TWA, Inc. has notified the TWA Pilots DAP/401(k) Board of Directors that the 401(k) Plan will be terminated, as called for in the TWA/American Purchase Agreement, on October 31, 2001. This means that plan assets must be liquidated and distributed to plan participants by that date. Please read this communication carefully to find out how the termination will affect you.

You have a number of options depending on your status in the 401(k) plan. No action is required on your DAP account. The DAP is not affected by the 401(k) termination.

1) You have the option to transfer your 401(k) assets to the Directed Account Plan. The Directed Account Plan has been restructured to operate independent of TWA Inc., American Airlines, or ALPA. An independent Board of Directors consisting of two pilot participants of the DAP, two TWA Credit Union officers, and three independent directors has the fiduciary responsibility to operate the plan under ERISA, IRS, and DOL guidelines. The DAP has always been governed by a Board of Directors so there should be little change in the future DAP operations. The DAP will continue “business as usual” with the same low cost structure and flexible investment options.

2) You have the option to transfer your 401(k) assets to an IRA or other qualified plan such as Supersaver, if you are an active employee of the employer.

401(k) Fidelity Funds Window/Brokerage

If you have 401(k) assets with Fidelity, you must move those assets back to the core 401(k) prior to any rollover or transfer to the DAP. Call Benefits Express by September 14th to request a 100% transfer from the Fidelity Fund Window to the 401(k). A second call to Fidelity is necessary if you have assets in the Brokerage Option. Brokerage positions must be liquidated and the money moved to the Fidelity Money Market prior to the transfer back to the core 401(k).

The 401(k) will be terminated with all assets distributed by October 31, 2001.

Default Option

Participants who fail to make any election by October 19th, will have their balance including loan(s) moved to the DAP. Investments in the 401(k) will be moved to the same investment option in the DAP on October 29th.

Distribution forms for requesting a transfer or rollover are available from Benefits Express at 1-877-489-2327 or www.4twadap.com.

Summary

• Decide where you want to invest your 401(k) assets.
• Move your Fidelity Fund Window assets back to the 401(k) if applicable (recommend you request this by September 14th).
• Distribution requests are executed on the Friday of the week that the completed paperwork is received by Benefits Express. Checks are mailed from the trust by UPS to street addresses or Express Mail to PO Boxes on the following Thursday.
• No action on your part will result in defaulting your 401(k) balance to corresponding options in the DAP on October 29th.
• Distributions from the 401(k) since May have been approximately 65% to the DAP, 20% to outside IRAs, and 15% to Supersaver.

Note: Access to your 401(k) account via the Benefits Express Web Site will not be available after September 26, 2001.

Thank you for reviewing this important communication. No one anticipated a 401(k) plan termination, however all the same investment options at the same low cost remain available in the DAP.

Call me at (314) 739-7373 with any questions.

Joe Montanaro

Executive Director

We have received a few inquiries about costs since the pilots are now being faced with stay or move decisions in reference to their DAP/401(k). The Board of Directors has always been sensitive to the level of Plan costs. We track all costs including management fees.

Since we use many mutual funds where investment manager fees are not negotiable, i.e., they are set by the fund family and taken out of fund performance, we do not pay much attention to the expense ratio of a fund except when we initially hire the manager. Ongoing, the manager has to meet or beat their assigned benchmark and this is usually a function of stock selection and not tweaking manager fees. the Board does monitor mutual fund manager fees once a year to insure no excessive changes.

We have always reported our annual cost of operating the Plans as a percent of Plan assets. Historically this expense number has been around one half of one percent. This includes investment management fees, which vary from fund to fund, plus our overall operating costs, which have varied from 20 to as little as 8 basis points (one basis point equals 1/100 of a percent) over the last eight years.

Our operating expenses for 2000 were approximately 8 basis points after adjusting for participant transfer and loan fees. This was for recordkeeping, bank fees, administration, office personnel, and communications. These costs are reported in the Summary Annual Report mailed to all participants in the fall of each year.

There have been some concerns that our costs would drastically increase with the movement of some participants out of the DAP and 401(k). I believe they will increases slightly but not to a significant degree. Our total fees and expenses in 2000 amounted to 51 basis points (about 1/2 of one percent). The 8 basis points of operating expenses as a percent of assets included in the 51 could go up slightly with a smaller asset base. If it happens we would still be running the Plan for around one half of one percent.

Here is an overview of our Plan Expenses:

* net of transfer fees

** mutual fund investment manager fee average

*** after administrative offsets

**** includes transaction fees, and all other asset-based costs incurred by the fund.

The participants invested in the Moderate Model Portfolio in 2000 paid 52 basis points in total expenses. There is no free lunch, but pilots should realize what a bargain the DAP continues to be for a viable low cost retirement plan with a great deal of flexibility.