The recent events have caused numerous questions related to the solvency of the insurance companies. In years past, stable value portfolios invested heavily in traditional GICs, investments that ultimately rely upon the health and safety of the insurance company to make good on their promise to pay. Today this is no longer the case. The DAP/401(k) Stable Value Fund has no exposure to these contracts. Instead, all of the assets in the Stable Value Funds are invested in high quality bonds that are owned by the plan for the benefit of plan participants. This insulates participants from the solvency risk of insurance companies and better positions the Fund to achieve its objectives.

Questions of insurance company solvency are natural. The expected claim costs associated with the terrorist attacks vary widely but estimates range in the billions. The real costs will not likely be known for months perhaps years into the future. Despite this uncertainty, it should be noted that in general the financial health of the life insurance industry is better today than just about any time in the past. Not since the mid 1950’s have insurance companies been as well capitalized, or closely regulated as they are now. This suggests that on the whole, the life insurance industry will undoubtedly weather this storm.

As the manager for this important plan option in you plan, we have been diligently pursuing as much information as is currently available to access the situation. Based on our work to this point, we have little concern relating to these expected losses, as they appear manageable for all of the issuers in your portfolio. To put some perspective on this, the initial loss estimates in aggregate roughly amount to the losses incurred for Hurricane Andrew. Without question, some issuers will be affected by virtue of corporate affiliations with property and casualty carriers but the solvency of companies that participate in your portfolio are not an issue. Some companies will no doubt see their rating affected but their ability to pay isn’t in question at this point.

Naturally, this situation is very fluid and will continue to change. Rest assured that we are doing all that we can to get as much information as possible to continue our monitoring efforts. Also, be assured that we will continue to keep you apprised of the facts as they become available.

PRIMCO Capital Management

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.

• The Directed Account Plan has a successor plan sponsor. It will continue to operate as a qualified retirement plan serving thousands of participants and their families just as it has for the last eight years. We will continue to operate with the same low cost structure, which has averaged less than one half of one percent per year. The 401(k) will still be terminated at some future date. 401(k) participants should transfer their assets to the DAP or rollover to an outside account now unless a 401(k) loan is outstanding.

• Quarterly Statements-A reminder that quarterly statements have replaced the monthly statement that stopped with the March 2001 issue. This is the first of the Quarterly mailings. A special year-end statement summarizing the entire year will be added to the quarterly mailings. A statement on demand can always be obtained upon request from Benefits Express (1-877-4TWADAP (1-877-489-2327) or the Web Site at http://resources.hewitt.com/4twadap.

• 401(k) Rollovers- Participants have started to elect to rollover or transfer their 401(k) balances in preparation for the 401(k) plan termination that we anticipate by the end of the year. The distributions to date reflect that over 75% of the pilots are electing to transfer their balances to the DAP, 5% to American Supersaver, and 20% to outside IRAs or cash outs. Some (around 50) pilots have elected to cash out and pay taxes and penalty on their balances. This strategy is usually not the best long-term plan. Consult a tax expert before requesting any cash distribution.

• Loans- DAP and 401(k) loans are presently being repaid by TWA Airlines LLC payroll deduction for active pilots. DAP loans may be repaid by personal check once LLC is transitioned to American just as retirees repay now. DAP and 401(k) loans will default with any rollover or transfer. American SuperSaver has indicated that pilots may do a rollover that includes a loan balance but those procedures have not been finalized. Pilots who desire a rollover to Supersaver with a loan balance should delay the rollover until they are notified that they can do so without a loan default. As previously announced, rollovers of any DAP or 401(k) account with a loan outstanding will result in a loan default and the associated tax liability.