Future totals are in today’s Am Century - 20th International GR 25% Regardless of what happens from year dollars. EuroPacific Growth 25% Janus Overseas 20% two onward until retirement, the table Templeton Foreign 30% to the right offers one view of what you your income, for income tax purposes, Aggressive Growth Stock Fund may expect at retirement based on your by the amount you contribute to the AIM Constellation 16.7% first year’s activity in the plan. 401(k) Plan. HU BGI Aggressive Market Index 16.6% DFA 9-10 US Small Co. 16.6% From the second year on, TWA’s contri- Franklin Small Cap Growth 16.7% Heartland Value 16.7% bution to the DAP increases to 14.3%. The intent of this communication is to provide useful MFS Instl Emerging Equities 16.7% You may contribute up to 10.7% to the information, not investment advice. Each participant in the TWA Pilots’ DAP/401(k) Plan is ultimately respon- Net Value of Funds (Millions) 401(k) DAP 401(k) in 1998 and beyond. As your sible to make his or her own investment decisions. (June 30, 1997) income increases, so will the amount of More Information and Interacting with the Plan: Stable Value Fund $25.2 $133.3 To get account balance information, or to make transfers, Conservative Equity Fund 33.8 84.8 money TWA contributes toward your call 1-800-828-8100 between 8 am and 5 pm, CST Monday Equity Index Fund 14.1 71.1 retirement savings. You, naturally, through Friday. 1-847-883-0471 (not toll-free) from rotary Growth Stock Fund 12.8 63.0 telephone or outside the U.S. Use company I.D. 6662 control your ultimate future wealth by followed by the # sign. Daily NAV, call International Stock Fund 18.3 64.8 1-800-TWA-2017 (toll-free). Fidelity Funds 1-800-881-4015. Aggressive Growth Stock Fund 26.0 54.1 how you invest these contributions and Other Information: Conservative Portfolio 2.5 32.2 how much you choose to contribute to Moderate Portfolio 16.9 502.0 TWA Pilots’ DAP 401(k) Investment Committee Aggressive Portfolio 5.6 23.7 the 401(k) Plan. You can pay yourself a 3221 McKelvey Road, Suite 105 Fidelity Funds Window — 124.9 lot of money at retirement by Bridgeton, MO 63044-2551 alpa TWA Company Stock 5.4 — contributing early. Also, you can lower 314-739-7373 Total 160.6 1,153.9

4 HEADS UP • JULY 1997 © 1997, Frank Russell Trust Company Printed on Recycled Paper www.russell.com !