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: 811-4984
AMERICAN BEACON FUNDS
(Exact name of registrant as specified in charter)
220 East Las Colinas Boulevard, Suite 1200
Irving, Texas 75039
(Address of principal executive offices)-(Zip code)
GENE L. NEEDLES, JR., PRESIDENT
220 East Las Colinas Boulevard, Suite 1200
Irving, Texas 75039
(Name and address of agent for service)
Registrant’s telephone number, including area code: (817) 391-6100
Date of fiscal year end: October 31, 2017
Date of reporting period: October 31, 2017
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW, Washington, DC 20549-0609. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
ITEM 1. | REPORTS TO STOCKHOLDERS. |
About American Beacon Advisors
Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management.
Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company.
LARGE CAP VALUE FUND RISKS
Investing in value stocks may limit downside risk over time; however, the Fund may produce more modest gains than riskier stock funds as a trade-off for this potentially lower risk. Investing in foreign securities may involve heightened risk due to currency fluctuations and economic and political risks. The use of futures contracts for cash management may subject the Fund to losing more money than invested. Please see the prospectus for a complete discussion of the Fund’s risks. There can be no assurances that the investment objectives of this Fund will be met.
Any opinions herein, including forecasts, reflect our judgment as of the end of the reporting period and are subject to change. Each advisor’s strategies and the 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, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein.
American Beacon Funds | October 31, 2017 |
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Schedule of Investments: | ||||
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Financial Highlights: | ||||
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements | 42 | |||
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Back Cover |
Dear Shareholders,
At American Beacon, we are proud to offer a broad range of equity, fixed-income and alternative mutual fund products for institutions and individuals. Our mutual funds – which span the domestic, international, global, frontier and emerging markets – are sub-advised by experienced portfolio managers who employ distinctive investment processes to manage assets through a variety of economic and market conditions. Together, we work diligently to help our clients and shareholders meet their long-term financial goals.
Institutional wisdom, enduring value. Since our inception as a pension fiduciary in 1986, American Beacon has focused on identifying and overseeing institutional investment managers and portfolio risk management. In 1987, we leveraged our size and experience to launch a series of sub-advised, multi- |
manager mutual funds providing individual investors access to many of the same institutional managers as our pension clients. Following the financial crisis in 2008, we saw that investors were looking for unique solutions from managers who were not necessarily mainstream. In 2010, we began offering mutual funds from single managers with distinctive investment styles or asset classes. As we continue to expand our family of funds, our solutions-based approach provides innovative investments.
Guiding principles. Our “manager of managers” philosophy is built on a long-standing history of innovative thinking, discipline and consistency in applying our solutions-based approach. As a manager of managers, our goal is to engage the most effective money managers for each asset class, investment style or market strategy – whether through a single sub-advisor or a combination of sub-advisors. Because we take our fiduciary responsibilities very seriously, our thorough manager evaluation and selection process is rigorous and ongoing. Our guiding principles – predictability, style consistency, competitive pricing and long-term relationships – provide a strong foundation for our due-diligence process. Our broad range of mutual funds helps investors navigate the economic storms and market downturns in the U.S. and abroad. Our years of experience evaluating sub-advisors have led us to identify and partner with asset managers who have adhered to their disciplined processes for many years and through multiple market cycles.
Focus on asset protection and risk mitigation. We strive to provide innovative, long-term products without gimmicks. From offering some of the first multi-manager funds, one of the first retirement-income funds and the first open-end mutual fund in the U.S. to focus primarily on frontier-market debt, our robust history includes applying a disciplined, solutions-based approach to our product development process to help protect assets and mitigate risk.
Thank you for your continued interest in American Beacon. For additional information about our funds or to access your account information, please visit our website at www.americanbeaconfunds.com.
Best Regards,
Gene L. Needles, Jr.
President
American Beacon Funds
1
Domestic Equity Market Overview
October 31, 2017 (Unaudited)
At the beginning of the 12-month period ended October 31, 2017, U.S. presidential election news dominated headlines. Following Donald Trump’s victory, the post-election optimism of investors and the Trump administration’s emphasis on tax cuts and infrastructure spending pushed markets higher. Over the trailing 12 months, the S&P 500 Index and the Dow Jones Industrial Average (“DJIA”) increased 23.6% and 32.1%, respectively. From January 2017 through October 2017, the S&P 500 Index and DJIA were up 16.9% and 20.6%, respectively, while market volatility remained elusive.
With the exception of the Telecommunications sector, all S&P 500 Index sectors were up for the trailing 12-month period. The Information Technology and Financials sectors remained the front runners, followed by the Basic Materials and Industrials sectors. Even with the significant decline in oil prices year-to-date in 2017, the Energy sector was able to pump out a 2.5% trailing 12-month return. The Consumer Staples sector has been hard-hit since this summer’s news about Amazon.com, Inc.’s surprise acquisition of Whole Foods.
With strength in the Information Technology and Health Care sectors, growth stocks continued to trounce value stocks in the trailing 12-month period. While large-cap securities have performed very well thus far, small-cap securities have done even better – perhaps driven by improved prospects of tax reform. The Russell 2000 Index was up 27.9% in the period under review, while the Russell 1000 Index gained 23.7% and the Russell Midcap Index rose 21.1%.
Federal Reserve (the “Fed”) Chair Janet Yellen has reiterated the importance of measured rate normalization following a decade of near-zero interest rates. The Fed increased short-term interest rates by 0.25% in December 2016, March 2017 and June 2017. Following the June 2017 rate hike, short-term interest rates ranged from 1.00% to 1.25%. Long-term inflation expectations initially increased sharply in the wake of the presidential election, but ultimately proved elusive. Consumer confidence consistently surprised to the upside for the last 12 months, despite mixed economic data and slower job growth. Gross domestic product (“GDP”) for first quarter was revised up to 1.4%, driven largely by consumer spending. The upward revision doubled the original 0.7% GDP reported in April, but still undershot expectations. Final second-quarter GDP growth beat expectations at 3.1%. GDP expanded at a 3% annual rate in the third quarter. From a macro perspective, the resilience of the U.S. economy was tested by major hurricanes hitting Texas, Florida and Puerto Rico. With the help of soaring stock prices and rising business and consumer confidence, the U.S. economy posted its best six-month stretch of growth in three years. At the end of the period, investors awaited President Trump’s nominee for Ms. Yellen’s successor.
The U.S. is clearly in the back half of what is being viewed as a very long economic cycle, which continues to be fueled by the acceleration of global profit growth, a pickup in domestic and global manufacturing, and early signs of better capital expenditure and higher wages. In other words, the U.S. economic recovery could very well continue for the foreseeable future. The U.S. equity market appears to be accepting of a gradual return to normalized interest rates and balance-sheet reductions. The U.S. market also appears to be holding its own even in light of headwinds that include everything from natural disasters, to domestic terrorism, to dealing with an unpredictable foreign dictator. The resilience of the U.S. equity market has been notable.
2
American Beacon Large Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
The Investor Class of the American Beacon Large Cap Value Fund (the “Fund”) returned 23.20% for the twelve months ended October 31, 2017, outperforming the Russell 1000® Value Index (the “Index”) return of 17.78% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/07 through 10/31/17
Total Returns for the Period ended October 31, 2017 | |||||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2007- 10/31/2017 | ||||||||||||||||||||||||||||
Institutional Class (1,7) | AADEX | 23.60 | % | 7.65 | % | 13.37 | % | 5.92 | % | $ | 17,772 | ||||||||||||||||||||||
Y Class (1,2,7) | ABLYX | 23.51 | % | 7.58 | % | 13.29 | % | 5.85 | % | $ | 17,649 | ||||||||||||||||||||||
Investor Class (1,7) | AAGPX | 23.20 | % | 7.29 | % | 13.00 | % | 5.56 | % | $ | 17,185 | ||||||||||||||||||||||
Advisor Class (1,7) | AVASX | 23.01 | % | 7.14 | % | 12.83 | % | 5.40 | % | $ | 16,927 | ||||||||||||||||||||||
A without Sales Charge (1,3,7) | ALVAX | 23.09 | % | 7.23 | % | 12.89 | % | 5.48 | % | $ | 17,055 | ||||||||||||||||||||||
A with Sales Charge (1,3,7) | ALVAX | 16.00 | % | 5.14 | % | 11.56 | % | 4.86 | % | $ | 16,077 | ||||||||||||||||||||||
C without Sales Charge (1,4,7) | ALVCX | 22.26 | % | 6.45 | % | 12.05 | % | 4.91 | % | $ | 16,146 | ||||||||||||||||||||||
C with Sales Charge (1,4,7) | ALVCX | 21.26 | % | 6.45 | % | 12.05 | % | 4.91 | % | $ | 16,146 | ||||||||||||||||||||||
R6 Class (1,5,7) | AALRX | 23.60 | % | 7.65 | % | 13.37 | % | 5.92 | % | $ | 17,772 | ||||||||||||||||||||||
Russell 1000® Value Index (6) | 17.78 | % | 7.99 | % | 13.48 | % | 5.99 | % | $ | 17,893 |
1. | Performance shown is historical and is not indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is calculated based on the published end of day net asset values as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. 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 10/31/07 up to 8/3/09, the inception date of the Y Class, and the returns of the Y Class since its inception. Expenses of the Y Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/07. |
3
American Beacon Large Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
3. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 through 5/17/10, the inception date of the A Class, and the returns of the A Class since its inception. Expenses of the A Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the A Class been in existence since 10/31/07. A Class shares have a maximum sales charge of 5.75%. |
4. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 through 9/1/10, the inception date of the C Class, and the returns of the C Class since its inception. Expenses of the C Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the C Class been in existence since 10/31/07. A portion of the fees charged to the C Class was waived from 2010 through 2012, partially recovered in 2013, and fully recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2012. C Class shares have a maximum contingent deferred sales charge of 1.00% for shares redeemed within one year of the date of purchase. |
5. | Fund performance for the, one-year, three-year, five-year and ten-year periods represent the returns achieved by the Institutional Class from 10/31/07 through 2/28/17, the inception date of the R6 Class, and the returns of the R6 Class since its inception. Expenses of the R6 Class are lower than those of the Institutional Class. As a result, total returns shown may be lower than they would have been had the R6 Class been in existence since 10/31/07. A portion of the fees charged to the R6 Class of the Fund has been waived since 2/28/17. Performance prior to waiving fees was lower than the actual returns shown. |
6. | The Russell 1000 Value Index is an unmanaged index of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted growth values. Russell 1000 Value Index and Russell 1000 Index are registered trademarks of the Frank Russell Company. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data, and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. One cannot directly invest in an index. |
7. | The Total Annual Fund Operating Expense ratios set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, C, and R6 Class shares was 0.60%, 0.67%, 0.93%, 1.08%, 0.98%, 1.74% and 0.58%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. |
The Fund outperformed the Index as both stock selection and sector allocation added value relative to the Index for the twelve-month period.
The Fund’s investments in the Energy, Financials and Information Technology sectors contributed the most to stock selection outperformance. In the Energy sector, BP PLC Sponsored ADR (up 21.93%) and ConocoPhillips (up 20.29%) were the largest contributors. Positions in Citigroup Inc. (up 51.75%) and Bank of America Corp. (up 71.79%) helped the Fund’s returns in the Financials sector. Lastly, in the Information Technology sector, the Fund’s position in Micron Technology, Inc. (up 159.88%) and Microsoft Corp. (up 42.55%) were the biggest supporters to the Fund’s performance for the period.
Sector allocation helped as a significant underweight in Real Estate and in Consumer Staples (up 4.96% and up 3.13%, respectively) added relative performance compared to the Index. The Fund’s overweight position in the Consumer Discretionary sector (up 12.82%) was the only sector to underperform and thus, somewhat muted relative outperformance from sector allocation.
The sub-advisors continue to invest in a broadly diversified portfolio of companies that they believe have attractive valuations and above-average earnings growth potential. This approach should allow the Fund to benefit over the longer term.
Top Ten Holdings (% Net Assets) | ||||||||
Citigroup, Inc. | 3.7 | |||||||
JPMorgan Chase & Co. | 3.1 | |||||||
Bank of America Corp. | 2.7 | |||||||
Wells Fargo & Co. | 2.5 | |||||||
BP PLC, Sponsored ADR | 2.3 | |||||||
American International Group, Inc. | 2.2 | |||||||
Microsoft Corp. | 2.0 | |||||||
Oracle Corp. | 1.9 | |||||||
Anthem, Inc. | 1.7 | |||||||
Johnson Controls International PLC | 1.7 | |||||||
Total Fund Holdings | 201 |
4
American Beacon Large Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
Sector Allocation (% Equities) | ||||||||
Financials | 28.1 | |||||||
Energy | 13.5 | |||||||
Health Care | 12.5 | |||||||
Industrials | 11.4 | |||||||
Information Technology | 11.0 | |||||||
Consumer Discretionary | 9.3 | |||||||
Consumer Staples | 6.0 | |||||||
Materials | 4.6 | |||||||
Telecommunication Services | 1.9 | |||||||
Utilities | 1.6 | |||||||
Real Estate | 0.1 |
5
American Beacon Large Cap Value FundSM
October 31, 2017 (Unaudited)
Fund Expense Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees if applicable, and (2) ongoing costs, including management fees, distribution (12b-1) fees, sub-transfer agent fees, and other Fund expenses. The Examples 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 May 1, 2017 through October 31, 2017.
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 = $8.60), then multiply the result by the “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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 Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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, such as sales charges (loads) or redemption fees, as applicable. 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.
6
American Beacon Large Cap Value FundSM
Expense Example
October 31, 2017 (Unaudited)
Large Cap Value Fund | |||||||||||||||
Beginning Account Value 5/1/2017 | Ending Account Value 10/31/2017 | Expenses Paid During Period 5/1/2017-10/31/2017* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,080.90 | $3.15 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.20 | $3.06 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,080.80 | $3.51 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.80 | $3.41 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,079.10 | $4.82 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.60 | $4.69 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $1,078.60 | $5.61 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.80 | $5.45 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $1,078.80 | $5.08 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.30 | $4.94 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $1,075.30 | $8.89 | ||||||||||||
Hypothetical** | $1,000.00 | $1,016.60 | $8.64 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $1,081.30 | $3.04 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.30 | $2.96 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.60%, 0.67%, 0.92%, 1.07%, 0.97%, 1.70%, and 0.58% for the Institutional, Y, Investor, Advisor, A, C, and R6 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 (365) to reflect the half-year period. |
** | 5% return before expenses. |
7
American Beacon Large Cap Value FundSM
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Trustees of
American Beacon Large Cap Value Fund
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of American Beacon Large Cap Value Fund (one of the funds constituting the American Beacon Funds) (the Fund), as of October 31, 2017, and the related statement 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 Fund’s 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 the 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s 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 October 31, 2017, 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 American Beacon Large Cap Value Fund at October 31, 2017, the results of its operations for the year then ended, the changes in its 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.
Dallas, Texas
December 29, 2017
8
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% | |||||||||||||||
Consumer Discretionary - 8.89% | |||||||||||||||
Auto Components - 1.83% | |||||||||||||||
Adient PLC | 141,098 | $ | 11,903,027 | ||||||||||||
Delphi Automotive PLC | 147,692 | 14,677,631 | |||||||||||||
Goodyear Tire & Rubber Co. | 1,674,909 | 51,235,466 | |||||||||||||
Magna International, Inc. | 1,031,041 | 56,243,287 | |||||||||||||
|
| ||||||||||||||
134,059,411 | |||||||||||||||
|
| ||||||||||||||
Automobiles - 1.65% | |||||||||||||||
General Motors Co. | 2,362,805 | 101,553,359 | |||||||||||||
Harley-Davidson, Inc.A | 240,830 | 11,400,892 | |||||||||||||
Honda Motor Co., Ltd., Sponsored ADR | 252,472 | 7,849,355 | |||||||||||||
|
| ||||||||||||||
120,803,606 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 0.34% | |||||||||||||||
Carnival Corp. | 168,900 | 11,213,271 | |||||||||||||
Norwegian Cruise Line Holdings Ltd.B | 245,100 | 13,664,325 | |||||||||||||
|
| ||||||||||||||
24,877,596 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 0.44% | |||||||||||||||
DR Horton, Inc. | 626,000 | 27,675,460 | |||||||||||||
Newell Brands, Inc. | 107,207 | 4,371,901 | |||||||||||||
|
| ||||||||||||||
32,047,361 | |||||||||||||||
|
| ||||||||||||||
Media - 2.38% | |||||||||||||||
CBS Corp., Class B, NVDR | 403,003 | 22,616,528 | |||||||||||||
Comcast Corp., Class A | 1,303,339 | 46,959,304 | |||||||||||||
Discovery Communications, Inc., Class AA B | 1,678,444 | 31,689,023 | |||||||||||||
Discovery Communications, Inc., Class CB | 796,900 | 14,192,789 | |||||||||||||
Interpublic Group of Cos, Inc. | 432,498 | 8,325,587 | |||||||||||||
Omnicom Group, Inc. | 332,037 | 22,309,566 | |||||||||||||
Regal Entertainment Group, Class AA | 1,068,900 | 17,476,515 | |||||||||||||
Time Warner, Inc. | 24,936 | 2,450,959 | |||||||||||||
Walt Disney Co. | 85,100 | 8,322,380 | |||||||||||||
|
| ||||||||||||||
174,342,651 | |||||||||||||||
|
| ||||||||||||||
Multiline Retail - 0.90% | |||||||||||||||
Dollar General Corp. | 689,100 | 55,706,844 | |||||||||||||
Target Corp. | 171,289 | 10,112,903 | |||||||||||||
|
| ||||||||||||||
65,819,747 | |||||||||||||||
|
| ||||||||||||||
Specialty Retail - 1.00% | |||||||||||||||
Advance Auto Parts, Inc. | 342,910 | 28,029,464 | |||||||||||||
Bed Bath & Beyond, Inc. | 296,106 | 5,892,509 | |||||||||||||
Lowe’s Companies, Inc. | 492,400 | 39,367,380 | |||||||||||||
|
| ||||||||||||||
73,289,353 | |||||||||||||||
|
| ||||||||||||||
Textiles, Apparel & Luxury Goods - 0.35% | |||||||||||||||
Hanesbrands, Inc.A | 1,117,890 | 25,152,525 | |||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 650,392,250 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 5.77% | |||||||||||||||
Beverages - 0.72% | |||||||||||||||
Diageo PLC, Sponsored ADR | 108,687 | 14,891,206 | |||||||||||||
Molson Coors Brewing Co., Class B | 383,300 | 30,997,471 | |||||||||||||
PepsiCo, Inc. | 63,495 | 6,999,054 | |||||||||||||
|
| ||||||||||||||
52,887,731 | |||||||||||||||
|
|
See accompanying notes
9
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% (continued) | |||||||||||||||
Consumer Staples - 5.77% (continued) | |||||||||||||||
Food & Staples Retailing - 1.27% | |||||||||||||||
CVS Health Corp. | 1,104,262 | $ | 75,675,075 | ||||||||||||
Wal-Mart Stores, Inc. | 197,382 | 17,233,422 | |||||||||||||
|
| ||||||||||||||
92,908,497 | |||||||||||||||
|
| ||||||||||||||
Food Products - 0.88% | |||||||||||||||
Archer-Daniels-Midland Co. | 134,814 | 5,509,848 | |||||||||||||
Danone S.A., Sponsored ADR | 381,856 | 6,277,713 | |||||||||||||
General Mills, Inc. | 309,863 | 16,088,087 | |||||||||||||
JM Smucker Co. | 42,431 | 4,499,807 | |||||||||||||
Kellogg Co. | 180,095 | 11,261,340 | |||||||||||||
Nestle S.A., Sponsored ADR | 250,943 | 21,136,929 | |||||||||||||
|
| ||||||||||||||
64,773,724 | |||||||||||||||
|
| ||||||||||||||
Household Products - 0.18% | |||||||||||||||
Procter & Gamble Co. | 69,913 | 6,036,288 | |||||||||||||
Reckitt Benckiser Group PLC, Sponsored ADRA | 381,676 | 6,923,603 | |||||||||||||
|
| ||||||||||||||
12,959,891 | |||||||||||||||
|
| ||||||||||||||
Personal Products - 0.06% | |||||||||||||||
Coty, Inc., Class A | 265,312 | 4,085,805 | |||||||||||||
|
| ||||||||||||||
Tobacco - 2.66% | |||||||||||||||
Altria Group, Inc. | 854,283 | 54,862,054 | |||||||||||||
Imperial Brands PLC, Sponsored ADR | 990,914 | 40,964,385 | |||||||||||||
Philip Morris International, Inc. | 942,203 | 98,592,122 | |||||||||||||
|
| ||||||||||||||
194,418,561 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 422,034,209 | ||||||||||||||
|
| ||||||||||||||
Energy - 12.91% | |||||||||||||||
Energy Equipment & Services - 1.31% | |||||||||||||||
Helmerich & Payne, Inc.A | 821,300 | 44,604,803 | |||||||||||||
National Oilwell Varco, Inc. | 616,800 | 21,088,392 | |||||||||||||
Oceaneering International, Inc. | 444,100 | 8,979,702 | |||||||||||||
Schlumberger Ltd. | 330,067 | 21,124,288 | |||||||||||||
|
| ||||||||||||||
95,797,185 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 11.60% | |||||||||||||||
Anadarko Petroleum Corp. | 470,200 | 23,213,774 | |||||||||||||
Andeavor | 205,600 | 21,842,944 | |||||||||||||
Apache Corp. | 1,132,300 | 46,843,251 | |||||||||||||
BP PLC, Sponsored ADR | 4,129,979 | 167,966,246 | |||||||||||||
Canadian Natural Resources Ltd. | 2,418,403 | 84,402,265 | |||||||||||||
Chevron Corp. | 596,283 | 69,103,237 | |||||||||||||
Cobalt International Energy, Inc.B | 230,024 | 223,123 | |||||||||||||
ConocoPhillips | 2,263,616 | 115,783,958 | |||||||||||||
Devon Energy Corp. | 1,191,366 | 43,961,405 | |||||||||||||
EOG Resources, Inc. | 131,856 | 13,168,459 | |||||||||||||
Exxon Mobil Corp. | 136,069 | 11,341,351 | |||||||||||||
Hess Corp. | 807,892 | 35,676,511 | |||||||||||||
Kinder Morgan, Inc. | 1,528,500 | 27,681,135 | |||||||||||||
Kosmos Energy Ltd.B | 1,247,445 | 9,580,377 | |||||||||||||
Marathon Oil Corp. | 3,293,586 | 46,834,793 | |||||||||||||
Murphy Oil Corp. | 952,860 | 25,489,005 | |||||||||||||
Occidental Petroleum Corp. | 136,880 | 8,838,342 | |||||||||||||
Phillips 66 | 726,304 | 66,151,768 | |||||||||||||
Royal Dutch Shell PLC, Class A, Sponsored ADR | 494,822 | 31,188,631 | |||||||||||||
|
| ||||||||||||||
849,290,575 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 945,087,760 | ||||||||||||||
|
|
See accompanying notes
10
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% (continued) | |||||||||||||||
Financials - 26.85% | |||||||||||||||
Banks - 13.90% | |||||||||||||||
Bank of America Corp. | 7,125,298 | $ | 195,161,912 | ||||||||||||
BNP Paribas S.A., ADR | 582,400 | 22,782,323 | |||||||||||||
CIT Group, Inc. | 203,100 | 9,468,522 | |||||||||||||
Citigroup, Inc. | 3,676,465 | 270,220,177 | |||||||||||||
Citizens Financial Group, Inc. | 801,553 | 30,467,030 | |||||||||||||
JPMorgan Chase & Co. | 2,252,546 | 226,628,653 | |||||||||||||
PNC Financial Services Group, Inc. | 387,420 | 52,995,182 | |||||||||||||
US Bancorp | 548,690 | 29,837,762 | |||||||||||||
Wells Fargo & Co. | 3,196,761 | 179,466,163 | |||||||||||||
|
| ||||||||||||||
1,017,027,724 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 4.11% | |||||||||||||||
Bank of New York Mellon Corp. | 465,210 | 23,935,055 | |||||||||||||
BlackRock, Inc. | 28,127 | 13,243,035 | |||||||||||||
Blackstone Group LP, MLP | 1,685,348 | 56,105,235 | |||||||||||||
Franklin Resources, Inc. | 112,935 | 4,757,952 | |||||||||||||
Goldman Sachs Group, Inc. | 232,593 | 56,399,151 | |||||||||||||
KKR & Co. LP | 4,011,808 | 80,436,750 | |||||||||||||
Moody’s Corp. | 60,436 | 8,606,691 | |||||||||||||
Morgan Stanley | 191,478 | 9,573,900 | |||||||||||||
Nasdaq, Inc. | 162,853 | 11,831,270 | |||||||||||||
State Street Corp. | 328,392 | 30,212,064 | |||||||||||||
T Rowe Price Group, Inc. | 59,926 | 5,567,125 | |||||||||||||
|
| ||||||||||||||
300,668,228 | |||||||||||||||
|
| ||||||||||||||
Consumer Finance - 2.91% | |||||||||||||||
Ally Financial, Inc. | 557,200 | 14,559,636 | |||||||||||||
American Express Co. | 142,427 | 13,604,627 | |||||||||||||
Capital One Financial Corp. | 519,191 | 47,859,026 | |||||||||||||
Discover Financial Services | 438,700 | 29,186,711 | |||||||||||||
Navient Corp. | 1,313,701 | 16,368,715 | |||||||||||||
OneMain Holdings, Inc.B | 563,400 | 17,899,218 | |||||||||||||
Santander Consumer USA Holdings, Inc.B | 1,512,847 | 25,173,774 | |||||||||||||
SLM Corp.B | 2,379,730 | 25,201,341 | |||||||||||||
Synchrony Financial | 716,587 | 23,375,068 | |||||||||||||
|
| ||||||||||||||
213,228,116 | |||||||||||||||
|
| ||||||||||||||
Diversified Financial Services - 0.75% | |||||||||||||||
Berkshire Hathaway, Inc., Class BB | 292,991 | 54,771,737 | |||||||||||||
|
| ||||||||||||||
Insurance - 4.82% | |||||||||||||||
American International Group, Inc. | 2,519,883 | 162,809,641 | |||||||||||||
Aon PLC | 168,006 | 24,097,101 | |||||||||||||
Chubb Ltd. | 174,026 | 26,246,601 | |||||||||||||
MetLife, Inc. | 316,299 | 16,947,300 | |||||||||||||
Prudential Financial, Inc. | 71,331 | 7,879,222 | |||||||||||||
Travelers Companies, Inc. | 412,820 | 54,678,009 | |||||||||||||
XL Group Ltd. | 1,477,893 | 59,810,330 | |||||||||||||
|
| ||||||||||||||
352,468,204 | |||||||||||||||
|
| ||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) - 0.16% | |||||||||||||||
Two Harbors Investment Corp. | 1,203,654 | 11,795,809 | |||||||||||||
|
| ||||||||||||||
Thrifts & Mortgage Finance - 0.20% | |||||||||||||||
Radian Group, Inc. | 696,300 | 14,594,448 | |||||||||||||
|
| ||||||||||||||
Total Financials | 1,964,554,266 | ||||||||||||||
|
|
See accompanying notes
11
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% (continued) | |||||||||||||||
Health Care - 11.87% | |||||||||||||||
Biotechnology - 1.21% | |||||||||||||||
AbbVie, Inc. | 202,784 | $ | 18,301,256 | ||||||||||||
Biogen, Inc.B | 53,300 | 16,611,478 | |||||||||||||
Celgene Corp.B | 175,600 | 17,730,332 | |||||||||||||
Gilead Sciences, Inc. | 282,300 | 21,161,208 | |||||||||||||
Shire PLC, ADR | 100,000 | 14,763,000 | |||||||||||||
|
| ||||||||||||||
88,567,274 | |||||||||||||||
|
| ||||||||||||||
Health Care Equipment & Supplies - 2.76% | |||||||||||||||
Abbott Laboratories | 343,129 | 18,607,886 | |||||||||||||
Danaher Corp. | 175,815 | 16,222,450 | |||||||||||||
Koninklijke Philips N.V. | 944,837 | 38,539,901 | |||||||||||||
Medtronic PLC | 1,470,591 | 118,411,987 | |||||||||||||
Zimmer Biomet Holdings, Inc. | 80,267 | 9,762,073 | |||||||||||||
|
| ||||||||||||||
201,544,297 | |||||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 1.98% | |||||||||||||||
Anthem, Inc. | 582,531 | 121,871,310 | |||||||||||||
Cigna Corp. | 43,002 | 8,480,854 | |||||||||||||
Express Scripts Holding Co.B | 93,068 | 5,704,138 | |||||||||||||
McKesson Corp. | 62,603 | 8,631,702 | |||||||||||||
|
| ||||||||||||||
144,688,004 | |||||||||||||||
|
| ||||||||||||||
Life Sciences Tools & Services - 0.23% | |||||||||||||||
Thermo Fisher Scientific, Inc. | 87,998 | 17,056,652 | |||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 5.69% | |||||||||||||||
GlaxoSmithKline PLC, Sponsored ADR | 857,934 | 31,254,536 | |||||||||||||
Horizon Pharma PLCB | 1,467,292 | 19,896,479 | |||||||||||||
Jazz Pharmaceuticals PLCB | 92,968 | 13,157,761 | |||||||||||||
Johnson & Johnson | 606,665 | 84,575,168 | |||||||||||||
Mallinckrodt PLCB | 436,707 | 13,830,511 | |||||||||||||
Merck & Co., Inc. | 978,446 | 53,902,590 | |||||||||||||
Mylan N.V.B | 645,085 | 23,035,985 | |||||||||||||
Novartis AG, Sponsored ADR | 35,069 | 2,895,998 | |||||||||||||
Pfizer, Inc. | 3,148,705 | 110,393,597 | |||||||||||||
Roche Holding AG, Sponsored ADR | 80,182 | 2,318,463 | |||||||||||||
Sanofi, ADR | 1,295,145 | 61,234,456 | |||||||||||||
|
| ||||||||||||||
416,495,544 | |||||||||||||||
|
| ||||||||||||||
Total Health Care | 868,351,771 | ||||||||||||||
|
| ||||||||||||||
Industrials - 10.88% | |||||||||||||||
Aerospace & Defense - 2.16% | |||||||||||||||
Embraer S.A., Sponsored ADR | 349,600 | 6,691,344 | |||||||||||||
General Dynamics Corp. | 102,136 | 20,731,565 | |||||||||||||
Lockheed Martin Corp. | 30,306 | 9,339,097 | |||||||||||||
Northrop Grumman Corp. | 62,141 | 18,364,530 | |||||||||||||
Raytheon Co. | 231,567 | 41,728,373 | |||||||||||||
Rockwell Collins, Inc. | 192,416 | 26,091,610 | |||||||||||||
United Technologies Corp. | 295,603 | 35,401,415 | |||||||||||||
|
| ||||||||||||||
158,347,934 | |||||||||||||||
|
| ||||||||||||||
Air Freight & Logistics - 0.19% | |||||||||||||||
United Parcel Service, Inc., Class B | 118,486 | 13,925,659 | |||||||||||||
|
| ||||||||||||||
Airlines - 1.42% | |||||||||||||||
American Airlines Group, Inc. | 732,540 | 34,297,523 | |||||||||||||
Delta Air Lines, Inc. | 802,600 | 40,154,078 | |||||||||||||
United Continental Holdings, Inc.B | 503,700 | 29,456,376 | |||||||||||||
|
| ||||||||||||||
103,907,977 | |||||||||||||||
|
|
See accompanying notes
12
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% (continued) | |||||||||||||||
Industrials - 10.88% (continued) | |||||||||||||||
Building Products - 1.65% | |||||||||||||||
Johnson Controls International PLC | 2,920,747 | $ | 120,889,718 | ||||||||||||
|
| ||||||||||||||
Construction & Engineering - 0.23% | |||||||||||||||
AECOMB | 487,764 | 17,101,006 | |||||||||||||
|
| ||||||||||||||
Electrical Equipment - 0.63% | |||||||||||||||
Eaton Corp. PLC | 571,356 | 45,719,907 | |||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 1.71% | |||||||||||||||
3M Co. | 95,433 | 21,967,722 | |||||||||||||
General Electric Co. | 1,978,700 | 39,890,592 | |||||||||||||
Honeywell International, Inc. | 435,859 | 62,833,434 | |||||||||||||
|
| ||||||||||||||
124,691,748 | |||||||||||||||
|
| ||||||||||||||
Machinery - 1.82% | |||||||||||||||
CNH Industrial N.V. | 3,041,739 | 38,630,085 | |||||||||||||
Cummins, Inc. | 245,197 | 43,370,445 | |||||||||||||
Illinois Tool Works, Inc. | 74,902 | 11,723,661 | |||||||||||||
Ingersoll-Rand PLC | 82,186 | 7,281,680 | |||||||||||||
PACCAR, Inc. | 136,951 | 9,823,495 | |||||||||||||
Parker-Hannifin Corp. | 79,001 | 14,426,373 | |||||||||||||
Stanley Black & Decker, Inc. | 49,474 | 7,992,525 | |||||||||||||
|
| ||||||||||||||
133,248,264 | |||||||||||||||
|
| ||||||||||||||
Professional Services - 0.09% | |||||||||||||||
Equifax, Inc. | 59,224 | 6,427,581 | |||||||||||||
|
| ||||||||||||||
Road & Rail - 0.23% | |||||||||||||||
Canadian National Railway Co. | 90,715 | 7,301,651 | |||||||||||||
Union Pacific Corp. | 82,246 | 9,523,264 | |||||||||||||
|
| ||||||||||||||
16,824,915 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 0.75% | |||||||||||||||
AerCap Holdings N.V.B | 998,300 | 52,550,512 | |||||||||||||
HD Supply Holdings, Inc.B | 63,821 | 2,258,625 | |||||||||||||
|
| ||||||||||||||
54,809,137 | |||||||||||||||
|
| ||||||||||||||
Total Industrials | 795,893,846 | ||||||||||||||
|
| ||||||||||||||
Information Technology - 10.49% | |||||||||||||||
Communications Equipment - 1.50% | |||||||||||||||
Cisco Systems, Inc. | 1,605,670 | 54,833,631 | |||||||||||||
Telefonaktiebolaget LM Ericsson, Sponsored ADRA | 8,805,820 | 55,036,375 | |||||||||||||
|
| ||||||||||||||
109,870,006 | |||||||||||||||
|
| ||||||||||||||
Electronic Equipment, Instruments & Components - 0.87% | |||||||||||||||
Corning, Inc. | 1,710,840 | 53,566,400 | |||||||||||||
TE Connectivity Ltd. | 109,600 | 9,970,312 | |||||||||||||
|
| ||||||||||||||
63,536,712 | |||||||||||||||
|
| ||||||||||||||
IT Services - 1.54% | |||||||||||||||
Accenture PLC, Class A | 263,608 | 37,527,235 | |||||||||||||
Amdocs Ltd. | 48,242 | 3,140,554 | |||||||||||||
Cognizant Technology Solutions Corp., Class A | 52,931 | 4,005,289 | |||||||||||||
DXC Technology Co. | 45,558 | 4,169,468 | |||||||||||||
Fidelity National Information Services, Inc. | 139,671 | 12,955,882 | |||||||||||||
First Data Corp., Class AB | 1,676,700 | 29,862,027 | |||||||||||||
Fiserv, Inc.B | 48,268 | 6,247,327 |
See accompanying notes
13
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% (continued) | |||||||||||||||
Information Technology - 10.49% (continued) | |||||||||||||||
IT Services - 1.54% (continued) | |||||||||||||||
International Business Machines Corp. | 35,086 | $ | 5,405,349 | ||||||||||||
Teradata Corp.B | 293,894 | 9,830,755 | |||||||||||||
|
| ||||||||||||||
113,143,886 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 1.39% | |||||||||||||||
Micron Technology, Inc.B | 1,123,279 | 49,772,492 | |||||||||||||
QUALCOMM, Inc. | 526,508 | 26,857,173 | |||||||||||||
Texas Instruments, Inc. | 181,664 | 17,565,092 | |||||||||||||
Versum Materials, Inc. | 180,046 | 7,576,336 | |||||||||||||
|
| ||||||||||||||
101,771,093 | |||||||||||||||
|
| ||||||||||||||
Software - 3.90% | |||||||||||||||
Microsoft Corp. | 1,765,335 | 146,840,565 | |||||||||||||
Oracle Corp. | 2,719,744 | 138,434,970 | |||||||||||||
|
| ||||||||||||||
285,275,535 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 1.29% | |||||||||||||||
Hewlett Packard Enterprise Co. | 6,781,744 | 94,401,876 | |||||||||||||
|
| ||||||||||||||
Total Information Technology | 767,999,108 | ||||||||||||||
|
| ||||||||||||||
Materials - 4.39% | |||||||||||||||
Chemicals - 3.17% | |||||||||||||||
Air Products & Chemicals, Inc. | 404,992 | 64,567,875 | |||||||||||||
DowDuPont, Inc. | 1,251,174 | 90,472,392 | |||||||||||||
Eastman Chemical Co. | 387,926 | 35,227,560 | |||||||||||||
Monsanto Co. | 40,904 | 4,953,474 | |||||||||||||
PPG Industries, Inc. | 219,320 | 25,493,757 | |||||||||||||
Sherwin-Williams Co. | 28,297 | 11,181,559 | |||||||||||||
|
| ||||||||||||||
231,896,617 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 0.74% | |||||||||||||||
Crown Holdings, Inc.B | 650,572 | 39,144,918 | |||||||||||||
International Paper Co. | 267,686 | 15,330,377 | |||||||||||||
|
| ||||||||||||||
54,475,295 | |||||||||||||||
|
| ||||||||||||||
Metals & Mining - 0.35% | |||||||||||||||
Reliance Steel & Aluminum Co. | 330,375 | 25,386,015 | |||||||||||||
|
| ||||||||||||||
Paper & Forest Products - 0.13% | |||||||||||||||
Louisiana-Pacific Corp.B | 364,077 | 9,895,613 | |||||||||||||
|
| ||||||||||||||
Total Materials | 321,653,540 | ||||||||||||||
|
| ||||||||||||||
Real Estate - 0.06% | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 0.06% | |||||||||||||||
Public Storage | 23,287 | 4,826,231 | |||||||||||||
|
| ||||||||||||||
Telecommunication Services - 1.84% | |||||||||||||||
Diversified Telecommunication Services - 1.28% | |||||||||||||||
AT&T, Inc. | 1,786,726 | 60,123,330 | |||||||||||||
Verizon Communications, Inc. | 694,507 | 33,246,050 | |||||||||||||
|
| ||||||||||||||
93,369,380 | |||||||||||||||
|
| ||||||||||||||
Wireless Telecommunication Services - 0.56% | |||||||||||||||
Vodafone Group PLC, Sponsored ADR | 1,421,950 | 41,208,111 | |||||||||||||
|
| ||||||||||||||
Total Telecommunication Services | 134,577,491 | ||||||||||||||
|
|
See accompanying notes
14
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.50% (continued) | |||||||||||||||
Utilities - 1.55% | |||||||||||||||
Electric Utilities - 0.87% | |||||||||||||||
Duke Energy Corp. | 205,614 | $ | 18,157,772 | ||||||||||||
Entergy Corp. | 274,929 | 23,715,376 | |||||||||||||
PPL Corp. | 201,654 | 7,574,124 | |||||||||||||
Southern Co. | 167,999 | 8,769,548 | |||||||||||||
Xcel Energy, Inc. | 112,495 | 5,570,753 | |||||||||||||
|
| ||||||||||||||
63,787,573 | |||||||||||||||
|
| ||||||||||||||
Independent Power & Renewable Electricity Producers - 0.37% | |||||||||||||||
Calpine Corp.B | 1,791,378 | 26,763,187 | |||||||||||||
|
| ||||||||||||||
Multi-Utilities - 0.31% | |||||||||||||||
CenterPoint Energy, Inc. | 770,562 | 22,793,224 | |||||||||||||
|
| ||||||||||||||
Total Utilities | 113,343,984 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $5,353,850,941) | 6,988,714,456 | ||||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 3.94% (Cost $288,452,185) | |||||||||||||||
Investment Companies - 3.94% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%C D | 288,452,185 | 288,452,185 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 1.33% (Cost $97,150,617) | |||||||||||||||
Investment Companies - 1.33% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%C D | 97,150,617 | 97,150,617 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 100.77% (Cost $5,739,453,743) | 7,374,317,258 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (0.77%) | (56,587,310 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 7,317,729,948 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A All or a portion of this security is on loan at October 31, 2017.
B Non-income producing security.
C 7-day yield.
D The Fund is affiliated by having the same investment advisor.
ADR - American Depositary Receipt.
LP - Limited Partnership.
MLP - Master Limited Partnership.
NVDR - Non Voting Depositary Receipt.
PLC - Public Limited Company.
Futures Contracts Open on October 31, 2017: | ||||||||||||||
Long Futures | ||||||||||||||
Equity Futures Contracts | ||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||
S&P 500 E-Mini Index Futures | 2,276 | December 2017 | $ 289,212,942 | $ | 292,773,260 | $ | 3,560,318 | |||||||
|
|
|
|
| ||||||||||
$ 289,212,942 | $ | 292,773,260 | $ | 3,560,318 | ||||||||||
|
|
|
|
|
Index Abbreviations: | ||
S&P 500 | Standard & Poor’s 500 Index |
See accompanying notes
15
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2017
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2017, the investments were classified as described below:
Large Cap Value Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 6,988,714,456 | $ | - | $ | - | $ | 6,988,714,456 | ||||||||||||||||||||
Short-Term Investments | 288,452,185 | - | - | 288,452,185 | ||||||||||||||||||||||||
Securities Lending Collateral | 97,150,617 | - | - | 97,150,617 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 7,374,317,258 | $ | - | $ | - | $ | 7,374,317,258 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Assets | ||||||||||||||||||||||||||||
Futures Contracts | $ | 3,560,318 | $ | - | $ | - | $ | 3,560,318 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Assets | $ | 3,560,318 | $ | - | $ | - | $ | 3,560,318 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires all transfers between any levels to be disclosed. The end of period timing recognition has been adopted for the transfers between levels of the Fund’s assets and liabilities. During the period ended October 31, 2017, there were no transfers between levels.
See accompanying notes
16
American Beacon Large Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2017
Assets: | ||||
Investments in unaffiliated securities, at fair value† | $ | 6,988,714,456 | ||
Investments in affiliated securities, at fair value‡ | 385,602,802 | |||
Deposit with brokers for futures contracts | 10,242,000 | |||
Dividends and interest receivable | 6,543,607 | |||
Receivable for investments sold | 57,405,491 | |||
Receivable for fund shares sold | 2,596,202 | |||
Receivable for tax reclaims | 425,539 | |||
Receivable for expense reimbursement (Note 2) | 277 | |||
Prepaid expenses | 149,660 | |||
|
| |||
Total assets | 7,451,680,034 | |||
|
| |||
Liabilities: | ||||
Payable for investments purchased | 16,474,817 | |||
Payable for fund shares redeemed | 12,159,009 | |||
Payable for variation margin from open futures contracts (Note 5) | 556,525 | |||
Payable upon return of securities loaned§ (Note 9) | 97,150,617 | |||
Management and sub-advisory fees payable (Note 2) | 6,124,588 | |||
Service fees payable (Note 2) | 453,476 | |||
Transfer agent fees payable (Note 2) | 165,548 | |||
Custody and fund accounting fees payable | 418,740 | |||
Professional fees payable | 99,656 | |||
Trustee fees payable (Note 2) | 33,998 | |||
Payable for prospectus and shareholder reports | 172,956 | |||
Other liabilities | 140,156 | |||
|
| |||
Total liabilities | 133,950,086 | |||
|
| |||
Net assets | $ | 7,317,729,948 | ||
|
| |||
Analysis of net assets: | ||||
Paid-in-capital | $ | 5,138,409,270 | ||
Undistributed net investment income | 102,167,479 | |||
Accumulated net realized gain | 438,729,366 | |||
Unrealized appreciation of investments in unaffiliated securitiesA | 1,634,863,515 | |||
Unrealized appreciation of futures contracts | 3,560,318 | |||
|
| |||
Net assets | $ | 7,317,729,948 | ||
|
|
See accompanying notes
17
American Beacon Large Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2017
Shares outstanding at no par value (unlimited shares authorized): | ||||
Institutional Class | 153,812,496 | |||
|
| |||
Y Class | 12,480,523 | |||
|
| |||
Investor Class | 68,809,644 | |||
|
| |||
Advisor Class | 3,090,236 | |||
|
| |||
A Class | 1,400,920 | |||
|
| |||
C Class | 295,448 | |||
|
| |||
R6 ClassB | 1,322,788 | |||
|
| |||
Net assets: | ||||
Institutional Class | $ | 4,765,771,483 | ||
|
| |||
Y Class | $ | 384,155,569 | ||
|
| |||
Investor Class | $ | 1,990,199,621 | ||
|
| |||
Advisor Class | $ | 88,196,090 | ||
|
| |||
A Class | $ | 40,073,435 | ||
|
| |||
C Class | $ | 8,351,349 | ||
|
| |||
R6 ClassB | $ | 40,982,401 | ||
|
| |||
Net asset value, offering and redemption price per share: | ||||
Institutional Class | $ | 30.98 | ||
|
| |||
Y Class | $ | 30.78 | ||
|
| |||
Investor Class | $ | 28.92 | ||
|
| |||
Advisor Class | $ | 28.54 | ||
|
| |||
A Class | $ | 28.61 | ||
|
| |||
A Class (offering price) | $ | 30.36 | ||
|
| |||
C Class | $ | 28.27 | ||
|
| |||
R6 ClassB | $ | 30.98 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 5,353,850,941 | ||
‡ Cost of investments in affiliated securities | $ | 385,602,802 | ||
§ Fair value of securities on loan | $ | 95,035,038 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. | ||||
B Class commenced operations February 28, 2017 (Note 1). |
See accompanying notes
18
American Beacon Large Cap Value FundSM
Statement of Operations
For the year ended October 31, 2017
Investment income: | ||||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 180,798,352 | ||
Dividend income from affiliated securities | 1,551,549 | |||
Interest income | 18,650 | |||
Income derived from securities lending (Note 9) | 304,377 | |||
|
| |||
Total investment income | 182,672,928 | |||
|
| |||
Expenses: | ||||
Management and sub-advisory fees (Note 2) | 40,995,412 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 1,599,094 | |||
Y Class (Note 2) | 225,434 | |||
Investor Class | 100,614 | |||
Advisor Class | 5,405 | |||
A Class | 3,135 | |||
R6 ClassA | 2,566 | |||
Custody and fund accounting fees | 773,116 | |||
Professional fees | 234,163 | |||
Registration fees and expenses | 158,949 | |||
Service fees (Note 2): | ||||
Y Class | 150,459 | |||
Investor Class | 7,436,466 | |||
Advisor Class | 248,199 | |||
A Class | 57,460 | |||
C Class | 13,024 | |||
Distribution fees (Note 2): | ||||
Advisor Class | 248,199 | |||
A Class | 95,767 | |||
C Class | 86,825 | |||
Prospectus and shareholder report expenses | 384,837 | |||
Trustee fees (Note 2) | 481,440 | |||
Other expenses | 518,646 | |||
|
| |||
Total expenses | 53,819,210 | |||
|
| |||
Net fees waived and expenses (reimbursed) (Note 2) | (1,950 | ) | ||
|
| |||
Net expenses | 53,817,260 | |||
|
| |||
Net investment income | 128,855,668 | |||
|
| |||
Realized and unrealized gain (loss) from investments: | ||||
Net realized gain (loss) from: | ||||
Investments in unaffiliated securitiesB | 652,035,778 | |||
Commission recapture (Note 1) | 166,249 | |||
Foreign currency transactions | (8,932 | ) | ||
Futures contracts | 41,870,110 | |||
Change in net unrealized appreciation of: | ||||
Investments in unaffiliated securitiesC | 823,347,970 | |||
Futures contracts | 4,893,583 | |||
|
| |||
Net gain from investments | 1,522,304,758 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 1,651,160,426 | ||
|
| |||
† Foreign taxes | $ | 1,692,038 | ||
A Class commenced operations February 28, 2017 (Note 1). | ||||
B The Fund did not recognize net realized gains (losses) from the sale of investments in affiliated securities. | ||||
C The Fund’s investments in affiliated securities did not have a change in unrealized appreciation (depreciation) at year end. |
See accompanying notes
19
American Beacon Large Cap Value FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||
Increase (decrease) in net assets: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 128,855,668 | $ | 180,511,435 | ||||||||
Net realized gain from investments in unaffiliated securities, commission recapture, foreign currency transactions, and futures contracts | 694,063,205 | 33,931,396 | ||||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities and futures contracts | 828,241,553 | (130,702,489 | ) | |||||||||
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 1,651,160,426 | 83,740,342 | ||||||||||
|
|
|
| |||||||||
Distributions to shareholders: | ||||||||||||
Net investment income: | ||||||||||||
Institutional Class | (112,815,102 | ) | (112,844,075 | ) | ||||||||
Y Class | (7,905,543 | ) | (7,022,245 | ) | ||||||||
Investor Class | (44,594,218 | ) | (44,777,647 | ) | ||||||||
Advisor Class | (2,058,628 | ) | (2,064,915 | ) | ||||||||
A Class | (879,050 | ) | (682,320 | ) | ||||||||
C Class | (99,793 | ) | (109,038 | ) | ||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | (40,827,429 | ) | (517,703,342 | ) | ||||||||
Y Class | (2,953,376 | ) | (34,252,889 | ) | ||||||||
Investor Class | (18,906,905 | ) | (267,451,860 | ) | ||||||||
Advisor Class | (953,678 | ) | (13,186,133 | ) | ||||||||
A Class | (366,411 | ) | (3,722,088 | ) | ||||||||
C Class | (77,352 | ) | (1,104,967 | ) | ||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (232,437,485 | ) | (1,004,921,519 | ) | ||||||||
|
|
|
| |||||||||
Capital share transactions (Note 10): | ||||||||||||
Proceeds from sales of shares | 1,070,944,813 | 1,146,991,291 | ||||||||||
Reinvestment of dividends and distributions | 220,594,801 | 959,961,629 | ||||||||||
Cost of shares redeemed | (3,282,487,770 | ) | (3,312,409,718 | ) | ||||||||
|
|
|
| |||||||||
Net (decrease) in net assets from capital share transactions | (1,990,948,156 | ) | (1,205,456,798 | ) | ||||||||
|
|
|
| |||||||||
Net (decrease) in net assets | (572,225,215 | ) | (2,126,637,975 | ) | ||||||||
|
|
|
| |||||||||
Net assets: | ||||||||||||
Beginning of period | 7,889,955,163 | 10,016,593,138 | ||||||||||
|
|
|
| |||||||||
End of period* | $ | 7,317,729,948 | $ | 7,889,955,163 | ||||||||
|
|
|
| |||||||||
*Includes undistributed net investment income | $ | 102,167,479 | $ | 157,535,300 | ||||||||
|
|
|
|
See accompanying notes
20
American Beacon Large Cap Value FundSM
October 31, 2017
1. Organization and Significant Accounting Policies
American Beacon Funds (the “Trust”), is organized as a Massachusetts business trust. The Fund, a series within the Trust, is registered under the Investment Company Act of 1940 (the “Act”), as amended, as a diversified, open-end management investment company. As of October 31, 2017, the Trust consists of thirty-four active series, one of which is presented in this filing: American Beacon Large Cap Value Fund (the “Fund”). The remaining thirty-three active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a wholly-owned subsidiary of Resolute Investment Managers, Inc., which is indirectly owned by investment funds affiliated with Kelso & Company, L.P. and Estancia Capital Management, LLC, and was organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors.
Class Disclosure
The inception date of the R6 Class was February 28, 2017.
The Fund has multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
Class | Eligible Investors | Minimum Initial Investments | ||||
Institutional | Large institutional investors - sold directly or through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 | |||
Investor | All investors using intermediary organizations, such as broker-dealers or retirement plan sponsors. | $ | 2,500 | |||
Advisor Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrators. | $ | 2,500 | |||
A Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrator. Retail investors who invest directly through a financial intermediary such as a broker, bank, or registered investment advisor which may include a front-end sales charge and a contingent deferred sales charge (“CDSC”). | $ | 2,500 | |||
C Class | Retail investors who invest directly through a financial intermediary such as broker or employee directed benefit plans with applicable sales charges which may include CDSC. | $ | 1,000 | |||
R6 | Large institutional retirement plan investors—sold through retirement plan sponsors. | None |
Each class offered by the Trust has equal rights as to assets and voting privileges. Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets. Realized and unrealized capital gains and losses of each class are allocated daily based on the relative net assets of each class of the Fund. Class specific expenses, where applicable, currently include service, distribution, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Recently Adopted Accounting Pronouncements
In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017, and has been adopted accordingly.
21
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
The following is a summary of significant accounting policies, consistently followed by the Fund in preparation of the financial statements. The Fund is considered an investment company and accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services – Investment Companies, a part of Generally Accepted Accounting Principles (“U.S. GAAP”).
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security purchase or sale. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the Net Asset Value (“NAV”). The value of the security may vary with market fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date, except certain dividends from foreign securities which are recorded as soon as the information is available to the Fund. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification.
Distributions to Shareholders
Distributions, if any, of net investment income are generally paid at least annually and recorded on the ex-dividend date. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Dividends to shareholders are determined in accordance with federal income tax regulations, which may differ in amount and character from net investment income and realized gains recognized for purposes of U.S. GAAP. To the extent necessary to fully distribute capital gains, the Fund may designate earnings and profits distributed to shareholders on the redemption of shares.
Commission Recapture
The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If a Fund’s investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. This amount is reported with the net realized gain in the Fund’s Statement of Operations, if applicable.
Allocation of Income, Trust Expenses, Gains, and Losses
Investment income, realized and unrealized gains and losses from investments of the Fund is allocated daily to each class of shares based upon the relative proportion of net assets of each class to the total net assets of the Fund. Expenses directly charged or attributable to any Fund will be paid from the assets of the Fund. Generally, expenses of the Trust will be allocated among and charged to the assets of the Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative net assets of the Fund or nature of the services performed and relative applicability to the Fund.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
22
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Other
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities 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 and Investment Sub-Advisory Agreements
The Fund and the Manager are parties to a Management Agreement that obligates the Manager to provide the Fund with investment advisory and administrative services. As compensation for performing the duties under the Management Agreement, the Manager will receive an annualized management fee based on a percentage of the Fund’s average daily net assets that is calculated and accrued daily according to the following schedule:
First $15 billion | 0.35 | % | ||
Next $15 billion | 0.325 | % | ||
Over $30 billion | 0.30 | % |
The Trust, on behalf of the Fund, and the Manager have entered into Investment Advisory Agreements with Barrow, Hanley, Mewhinney & Strauss, LLC; Brandywine Global Investment Management, LLC; Hotchkis and Wiley Capital Management, LLC; and Massachusetts Financial Services Company (“Sub-Advisors”) pursuant to which the Fund has agreed to pay an annualized sub-advisory fee that is calculated and accrued daily based on the Fund’s average daily net assets.
The Management and Sub-Advisory Fees paid by the Fund for the year ended October 31, 2017 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 26,931,676 | ||||||||
Sub-Advisor Fees | 0.18 | % | 14,063,736 | |||||||||
|
|
|
| |||||||||
Total | 0.53 | % | $ | 40,995,412 | ||||||||
|
|
|
|
As compensation for services provided by the Manager in connection with securities lending activities conducted by the Fund, the lending Fund pays to the Manager, with respect to cash collateral posted by borrowers, a fee up to 10% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers, a fee up to 10% of such loan fees. These fees are included in “Income derived from securities lending” and “Management and investment advisory fees” on the Statement of Operations. During the year ended October 31, 2017, the Manager received securities lending fees of $39,005 for the securities lending activities of the Fund.
Distribution Plans
The Fund, except for the Advisor, A, and C Classes of the Fund, has adopted a “defensive” Distribution Plan (the “Plan”) in accordance with Rule 12b-1 under the Act, pursuant to which no separate fees may be charged to the Fund for distribution purposes. However, the Plan authorizes the management fee received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Fund does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares.
Separate Distribution Plans (the “Distribution Plans”) have been adopted pursuant to Rule 12b-1 under the Act for the Advisor, A, and C Classes of the Fund. Under the Distribution Plans, as compensation for distribution
23
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor and A Classes and 1.00% of the average daily net assets of the C 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 Plans
The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor, A, and C Classes of the Fund. As compensation for performing the duties required under the Service Plans, the Manager receives an annualized fee up to 0.10% of the average daily net assets of the Y Class, up to 0.25% of the average daily net assets of the A and C Classes, up to 0.25% of the average daily net assets of the Advisor Class, and up to 0.375% of the average daily net assets of the Investor Class of the Fund. Effective April 1, 2017, the Fund terminated the Service Plan for the Y Class.
Sub-Transfer Agent Fees
The Manager has entered into agreements, which include servicing agreements, with financial intermediaries that provide recordkeeping, processing, shareholder communications and other services to customers of the intermediaries that hold positions in the Institutional Class of the Fund and has agreed to compensate the intermediaries for providing these services. Effective April 1, 2017, the Fund agreed to compensate the intermediaries for providing services to the Y Class. Intermediaries transact with the Fund primarily through the use of omnibus accounts on behalf of its customers who hold positions in the Fund. Certain services would have been provided by the Fund’s transfer agent and other service providers if the shareholders’ accounts were maintained directly by the Fund’s transfer agent. Accordingly, the Fund, pursuant to the Trust’s Board of Trustees (the “Board”) approval, has agreed to reimburse the Manager for certain non-distribution shareholder services provided by financial intermediaries for the Institutional and Y Classes. The reimbursement amounts (sub-transfer agent fees) paid to the Manager are subject to a fee limit of up to 0.10% of an intermediary’s average net assets in the Institutional and Y Classes on an annual basis. During the year ended October 31, 2017, the sub-transfer agent fees, as reflected in “Transfer agent fees” on the Statement of Operations, were as follows:
Fund | Sub-Transfer Agent Fees | |||
Large Cap Value | $ | 1,606,060 |
As of October 31, 2017, the Fund owed the Manager the following reimbursement of sub-transfer agent fees, as reflected in “Transfer agent fees payable” on the Statement of Assets and Liabilities:
Fund | Reimbursement Sub-Transfer Agent Fees | |||
Large Cap Value | $ | 82,523 |
Investments in Affiliated Funds
The Fund may invest in the American Beacon U.S. Government Money Market Select Fund (the “USG Select Fund”). Cash collateral received by the Fund in connection with securities lending may also be invested in the USG Select Fund. The Fund and the USG Select Fund have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the USG Select Fund and receives management fees and administrative fees totaling 0.10% of the average daily net assets of the USG Select Fund. During the year ended October 31, 2017, the Manager earned fees on the Fund’s direct investments and securities lending collateral investments in the USG Select Fund as shown below:
Fund | Direct Investments in USG Select Fund | Securities Lending Collateral in USG Select Fund | Total | |||||||||
Large Cap Value | $ | 225,803 | $ | 46,564 | $ | 272,367 |
24
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Interfund Credit Facility
Pursuant to an exemptive order issued by the Securities and Exchange Commission (“SEC”), the Fund, along with other registered investment companies having management contracts with the Manager, may participate in a credit facility whereby each Fund, under certain conditions, is permitted to lend money directly to and borrow directly from other participating Funds for temporary purposes. The interfund credit facility is advantageous to the Fund because it provides added liquidity, and eliminates the need to maintain higher cash balances to meet redemptions. This situation could arise when shareholder redemptions exceed anticipated volumes and certain funds have insufficient cash on hand to satisfy such redemptions or when sales of securities do not settle as expected, resulting in a cash shortfall for a fund. When a Fund liquidates portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). Redemption requests normally are satisfied on the next business day. The credit facility provides a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities. The credit facility is administered by a credit facility team consisting of professionals from the Manager’s asset management, compliance, and accounting areas who report the activities of the credit facility to the Board. During the year ended October 31, 2017, the Fund participated as a lender by loaning an average amount of $2,261,762 for 31 days at an average interest rate of 1.69% with interest charges earned of $3,250. This amount is included in “Interest income” on the Statement of Operations.
Expense Reimbursement Plan
The Manager contractually agreed to reduce fees and/or reimburse expenses for the classes of the Fund to the extent that total operating expenses exceed the Fund’s expense cap. During the year ended October 31, 2017, the Manager waived and/or reimbursed expenses as follows:
Expense Cap | ||||||||||||||||||||
Fund | Class | 11/1/2016 - 10/31/2017 | Reimbursed Expenses | (Recouped) Expenses | Expiration of Reimbursed Expenses | |||||||||||||||
Large Cap Value | R6 | N/A | $ | 1,950 | $ | – | 2020 |
Of these amounts, $277 was disclosed as a receivable from the Manager on the Statement of Assets and Liabilities at October 31, 2017. The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of such fee reductions and expense reimbursements. Under the policy, the Manager can recoup from the Fund for any contractual or voluntary fee reductions or expense reimbursements if recoupment by the Manager (a) occurs within three years after the Manager’s own waiver or reimbursement and (b) does not cause the Fund’s annual operating expenses to exceed the lesser of the contractual percentage limit in effect at the time of the waiver/reimbursement or time of recoupment. The reimbursed expenses listed above will expire in 2020. The Fund did not record a liability for potential reimbursements, due to the current assessment that a reimbursement is unlikely.
Sales Commissions
The Fund’s distributor, Foreside Fund Services, LLC (“Foreside”), may receive a portion of A Class sales charges from broker dealers and it may be used to offset distribution related expenses. During the year ended October 31, 2017, Foreside collected $1,849 for the Fund from the sale of Class A Shares.
A CDSC of 0.50% will be deducted with respect to Class A Shares on certain purchases of $1,000,000 or more that are redeemed in whole or part within 18 months of purchase, unless waived as discussed in the Fund’s Prospectus. Any applicable CDSC will be 0.50% of the lesser of the original purchase price or the value of the redemption of the Class A Shares redeemed. During the year ended October 31, 2017, fees of $625 were collected for Class A Shares of the Fund.
25
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
A CDSC of 1.00% will be deducted with respect to Class C Shares redeemed within 12 months of purchase, unless waived as discussed in the Fund’s Prospectus. Any applicable CDSC will be 1.00% of the lesser of the original purchase price or the value of the redemption of the Class C Shares redeemed. During the year ended October 31, 2017, CDSC fees of $634 were collected for Class C Shares of the Fund.
Trustee Fees and Expenses
As compensation for their service to the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust, each Trustee receives an annual retainer of $120,000, plus $5,000 for each Board meeting attended in person or via teleconference, $2,500 for attendance by Committee members at meetings of the Audit Committee and the Investment Committee, and $1,500 for attendance by Committee members at meetings of the Nominating and Governance Committee, plus reimbursement of reasonable expenses incurred in attending Board meetings, Committee meetings, and relevant educational seminars. The Trustees also may be compensated for attendance at special Board and/or Committee meetings from time to time. The Board Chairman receives an additional annual retainer of $50,000 as well as a single $5,000 fee each quarter for his attendance at the committee meetings. The Chairpersons of the Audit Committee and the Investment Committee each receive an additional annual retainer of $25,000 and the Chairman of the Nominating and Governance Committee receives an additional annual retainer of $10,000. These expenses are allocated on a prorated basis to each Fund of the Trust according to its respective net assets.
3. Security Valuation and Fair Value Measurements
Investments are valued at the close of the New York Stock Exchange (the “Exchange”), normally at 4:00 p.m. Eastern Time, each day that the Exchange is open for business. Equity securities, including exchange-traded funds (“ETFs”) for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade.
Investments in open-end mutual funds are valued at the closing NAV per share of the mutual fund on the day of valuation.
Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value pursuant to procedures established by the Board.
Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to deposit with their futures broker, an amount of cash or U.S. Government and Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized, but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities.
Other investments, including restricted securities and those financial instruments for which the above valuation procedures are inappropriate or are deemed not to reflect fair value, are stated at fair value, as determined in good faith by the Manager’s Valuation Committee, pursuant to procedures established by the Board.
Valuation Inputs
Various inputs may be used to determine the fair value of the Fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
26
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Level 1 | – | Quoted prices in active markets for identical securities. | ||
Level 2 | – | Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. | ||
Level 3 | – | Prices determined using other significant unobservable inputs. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment. |
Level 1 and Level 2 trading assets and trading liabilities, at fair value
Common stocks, preferred securities and financial derivative instruments, such as futures contracts that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are generally categorized as Level 2 of the fair value hierarchy.
Investments in registered open-end investment management companies will be valued based upon the NAVs of such investments and are categorized as Level 1 of the fair value hierarchy.
4. Securities and Other Investments
American Depositary Receipts (“ADRs”) and Non-Voting Depositary Receipts (“NVDRs”)
ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. NVDRs represent financial interests in an issuer but the holder is not entitled to any voting rights. Depositary receipts may not be denominated in the same currency as the securities into which they may be converted. Investing in depositary receipts entails substantially the same risks as direct investment in foreign securities. There is generally less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. In addition, such companies may use different accounting and financial standards (and certain currencies may become unavailable for transfer from a foreign currency), resulting in the Fund’s possible inability to convert immediately into U.S. currency proceeds realized upon the sale of portfolio securities of the affected foreign companies. In addition, the Fund may invest in unsponsored depositary receipts, the issuers of which are not obligated to disclose material information about the underlying securities to investors in the United States. Ownership of unsponsored depositary receipts may not entitle the Fund to the same benefits and rights as ownership of a sponsored depositary receipt or the underlying security.
Common Stock
Common stock generally takes the form of shares in a corporation which represent an ownership interest. It ranks below preferred stock and debt securities in claims for dividends and for assets of the company in a liquidation or bankruptcy. The value of a company’s common stock may fall as a result of factors directly relating to that company, such as decisions made by its management or decreased demand for the company’s products or services. A stock’s value may also decline because of factors affecting not just the company, but also companies in the same industry or sector. The price of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company, such as changes in interest rates, currency exchange rates or industry regulation. Companies that elect to pay dividends on their common stock generally only do so after they invest in their own business and make required payments to bondholders and on other debt and preferred stock. Therefore, the value of a company’s common stock will usually be more volatile than its bonds, other debt and preferred stock. Common stock may be exchange-traded or over-the-counter (“OTC”). OTC stock may be less liquid than exchange-traded stock.
27
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Other Investment Company Securities and Other Exchange-Traded Products
The Fund may invest in shares of other investment companies, including open-end funds, closed-end funds, business development companies, ETFs, unit investment trusts, and other investment companies of the Trust. The Fund may invest in investment company securities advised by the Manager or a sub-advisor. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. By investing in another investment company, the Fund becomes a shareholder of that investment company. As a result, the Fund’s shareholders indirectly will bear the Fund’s proportionate share of the fees and expenses paid by shareholders of the other investment company, in addition to the fees and expenses the Fund’s shareholders directly bear in connection with the Fund’s own operations. These other fees and expenses are reflected as Acquired Fund Fees and Expenses and are included in the Fees and Expenses Table for the Fund in its Prospectus, if applicable. Investments in other investment companies may involve the payment of substantial premiums above the value of such issuer’s portfolio securities.
Publicly Traded Partnerships; Master Limited Partnerships
The Fund may invest in publicly traded partnerships such as master limited partnerships (“MLPs”). MLPs issue units that are registered with the SEC and are freely tradable on a securities exchange or in the over-the-counter (“OTC”) market. An MLP may have one or more general partners, who conduct the business, and one or more limited partners, who contribute capital. (An MLP also may be an entity similar to a limited partnership, such as a limited liability company, which has a manager or managing member and non-managing members (who are like limited partners)). The general partner or partners are jointly and severally responsible for the liabilities of the MLP. A Fund invests as a limited partner and normally would not be liable for the debts of an MLP beyond the amount the Fund has invested therein but it would not be shielded to the same extent that a shareholder of a corporation would be. In certain instances, creditors of an MLP would have the right to seek a return of capital that had been distributed to a limited partner. The right of an MLP’s creditors would continue even after a Fund had sold its investment in the partnership. MLPs typically invest in real estate and oil and gas equipment leasing assets, but they also finance entertainment, research and development, and other projects.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. The Fund re-characterizes distributions received from REIT investments based on information provided by the REITs into the following categories: ordinary income, long-term capital gains, and return of capital. If information is not available on a timely basis from the REITs, the re-characterization will be estimated based on available information, which may include the previous year allocation. If new or additional information becomes available from the REITs at a later date, a re-characterization will be made the following year.
5. Financial Derivative Instruments
The Fund may utilize derivative instruments to gain market exposure on cash balances or reduce market exposure in anticipation of liquidity needs. When considering the Fund’s use of derivatives, it is important to note that the Fund does not use derivatives for the purpose of creating financial leverage.
Futures Contracts
Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Fund may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities or that the counterparty will fail to perform its obligations.
28
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Upon entering into a futures contract, the Fund is required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents a portion of the face value of the futures contract. The Fund usually reflects this amount on the Schedule of Investments as a U.S. Treasury Bill held as collateral for futures contracts or as cash deposited with broker on the Statement of Assets and Liabilities. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded.
During the year ended October 31, 2017, the Fund entered into future contracts primarily for exposing cash to markets.
The Fund’s average futures contracts outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the average quarterly volume of futures contracts. For purpose of this disclosure, volume is measured by contracts outstanding at each quarter end.
Average Futures Contracts Outstanding | ||||
Fund | Year Ended October 31, 2017 | |||
Large Cap Value | 1,874 |
The following is a summary of the fair valuations of the Fund’s derivative instruments categorized by risk exposure(1):
Fair values of financial instruments on the Statement of Assets and Liabilities as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||
Assets: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Receivable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | 3,560,318 | $ | 3,560,318 |
The effect of financial derivative instruments on the Statement of Operations as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) of | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 41,870,110 | $ | 41,870,110 | ||||||||||||||||||||||||||||||||
Net change in unrealized | Credit contracts | Foreign exchange contracts | Commodity contracts |
| Interest rate contracts |
| Equity contracts |
| Total | |||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 4,893,583 | $ | 4,893,583 |
(1) See Note 3 in the Notes to Financial Statements for additional information.
(2) Includes cumulative appreciation (depreciation) of futures contracts as reported in the Fund’s Schedule of Investments footnotes. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
29
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
6. Principal Risks
Investing in the Fund may involve certain risks including, but not limited to, those described below.
Equity Investment Risk
Equity securities are subject to market risk. The Fund’s investments in equity securities may include common stocks, preferred stocks, securities convertible into or exchangeable for common stocks, REITs, depositary receipts, and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. Such investments may expose the Fund to additional risk. The value of a company’s common stock may fall as a result of factors affecting the company, companies in the same industry or sector, or the financial markets overall. Common stock generally is subordinate to preferred stock upon the liquidation or bankruptcy of the issuing company. Preferred stocks and convertible securities are sensitive to movements in interest rates. Preferred stocks may be less liquid than common stocks and, unlike common stocks, participation in the growth of an issuer may be limited. Distributions on preferred stocks generally are payable at the discretion of an issuer and after required payments to bond holders. Convertible securities are subject to the risk that the credit standing of the issuer may have an effect on the convertible securities’ investment value. Investments in REITs are subject to the risks associated with investing in the real estate industry such as adverse developments affecting the real estate industry and real property values. Depositary receipts and U.S. dollar-denominated foreign stocks traded on U.S. exchanges are subject to certain of the risks associated with investing directly in foreign securities, including, but not limited to, currency fluctuations and political and financial instability in the home country of a particular depositary receipt or foreign stock.
Foreign Investing Risk
The Fund may invest in securities issued by foreign companies through ADRs and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. The Fund may also invest in local currency investments. ADRs are subject to many of the risks inherent in currency fluctuations and political and financial instability in the home country of a particular ADR or foreign stock. Non-U.S. investments carry potential risks not associated with U.S. investments. Such risks include, but are not limited to: (1) currency exchange rate fluctuations, (2) political and financial instability, (3) less liquidity and greater volatility, (4) lack of uniform accounting, auditing and financial reporting standards, (5) increased price volatility, (6) less government regulation and supervision of foreign stock exchanges, brokers and listed companies, and (7) delays in transaction settlement in some foreign markets.
Futures Contracts Risk
Futures contracts are derivative instruments where one party pays a fixed price for an agreed amount of securities or other underlying assets at an agreed date. The use of such derivative instruments may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. Futures contracts may experience potentially dramatic price changes (losses) and imperfect correlation between the price of the contract and the underlying security or index, which will increase the volatility of the Fund and may involve a small investment of cash (the amount of initial and variation margin) relative to the magnitude of the risk assumed (the potential increase or decrease in the price of the futures contract).
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects, which have resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both domestic and foreign. In addition, global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations.
30
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
In addition, political events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. High public debt in the U.S. and other countries creates ongoing systemic and market risks and policymaking uncertainty. Because the impact on the markets has been widespread, it may be difficult to identify both risks and opportunities using past models of the interplay of market forces, or to predict the duration of these market conditions. Interest rates have been unusually low in recent years in the U.S. and abroad. Because there is little precedent for this situation, it is difficult to predict the impact of a rate increase on various markets. In addition, there is a risk that the prices of goods and services in the U.S. and many foreign economies may decline over time, known as deflation (the opposite of inflation). Deflation may have an adverse effect on stock prices and creditworthiness and may make defaults on debt more likely.
Multiple Sub-Advisor Risk
The Manager may allocate the Fund’s assets among multiple sub-advisors, each of which is responsible for investing its allocated portion of the Fund’s assets. To a significant extent, the Fund’s performance will depend on the success of the Manager in allocating the Fund’s assets to sub-advisors and its selection and oversight of the sub-advisors. Because each sub-adviser manages its allocated portion of the Fund independently from another sub-adviser, the same security may be held in different portions of the Fund, or may be acquired for one portion of the Fund at a time when a sub-adviser to another portion deems it appropriate to dispose of the security from that other portion, resulting in higher expenses without accomplishing any net result in the Fund’s holdings. Similarly, under some market conditions, one sub-adviser may believe that temporary, defensive investments in short-term instruments or cash are appropriate when another sub-adviser believes continued exposure to the equity or debt markets is appropriate for its allocated portion of the Fund. Because each sub-adviser directs the trading for its own portion of the Fund and does not aggregate its transactions with those of the other sub-advisors, the Fund may incur higher brokerage costs than would be the case if a single sub-adviser were managing the entire Fund. In addition, while the Manager seeks to allocate the Fund’s assets among the Fund’s sub-advisors in a manner that it believes is consistent with achieving the Fund’s investment objective(s), the Manager may be subject to potential conflicts of interest in allocating the Fund’s assets among sub-advisors, because the Manager pays different fees to the sub-adviser and due to other factors that could impact the Manager’s revenues and profits
Other Investment Companies Risk
The Fund may invest in shares of other registered investment companies, including money market funds. To the extent that the Fund invests in shares of other registered investment companies, the Fund will indirectly bear the fees and expenses charged by the underlying funds in addition to the Fund’s direct fees and expenses and will be subject to the risks associated with investments in those funds. For example, money market funds are subject to interest rate risk, credit risk, and market risk.
Securities Lending Risk
To the extent the Fund lends its securities, it may be subject to the following risks; i) borrowers of the Fund’s securities typically provide collateral in the form of cash that is reinvested in securities, ii) the securities in which the collateral is invested may not perform sufficiently to cover the return collateral payments owed to borrowers, iii) delays may occur in the recovery of securities from borrowers, which could interfere with the Fund’s ability to vote proxies or to settle transactions, and iv) there is the risk of possible loss of rights in the collateral should the borrower fail financially.
Offsetting Assets and Liabilities
The Fund is a party to enforceable master netting agreements between brokers and counterparties which provide for the right to offset under certain circumstances. The Fund employs multiple money managers and counterparties and has elected not to offset qualifying financial and derivative instruments on the Statement of Assets and Liabilities, as such all financial and derivative instruments are presented on a gross basis. The impacts of netting arrangements that provide the right to offset are detailed below. The net amount represents the net
31
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
receivable or payable that would be due from or to the counterparty in the event of default. Exposure from borrowings and other financing agreements such as repurchase agreements can only be netted across transactions governed by the same Master Agreement with the same legal entity. All amounts reported below represent the balance as of the report date, October 31, 2017.
Offsetting of Financial and Derivative Assets as of October 31, 2017: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | 3,560,318 | $ | - | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 3,560,318 | $ | - | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | (3,560,318 | ) | $ | - | |||||||
|
|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2017 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 97,150,617 | $ | - | $ | - | $ | - | $ | 97,150,617 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 97,150,617 | $ | - | $ | - | $ | - | $ | 97,150,617 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 97,150,617 | ||||||||||||||||||||||||||||||||||
|
|
7. Federal Income and Excise Taxes
It is the policy of the Fund to qualify as a regulated investment company (“RIC”), by complying with all applicable provisions of Subchapter M of the Internal Revenue Code, as amended, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. For federal income tax purposes, the Fund is treated as a single entity for the purpose of determining such qualification.
The Fund does not have any unrecorded tax liabilities in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2017 remain subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in “Other expenses” on the Statement of Operations.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns of income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation (depreciation), as applicable, as the income is earned or capital gains are recorded.
Dividends are categorized in accordance with income tax regulations which may treat certain transactions differently than U.S. GAAP. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. The Fund utilized earnings and profits distributed to shareholders from redemption of shares as part of the dividends paid deduction.
32
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
The tax character of distributions paid were as follows:
Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||
Distributions paid from: |
| |||||||||||
Ordinary income* |
| |||||||||||
Institutional ClassA | $ | 112,815,101 | $ | 120,640,471 | ||||||||
Y Class | 7,905,543 | 7,538,079 | ||||||||||
Investors Class | 44,594,219 | 48,805,360 | ||||||||||
Advisor ClassB | 2,058,628 | 2,263,492 | ||||||||||
A Class | 879,050 | 738,373 | ||||||||||
C Class | 99,793 | 125,679 | ||||||||||
Long-term capital gains |
| |||||||||||
Institutional ClassA | 40,827,429 | 509,906,946 | ||||||||||
Y Class | 2,953,376 | 33,737,055 | ||||||||||
Investors Class | 18,906,905 | 263,424,147 | ||||||||||
Advisor ClassB | 953,678 | 12,987,556 | ||||||||||
A Class | 366,411 | 3,666,035 | ||||||||||
C Class | 77,352 | 1,088,326 | ||||||||||
|
|
|
| |||||||||
Total distributions paid | $ | 232,437,485 | $ | 1,004,921,519 | ||||||||
|
|
|
|
*For tax purposes, short-term gains are considered ordinary income distributions.
A Includes AMR Class distributions due to merger with the Institutional Class on May 31, 2016.
B Includes Retirement Class distributions due to merger with Advisor Class on January 15, 2016.
As of October 31, 2017 the components of distributable earnings (deficits) on a tax basis were as follows:
Fund | Tax Cost | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Large Cap Value | $ | 5,903,053,795 | $ | 1,761,707,504 | $ | (290,444,041 | ) | $ | 1,471,263,463 |
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Other Temporary Differences | Distributable Earnings | ||||||||||||||||||||||||||||||||||||||
Large Cap Value | $ | 1,471,263,463 | $ | 238,670,815 | $ | 469,386,400 | $ | – | $ | – | $ | 2,179,320,678 |
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation (depreciation) are attributable primarily to the tax deferral of losses from wash sales, the realization for tax purposes of unrealized gains (losses) on certain derivative instruments, and reclassifications of income from real estate investment securities and publicly traded partnerships.
Due to inherent differences in the recognition of income, expenses, and realized gains (losses) under U.S. GAAP and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent differences derived from foreign currency reclasses, reclassifications of income from real estate investment securities and publicly traded partnerships, Section 732 basis adjustments, and utilization of earnings and profits distributed to shareholders from redemption of shares as of October 31, 2017:
Fund | Paid-In-Capital | Undistributed (Overdistribution of) Net Investment Income | Accumulated Net Realized Gain (Loss) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Large Cap Value | $ | 113,745,615 | $ | (15,871,155 | ) | $ | (97,874,460 | ) | $ | – |
33
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Under the Regulated Investment Company Modernization Act of 2010 (“RIC MOD”), net capital losses recognized by the Fund in taxable years beginning after December 22, 2010 are carried forward indefinitely and retain their character as short-term and/or long-term losses.
As of October 31, 2017, the Fund did not any have capital loss carryforwards.
8. Investment Transactions
The aggregate cost of purchases and proceeds from sales and maturities of investments, other than short-term obligations, for the year ended October 31, 2017 were as follows:
Fund | Purchases (non-U.S. Government Securities) |
| Sales (non-U.S. Government Securities) | |||||||||
Large Cap Value | $ | 1,842,308,218 | $ | 4,053,168,532 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2017 were as follows:
Fund | Type of Transaction | October 31, 2016 Shares/Fair Value | Purchases | Sales | October 31, 2017 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
Large Cap Value | Direct | $ | 213,056,490 | $ | 4,245,781,651 | $ | 4,170,385,956 | $ | 288,452,185 | $ | 1,551,549 | |||||||||||||||||||||||||||||||
Large Cap Value | Securities Lending | - | 695,852,328 | 598,701,711 | 97,150,617 | N/A |
9. Securities Lending
The Fund may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. The borrowers are required to secure their loans continuously with collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Collateral is monitored and marked-to-market daily. Daily mark-to-market amounts are required to be paid to the borrower or received from the borrower by the end of the following business day. This one day settlement for mark-to-market amounts may result in the collateral being temporarily less than the value of the securities on loan or temporarily more than the required minimum collateral.
To the extent that a loan is collateralized by cash, such cash collateral shall be invested by the securities lending agent (the “Agent”) in money market mutual funds and other short-term investments, provided the investments meet certain quality and diversification requirements. Securities purchased with cash collateral proceeds are listed in the Fund’s Schedule of Investments and the collateral is shown on the Statement of Assets and Liabilities as a payable.
Securities lending income is generated from the demand premium (if any) paid by the borrower to borrow a specific security and from the return on investment of cash collateral, reduced by negotiated rebate fees paid to the borrower and transaction costs. To the extent that a loan is secured by non-cash collateral, securities lending income is generated as a demand premium reduced by transaction costs. The Fund, the Agent, and the Manager retained 80%, 10%, and 10%, respectively, of the income generated from securities lending.
While securities are on loan, the Fund continues to receive certain income associated with that security and any gain or loss in the market price that may occur during the term of the loan. In the case of domestic equities, the value of any dividend is received in the form of a substitute payment approximately equal to the dividend. In the case of foreign securities, a negotiated amount is received that is less than the actual dividend, but higher than the dividend amount minus the foreign tax that the Fund would be subject to on the dividend.
34
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Securities lending transactions pose certain risks to the Fund, including that the borrower may not provide additional collateral when required or return the securities when due, that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower, that non-cash collateral may be subject to legal constraints in the event of a borrower bankruptcy, and that the cash collateral investments could become illiquid and unable to be used to return collateral to the borrower. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower and any action which impairs its ability to liquidate non-cash collateral to satisfy a borrower default.
As of October 31, 2017, the value of outstanding securities on loan and the value of collateral were as follows:
Fund | Market Value of Securities on Loan | Cash Collateral Received | Non-Cash Collateral Received | Total Collateral Received | ||||||||||||||||||||||||
Large Cap Value | $ | 95,035,038 | $ | 97,150,617 | $ | - | $ | 97,150,617 |
Cash collateral is listed on the Fund’s Schedule of Investments and is shown on the Statement of Assets and Liabilities. Income earned on these investments is included in “Income derived from securities lending” on the Statement of Operations.
Non-cash collateral received by the Fund may not be sold or re-pledged except to satisfy a borrower default. Therefore, non-cash collateral is not included on the Fund’s Schedule of Investments or Statement of Assets and Liabilities.
10. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016A | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 22,769,063 | $ | 656,233,956 | 29,011,141 | $ | 723,886,356 | ||||||||||||||||||||||
Reinvestment of dividends | 5,164,960 | 144,102,372 | 24,324,597 | 594,255,276 | ||||||||||||||||||||||||
Shares redeemed | (73,234,805 | ) | (2,103,146,975 | ) | (73,620,802 | ) | (1,858,257,006 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (45,300,782 | ) | $ | (1,302,810,647 | ) | (20,285,064 | ) | $ | (540,115,374 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 3,126,566 | $ | 89,594,420 | 3,157,381 | $ | 76,912,328 | ||||||||||||||||||||||
Reinvestment of dividends | 382,065 | 10,598,482 | 1,654,777 | 40,194,522 | ||||||||||||||||||||||||
Shares redeemed | (4,661,125 | ) | (131,631,686 | ) | (6,036,346 | ) | (152,194,349 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,152,494 | ) | $ | (31,438,784 | ) | (1,224,188 | ) | $ | (35,087,499 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 9,354,201 | $ | 251,586,213 | 12,986,515 | $ | 300,013,977 | ||||||||||||||||||||||
Reinvestment of dividends | 2,362,886 | 61,718,592 | 13,342,014 | 305,665,560 | ||||||||||||||||||||||||
Shares redeemed | (35,958,339 | ) | (961,374,863 | ) | (51,928,422 | ) | (1,209,650,645 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (24,241,252 | ) | $ | (648,070,058 | ) | (25,599,893 | ) | $ | (603,971,108 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
35
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016B | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 472,811 | $ | 12,521,928 | 1,415,449 | $ | 30,873,647 | ||||||||||||||||||||||
Reinvestment of dividends | 108,296 | 2,795,115 | 640,459 | 14,483,364 | ||||||||||||||||||||||||
Shares redeemed | (2,242,361 | ) | (58,812,119 | ) | (3,029,002 | ) | (69,204,203 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,661,254 | ) | $ | (43,495,076 | ) | (973,094 | ) | $ | (23,847,192 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 740,832 | $ | 19,929,459 | 569,278 | $ | 13,371,912 | ||||||||||||||||||||||
Reinvestment of dividends | 47,258 | 1,221,618 | 189,233 | 4,295,607 | ||||||||||||||||||||||||
Shares redeemed | (854,841 | ) | (22,876,376 | ) | (776,999 | ) | (17,974,601 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (66,751 | ) | $ | (1,725,299 | ) | (18,488 | ) | $ | (307,082 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 38,862 | $ | 1,023,344 | 82,706 | $ | 1,933,071 | ||||||||||||||||||||||
Reinvestment of dividends | 6,172 | 158,622 | 47,350 | 1,067,300 | ||||||||||||||||||||||||
Shares redeemed | (129,249 | ) | (3,392,547 | ) | (223,857 | ) | (5,128,914 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (84,215 | ) | $ | (2,210,581 | ) | (93,801 | ) | $ | (2,128,543 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
R6 Class | ||||||||||||||||||||||||||||
February 28, 2017C to October 31, 2017 | Year Ended October 31, 2016 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,364,784 | $ | 40,055,493 | - | $ | - | ||||||||||||||||||||||
Shares redeemed | (41,996 | ) | (1,253,204 | ) | - | - | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 1,322,788 | $ | 38,802,289 | - | $ | - | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
A Includes AMR Class transactions prior to the merger with the Institutional Class on May 31, 2016.
B Includes Retirement Class transactions prior to the merger with the Advisor Class on January 15, 2016.
C Commencement of Operations.
11. Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
36
American Beacon Large Cap Value FundSM
(For a share outstanding throughout the period)
Institutional ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 25.80 | $ | 28.38 | $ | 31.21 | $ | 27.59 | $ | 21.58 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.59 | 0.61 | 0.55 | 0.73 | 0.50 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.41 | (0.29 | ) | (0.70 | ) | 3.33 | 6.00 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 6.00 | 0.32 | (0.15 | ) | 4.06 | 6.50 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.60 | ) | (0.52 | ) | (0.67 | ) | (0.44 | ) | (0.49 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.22 | ) | (2.38 | ) | (2.01 | ) | - | - | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.82 | ) | (2.90 | ) | (2.68 | ) | (0.44 | ) | (0.49 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 30.98 | $ | 25.80 | $ | 28.38 | $ | 31.21 | $ | 27.59 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 23.60 | % | 1.69 | % | (0.76 | )% | 14.89 | % | 30.70 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 4,765,771,483 | $ | 5,137,688,375 | $ | 6,198,883,300 | $ | 5,816,013,064 | $ | 5,428,755,279 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.60 | % | 0.60 | % | 0.58 | % | 0.58 | % | 0.58 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.60 | % | 0.60 | % | 0.58 | % | 0.58 | % | 0.58 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.78 | % | 2.16 | % | 1.88 | % | 2.35 | % | 1.99 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.78 | % | 2.16 | % | 1.88 | % | 2.35 | % | 1.99 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 25 | % | 25 | % | 32 | % | 29 | % | 34 | % | ||||||||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 25.64 | $ | 28.21 | $ | 31.04 | $ | 27.46 | $ | 21.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.48 | 0.59 | 0.56 | 0.64 | 0.40 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.46 | (0.29 | ) | (0.72 | ) | 3.37 | 6.05 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 5.94 | 0.30 | (0.16 | ) | 4.01 | 6.45 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.58 | ) | (0.49 | ) | (0.66 | ) | (0.43 | ) | (0.46 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.22 | ) | (2.38 | ) | (2.01 | ) | - | - | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.80 | ) | (2.87 | ) | (2.67 | ) | (0.43 | ) | (0.46 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 30.78 | $ | 25.64 | $ | 28.21 | $ | 31.04 | $ | 27.46 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 23.51 | % | 1.61 | % | (0.80 | )% | 14.78 | % | 30.59 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 384,155,569 | $ | 349,542,346 | $ | 419,096,844 | $ | 434,880,702 | $ | 327,938,666 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.67 | % | 0.67 | % | 0.67 | % | 0.67 | % | 0.66 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.67 | % | 0.67 | % | 0.67 | % | 0.67 | % | 0.66 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.69 | % | 2.08 | % | 1.80 | % | 2.24 | % | 1.78 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.69 | % | 2.08 | % | 1.80 | % | 2.24 | % | 1.78 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 25 | % | 25 | % | 32 | % | 29 | % | 34 | % |
A | On May 31, 2016, the AMR Class closed and the assets were merged into the Institutional Class. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
37
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 24.13 | $ | 26.70 | $ | 29.51 | $ | 26.11 | $ | 20.43 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.40 | 0.46 | 0.45 | 0.57 | 0.39 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.12 | (0.25 | ) | (0.68 | ) | 3.18 | 5.69 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 5.52 | 0.21 | (0.23 | ) | 3.75 | 6.08 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.51 | ) | (0.40 | ) | (0.57 | ) | (0.35 | ) | (0.40 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | – | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.73 | ) | (2.78 | ) | (2.58 | ) | (0.35 | ) | (0.40 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.92 | $ | 24.13 | $ | 26.70 | $ | 29.51 | $ | 26.11 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 23.20 | % | 1.33 | % | (1.07 | )% | 14.50 | % | 30.26 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 1,990,199,621 | $ | 2,245,534,741 | $ | 3,167,585,961 | $ | 4,158,361,296 | $ | 3,899,010,929 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.92 | % | 0.93 | % | 0.93 | % | 0.93 | % | 0.93 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.92 | % | 0.93 | % | 0.93 | % | 0.93 | % | 0.93 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.46 | % | 1.84 | % | 1.54 | % | 2.01 | % | 1.67 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.46 | % | 1.84 | % | 1.54 | % | 2.01 | % | 1.67 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 25 | % | 25 | % | 32 | % | 29 | % | 34 | % | ||||||||||||||||||||||||||
Advisor ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.82 | $ | 26.40 | $ | 29.24 | $ | 25.89 | $ | 20.25 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.21 | 0.40 | 0.40 | 0.47 | 0.35 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.20 | (0.22 | ) | (0.66 | ) | 3.20 | 5.65 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 5.41 | 0.18 | (0.26 | ) | 3.67 | 6.00 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.47 | ) | (0.38 | ) | (0.57 | ) | (0.32 | ) | (0.36 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | – | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.69 | ) | (2.76 | ) | (2.58 | ) | (0.32 | ) | (0.36 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.54 | $ | 23.82 | $ | 26.40 | $ | 29.24 | $ | 25.89 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 23.00 | % | 1.21 | % | (1.19 | )% | 14.31 | % | 30.05 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 88,196,090 | $ | 113,168,437 | $ | 140,975,319 | $ | 149,422,940 | $ | 128,528,036 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.07 | % | 1.08 | % | 1.07 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.07 | % | 1.08 | % | 1.07 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.31 | % | 1.69 | % | 1.40 | % | 1.83 | % | 1.52 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.31 | % | 1.69 | % | 1.40 | % | 1.83 | % | 1.52 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 25 | % | 25 | % | 32 | % | 29 | % | 34 | % |
A | On January 15, 2016, the Retirement Class closed and the assets were merged into the Advisor Class. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
38
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.90 | $ | 26.51 | $ | 29.38 | $ | 26.03 | $ | 20.41 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.28 | 0.42 | 0.47 | 0.54 | 0.38 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.17 | (0.21 | ) | (0.71 | ) | 3.16 | 5.65 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 5.45 | 0.21 | (0.24 | ) | 3.70 | 6.03 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.52 | ) | (0.44 | ) | (0.62 | ) | (0.35 | ) | (0.41 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | – | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.74 | ) | (2.82 | ) | (2.63 | ) | (0.35 | ) | (0.41 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.61 | $ | 23.90 | $ | 26.51 | $ | 29.38 | $ | 26.03 | ||||||||||||||||||||||||||
|
|
|
|
|
| �� |
|
|
| |||||||||||||||||||||||||||
Total returnA | 23.13 | % | 1.33 | % | (1.14 | )% | 14.37 | % | 30.03 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 40,073,435 | $ | 35,071,001 | $ | 39,401,153 | $ | 22,781,918 | $ | 11,904,903 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.98 | % | 0.98 | % | 0.97 | % | 1.04 | % | 1.08 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.98 | % | 0.98 | % | 0.97 | % | 1.04 | % | 1.08 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.38 | % | 1.78 | % | 1.48 | % | 1.83 | % | 1.44 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.38 | % | 1.78 | % | 1.48 | % | 1.83 | % | 1.44 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 25 | % | 25 | % | 32 | % | 29 | % | 34 | % | ||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.57 | $ | 26.17 | $ | 29.03 | $ | 25.81 | $ | 20.29 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.09 | 0.20 | 0.27 | 0.35 | 0.23 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.11 | (0.19 | ) | (0.70 | ) | 3.11 | 5.58 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 5.20 | 0.01 | (0.43 | ) | 3.46 | 5.81 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.28 | ) | (0.23 | ) | (0.42 | ) | (0.24 | ) | (0.29 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | – | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.50 | ) | (2.61 | ) | (2.43 | ) | (0.24 | ) | (0.29 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.27 | $ | 23.57 | $ | 26.17 | $ | 29.03 | $ | 25.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 22.27 | % | 0.51 | % | (1.83 | )% | 13.48 | % | 29.00 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 8,351,349 | $ | 8,950,263 | $ | 12,389,141 | $ | 9,964,292 | $ | 5,199,605 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.72 | % | 1.74 | % | 1.73 | % | 1.79 | % | 1.84 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.72 | % | 1.74 | % | 1.73 | % | 1.81 | % | 1.92 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.66 | % | 1.02 | % | 0.73 | % | 1.09 | % | 0.68 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.66 | % | 1.02 | % | 0.73 | % | 1.07 | % | 0.60 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 25 | % | 25 | % | 32 | % | 29 | % | 34 | % |
A | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
39
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||
February 28, 2017A to October 31, 2017 | ||||
|
| |||
Net asset value, beginning of period | $ | 28.64 | ||
|
| |||
Income from investment operations: | ||||
Net investment income | 0.12 | |||
Net gains on investments (both realized and unrealized) | 2.22 | |||
|
| |||
Total income from investment operations | 2.34 | |||
|
| |||
Net asset value, end of period | $ | 30.98 | ||
|
| |||
Total returnB | 8.17 | %C | ||
|
| |||
Ratios and supplemental data: | ||||
Net assets, end of period | $ | 40,982,401 | ||
Ratios to average net assets: | ||||
Expenses, before reimbursements | 0.60 | %D | ||
Expenses, net of reimbursements | 0.58 | %D | ||
Net investment income, before expense reimbursements | 1.38 | %D | ||
Net investment income, net of reimbursements | 1.40 | %D | ||
Portfolio turnover rate | 25 | %E |
A | Commencement of operations. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
C | Not annualized. |
D | Annualized. |
E | Portfolio turnover is for the period from February 28, 2017 through October 31, 2017 and is annualized. |
See accompanying notes
40
American Beacon Large Cap Value FundSM
October 31, 2017 (Unaudited)
Certain tax information regarding the Fund is required to be provided to shareholders based upon the Fund’ income and distributions for the taxable year ended October 31, 2017. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2017.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2017. All designations are based on financial information available as of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code of 1986, as amended, and the regulations there under.
Corporate Dividends-Received Deduction:
Large Cap Value | 69.70 | % |
Qualified Dividend Income:
Large Cap Value | 100.00 | % |
Long-Term Capital Gain Distributions:
Large Cap Value | $ | 177,828,930 |
Short-Term Capital Gain Distributions:
Large Cap Value | $ | - |
Shareholders will receive notification in January 2018 of the applicable tax information necessary to prepare their 2017 income tax returns.
41
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
Renewal and Approval of Management Agreement and Investment Advisory Agreements
At in-person meetings held on May 16, 2017 and June 7, 2017 (collectively, the “Meetings”), the Board of Trustees (“Board”) considered and then, at its June 7 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (the “Trust”), on behalf of American Beacon Large Cap Value Fund (“Fund”);
(2) the Investment Advisory Agreements among the Manager, the Trust, on behalf of the Fund, and each of Brandywine Global Investment Management, LLC (“Brandywine”), Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow”), Hotchkis and Wiley Capital Management, LLC (“Hotchkis”) and Massachusetts Financial Services Company (“MFS”) (each, a “subadvisor” and collectively, the “subadvisors”).
The Investment Advisory Agreements are referred to herein as the “Investment Advisory Agreements”. The Management Agreement and the Investment Advisory Agreements are collectively referred to herein as the “Agreements.” In preparation for its consideration of the renewal of the Agreements, the Board undertook steps to gather and consider information furnished by the Manager, the subadvisor, Broadridge, Inc. (“Broadridge”) and Morningstar, Inc. (“Morningstar”). The Board, with the assistance of independent legal counsel, requested and received certain relevant information from the Manager and each subadvisor.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge and Morningstar regarding the performance, fees and expenses of the Fund as well as information from the Manager and the subadvisors. At the Meetings, the Board considered the information provided. Further, the Board took into consideration information furnished for the Board’s review and consideration throughout the year at regular meetings of the Board and its committees, as well as information specifically prepared in connection with the renewal process.
In connection with the Board’s consideration of the Agreements, the Trustees received and evaluated such information as they deemed necessary. The information requested on behalf of the Board included, among other information, the following materials. References herein to the “firm” refer to the Manager and/or the subadvisors.
• | comparisons of the performance of an appropriate share class of the Fund to comparable investment companies and appropriate benchmark indices, including peer group averages and performance analyses provided by Broadridge and Morningstar, and to the performance of certain similar accounts or a composite of similar accounts, as applicable, managed by the firm; |
• | comparisons of the Fund’s management and subadvisory fee rates and expense ratio with the management fee rates paid by comparable mutual funds and their expense ratios, including peer group averages and fee and expense analyses provided by Broadridge and Morningstar, and the advisory fee rates charged to other clients for which similar services are provided by a firm; |
• | the Manager’s profitability with respect to the services that it provided to the Fund; |
• | any actual or anticipated economies of scale in relation to the services the firm provides or will provide to the Fund and whether the current fee rates charged or to be charged to the Fund reflect these economies of scale for the benefit of the Fund’s investors; |
• | an evaluation of other benefits to the firm or Fund as a result of their relationship, if any; |
• | information regarding the administrative, accounting-related, cash management and securities lending services that the Manager provides to the Fund and the fees that the Manager receives for such services; and |
42
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
• | information regarding a firm’s financial condition, the personnel of the Manager who are assigned primary responsibility for managing the Fund, staffing levels, portfolio managers’ compensation, insurance coverage, material pending litigation, code of ethics, compliance matters, actual or potential conflicts of interest that the firm experiences, or anticipates that it will experience, in providing services to the Fund, and the Manager’s disaster recovery plans. |
The Board noted that the Manager provides management and administrative services to the Fund pursuant to the Management Agreement. The Board considered that many mutual funds have separate contracts governing both types of services, and observed that the actual management fee rates provided by Broadridge for peer group funds reflect the combined advisory and administrative expenses, reduced by any fee waivers and/or reimbursements.
A firm may not have been able to, or opted not to, provide information in response to certain information requests, in which case the Board conducted its evaluation of the firm based on information that was provided. In such cases, the Board determined that the omission of any such information was not material to its considerations. The class of shares used for comparative performance purposes was the share class with the lowest expenses available for purchase by the general public, which was the Institutional Class. The Board also considered that the use of Institutional Class performance generally facilitates a meaningful comparison for expense and performance purposes.
Provided below is an overview of certain factors the Board considered in connection with its renewal and approval of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew or approve each Agreement, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Independent Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the renewal and approval of each Agreement. The memorandum explained the regulatory requirements surrounding the Trustees’ process for evaluating investment advisors and the terms of investment advisory contracts. Based on its evaluation, the Board unanimously concluded that the terms of each Agreement were reasonable and fair and that the renewal and approval of each Agreement was in the best interests of the Fund and its shareholders.
Considerations With Respect to the Renewal of the Management Agreement and The Investment Advisory Agreements
In determining whether to renew the Agreements, the Trustees considered the best interests of the Fund. While the Management Agreement and the Investment Advisory Agreements for the Fund were considered at the Meetings, the Board considered the Fund’s investment management and subadvisory relationships separately.
In each instance, the Board considered, among other things, the following factors: (1) the nature, extent and quality of the services provided; (2) the investment performance of the Fund; (3) the costs incurred by the Manager in rendering services to the Fund and its resulting profits or losses; (4) comparisons of services and fee rates with contracts entered into by the Manager or the subadvisors or their affiliates with other clients (such as pension funds and other institutional clients); (5) the extent to which economies of scale, if any, have been taken into account in setting each fee rate schedule; (6) whether fee rate levels reflect economies of scale, if any, for the benefit of Fund investors; and (7) any other benefits derived or anticipated to be derived by the Manager or the subadvisors from their relationship with the Fund.
Nature, Extent and Quality of Services. With respect to the renewal of the Management Agreement, the Board considered, among other factors: the Fund’s long-term performance and the length of service of key investment personnel at the Manager; the cost structure of the Fund; the Manager’s culture of compliance and support for compliance operations that reduce risks to the Fund; the Manager’s quality of services; the Manager’s active role in monitoring and, as appropriate, recommending additional or replacement subadvisors; and the Manager’s efforts to retain key employees and maintain staffing levels.
43
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
With respect to the renewal of the Investment Advisory Agreements, the Trustees considered the level of staffing and the size of the subadvisors. The Board also considered the adequacy of the resources committed to the Fund by the subadvisors, and whether those resources were commensurate with the needs of the Fund and are sufficient to sustain appropriate levels of performance and compliance needs. In this regard, the Board considered the financial stability of the subadvisors. The Board also considered the subadvisors’ representations regarding their compliance program and code of ethics. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and the subadvisors were appropriate for the Fund.
Investment Performance. The Board evaluated the comparative information provided by Broadridge and the Manager regarding the performance of the Fund relative to its Broadridge performance universe, Morningstar Category, and benchmark index, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding its independent peer selection methodology to select all Broadridge performance universes. The Board also considered that the performance universe selected by Broadridge may not provide appropriate comparisons for the Fund. In addition, the Board considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Board also evaluated the comparative information provided by each subadvisor regarding the performance of its portion of the Fund relative to the performance of other comparable investment accounts managed by the subadvisor, the Fund’s benchmark index and, with respect to certain subadvisors, an additional market index. In addition, the Board considered the Manager’s recommendation to continue to retain each subadvisor. A discussion regarding the Board’s considerations with respect to the Fund’s performance appears below under “Additional Considerations and Conclusions with Respect to the Fund.”
Costs of the Services Provided to the Fund and the Profits Realized by the Manager from its Relationship with the Fund. In analyzing the cost of services and profitability of the Manager, the Board considered the revenues earned and the expenses incurred by the Manager, before and after the payment of distribution-related expenses by the Manager. The profits or losses were noted at both an aggregate level for all funds within the group of mutual funds sponsored by the Manager (the “Fund Complex”) and at an individual Fund level, with the Fund being profitable for the Manager before and after the payment of distribution-related expenses. The Board also considered comparative information provided by the Manager regarding the Manager’s overall profitability with respect to the Fund Complex relative to the overall profitability of other firms in the mutual fund industry, as disclosed in publicly available sources. Although the Board noted that, in certain cases, the fee rates paid by other clients of the Manager are lower than the fee rate paid by the Fund, the Manager represented that, among other matters, the difference is attributable to the fact that the Manager does not perform administrative services for non-investment company clients and reflects the greater level of responsibility and regulatory requirements associated with managing the Fund.
The Board considered that, with respect to the Fund, the Management Agreement provides for the Manager to receive a management fee comprised of an annualized fee that is retained by the Manager. In addition, the Board considered that the Manager receives fees for overseeing the securities lending program on behalf of the Fund. The Board also noted that certain share classes of the Fund maintain higher expense ratios in order to compensate third-party financial intermediaries.
In analyzing the fee rates charged by each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, with respect to Barrow, Brandywine and Hotchkis, the Manager has negotiated the lowest fee rate the subadvisor charges for any comparable client accounts and, with respect to MFS, the Fund’s subadvisory fee rate schedule was generally favorable compared to other comparable client accounts. The Board did not request profitability data from the subadvisors because the Board did not view this data as imperative to its deliberations given the arm’s-length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fee rates. In addition, the Board noted that a subadvisor may not account for its profits on an account-by-account basis and, to the extent it does, it likely employs different methodologies in connection with these calculations.
44
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
Based on the foregoing information, the Board concluded that the profitability levels of the Manager were reasonable in light of the services performed by the Manager. A discussion regarding the Board’s considerations with respect to the Fund’s fee rates is set forth below under “Additional Considerations and Conclusions with Respect to the Fund.”
Economies of Scale. In considering the reasonableness of the management and investment advisory fees rates, the Board considered whether economies of scale will be realized as the Fund grows and whether fee rate levels reflect these economies of scale for the benefit of Fund shareholders. In this regard, the Board considered that, with respect to each subadvisor, the Manager has negotiated breakpoints in the subadvisory fee rates for the Fund. In addition, the Board noted the Manager’s representation that the Management Agreement contains fee schedule breakpoints at higher asset levels with respect to the Fund. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee rate schedules for the Fund provide for a reasonable sharing of benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Fund. The Board considered the “fall-out” or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Fund, including greater exposure in the marketplace with respect to the Manager’s or subadvisor’s investment process and expanding the level of assets under management by the Manager and the subadvisors. In addition, the Board noted that each subadvisor benefits from soft dollar arrangements for third-party and proprietary research. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Fund appears to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made versus the Fund’s Broadridge performance universe and Morningstar Category. With respect to the Broadridge performance universe, the 1st Quintile represents the top twenty percent of the universe based on performance and the 5th Quintile representing the bottom twenty percent of the universe based on performance. References below to the Fund’s Broadridge performance universe are to the universe of mutual funds with a comparable investment classification/objective included in the analysis provided by Broadridge. Information regarding the performance of individual subadvisors is calculated by the Manager using information provided by the Fund’s custodian. In reviewing the performance, the Trustees viewed longer-term performance over a full market cycle, typically five years or longer, as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events.
The expense comparisons below were made versus the Fund’s Broadridge expense universe and Broadridge expense group, with the 1st Quintile representing the top twenty percent of the universe or group based on lowest total expense and the 5th Quintile representing the bottom twenty percent of the universe or group based on highest total expense. References below to the Fund’s expense group and expense universe are to the respective group or universe of comparable mutual funds included in the analysis by Broadridge. The Broadridge expense group consists of the Fund and a representative sample of funds with similar operating structures and asset sizes, as selected by Broadridge. The Broadridge expense universe includes all funds in the investment classification/objective with a similar operating structure as the share class of the Fund included in the Broadridge comparative information and provides a broader view of expenses across the Fund’s investment classification/objective. The Trustees also considered the Fund’s Morningstar fee level category. In reviewing expenses, information regarding the subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
In considering the renewal of the Management Agreement for the Fund, the Trustees considered the following additional factors:
Broadridge Total Expenses Excluding 12b-1 Fees and Morningstar Fee Level Ranking
45
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
Compared to Broadridge Expense Group | 1st Quintile | |
Compared to Broadridge Expense Universe | 1st Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Below Average Expense Ratio |
Broadridge and Morningstar Performance Analysis (five-year period ended February 28, 2017)
Compared to Broadridge Performance Universe | 3rd Quintile | |
Compared to Morningstar Category | 2nd Quintile |
In considering the renewal of the Investment Advisory Agreements with Barrow, Brandywine, Hotchkis and MFS, the Trustees considered that the diversification of investment strategies facilitated by the Fund’s multi-manager structure permits the Fund to mitigate the risks associated with a single subadvisor. The Trustees also considered the following additional factors:
Subadvisor Performance (compared to Broadridge Performance Universe for period indicated, ending February 28, 2017)
Barrow | 5 years | 3 | rd Quintile | |||||
Brandywine | 5 years | 4 | th Quintile | |||||
Hotchkis | 5 years | 1 | st Quintile | |||||
MFS | 5 years | 1 | st Quintile |
The Trustees also considered: (1) Brandywine’s longer-term performance, consistent process and consistent team; (2) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor’s allocation of the Fund; and (3) the Manager’s recommendation to continue to retain each subadvisor.
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable; and (2) determined that the Fund and its shareholders would benefit from the Manager’s and subadvisors’ continued management of the Fund.
46
Trustees and Officers of the American Beacon FundsSM (Unaudited)
The Trustees and officers of the American Beacon Funds (the “Trust”) are listed below, together with their principal occupations during the past five years. The address of each person listed below is 220 Las Colinas Boulevard East, Suite 1200, Irving, Texas 75039. Each Trustee oversees thirty-six funds in the fund complex that includes the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust. The Trust’s Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Alan D. Feld** (80) | Trustee since 1996 | Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present); Trustee, American Beacon Mileage Funds (1996-2012); Trustee, American Beacon Select Funds (1999-Present); Trustee, American Beacon Master Trust (1996-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (47) | Trustee since 2015 | Director, Kura MD, Inc. (local telehealth organization) (2015-present); Vice President & CFO, Sierra Health Foundation (health conversion private foundation) (2006-Present); Vice President & CFO, Sierra Health Foundation: Center for Health Program Management (California public benefit corporation) (2012-Present); Director, Innovative North State (2012-2015); Director, Sacramento Regional Technology Alliance (2011-2016); Director, Women’s Empowerment (2009-2014); Director, Valley Healthcare Staffing (2017-present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Joseph B. Armes (55) | Trustee since 2015 | Chairman & CEO, CSW Industrials f/k/a Capital Southwest Corporation (investment company) (2015-Present); Chairman of the Board of Capital Southwest Corporation, predecessor to CSW Industrials, Inc. (2014-present) (investment company); CEO, Capital Southwest Corporation (2013-2015); President & CEO, JBA Investment Partners (family investment vehicle) (2010-Present); Director and Chair of Audit Committee, RSP Permian (oil and gas producer) (2013-Present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Gerard J. Arpey (59) | Trustee since 2012 | Director, The Home Depot, Inc. (2015-Present); Partner, Emerald Creek Group (private equity firm) (2011-Present); Director, S.C. Johnson & Son, Inc. (privately held company) (2008-present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Brenda A. Cline (56) | Trustee since 2004 | Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). |
47
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Eugene J. Duffy (63) | Trustee since 2008 | Managing Director, Institutional Services, Intercontinental Real Estate Corporation (2014-Present); Principal and Executive Vice President, Paradigm Asset Management (1994-2014); Director, Sunrise Bank of Atlanta (2008-2013); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Thomas M. Dunning (75) | Trustee since 2008 | Chairman Emeritus, Lockton Dunning Benefits (consulting firm in employee benefits) (2008-Present); Board Director, Oncor Electric Delivery Company LLC (2007-Present); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Richard A. Massman (74) | Trustee since 2004 Chairman since 2008 | Consultant and General Counsel Emeritus, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (2009-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Barbara J. McKenna, CFA (54) | Trustee since 2012 | Managing Principal, Longfellow Investment Management Company (2005-Present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
R. Gerald Turner (71) | Trustee since 2001 | President, Southern Methodist University (1995-Present); Director, J.C. Penney Company, Inc. (1996-Present); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Trustee, American Beacon Mileage Funds (2001-2012); Trustee, American Beacon Select Funds (2001-Present); Trustee, American Beacon Master Trust (2001-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (62) | President since 2009 | President, CEO and Director, American Beacon Advisors, Inc. (2009-Present); President, CEO and Director, Resolute Investment Managers, Inc. (2015-Present); President, CEO and Director, Resolute Acquisition, Inc. (2015-Present); President, CEO and Director, Resolute Topco, Inc. (2015-Present), President & CEO, Resolute Investment Holdings, LLC (2015-Present); President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President and CEO, American Private Equity Management, LLC (2012-Present); President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Director, Chairman, President and CEO, Alpha Quant Advisors, LLC (2016-Present); Director, ARK Investment Management LLC (2016-Present); Director, Shapiro Capital Management LLC (2017-Present); Member, Investment Advisory Committee, Employees Retirement System of Texas (2017-Present); Trustee, American Beacon NextShares Trust (2015-Present); President, American Beacon Select Funds (2009-Present); President, American Beacon Mileage Funds (2009-2012); President, American Beacon Master Trust (2009-2012); President, American Beacon Institutional Funds Trust (2017-Present). |
48
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rosemary K. Behan (58) | VP, Secretary and Chief Legal Officer since 2006 | Vice President and Secretary, American Beacon Advisors, Inc. (2006-Present); Secretary, Resolute Investment Holdings, LLC (2015-Present) Secretary, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015-Present); Secretary, Lighthouse Holdings, Inc. (2008-2015); Secretary, Lighthouse Holdings Parent, Inc. (2008-2015); Secretary, American Private Equity Management, LLC (2008-Present); Secretary, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Secretary, Alpha Quant Advisors, LLC (2016-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Select Funds (2006-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Mileage Funds (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Master Trust (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Brian E. Brett (57) | VP since 2004 | Senior Vice President (2012-Present) and Vice President (2004-2012), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2004-Present); Vice President, American Beacon Mileage Funds (2004-2012); Vice President, American Beacon Master Trust (2004-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Paul B. Cavazos (48) | VP since 2016 | Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer and Assistant Treasurer, DTE Energy (2007-2016); Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Erica Duncan (47) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Melinda G. Heika (56) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present); Resolute Investment Managers, Inc. (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present); Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute Investment Holdings, LLC. (2015-Present); Treasurer, Lighthouse Holdings, Inc. (2010-2015); Treasurer, Lighthouse Holdings Parent Inc., (2010-2015); Treasurer, American Private Equity Management, LLC (2012-Present); Director and Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Treasurer, American Beacon Select Funds (2010-Present); Treasurer, American Beacon Mileage Funds (2010-2012); Treasurer, American Beacon Master Trust (2010-2012); Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Terri L. McKinney (53) | VP since 2010 | Vice President (2009-Present) and Managing Director (2003-2009), American Beacon Advisors, Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). |
49
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Jeffrey K. Ringdahl (42) | VP since 2010 | Senior Vice President (2013-Present), Vice President (2010-2013), and Director (2015-Present), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Senior Vice President (2012-Present) and Manager (2015-Present), American Private Equity Management, LLC; Senior Vice President, Lighthouse Holdings, Inc. (2013-2015); Senior Vice President, Lighthouse Holdings Parent, Inc. (2013-2015); Director and Vice President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Trustee, American Beacon NextShares Trust (2015-Present); Director and Senior Vice Present, Resolute Investment Holdings, LLC (2015-Present); Director and Senior Vice President, Resolute Topco, Inc. (2015-Present); Director and Senior Vice President, Resolute Acquisition, Inc. (2015-Present); Director and Senior Vice President, Resolute Investment Managers, Inc. (2015-Present); Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-President); Director, Shapiro Capital Management, LLC (2017-Present). | ||
Samuel J. Silver (54) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); American Beacon Institutional Funds Trust (2011-Present). | ||
Christina E. Sears (46) | Chief Compliance Officer since 2004 and Asst. Secretary since 1999 | Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Chief Compliance Officer, American Private Equity Management, LLC (2012-Present); Chief Compliance Officer and Vice President, Alpha Quant Advisors, LLC (2016-Present); Chief Compliance Officer (2004-Present) and Assistant Secretary (1999-Present), American Beacon Select Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Mileage Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Master Trust; Chief Compliance Officer and Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Sonia L. Bates (60) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-Present); Assistant Treasurer, Resolute Investment Managers, Inc. (2015-Present); Assistant Treasurer, Resolute Acquisition, Inc. (2015-Present); Assistant. Treasurer, Resolute Topco, Inc. (2015-Present); Assistant Treasurer, Resolute Investment Holdings, LLC.; Assistant Treasurer, Lighthouse Holdings, Inc. (2011-2015); Assistant Treasurer, Lighthouse Holdings Parent Inc. (2011-2015); Assistant Treasurer, American Private Equity Management, LLC (2012-Present); Assistant Treasurer, American Beacon Select Funds (2011-Present); Assistant Treasurer American Beacon Mileage Funds (2011-2012); Assistant Treasurer, American Beacon Master Trust (2011-2012); Assistant Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Shelley D. Abrahams (42) | Assistant Secretary since 2008 | Assistant Secretary, American Beacon Advisors, Inc. (2008-Present); Assistant Secretary, American Beacon Select Funds (2008-Present); Assistant Secretary, American Beacon Mileage Funds (2008-2012); Assistant Secretary, American Beacon Master Trust (2008-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
50
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rebecca L. Harris (50) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2010-Present); Assistant Secretary, American Beacon Mileage Funds (2010-2012); Assistant Secretary, American Beacon Master Trust (2010-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Diana N. Lai (41) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Advisors, Inc. (2012-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Teresa A. Oxford (59) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2015-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
* As of 11/12/2014, the Board 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 75.
** Mr. Feld is deemed to be an “interested person” of the Trusts, as defined by the 1940 Act. Mr. Feld’s law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to one or more of the Trust’s sub-advisors.
51
American Beacon FundsSM
October 31, 2017 (Unaudited)
The American Beacon Funds recognize and respect 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:
• | information we receive from you on applications or other forms; |
• | information about your transactions with us or our service providers; and |
• | information we receive from third parties. |
We do not disclose any nonpublic personal information about our customers or former customers 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 personal information, we maintain safeguards that comply with federal standards.
52
Delivery of Documents
eDelivery is NOW AVAILABLE – Stop traditional mail delivery and receive your shareholder reports and summary prospectus on-line. Sign up at
www.americanbeaconfunds.com
If you invest in the Fund through a financial institution, you may be able to receive the Fund’s 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 Fund:
By E-mail: | On the Internet: | |
american_beacon.funds@ambeacon.com | Visit our website at www.americanbeaconfunds.com | |
By Telephone: Call (800) 658-5811 | By Mail: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 | |
Availability of Quarterly Portfolio Schedules | Availability of Proxy Voting Policy and Records | |
In addition to the Schedule of Investments provided in each semi-annual and annual report, the 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 Fund’s 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 Section, 100 F Street, NE, Washington, D.C. 20549-1520. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling (800)-SEC-0330. A complete schedule of the Fund’s portfolio holdings is also available at www.americanbeaconfunds.com approximately twenty days after the end of each month. | A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund’s Statement of Additional Information, is available free of charge on the Fund’s website www.americanbeaconfunds.com and by calling 1-800-967-9009 or by accessing the SEC’s website at www. sec.gov. The Fund’s proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund’s Forms N-PX are available on the SEC’s website at www.sec.gov. The Fund’s proxy voting record may also be obtained by calling 1-800-967-9009. |
Fund Service Providers:
CUSTODIAN State Street Bank and Trust Boston, Massachusetts | TRANSFER AGENT Boston Financial Data Services Kansas City, Missouri | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Foreside Fund Services, LLC Portland, Maine |
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current Prospectus or Summary Prospectus.
American Beacon Funds and American Beacon Large Cap Value Fund are service marks of American Beacon Advisors, Inc..
AR 10/17
About American Beacon Advisors
Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management.
Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company.
GARCIA HAMILTON QUALITY BOND FUND RISKS
The use of fixed-income securities entails interest rate and credit risks. Credit risk is the risk that the issuer of a bond will fail to make timely payment of interest or principal; and the decline in an issuer’s credit rating can cause the price of its bonds to go down. Please see the prospectus for a complete discussion of the Fund’s risks. There can be no assurances that the investment objectives of this Fund will be met.
This may contain information obtained from third parties, including ratings from credit rating agencies such as Standard & Poor’s. Reproduction and distribution of third-party content in any form is prohibited except with the prior written permission of the related third party. Third-party content providers do not guarantee the accuracy, completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content. THIRD-PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. THIRD-PARTY CONTENT PROVIDERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, EXEMPLARY, COMPENSATORY, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES, COSTS, EXPENSES, LEGAL FEES OR LOSSES (INCLUDING LOST INCOME OR PROFITS AND OPPORTUNITY COSTS OR LOSSES CAUSED BY NEGLIGENCE) IN CONNECTION WITH ANY USE OF THEIR CONTENT, INCLUDING RATINGS.
Credit ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities. They do not address the suitability of securities or the suitability of securities for investment purposes and should not be relied on as investment advice.
Any opinions herein, including forecasts, reflect our judgment as of the end of the reporting period and are subject to change. Each advisor’s strategies and the 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, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein.
American Beacon Funds | October 31, 2017 |
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements | 27 | |||
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Back Cover |
Dear Shareholders,
At American Beacon, we are proud to offer a broad range of equity, fixed- income and alternative mutual fund products for institutions and individuals. Our mutual funds – which span the domestic, international, global, frontier and emerging markets – are sub-advised by experienced portfolio managers who employ distinctive investment processes to manage assets through a variety of economic and market conditions. Together, we work diligently to help our clients and shareholders meet their long-term financial goals.
Institutional wisdom, enduring value. Since our inception as a pension fiduciary in 1986, American Beacon has focused on identifying and overseeing institutional investment managers and portfolio risk management. In 1987, we leveraged our size and experience to launch a series of sub-advised, multi- |
manager mutual funds providing individual investors access to many of the same institutional managers as our pension clients. Following the financial crisis in 2008, we saw that investors were looking for unique solutions from managers who were not necessarily mainstream. In 2010, we began offering mutual funds from single managers with distinctive investment styles or asset classes. As we continue to expand our family of funds, our solutions-based approach provides innovative investments.
Guiding principles. Our “manager of managers” philosophy is built on a long-standing history of innovative thinking, discipline and consistency in applying our solutions-based approach. As a manager of managers, our goal is to engage the most effective money managers for each asset class, investment style or market strategy – whether through a single sub-advisor or a combination of sub-advisors. Because we take our fiduciary responsibilities very seriously, our thorough manager evaluation and selection process is rigorous and ongoing. Our guiding principles – predictability, style consistency, competitive pricing and long-term relationships – provide a strong foundation for our due-diligence process. Our broad range of mutual funds helps investors navigate the economic storms and market downturns in the U.S. and abroad. Our years of experience evaluating sub-advisors have led us to identify and partner with asset managers who have adhered to their disciplined processes for many years and through multiple market cycles.
Focus on asset protection and risk mitigation. We strive to provide innovative, long-term products without gimmicks. From offering some of the first multi-manager funds, one of the first retirement-income funds and the first open-end mutual fund in the U.S. to focus primarily on frontier-market debt, our robust history includes applying a disciplined, solutions-based approach to our product development process to help protect assets and mitigate risk.
Thank you for your continued interest in American Beacon. For additional information about our funds or to access your account information, please visit our website at www.americanbeaconfunds.com.
Best Regards,
Gene L. Needles, Jr.
President
American Beacon Funds
1
October 31, 2017 (Unaudited)
After hiking the federal funds rate at each quarterly meeting from December 2016 through June 2017, the Federal Reserve (the “Fed”) suspended further rate hikes during the September Federal Open Market Committee (“FOMC”) meeting and maintained the target federal funds rate in a range of 1.00% to 1.25%. However, this meeting did usher in a new phase of monetary policy. The quantitative easing policies, which began in 2008, were replaced with balance sheet reduction, which started in October. This phase began slowly, but will increase in future quarters to substantial amounts. The minutes from the September FOMC meeting continued to indicate a divided Fed that is puzzled about the lack of inflation despite tight labor market conditions. While several voting members determined that another increase in the federal funds rate was warranted by year end, a few preferred to remain on hold pending further economic data. Fed Chair Janet Yellen made her case for reduced accommodation by stating that the labor market could become overheated without future rate hikes. Additionally, she indicated that persistently easy monetary policy could lead to financial instability. The initial reading of third quarter gross domestic product was 3.0%, following growth of 3.1% in the second quarter, but measures of inflation remained muted.
During the past year, the 10-year Treasury note touched a low of 1.78% shortly before the U.S. presidential election, moved to a high of 2.63% in March 2017 and has generally been range bound since. It finished October at 2.38%, representing a rise of 55 basis points (0.55%) for the period. Shorter-term rates increased significantly more than longer-term rates as the two-year note increased 76 basis points (0.76%) to 1.60% while the 30-year bond increased just 30 basis points (0.30%) to 2.88%. These moves caused the yield curve to flatten by 46 basis points (0.46%) to 128 basis points (1.28%).
Despite the rise in interest rates, the bond market delivered modestly positive performance for the 12-month period ended October 31, 2017, with a total return on the Bloomberg Barclays U.S. Aggregate Index (the “Index”) of 0.90%. Investors in spread products were generally rewarded during the period as three of the four spread sectors delivered positive excess returns. Corporates led the way with an excess return of 427 basis points (4.27%). Agencies and asset-backed securities followed with excess returns of 136 basis points (1.36%) and 61 basis points (0.61%), respectively. Agency mortgage-backed securities lagged with -10 basis points (-0.10%) of excess return.
2
American Beacon Garcia Hamilton Quality Bond FundSM
Performance Overview
October 31, 2017 (Unaudited)
The Investor Class of the American Beacon Garcia Hamilton Quality Bond Fund (the “Fund”) returned 0.42% for the twelve months ended October 31, 2017. The Bloomberg Barclays Capital U.S. Aggregate Index (the “Index”) returned 0.90% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 4/4/16 through 10/31/17
Total Returns for the Period ended October 31, 2017 | |||||||||||||||||||||||
Ticker | 1 Year | Since Inception | Value of $10,000 04/04/2016- 10/31/2017 | ||||||||||||||||||||
Institutional Class | GHQIX | 0.91 | % | 0.80 | % | $ | 10,126 | ||||||||||||||||
Y Class | GHQYX | 0.70 | % | 0.63 | % | $ | 10,100 | ||||||||||||||||
Investor Class | GHQPX | 0.42 | % | 0.42 | % | $ | 10,066 | ||||||||||||||||
Bloomberg Barclays Capital U.S. Aggregate Index | 0.90 | % | 1.75 | % | $ | 10,277 |
1. | Performance shown is historical and is not indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is calculated based on the published end of day net asset values as of the date indicated and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. A portion of the fees charged to each Class of the Fund has been waived since Fund inception. Performance prior to waiving fees was lower than the actual returns shown since inception. |
2. | The Bloomberg Barclays U.S. Aggregate Index is a market value weighted performance benchmark for government, corporate, mortgage-backed and asset- backed fixed-rate debt securities of all maturities. |
3. | The Total Annual Fund Operating Expense ratios set forth in the most recent Fund prospectus for the Institutional, Y, and Investor Class shares was 1.06%, 1.29%, and 1.19%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. |
3
American Beacon Garcia Hamilton Quality Bond FundSM
Performance Overview
October 31, 2017 (Unaudited)
Duration management contributed positively to performance as the Fund began the period in late-2016 with a short duration, relative to the Index, in anticipation of a Trump election victory. Interest rates were expected to rise as a result of fiscal stimulus, stronger economic growth and higher inflation that would likely accompany his agenda.
Interest rates did rise significantly following the election and the Fund then transitioned to a long-duration profile as the pace of reform appeared to stall. Longer-term rates declined gradually in 2017, and the Fund moved back into a short-duration position where it ended the period.
In addition to active duration management, the Fund maintained a barbell yield-curve position in anticipation of a flatter curve. The Fund was overweight the shortest and longest durations along the curve and was underweight in the middle. Floating-rate corporate bonds were used to generate yield and protect from rising rates at the short end, and long-duration treasury bonds were used to manage overall duration.
While the barbell position helped as the yield curve flattened following three Fed rate hikes during the period, it also contributed to a lower yield-to-maturity for the Fund which detracted from overall returns. Barbell positions generally result in lower yield; therefore, the curve must flatten quickly for the position to benefit. Additionally, given the Fund’s conservative credit profile, it was underweight long-maturity, low-quality corporate bonds which were the best performing securities in the Index. The Fund seeks to protect from volatile credit markets, but this approach may result in lower yield-to-maturity.
Overall, the Fund continues to emphasize high-quality, active fixed-income investing that seeks to perform well in volatile markets and serves an important role in asset allocation.
Top Ten Holdings (% Net Assets) | ||||||||
U.S. Treasury Notes/Bonds 2.875%, Due 8/15/2045 | 20.2 | |||||||
Federal Home Loan Mortgage Corp. 1.178%, Due 7/5/2019 | 7.5 | |||||||
Federal Farm Credit Banks 1.328%, Due 5/25/2018 | 6.8 | |||||||
Federal National Mortgage Association 1.276%, Due 3/21/2018 | 5.6 | |||||||
Federal Farm Credit Banks 1.257%, Due 5/17/2018 | 4.3 | |||||||
Apple, Inc. 1.612%, Due 5/6/2019 | 3.8 | |||||||
American Express Credit Corp. 1.871%, Due 3/18/2019 | 3.5 | |||||||
Morgan Stanley 2.765%, Due 10/24/2023 | 3.5 | |||||||
Merck & Co., Inc. 1.684%, Due 2/10/2020 | 3.4 | |||||||
JPMorgan Chase & Co. 2.595%, Due 10/24/2023 | 3.3 | |||||||
Total Fund Holdings | 27 | |||||||
Sector Allocation (% Investments) | ||||||||
U.S. Government Agency Obligations | 37.8 | |||||||
U.S. Treasury Obligations | 21.0 | |||||||
Financial | 18.4 | |||||||
U.S. Agency Mortgage-Backed Obligations | 6.5 | |||||||
Consumer, Non-Cyclical | 4.7 | |||||||
Technology | 3.8 | |||||||
Industrial | 3.0 | |||||||
Energy | 2.9 | |||||||
Communications | 1.9 |
4
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2017 (Unaudited)
Fund Expense Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees if applicable, and (2) ongoing costs, including management fees, distribution (12b-1) fees, sub-transfer agent fees, and other Fund expenses. The Examples 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 May 1, 2017 through October 31, 2017.
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 = $8.60), then multiply the result by “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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 Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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, such as sales charges (loads). 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.
Garcia Hamilton Quality Bond Fund | |||||||||||||||
Beginning Account Value 5/1/2017 | Ending Account Value 10/31/2017 | Expenses Paid During Period 5/1/2017-10/31/2017* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,011.70 | $2.28 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.90 | $2.29 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,011.20 | $2.79 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.40 | $2.80 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,009.80 | $4.20 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.00 | $4.23 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.45%, 0.55% and 0.83% for the Institutional, Y and Investor 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 (365) to reflect the half-year period. |
** | 5% return before expenses. |
5
American Beacon Garcia Hamilton Quality Bond FundSM
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Trustees of
American Beacon Garcia Hamilton Quality Bond Fund
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of American Beacon Garcia Hamilton Quality Bond Fund (one of the funds constituting the American Beacon Funds) (the Fund), as of October 31, 2017, the related statement of operations for the year then ended, and the statements of changes in net assets and the financial highlights for each of the periods indicated therein. These financial statements and financial highlights are the responsibility of the Fund’s 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 the 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s 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 October 31, 2017, by correspondence with the custodian. 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 American Beacon Garcia Hamilton Quality Bond Fund at October 31, 2017, the results of its operations for the year then ended and the changes in its net assets and the financial highlights for each of the periods indicated therein in conformity with U.S. generally accepted accounting principles.
Dallas, Texas
December 29, 2017
6
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 34.35% | |||||||||||||||
Communications - 1.90% | |||||||||||||||
Walt Disney Co., 1.706%, Due 3/4/2022, (3 mo. USD LIBOR + 0.390%)A | $ | 2,736,000 | $ | 2,758,284 | |||||||||||
|
| ||||||||||||||
Consumer, Non-Cyclical - 4.61% | |||||||||||||||
Merck & Co., Inc., 1.684%, Due 2/10/2020, (3 mo. USD LIBOR + 0.375%)A | 4,860,000 | 4,890,351 | |||||||||||||
PepsiCo, Inc., 1.746%, Due 5/2/2022, (3 mo. USD LIBOR + 0.365%)A | 1,800,000 | 1,815,506 | |||||||||||||
|
| ||||||||||||||
6,705,857 | |||||||||||||||
|
| ||||||||||||||
Energy - 2.87% | |||||||||||||||
Chevron Corp., 1.845%, Due 11/15/2021, (3 mo. USD LIBOR + 0.530%)A | 4,140,000 | 4,173,199 | |||||||||||||
|
| ||||||||||||||
Financial - 18.17% | |||||||||||||||
American Express Credit Corp., 1.871%, Due 3/18/2019, (3 mo. USD LIBOR + 0.550%)A | 5,099,000 | 5,130,732 | |||||||||||||
Goldman Sachs Group, Inc., 2.917%, Due 11/29/2023, (3 mo. USD LIBOR + 1.600%)A | 4,080,000 | 4,249,731 | |||||||||||||
JPMorgan Chase & Co., 2.595%, Due 10/24/2023, (3 mo. USD LIBOR + 1.230%)A | 4,700,000 | 4,825,960 | |||||||||||||
Morgan Stanley, 2.765%, Due 10/24/2023, (3 mo. USD LIBOR + 1.400%)A | 4,935,000 | 5,073,681 | |||||||||||||
US Bank N.A., 1.858%, Due 10/28/2019, (3 mo. USD LIBOR + 0.480%)A | 4,240,000 | 4,266,598 | |||||||||||||
Wells Fargo & Co., 2.396%, Due 7/26/2021, (3 mo. USD LIBOR + 1.025%)A | 2,815,000 | 2,877,751 | |||||||||||||
|
| ||||||||||||||
26,424,453 | |||||||||||||||
|
| ||||||||||||||
Industrial - 3.00% | |||||||||||||||
General Electric Co., 2.320%, Due 3/15/2023, (3 mo. USD LIBOR + 1.000%)A | 4,270,000 | 4,369,305 | |||||||||||||
|
| ||||||||||||||
Technology - 3.80% | |||||||||||||||
Apple, Inc., 1.612%, Due 5/6/2019, (3 mo. USD LIBOR + 0.300%)A | 5,504,000 | 5,528,688 | |||||||||||||
|
| ||||||||||||||
Total Corporate Obligations (Cost $49,569,628) | 49,959,786 | ||||||||||||||
|
| ||||||||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS - 37.44% | |||||||||||||||
Federal Farm Credit Banks, | |||||||||||||||
1.359%, Due 11/13/2018, (1 mo. USD LIBOR + 0.120%)A | 4,220,000 | 4,232,098 | |||||||||||||
1.409%, Due 1/22/2019, (1 mo. USD LIBOR + 0.170%)A | 3,405,000 | 3,417,238 | |||||||||||||
1.257%, Due 5/17/2018, (1 mo. USD LIBOR + 0.020%)A | 6,300,000 | 6,305,939 | |||||||||||||
1.328%, Due 5/25/2018, (1 mo. USD LIBOR + 0.090%)A | 9,945,000 | 9,959,356 | |||||||||||||
Federal Home Loan Bank, | |||||||||||||||
1.161%, Due 10/26/2018, (3 mo. USD LIBOR - 0.210%)A | 4,480,000 | 4,479,430 | |||||||||||||
1.308%, Due 12/7/2017, (1 mo. USD LIBOR + 0.070%)A | 2,535,000 | 2,535,573 | |||||||||||||
1.308%, Due 12/5/2017, (1 mo. USD LIBOR + 0.070%)A | 1,860,000 | 1,860,364 | |||||||||||||
1.189%, Due 9/14/2018, (3 mo. USD LIBOR - 0.130%)A | 2,630,000 | 2,630,588 | |||||||||||||
Federal Home Loan Mortgage Corp., | |||||||||||||||
1.178%, Due 7/5/2019, (3 mo. USD LIBOR - 0.165%)A | 10,905,000 | 10,904,478 | |||||||||||||
Federal National Mortgage Association, | |||||||||||||||
1.276%, Due 3/21/2018, (3 mo. USD LIBOR - 0.050%)A | 8,130,000 | 8,134,790 | |||||||||||||
|
| ||||||||||||||
Total U.S. Government Agency Obligations (Cost $54,430,268) | 54,459,854 | ||||||||||||||
|
| ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 6.25% | |||||||||||||||
Federal Home Loan Mortgage Corp., | |||||||||||||||
4.500%, Due 12/1/2034 | 3,471,689 | 3,717,338 | |||||||||||||
Federal National Mortgage Association, | |||||||||||||||
5.500%, Due 1/1/2024 | 2,619,661 | 2,781,674 | |||||||||||||
5.000%, Due 7/1/2026 | 2,532,670 | 2,585,307 | |||||||||||||
|
| ||||||||||||||
Total U.S. Agency Mortgage-Backed Obligations (Cost $9,210,540) | 9,084,319 | ||||||||||||||
|
| ||||||||||||||
U.S. TREASURY OBLIGATIONS - 20.71% | |||||||||||||||
U.S. Treasury Notes/Bonds, | |||||||||||||||
2.875%, Due 8/15/2045 | 29,360,000 | 29,404,728 | |||||||||||||
2.500%, Due 5/15/2046 | 765,000 | 708,671 | |||||||||||||
|
| ||||||||||||||
Total U.S. Treasury Obligations (Cost $30,226,024) | 30,113,399 | ||||||||||||||
|
|
See accompanying notes
7
American Beacon Garcia Hamilton Quality Bond FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
SHORT-TERM INVESTMENTS - 1.07% (Cost $1,557,790) | |||||||||||||||
Investment Companies - 1.07% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%B C | 1,557,790 | $ | 1,557,790 | ||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 99.82% (Cost $144,994,250) | 145,175,148 | ||||||||||||||
OTHER ASSETS, NET OF LIABILITIES - 0.18% | 257,770 | ||||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 145,432,918 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A Variable, floating, or adjustable rate securities with an interest rate that changes periodically. Rates are periodically reset with rates that are based on a predetermined benchmark such as a widely followed interest rate such as T-bills, LIBOR or PRIME plus a fixed spread. The interest rate disclosed reflects the rate in effect on October 31, 2017.
B 7-day yield.
C The Fund is affiliated by having the same investment advisor.
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2017, the investments were classified as described below:
Garcia Hamilton Quality Bond Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Corporate Obligations | $ | - | $ | 49,959,786 | $ | - | $ | 49,959,786 | ||||||||||||||||||||
U.S. Government Agency Obligations | - | 54,459,854 | - | 54,459,854 | ||||||||||||||||||||||||
U.S. Agency Mortgage-Backed Obligations | - | 9,084,319 | - | 9,084,319 | ||||||||||||||||||||||||
U.S. Treasury Obligations | - | 30,113,399 | - | 30,113,399 | ||||||||||||||||||||||||
Short-Term Investments | 1,557,790 | - | - | 1,557,790 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 1,557,790 | $ | 143,617,358 | $ | - | $ | 145,175,148 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires all transfers between any levels to be disclosed. The end of period timing recognition has been adopted for the transfers between levels of the Fund’s assets and liabilities. During the period ended October 31, 2017, there were no transfers between levels.
See accompanying notes
8
American Beacon Garcia Hamilton Quality Bond FundSM
Statement of Assets and Liabilities
October 31, 2017
Assets: | ||||
Investments in unaffiliated securities, at fair value† | $ | 143,617,358 | ||
Investments in affiliated securities, at fair value‡ | 1,557,790 | |||
Interest receivable | 390,907 | |||
Receivable for fund shares sold | 42,550 | |||
Receivable for expense reimbursement (Note 2) | 34,176 | |||
Prepaid expenses | 15,693 | |||
|
| |||
Total assets | 145,658,474 | |||
|
| |||
Liabilities: | ||||
Payable for fund shares redeemed | 44,289 | |||
Cash due to custodian | 23,895 | |||
Management and sub-advisory fees payable (Note 2) | 68,069 | |||
Service fees payable (Note 2) | 2,058 | |||
Transfer agent fees payable (Note 2) | 6,226 | |||
Custody and fund accounting fees payable | 10,004 | |||
Professional fees payable | 63,041 | |||
Trustee fees payable (Note 2) | 818 | |||
Payable for prospectus and shareholder reports | 5,831 | |||
Other liabilities | 1,325 | |||
|
| |||
Total liabilities | 225,556 | |||
|
| |||
Net assets | $ | 145,432,918 | ||
|
| |||
Analysis of net assets: | ||||
Paid-in-capital | $ | 147,709,761 | ||
Undistributed net investment income | 2 | |||
Accumulated net realized (loss) | (2,457,743 | ) | ||
Unrealized appreciation of investments in unaffiliated securitiesA | 180,898 | |||
|
| |||
Net assets | $ | 145,432,918 | ||
|
| |||
Shares outstanding at no par value (unlimited shares authorized): | ||||
Institutional Class | 13,382,624 | |||
|
| |||
Y Class | 316,447 | |||
|
| |||
Investor Class | 981,359 | |||
|
| |||
Net assets: | ||||
Institutional Class | $ | 132,575,412 | ||
|
| |||
Y Class | $ | 3,133,476 | ||
|
| |||
Investor Class | $ | 9,724,030 | ||
|
| |||
Net asset value, offering and redemption price per share: | ||||
Institutional Class | $ | 9.91 | ||
|
| |||
Y Class | $ | 9.90 | ||
|
| |||
Investor Class | $ | 9.91 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 143,436,460 | ||
‡ Cost of investments in affiliated securities | $ | 1,557,790 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
See accompanying notes
9
American Beacon Garcia Hamilton Quality Bond FundSM
Statement of Operations
For the year ended October 31, 2017
Investment income: | ||||
Dividend income from affiliated securities | $ | 12,258 | ||
Interest income | 2,532,030 | |||
|
| |||
Total investment income | 2,544,288 | |||
|
| |||
Expenses: | ||||
Management and sub-advisory fees (Note 2) | 768,270 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 44,276 | |||
Y Class (Note 2) | 1,905 | |||
Investor Class | 1,848 | |||
Custody and fund accounting fees | 19,793 | |||
Professional fees | 49,490 | |||
Registration fees and expenses | 51,080 | |||
Service fees (Note 2): | ||||
Y Class | 1,256 | |||
Investor Class | 22,628 | |||
Prospectus and shareholder report expenses | 17,359 | |||
Trustee fees (Note 2) | 9,224 | |||
Other expenses | 12,924 | |||
|
| |||
Total expenses | 1,000,053 | |||
|
| |||
Net fees waived and expenses (reimbursed) (Note 2) | (334,782 | ) | ||
|
| |||
Net expenses | 665,271 | |||
|
| |||
Net investment income | 1,879,017 | |||
|
| |||
Realized and unrealized gain (loss) from investments: | ||||
Net realized (loss) from: | ||||
Investments in unaffiliated securitiesA | (2,226,277 | ) | ||
Change in net unrealized appreciation of: | ||||
Investments in unaffiliated securitiesB | 1,566,653 | |||
|
| |||
Net (loss) from investments | (659,624 | ) | ||
|
| |||
Net increase in net assets resulting from operations | $ | 1,219,393 | ||
|
| |||
A The Fund did not recognize net realized gains (losses) from the sale of investments in affiliated securities. |
| |||
B The Fund’s investments in affiliated securities did not have a change in unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
10
American Beacon Garcia Hamilton Quality Bond FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2017 | From April 4, 2016A to October 31, 2016 | |||||||||||
Increase (Decrease) in net assets: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 1,879,017 | $ | 361,205 | ||||||||
Net realized gain (loss) from investments in unaffiliated securities | (2,226,277 | ) | 120,054 | |||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities | 1,566,653 | (1,385,755 | ) | |||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | 1,219,393 | (904,496 | ) | |||||||||
|
|
|
| |||||||||
Distributions to Shareholders: | ||||||||||||
Net investment income: | ||||||||||||
Institutional Class | (1,962,423 | ) | (360,822 | ) | ||||||||
Y Class | (43,416 | ) | (7,732 | ) | ||||||||
Investor Class | (104,914 | ) | (14,275 | ) | ||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | (90,251 | ) | – | |||||||||
Y Class | (2,127 | ) | – | |||||||||
Investor Class | (6,000 | ) | – | |||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (2,209,131 | ) | (382,829 | ) | ||||||||
|
|
|
| |||||||||
Capital Share Transactions (Note 8): | ||||||||||||
Proceeds from sales of shares | 30,683,516 | 145,222,507 | ||||||||||
Reinvestment of dividends and distributions | 2,206,616 | 382,829 | ||||||||||
Cost of shares redeemed | (22,360,012 | ) | (8,425,475 | ) | ||||||||
|
|
|
| |||||||||
Net increase in net assets from capital share transactions | 10,530,120 | 137,179,861 | ||||||||||
|
|
|
| |||||||||
Net increase in net assets | 9,540,382 | 135,892,536 | ||||||||||
|
|
|
| |||||||||
Net assets: | ||||||||||||
Beginning of period | 135,892,536 | – | ||||||||||
|
|
|
| |||||||||
End of period* | $ | 145,432,918 | $ | 135,892,536 | ||||||||
|
|
|
| |||||||||
*Includes undistributed (or overdistribution of) net investment income | $ | 2 | $ | (1 | ) | |||||||
|
|
|
| |||||||||
A Commencement of operations. |
See accompanying notes
11
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2017
1. Organization and Significant Accounting Policies
American Beacon Funds (the “Trust”) is organized as a Massachusetts business trust. The Fund, a series within the Trust, is registered under the Investment Company Act of 1940 (the “Act”), as amended, as a diversified, open-end management investment company. As of October 31, 2017, the Trust consists of thirty-four active series, one of which is presented in this filing: American Beacon Garcia Hamilton Quality Bond Fund (the “Fund”). The remaining thirty-three active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a wholly-owned subsidiary of Resolute Investment Managers, Inc., which is indirectly owned by investment funds affiliated with Kelso & Company, L.P. and Estancia Capital Management, LLC, and was organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors.
Class Disclosure
The Fund has multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
Class | Eligible Investors | Minimum Initial Investments | ||||
Institutional | Large institutional investors - sold directly through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 | |||
Investor | All investors using intermediary organizations, such as broker-dealers or retirement plan sponsors. | $ | 2,500 |
Each class offered by the Trust has equal rights as to assets and voting privileges. Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets. Realized and unrealized capital gains and losses of each class are allocated daily based on the relative net assets of each class of the Fund. Class specific expenses, where applicable, currently include service, distribution, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Recently Adopted Accounting Pronouncements
In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017, and has been adopted accordingly.
The following is a summary of significant accounting policies, consistently followed by the Fund in preparation of the financial statements. The Fund is considered an investment company and accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services – Investment Companies, a part of Generally Accepted Accounting Principles (“U.S. GAAP”).
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security purchase or sale. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the Net Asset Value (“NAV”). The value of the security may vary with market fluctuations.
12
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
Dividend income, net of foreign taxes, is recorded on the ex-dividend date, except certain dividends from foreign securities which are recorded as soon as the information is available to the Fund. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification.
Distributions to Shareholders
Distributions, if any, of net investment income are generally paid at least annually and recorded on the ex-dividend date. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Dividends to shareholders are determined in accordance with federal income tax regulations, which may differ in amount and character from net investment income and realized gains recognized for purposes of U.S. GAAP. To the extent necessary to fully distribute capital gains, the Fund may designate earnings and profits distributed to shareholders on the redemption of shares.
Allocation of Income, Trust Expenses, Gains, and Losses
Investment income, realized and unrealized gains and losses from investments of the Fund is allocated daily to each class of shares based upon the relative proportion of net assets of each class to the total net assets of the Fund. Expenses directly charged or attributable to the Fund will be paid from the assets of the Fund. Generally, expenses of the Trust will be allocated among and charged to the assets of the Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative net assets of the Fund or nature of the services performed and relative applicability to the Fund.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 trustees are indemnified against certain liabilities 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 and Investment Sub-Advisory Agreements
The Fund and the Manager are parties to a Management Agreement that obligates the Manager to provide the Fund with investment advisory and administrative services. As compensation for performing the duties under the Management Agreement, the Manager will receive an annualized management fee based on a percentage of the Fund’s average daily net assets that is calculated and accrued daily according to the following schedule:
First $5 billion | 0.35 | % | ||
Next $5 billion | 0.325 | % | ||
Next $10 billion | 0.30 | % | ||
Over $20 billion | 0.275 | % |
13
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
The Trust, on behalf of the Fund, and the Manager have entered into an Investment Advisory Agreement with Garcia Hamilton & Associates, L.P. (the “Sub-Advisor”) pursuant to which the Fund has agreed to pay an annualized sub-advisory fee that is calculated and accrued daily based on the Fund’s average daily net assets.
The Management and Sub-Advisory Fees paid by the Fund for the year ended October 31, 2017 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 488,328 | ||||||||
Sub-Advisor Fees | 0.20 | % | 279,942 | |||||||||
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|
|
| |||||||||
Total | 0.55 | % | $ | 768,270 | ||||||||
|
|
|
|
Distribution Plans
The Fund has adopted a “defensive” Distribution Plan (the “Plan”) in accordance with Rule 12b-1 under the Act, pursuant to which no separate fees may be charged to the Fund for distribution purposes. However, the Plan authorizes the management fee received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Fund does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares.
Service Plans
The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y and Investor Classes of the Fund. As compensation for performing the duties required under the Service Plans, the Manager receives an annualized fee up to 0.10% of the average daily net assets of the Y Class and up to 0.375% of the average daily net assets of the Investor Class of the Fund. Effective April 1, 2017, the Fund terminated the Service Plan for the Y Class.
Sub-Transfer Agent Fees
The Manager has entered into agreements, which include servicing agreements, with financial intermediaries that provide recordkeeping, processing, shareholder communications and other services to customers of the intermediaries that hold positions in the Institutional Class of the Fund and has agreed to compensate the intermediaries for providing these services. Effective April 1, 2017, the Fund agreed to compensate the intermediaries for providing services to the Y Class. Intermediaries transact with the Fund primarily through the use of omnibus accounts on behalf of its customers who hold positions in the Fund. Certain services would have been provided by the Fund’s transfer agent and other service providers if the shareholders’ accounts were maintained directly by the Fund’s transfer agent. Accordingly, the Fund, pursuant to the Trust’s Board of Trustees (the “Board”) approval, has agreed to reimburse the Manager for certain non-distribution shareholder services provided by financial intermediaries for the Institutional and Y Classes. The reimbursement amounts (sub-transfer agent fees) paid to the Manager are subject to a fee limit of up to 0.10% of an intermediary’s average net assets in the Institutional and Y Classes on an annual basis. During the year ended October 31, 2017, the sub-transfer agent fees, as reflected in “Transfer agent fees” on the Statement of Operations, were as follows:
Fund | Sub-Transfer Agent Fees | |||
Garcia Hamilton Quality Bond | $ | 41,253 |
As of October 31, 2017, the Fund owed the Manager the following reimbursement of sub-transfer agent fees, as reflected in “Transfer agent fees payable” on the Statement of Assets and Liabilities:
Fund | Reimbursement Sub-Transfer Agent Fees | |||
Garcia Hamilton Quality Bond | $ | 4,693 |
14
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
Investments in Affiliated Funds
The Fund may invest in the American Beacon U.S. Government Money Market Select Fund (the “USG Select Fund”). The Fund and the USG Select Fund have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the USG Select Fund and receives management fees and administrative fees totaling 0.10% of the average daily net assets of the USG Select Fund. During the year ended October 31, 2017, the Manager earned fees on the Fund’s direct investments in the USG Select Fund as shown below:
Fund | Direct Investments in USG Select Fund | |||
Garcia Hamilton Quality Bond | $ | 1,708 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the Securities and Exchange Commission (“SEC”), the Fund, along with other registered investment companies having management contracts with the Manager, may participate in a credit facility whereby each Fund, under certain conditions, is permitted to lend money directly to and borrow directly from other participating Funds for temporary purposes. The interfund credit facility is advantageous to the Fund because it provides added liquidity, and eliminates the need to maintain higher cash balances to meet redemptions. This situation could arise when shareholder redemptions exceed anticipated volumes and certain funds have insufficient cash on hand to satisfy such redemptions or when sales of securities do not settle as expected, resulting in a cash shortfall for a fund. When a Fund liquidates portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). Redemption requests normally are satisfied on the next business day. The credit facility provides a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities. The credit facility is administered by a credit facility team consisting of professionals from the Manager’s asset management, compliance, and accounting areas who report the activities of the credit facility to the Board. During the year ended October 31, 2017, the Fund did not utilize the credit facility.
Expense Reimbursement Plan
The Manager contractually agreed to reduce fees and/or reimburse expenses for the classes of the Fund to the extent that total operating expenses exceed the Fund’s expense cap. During the year ended October 31, 2017, the Manager waived and/or reimbursed expenses as follows:
Expense Cap | Expiration of Reimbursed Expenses | |||||||||||||||||
Fund | Class | 11/1/2016 - 10/31/2017 | Reimbursed Expenses | (Recouped) Expenses | ||||||||||||||
Garcia Hamilton Quality Bond | Institutional | 0.45 | % | $ | 318,573 | $ | – | 2020 | ||||||||||
Garcia Hamilton Quality Bond | Y | 0.55 | % | 6,647 | – | 2020 | ||||||||||||
Garcia Hamilton Quality Bond | Investor | 0.83 | % | 9,562 | – | 2020 |
Of these amounts, $34,176 was disclosed as a receivable from the Manager on the Statement of Assets and Liabilities at October 31, 2017. The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of such fee reductions and expense reimbursements. Under the policy, the Manager can recoup from the Fund for any contractual or voluntary fee reductions or expense reimbursements if recoupment by the Manager (a) occurs within three years after the Manager’s own waiver or reimbursement and (b) does not cause the Fund’s annual operating expenses to exceed the lesser of the contractual percentage
15
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
limit in effect at the time of the waiver/reimbursement or time of recoupment. The reimbursed expenses listed above will expire in 2020. The Fund did not record a liability for potential reimbursements, due to the current assessment that a reimbursement is unlikely. The carryover of excess expenses potentially reimbursable to the Manager, but not recorded as a liability are as follows:
Fund | Recouped Expenses | Excess Expense Carryover | Expired Expense Carryover | Expiration of Reimbursed Expenses | ||||||||||||
Garcia Hamilton Quality Bond | $ | - | $ | 248,391 | $ | - | 2019 |
Trustee Fees and Expenses
As compensation for their service to the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust, each Trustee receives an annual retainer of $120,000, plus $5,000 for each Board meeting attended in person or via teleconference, $2,500 for attendance by Committee members at meetings of the Audit Committee and the Investment Committee, and $1,500 for attendance by Committee members at meetings of the Nominating and Governance Committee, plus reimbursement of reasonable expenses incurred in attending Board meetings, Committee meetings, and relevant educational seminars. The Trustees also may be compensated for attendance at special Board and/or Committee meetings from time to time. The Board Chairman receives an additional annual retainer of $50,000 as well as a single $5,000 fee each quarter for his attendance at the committee meetings. The Chairpersons of the Audit Committee and the Investment Committee each receive an additional annual retainer of $25,000 and the Chairman of the Nominating and Governance Committee receives an additional annual retainer of $10,000. These expenses are allocated on a prorated basis to each Fund of the Trust according to its respective net assets.
3. Security Valuation and Fair Value Measurements
Investments are valued at the close of the New York Stock Exchange (the “Exchange”), normally at 4:00 p.m. Eastern Time, each day that the Exchange is open for business.
Debt securities normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. Prices of debt securities may be determined using quotes obtained from brokers.
Investments in open-end mutual funds are valued at the closing NAV per share of the mutual fund on the day of valuation.
Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value pursuant to procedures established by the Board.
Valuation Inputs
Various inputs may be used to determine the fair value of the Fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1 | – | Quoted prices in active markets for identical securities. | ||
Level 2 | – | Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. | ||
Level 3 | – | Prices determined using other significant unobservable inputs. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment. |
16
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
Level 1 and Level 2 trading assets and trading liabilities, at fair value
Fixed-income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. Treasury obligations, sovereign issues, bank loans, convertible preferred securities, and non-U.S. bonds are normally valued by pricing service providers that use broker dealer quotations, reported trades or valuation estimates from their internal pricing models. The service providers’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates, and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Mortgage-related and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, current market data, estimated cash flows, and market-based yield spreads for each tranche, and incorporates deal collateral performance, as available. Mortgage-related and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
Investments in registered open-end investment management companies will be valued based upon the NAVs of such investments and are categorized as Level 1 of the fair value hierarchy.
4. Securities and Other Investments
Agency Mortgage-Backed Securities
Certain mortgage-backed securities (“MBS”) may be issued or guaranteed by the U.S. government or a government sponsored entity, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Although these instruments may be guaranteed by the U.S. government or a government sponsored entity, many such MBS are not backed by the full faith and credit of the United States and are still exposed to the risk of non-payment.
Fixed-Income Investments
The Fund may hold debt, including government and corporate debt, and other fixed-income securities. Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause the Fund’s net asset value to likewise decrease, and vice versa. How specific fixed-income securities may react to changes in interest rates will depend on the specific characteristics of each security. For example, while securities with longer maturities tend to produce higher yields, they also tend to be more sensitive to changes in prevailing interest rates and are, therefore, more volatile than shorter-term securities and are subject to greater market fluctuations as a result of changes in interest rates. Fixed-income securities are also subject to credit risk, which is the risk that the credit strength of an issuer of a fixed-income security will weaken and/or that the issuer will be unable to make timely principal and interest payments and that the security may go into default. In addition, there is prepayment risk, which is the risk that during periods of falling interest rates, certain fixed-income securities with higher interest rates, such as mortgage- and asset-backed securities, may be prepaid by their issuers thereby reducing the amount of interest payments. This may result in a Fund having to reinvest its proceeds in lower yielding securities. Securities underlying mortgage- and asset-backed securities, which may include subprime mortgages, also may be subject to a higher degree of credit risk, valuation risk, and liquidity risk.
Mortgage-Backed Securities
MBS often have stated maturities of up to thirty years when they are issued, depending upon the length of the mortgages underlying the securities. In practice however, unscheduled or early payments of principal and
17
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
interest on the underlying mortgages may make the securities’ effective maturity shorter than this, and the prevailing interest rates may be higher or lower than the current yield of the Fund’s portfolio at the time resulting in reinvestment risk.
Rising or high interest rates may result in slower than expected principal payments which may tend to extend the duration of MBS, making them more volatile and more sensitive to changes in interest rates. This is known as extension risk.
MBS may have less potential for capital appreciation than comparable fixed-income securities due to the likelihood of increased prepayments of mortgages resulting from foreclosures or declining interest rates. These foreclosed or refinanced mortgages are paid off at face value (par) or less, causing a loss, particularly for any investor who may have purchased the security at a premium or a price above par. In such an environment, this risk limits the potential price appreciation of these securities.
Other Investment Company Securities and Other Exchange-Traded Products
The Fund may invest in shares of other investment companies, including open-end funds, ETFs, and other investment companies of the Trust. The Fund may invest in investment company securities advised by the Manager or a sub-advisor. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. By investing in another investment company, the Fund becomes a shareholder of that investment company. As a result, the Fund’s shareholders indirectly will bear the Fund’s proportionate share of the fees and expenses paid by shareholders of the other investment company, in addition to the fees and expenses the Fund’s shareholders directly bear in connection with the Fund’s own operations. These other fees and expenses are reflected as Acquired Fund Fees and Expenses and are included in the Fees and Expenses Table for the Fund in its Prospectus, if applicable. Investments in other investment companies may involve the payment of substantial premiums above the value of such issuer’s portfolio securities.
U.S. Government Agency Securities
U.S. Government agency securities are issued or guaranteed by the U.S. Government or its agencies or instrumentalities. Some obligations issued by U.S. Government agencies and instrumentalities are supported by the full faith and credit of the U.S. Treasury; others by the right of the issuer to borrow from the U.S. Treasury; others by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others only by the credit of the agency or instrumentality. U.S. Government securities bear fixed, floating or variable rates of interest. While the U.S. Government currently provides financial support to certain U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law. U.S. Government securities include U.S. Treasury bills, notes and bonds, Federal Home Loan Bank obligations, Federal Farm Credit Bank obligations, U.S. Government agency obligations and repurchase agreements secured thereby. U.S. Government agency securities are subject to credit risk and interest rate risk.
U.S. Treasury Obligations
U.S. Treasury obligations include bills (initial maturities of one year or less), notes (initial maturities between two and ten years), and bonds (initial maturities over ten years) issued by the U.S. Treasury, Separately Traded Registered Interest and Principal component parts of such obligations (known as “STRIPS”) and inflation-indexed securities. The prices of these securities (like all debt securities) change between issuance and maturity in response to fluctuating market interest rates. U.S. Treasury obligations are subject to credit risk and interest rate risk.
18
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
5. Principal Risks
Investing in the Fund may involve certain risks including, but not limited to, those described below.
Credit Risk
The Fund is subject to the risk that the issuer or guarantor of a debt security, or the counterparty to a derivatives contract or a loan, will fail to make timely payment of interest or principal or otherwise honor its obligations or default completely.
Floating Rate Securities Risk
The interest rates payable on floating rate securities are not fixed and may fluctuate based upon changes in market rates. The interest rate on a floating rate security is a variable rate which is tied to another interest rate, such as a money-market index or Treasury bill rate. Floating rate securities are subject to interest rate risk and credit risk. As short-term interest rates decline, interest payable on floating rate securities typically decreases. Alternatively, during periods of rising interest rates, interest payable on floating rate securities typically increases. Changes in interest rates on floating rate securities may lag behind changes in market rates or may have limits on the maximum increases in interest rates. The value of floating rate securities may decline if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline.
Interest Rate Risk
The Fund is subject to the risk that the market value of fixed-income securities it holds, particularly mortgage backed and other asset backed securities, will decline due to rising interest rates. Generally, the value of investments with interest rate risk, such as fixed-income securities, will move in the opposite direction to movements in interest rates. The Federal Reserve raised the federal funds rate in December 2016, March 2017, and June 2017 and has signaled one more hike in 2017. Interest rates may rise, perhaps significantly and/or rapidly, potentially resulting in substantial losses to the Fund. The prices of fixed-income securities are also affected by their duration. Fixed-income securities with longer duration generally have greater sensitivity to changes in interest rates. An increase in interest rates can impact markets broadly as well. Some investors buy securities with borrowed money; an increase in interest rates can cause a decline in those markets.
Liquidity Risk
Liquidity risk is the risk that the Fund may not be able to dispose of securities readily at a favorable time or prices (or at all) or at prices approximating those at which the Fund currently value them. For example, certain investments are subject to restrictions on resale, may trade in the over-the-counter market or in limited volume, or may not have an active trading market. Illiquid securities may trade at a discount from comparable, more liquid investments and may be subject to wide fluctuations in market value. It may be difficult for the Fund to value illiquid securities accurately. The market for certain investments may become illiquid under adverse market or economic conditions independent of any specific adverse changes in the conditions of a particular issuer. Disposal of illiquid securities may entail registration expenses and other transaction costs that are higher than those for liquid securities. The Fund may seek to borrow money to meet its obligations (including among other things redemption obligations) if it is unable to dispose of illiquid investments, resulting in borrowing expenses and possible leveraging of the Fund. In some cases, due to unanticipated levels of illiquidity the Fund may choose to meet its redemption obligations wholly or in part by distributions of assets in-kind.
19
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects, which have resulted, and may continue to result, in fixed-income instruments experiencing unusual liquidity issues, increased price volatility and, in some cases, credit downgrades and increased likelihood of default. These events have reduced the willingness and ability of some lenders to extend credit, and have made it more difficult for some borrowers to obtain financing on attractive terms, if at all. In addition, global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations.
In addition, political events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. High public debt in the U.S. and other countries creates ongoing systemic and market risks and policymaking uncertainty. Because the impact on the markets has been widespread, it may be difficult to identify both risks and opportunities using past models of the interplay of market forces, or to predict the duration of these market conditions. Interest rates have been unusually low in recent years in the U.S. and abroad. Because there is little precedent for this situation, it is difficult to predict the impact on various markets of a significant rate increase, whether brought about by U.S. policy makers or by dislocations in world markets. In addition, there is a risk that the prices of goods and services in the U.S. and many foreign economies may decline over time, known as deflation (the opposite of inflation). Deflation may have an adverse effect on stock prices and creditworthiness and may make defaults on debt more likely.
Mortgage-Backed and Mortgage Related Securities Risk
Investments in mortgage-backed and mortgage related securities are subject to market risks for fixed-income securities which include, but are not limited to, interest rate risk, credit risk, extension risk and prepayment risk. Moreover, declines in the credit quality of the issuers of mortgage backed and mortgage related securities or instability in the markets for such securities may affect the value and liquidity of such securities, which could result in losses to the Fund. Additionally, certain mortgage-backed and mortgage related securities may include securities backed by pools of loans made to “subprime” borrowers or borrowers with blemished credit histories; the risk of defaults is generally higher in the case of mortgage pools that include such subprime mortgages. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed by the applicable entity only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. Additionally, circumstances could arise that would prevent the payment of interest or principal. This could result in losses to the Fund. Securities held by the Fund that are issued by government-sponsored enterprises, such as the Fannie Mae, Freddie Mac, and Federal Home Loan Banks are not guaranteed by the U.S. Treasury, are not backed by the full faith and credit of the U.S. Government and no assurance can be given that the U.S. Government will provide financial support. U.S. Government securities and securities of government sponsored enterprises are also subject to credit risk, interest rate risk and market risk. The Fund’s investment in CMOs may offer a higher yield than U.S. government securities, but they may also be subject to greater price fluctuation and credit risk. The cash flows and yields on IOs and POs are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of POs. Inverse IOs and POs, which are fixed-income securities with a floating or variable rate of interest, may exhibit substantially greater price volatility than fixed rate obligations having similar credit quality, redemption provisions and maturity.
Other Investment Companies Risk
The Fund may invest in shares of other registered investment companies, including ETFs and money market funds. To the extent that the Fund invest in shares of other registered investment companies, the Fund will
20
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
indirectly bear the fees and expenses charged by the underlying funds in addition to the Fund’s direct fees and expenses and will be subject to the risks associated with investments in those funds. For example, ETF shares may trade at a premium or discount to their net asset value. An ETF that tracks an index may not precisely replicate the returns of its benchmark index.
Prepayment and Extension Risk
Prepayment risk is the risk that the principal amount of a bond may be repaid prior to the bond’s maturity date. Due to a decline in interest rates or excess cash flow, a debt security may be called or otherwise prepaid before maturity. If this occurs, no additional interest will be paid on the investment and the Fund may have to invest at a lower rate, may not benefit from an increase in value that may result from declining interest rates, and may lose any premium it paid to acquire the security. Variable and floating rate securities may be less sensitive to prepayment risk. Extension risk is the risk that a decrease in prepayments may, as a result of higher interest rates or other factors, result in the extension of a security’s effective maturity, heighten interest rate risk and increase the potential for a decline in price.
Redemption Risk
Due to a rise in interest rates or other market developments that may cause investors to move out of fixed income securities on a large scale, the Fund may experience periods of heavy redemptions that could cause the Fund to sell assets at inopportune times or at a loss or depressed value. Redemption risk is heightened during periods of declining or illiquid markets. Heavy redemptions could hurt the Fund’s performance.
U.S. Government Securities and Government-Sponsored Enterprises Risk
A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed by the applicable entity only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. Securities held by the Fund that are issued by government-sponsored enterprises, such as the Fannie Mae, Freddie Mac, FHLB, Federal Farm Credit Bank (“FFCB”), and the Tennessee Valley Authority are not guaranteed by the U.S. Treasury and are not backed by the full faith and credit of the U.S. Government and no assurance can be given that the U.S. Government will provide financial support if these organizations do not have the funds to meet future payment obligations. U.S. Government securities and securities of government sponsored entities are also subject to credit risk, interest rate risk and market risk.
6. Federal Income and Excise Taxes
It is the policy of the Fund to qualify as a regulated investment company (“RIC”), by complying with all applicable provisions of Subchapter M of the Internal Revenue Code, as amended, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. For federal income tax purposes, the Fund is treated as a single entity for the purpose of determining such qualification.
The Fund does not have any unrecorded tax liabilities in the accompanying financial statements. Each of the tax years in the two year period ended October 31, 2017 remain subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in “Other expenses” on the Statement of Operations.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns of income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation (depreciation), as applicable, as the income is earned or capital gains are recorded.
21
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
Dividends are categorized in accordance with income tax regulations which may treat certain transactions differently than U.S. GAAP. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements.
The tax character of distributions paid were as follows:
Year Ended October 31, 2017 | From April 4, 2016(A) to October 31, 2016 | |||||||||||
Distributions paid from: | ||||||||||||
Ordinary income* | ||||||||||||
Institutional Class | $ | 2,052,674 | $ | 360,822 | ||||||||
Y Class | 45,543 | 7,732 | ||||||||||
Investors Class | 110,914 | 14,275 | ||||||||||
Long-term capital gains | ||||||||||||
Institutional Class | - | - | ||||||||||
Y Class | - | - | ||||||||||
Investors Class | - | - | ||||||||||
|
|
|
| |||||||||
Total distributions paid | $ | 2,209,131 | $ | 382,829 | ||||||||
|
|
|
|
* | For tax purposes, short-term capital gains are considered ordinary income distributions. |
(A) | Commencement of Operations. |
As of October 31, 2017 the components of distributable earnings (deficits) on a tax basis were as follows:
Fund | Tax Cost | Unrealized Appreciation | Unrealized (Depreciation) |
| Net Unrealized Appreciation (Depreciation) | |||||||||||||||||||||||
Garcia Hamilton Quality Bond | $ | 145,293,575 | $ | 121,985 | $ | (240,412 | ) | $ | (118,427 | ) |
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other (Losses) | Other Temporary Differences | Distributable Earnings (Deficit) | ||||||||||||||||||||||||||||||||||||||
Garcia Hamilton Quality Bond | $ | (118,427 | ) | $ | – | $ | – | $ | (2,158,418 | ) | $ | 2 | $ | (2,276,843 | ) |
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation (depreciation) are attributable primarily to the tax deferral of losses from wash sales.
Due to inherent differences in the recognition of income, expenses, and realized gains (losses) under U.S. GAAP and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent differences derived from paydown reclasses and distribution redesignations as of October 31, 2017:
Fund | Paid-In-Capital | Undistributed (Overdistribution of) Net Investment Income | Accumulated Net Realized Gain (Loss) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Garcia Hamilton Quality Bond | $ | (220 | ) | $ | 231,739 | $ | (231,519 | ) | $ | – |
Under the Regulated Investment Company Modernization Act of 2010 (“RIC MOD”), net capital losses recognized by the Fund in taxable years beginning after December 22, 2010 are carried forward indefinitely and retain their character as short-term and/or long-term losses.
22
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2017
As of October 31, 2017, the Fund had $1,844,567 of short-term and $313,851 long-term post RIC MOD capital loss carryforwards.
7. Investment Transactions
The aggregate cost of purchases and proceeds from sales and maturities of investments, other than short-term obligations, for the year ended October 31, 2017 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Purchases of U.S. Government Securities | Sales (non-U.S. Government Securities) | Sales of U.S. Government Securities | ||||||||||||||||||||||||
Garcia Hamilton Quality Bond | $ | 34,968,785 | $ | 47,793,204 | $ | 29,904,452 | $ | 40,433,479 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2017 were as follows:
Fund | Type of Transaction | October 31, 2016 Shares/Fair Value | Purchases | Sales | October 31, 2017 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||||
Garcia Hamilton Quality Bond | Direct | $ | 1,262,143 | $ | 75,648,774 | $ | 75,353,127 | $ | 1,557,790 | $ | 12,258 |
8. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, 2017 | April 4, 2016A to October 31, 2016 | |||||||||||||||||||||||||||
Garcia Hamilton Quality Bond Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 2,836,854 | $ | 27,939,755 | 13,189,537 | $ | 132,905,019 | ||||||||||||||||||||||
Reinvestment of dividends | 207,980 | 2,050,230 | 35,871 | 360,822 | ||||||||||||||||||||||||
Shares redeemed | (2,086,333 | ) | (20,542,888 | ) | (801,285 | ) | (8,079,148 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 958,501 | $ | 9,447,097 | 12,424,123 | $ | 125,186,693 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, 2017 | April 4, 2016A to October 31, 2016 | |||||||||||||||||||||||||||
Garcia Hamilton Quality Bond Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 28,621 | $ | 283,135 | 326,810 | $ | 3,292,688 | ||||||||||||||||||||||
Reinvestment of dividends | 4,616 | 45,481 | 769 | 7,732 | ||||||||||||||||||||||||
Shares redeemed | (44,015 | ) | (430,968 | ) | (354 | ) | (3,564 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (10,778 | ) | $ | (102,352 | ) | 327,225 | $ | 3,296,856 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, 2017 | April 4, 2016A to October 31, 2016 | |||||||||||||||||||||||||||
Garcia Hamilton Quality Bond Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 249,891 | $ | 2,460,626 | 893,424 | $ | 9,024,800 | ||||||||||||||||||||||
Reinvestment of dividends | 11,248 | 110,905 | 1,419 | 14,275 | ||||||||||||||||||||||||
Shares redeemed | (140,498 | ) | (1,386,156 | ) | (34,125 | ) | (342,763 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 120,641 | $ | 1,185,375 | 860,718 | $ | 8,696,312 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
A Commencement of Operations.
9. Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
23
American Beacon Garcia Hamilton Quality Bond FundSM
(For a share outstanding throughout the period)
Institutional Class | ||||||||||||
Year Ended October 31, 2017 | April 4, 2016A to October 31, 2016 | |||||||||||
Net asset value, beginning of period | $ | 9.98 | $ | 10.00 | ||||||||
|
|
|
| |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income | 0.14 | 0.05 | ||||||||||
Net (losses) on investments (both realized and unrealized) | (0.05 | ) | (0.02 | ) | ||||||||
|
|
|
| |||||||||
Total income from investment operations | 0.09 | 0.03 | ||||||||||
|
|
|
| |||||||||
Less distributions: | ||||||||||||
Dividends from net investment income | (0.15 | ) | (0.05 | ) | ||||||||
Distributions from net realized gains | (0.01 | ) | - | |||||||||
|
|
|
| |||||||||
Total distributions | (0.16 | ) | (0.05 | ) | ||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 9.91 | $ | 9.98 | ||||||||
|
|
|
| |||||||||
Total returnB | 0.91 | % | 0.34 | %C | ||||||||
|
|
|
| |||||||||
Ratios and supplemental data: | ||||||||||||
Net assets, end of period | $ | 132,575,412 | $ | 124,032,604 | ||||||||
Ratios to average net assets: | ||||||||||||
Expenses, before reimbursements | 0.70 | % | 1.06 | %D | ||||||||
Expenses, net of reimbursements | 0.45 | % | 0.45 | %D | ||||||||
Net investment income, before expense reimbursements | 1.12 | % | 0.29 | %D | ||||||||
Net investment income, net of reimbursements | 1.37 | % | 0.91 | %D | ||||||||
Portfolio turnover rate | 52 | % | 40 | %E | ||||||||
Y Class | ||||||||||||
Year Ended October 31, 2017 | April 4, 2016A to October 31, 2016 | |||||||||||
Net asset value, beginning of period | $ | 9.98 | $ | 10.00 | ||||||||
|
|
|
| |||||||||
Income from investment operations: | ||||||||||||
Net investment income | 0.13 | 0.05 | ||||||||||
Net (losses) on investments (both realized and unrealized) | (0.06 | ) | (0.02 | ) | ||||||||
|
|
|
| |||||||||
Total income from investment operations | 0.07 | 0.03 | ||||||||||
|
|
|
| |||||||||
Less distributions: | ||||||||||||
Dividends from net investment income | (0.14 | ) | (0.05 | ) | ||||||||
Distributions from net realized gains | (0.01 | ) | - | |||||||||
|
|
|
| |||||||||
Total distributions | (0.15 | ) | (0.05 | ) | ||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 9.90 | $ | 9.98 | ||||||||
|
|
|
| |||||||||
Total returnB | 0.71 | % | 0.29 | %C | ||||||||
|
|
|
| |||||||||
Ratios and supplemental data: | ||||||||||||
Net assets, end of period | $ | 3,133,476 | $ | 3,265,315 | ||||||||
Ratios to average net assets: | ||||||||||||
Expenses, before reimbursements | 0.77 | % | 1.29 | %D | ||||||||
Expenses, net of reimbursements | 0.55 | % | 0.55 | %D | ||||||||
Net investment income, before expense reimbursements | 1.05 | % | 0.11 | %D | ||||||||
Net investment income, net of reimbursements | 1.27 | % | 0.85 | %D | ||||||||
Portfolio turnover rate | 52 | % | 40 | %E |
A | Commencement of operations. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
C | Not annualized. |
D | Annualized. |
E | Portfolio turnover rate is for the period from April 4, 2016 through October 31, 2016 and is not annualized. |
See accompanying notes
24
American Beacon Garcia Hamilton Quality Bond FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||
Year Ended October 31, 2017 | April 4, 2016A to October 31, 2016 | |||||||||||
Net asset value, beginning of period | $ | 9.99 | $ | 10.00 | ||||||||
|
|
|
| |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income | 0.10 | 0.03 | ||||||||||
Net (losses) on investments (both realized and unrealized) | (0.06 | ) | (0.01 | ) | ||||||||
|
|
|
| |||||||||
Total income from investment operations | 0.04 | 0.02 | ||||||||||
|
|
|
| |||||||||
Less distributions: | ||||||||||||
Dividends from net investment income | (0.11 | ) | (0.03 | ) | ||||||||
Distributions from net realized gains | (0.01 | ) | - | |||||||||
|
|
|
| |||||||||
Total distributions | (0.12 | ) | (0.03 | ) | ||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 9.91 | $ | 9.99 | ||||||||
|
|
|
| |||||||||
Total returnB | 0.43 | % | 0.24 | %C | ||||||||
|
|
|
| |||||||||
Ratios and supplemental data: | ||||||||||||
Net assets, end of period | $ | 9,724,030 | $ | 8,594,617 | ||||||||
Ratios to average net assets: | ||||||||||||
Expenses, before reimbursements | 0.94 | % | 1.19 | %D | ||||||||
Expenses, net of reimbursements | 0.83 | % | 0.83 | %D | ||||||||
Net investment income, before expense reimbursements | 0.89 | % | 0.21 | %D | ||||||||
Net investment income, net of reimbursements | 0.99 | % | 0.57 | %D | ||||||||
Portfolio turnover rate | 52 | % | 40 | %E |
A | Commencement of operations. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
C | Not annualized. |
D | Annualized. |
E | Portfolio turnover rate is for the period from April 4, 2016 through October 31, 2016 and is not annualized. |
See accompanying notes
25
American Beacon Garcia Hamilton Quality Bond FundSM
Federal Tax Information
October 31, 2017 (Unaudited)
Certain tax information regarding the Fund is required to be provided to shareholders based upon the Fund’s income and distributions for the taxable year ended October 31, 2017. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2017.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2017. All designations are based on financial information available as of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code of 1986, as amended, and the regulations there under.
Corporate Dividends-Received Deduction:
Garcia Hamilton Quality Bond Fund | - | % |
Qualified Dividend Income:
Garcia Hamilton Quality Bond Fund | - | % |
Long-Term Capital Gain Distributions:
Garcia Hamilton Quality Bond Fund | $ | - |
Short-Term Capital Gain Distributions:
Garcia Hamilton Quality Bond Fund | $ | 98,435 |
Shareholders will receive notification in January 2018 of the applicable tax information necessary to prepare their 2017 income tax returns.
26
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Renewal and Approval of Management Agreement and Investment Advisory Agreement
At in-person meetings held on May 16, 2017 and June 7, 2017 (collectively, the “Meetings”), the Board of Trustees (“Board”) considered and then, at its June 7 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (the “Trust”), on behalf of American Beacon Garcia Hamilton Quality Bond Fund (“Fund”);
(2) the Investment Advisory Agreement among the Manager, the Trust, on behalf of the Fund, and Garcia Hamilton & Associates, LP (the “subadvisor”).
The Investment Advisory Agreement is referred to herein as the “Investment Advisory Agreement”. The Management Agreement and the Investment Advisory Agreement are collectively referred to herein as the “Agreements.” In preparation for its consideration of the renewal of the Agreements, the Board undertook steps to gather and consider information furnished by the Manager, the subadvisor, Broadridge, Inc. (“Broadridge”) and Morningstar, Inc. (“Morningstar”). The Board, with the assistance of independent legal counsel, requested and received certain relevant information from the Manager and the subadvisor.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge and Morningstar regarding the performance, fees and expenses of the Fund as well as information from the Manager and the subadvisor. At the Meetings, the Board considered the information provided. Further, the Board took into consideration information furnished for the Board’s review and consideration throughout the year at regular meetings of the Board and its committees, as well as information specifically prepared in connection with the renewal process.
In connection with the Board’s consideration of the Agreements, the Trustees received and evaluated such information as they deemed necessary. The information requested on behalf of the Board included, among other information, the following materials. References herein to the “firm” refer to the Manager and/or the subadvisor.
• | comparisons of the performance of an appropriate share class of the Fund to comparable investment companies and appropriate benchmark indices, including peer group averages and performance analyses provided by Broadridge and Morningstar, and to the performance of certain similar accounts managed by the firm; |
• | comparisons of the Fund’s management and subadvisory fee rates and expense ratio with the management fee rates paid by comparable mutual funds and their expense ratios, including peer group averages and fee and expense analyses provided by Broadridge and Morningstar, and the advisory fee rates charged to other clients for which similar services are provided by a firm; |
• | a description of any applicable fee waivers and/or expense reimbursements in place for the Fund during the past year, and any proposed changes to those arrangements; |
• | the Manager’s profitability with respect to the services that it provided to the Fund; |
• | any actual or anticipated economies of scale in relation to the services the firm provides or will provide to the Fund and whether the current fee rates charged or to be charged to the Fund reflect these economies of scale for the benefit of the Fund’s investors; |
• | an evaluation of other benefits to the firm or Fund as a result of their relationship, if any; |
• | information regarding the administrative, accounting-related and cash management services that the Manager provides to the Fund and the fees that the Manager receives for such services; and |
• | information regarding a firm’s financial condition, the personnel of the Manager who are assigned primary responsibility for managing the Fund, staffing levels, portfolio managers’ compensation, insurance coverage, material pending litigation, code of ethics, compliance matters, actual or potential conflicts of interest that the firm experiences, or anticipates that it will experience, in providing services to the Fund, and the Manager’s disaster recovery plans. |
27
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
The Board noted that the Manager provides management and administrative services to the Fund pursuant to the Management Agreement. The Board considered that many mutual funds have separate contracts governing both types of services, and observed that the actual management fee rates provided by Broadridge for peer group funds reflect the combined advisory and administrative expenses, reduced by any fee waivers and/or reimbursements.
A firm may not have been able to, or opted not to, provide information in response to certain information requests, in which case the Board conducted its evaluation of the firm based on information that was provided. In such cases, the Board determined that the omission of any such information was not material to its considerations. The class of shares used for comparative performance purposes was the share class with the lowest expenses available for purchase by the general public, which was the Institutional Class. The Board also considered that the use of Institutional Class performance generally facilitates a meaningful comparison for expense and performance purposes.
Provided below is an overview of certain factors the Board considered in connection with its renewal and approval of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew or approve each Agreement, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Independent Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the renewal and approval of each Agreement. The memorandum explained the regulatory requirements surrounding the Trustees’ process for evaluating investment advisors and the terms of investment advisory contracts. Based on its evaluation, the Board unanimously concluded that the terms of each Agreement were reasonable and fair and that the renewal and approval of each Agreement was in the best interests of the Fund and its shareholders.
Considerations With Respect to the Renewal of the Management Agreement and The Investment Advisory Agreement
In determining whether to renew the Agreements, the Trustees considered the best interests of the Fund. While the Management Agreement and the Investment Advisory Agreements for the Fund were considered at the Meetings, the Board considered the Fund’s investment management and subadvisory relationships separately.
In each instance, the Board considered, among other things, the following factors: (1) the nature, extent and quality of the services provided; (2) the investment performance of the Fund; (3) the costs incurred by the Manager in rendering services to the Fund and its resulting profits or losses; (4) comparisons of services and fee rates with contracts entered into by the Manager or the subadvisor or their affiliates with other clients (such as pension funds and other institutional clients); (5) the extent to which economies of scale, if any, have been taken into account in setting each fee rate schedule; (6) whether fee rate levels reflect economies of scale, if any, for the benefit of Fund investors; and (7) any other benefits derived or anticipated to be derived by the Manager or the subadvisor from their relationship with the Fund.
Nature, Extent and Quality of Services. With respect to the renewal of the Management Agreement, the Board considered, among other factors: the Fund’s performance for various periods since its inception in 2015 and the length of service of key investment personnel at the Manager; the cost structure of the Fund; the Manager’s culture of compliance and support for compliance operations that reduce risks to the Fund; the Manager’s quality of services; the Manager’s active role in monitoring and, as appropriate, recommending additional or replacement subadvisors; and the Manager’s efforts to retain key employees and maintain staffing levels.
With respect to the renewal of the Investment Advisory Agreement, the Trustees considered the level of staffing and the size of the subadvisor. The Board also considered the adequacy of the resources committed to the Fund by the subadvisor, and whether those resources were commensurate with the needs of the Fund and are sufficient to sustain appropriate levels of performance and compliance needs. In this regard, the Board considered the financial stability of the subadvisor. The Board also considered the subadvisor’s representations regarding its compliance program and code of ethics. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and the subadvisor were appropriate for the Fund.
28
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Investment Performance. The Board evaluated the comparative information provided by Broadridge and the Manager regarding the performance of the Fund relative to its Broadridge performance universe, Morningstar Category, and benchmark index, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding its independent peer selection methodology to select all Broadridge performance universes. The Board also considered that the performance universe selected by Broadridge may not provide appropriate comparisons for the Fund. In addition, the Board considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Board also evaluated the comparative information provided by the subadvisor regarding the performance of the Fund relative to the performance of other comparable investment accounts managed by the subadvisor and the Fund’s benchmark index. In addition, the Board considered the Manager’s recommendation to continue to retain the subadvisor. A discussion regarding the Board’s considerations with respect to the Fund’s performance appears below under “Additional Considerations and Conclusions with Respect to the Fund.”
Costs of the Services Provided to the Fund and the Profits Realized by the Manager from its Relationship with the Fund. In analyzing the cost of services and profitability of the Manager, the Board considered the revenues earned and the expenses incurred by the Manager, before and after the payment of distribution-related expenses by the Manager. The profits or losses were noted at both an aggregate level for all funds within the group of mutual funds sponsored by the Manager (the “Fund Complex”) and at an individual Fund level, with the Manager sustaining losses with respect to the Fund before and after the payment of distribution-related expenses. The Board also considered comparative information provided by the Manager regarding the Manager’s overall profitability with respect to the Fund Complex relative to the overall profitability of other firms in the mutual fund industry, as disclosed in publicly available sources. Although the Board noted that, in certain cases, the fee rates paid by other clients of the Manager are lower than the fee rate paid by the Fund, the Manager represented that, among other matters, the difference is attributable to the fact that the Manager does not perform administrative services for non-investment company clients and reflects the greater level of responsibility and regulatory requirements associated with managing the Fund.
The Board also noted that the Manager proposed to continue the fee waivers and expense reimbursements for the Fund that were in place during the last fiscal year. The Board further considered that, with respect to the Fund, the Management Agreement provides for the Manager to receive a management fee comprised of an annualized fee that is retained by the Manager. The Board also noted that certain share classes of the Fund maintain higher expense ratios in order to compensate third-party financial intermediaries.
In analyzing the fee rates charged by the subadvisor in connection with its investment advisory services to the Fund, the Board considered that the Manager has negotiated the lowest fee rate the subadvisor charges for any comparable client accounts. The Board did not request profitability data from the subadvisor because the Board did not view this data as imperative to its deliberations given the arm’s-length nature of the relationship between the Manager and the subadvisor with respect to the negotiation of subadvisory fee rate. In addition, the Board noted that the subadvisor may not account for its profits on an account-by-account basis and, to the extent it does, it likely employs different methodologies in connection with these calculations.
Based on the foregoing information, the Board concluded that the profitability levels of the Manager were reasonable in light of the services performed by the Manager. A discussion regarding the Board’s considerations with respect to the Fund’s fee rates is set forth below under “Additional Considerations and Conclusions with Respect to the Fund.”
Economies of Scale. In considering the reasonableness of the management and investment advisory fees rates, the Board considered whether economies of scale will be realized as the Fund grows and whether fee rate levels reflect these economies of scale for the benefit of Fund shareholders. In this regard, the Board considered that the Manager has negotiated breakpoints in the subadvisory fee rate for the Fund. In addition, the Board noted the Manager’s representation that the Management Agreement contains fee schedule breakpoints at higher asset levels with respect to the Fund. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee rate schedules for the Fund provide for a reasonable sharing of benefits from any economies of scale with the Fund.
29
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Benefits Derived from the Relationship with the Fund. The Board considered the “fall-out” or ancillary benefits that accrue to the Manager and/or the subadvisor as a result of the advisory relationships with the Fund, including greater exposure in the marketplace with respect to the Manager’s or subadvisor’s investment process and expanding the level of assets under management by the Manager and the subadvisor. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisor by virtue of their relationships with the Fund appears to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made versus the Fund’s Broadridge performance universe and Morningstar Category. With respect to the Broadridge performance universe, the 1st Quintile represents the top twenty percent of the universe based on performance and the 5th Quintile representing the bottom twenty percent of the universe based on performance. References below to the Fund’s Broadridge performance universe are to the universe of mutual funds with a comparable investment classification/objective included in the analysis provided by Broadridge. Information regarding the performance of individual subadvisors is calculated by the Manager using information provided by the Fund’s custodian.
The expense comparisons below were made versus the Fund’s Broadridge expense universe and Broadridge expense group, with the 1st Quintile representing the top twenty percent of the universe or group based on lowest total expense and the 5th Quintile representing the bottom twenty percent of the universe or group based on highest total expense. References below to the Fund’s expense group and expense universe are to the respective group or universe of comparable mutual funds included in the analysis by Broadridge. The Broadridge expense group consists of the Fund and a representative sample of funds with similar operating structures and asset sizes, as selected by Broadridge. The Broadridge expense universe includes all funds in the investment classification/objective with a similar operating structure as the share class of the Fund included in the Broadridge comparative information and provides a broader view of expenses across the Fund’s investment classification/objective. The Trustees also considered the Fund’s Morningstar fee level category. In reviewing expenses, the Trustees considered the positive impact of fee waivers where applicable and the Manager’s agreement to continue the fee waivers. In addition, information regarding the subadvisor’s use of soft dollars was requested from the Manager and was considered by the Trustees.
In considering the renewal of the Management Agreement with the Manager and the Investment Advisory Agreement with Garcia Hamilton for the Fund, the Trustees considered the following additional factors:
Broadridge Total Expenses Excluding 12b-1 Fees and Morningstar Fee Level Ranking
Compared to Broadridge Expense Group | 1st Quintile | |
Compared to Broadridge Expense Universe | 2nd Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Below Average Expense Ratio |
Broadridge and Morningstar Performance Analysis (since-inception period ended February 28, 2017)
Compared to Broadridge Performance Universe | 5th Quintile | |
Compared to Morningstar Category | Not Available |
The Trustees also considered: (1) information provided by Garcia Hamilton regarding fee rates charged for managing accounts in the same strategy as the Fund; (2) the Manager’s explanation that, unlike the funds in its Broadridge performance universe and Morningstar category, the Fund does not invest in high-yield (below investment grade securities), which have performed well in the recent past; (3) the subadvisor’s and Manager’s explanation that the Fund’s performance declined when a material increase in assets shortly after the Fund commenced operations required Garcia Hamilton to rebalance the Fund’s investment and sector allocations; and (4) the Manager’s recommendation to continue to retain the subadvisor based upon, among other factors, the relatively brief period that this Fund has been in operation.
30
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and subadvisor under the Agreements are fair and reasonable; and (2) determined that the Fund and its shareholders would benefit from the Manager’s and subadvisor’s continued management of the Fund.
31
Trustees and Officers of the American Beacon FundsSM (Unaudited)
The Trustees and officers of the American Beacon Funds (the “Trust”) are listed below, together with their principal occupations during the past five years. The address of each person listed below is 220 Las Colinas Boulevard East, Suite 1200, Irving, Texas 75039. Each Trustee oversees thirty-six funds in the fund complex that includes the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust. The Trust’s Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Alan D. Feld** (80) | Trustee since 1996 | Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present); Trustee, American Beacon Mileage Funds (1996-2012); Trustee, American Beacon Select Funds (1999-Present); Trustee, American Beacon Master Trust (1996-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (47) | Trustee since 2015 | Director, Kura MD, Inc. (local telehealth organization) (2015-present); Vice President & CFO, Sierra Health Foundation (health conversion private foundation) (2006-Present); Vice President & CFO, Sierra Health Foundation: Center for Health Program Management (California public benefit corporation) (2012-Present); Director, Innovative North State (2012-2015); Director, Sacramento Regional Technology Alliance (2011-2016); Director, Women’s Empowerment (2009-2014); Director, Valley Healthcare Staffing (2017–present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Joseph B. Armes (55) | Trustee since 2015 | Chairman & CEO, CSW Industrials f/k/a Capital Southwest Corporation (investment company) (2015-Present); Chairman of the Board of Capital Southwest Corporation, predecessor to CSW Industrials, Inc. (2014-present) (investment company); CEO, Capital Southwest Corporation (2013-2015); President & CEO, JBA Investment Partners (family investment vehicle) (2010-Present); Director and Chair of Audit Committee, RSP Permian (oil and gas producer) (2013-Present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Gerard J. Arpey (59) | Trustee since 2012 | Director, The Home Depot, Inc. (2015-Present); Partner, Emerald Creek Group (private equity firm) (2011-Present); Director, S.C. Johnson & Son, Inc. (privately held company) (2008-present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Brenda A. Cline (56) | Trustee since 2004 | Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). |
32
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Eugene J. Duffy (63) | Trustee since 2008 | Managing Director, Institutional Services, Intercontinental Real Estate Corporation (2014-Present); Principal and Executive Vice President, Paradigm Asset Management (1994-2014); Director, Sunrise Bank of Atlanta (2008-2013); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Thomas M. Dunning (75) | Trustee since 2008 | Chairman Emeritus, Lockton Dunning Benefits (consulting firm in employee benefits) (2008–Present); Board Director, Oncor Electric Delivery Company LLC (2007-Present); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Richard A. Massman (74) | Trustee since 2004 Chairman since 2008 | Consultant and General Counsel Emeritus, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (2009-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Barbara J. McKenna, CFA (54) | Trustee since 2012 | Managing Principal, Longfellow Investment Management Company (2005-Present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
R. Gerald Turner (71) | Trustee since 2001 | President, Southern Methodist University (1995-Present); Director, J.C. Penney Company, Inc. (1996-Present); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Trustee, American Beacon Mileage Funds (2001-2012); Trustee, American Beacon Select Funds (2001-Present); Trustee, American Beacon Master Trust (2001-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (62) | President since 2009 | President, CEO and Director, American Beacon Advisors, Inc. (2009-Present); President, CEO and Director, Resolute Investment Managers, Inc. (2015-Present); President, CEO and Director, Resolute Acquisition, Inc. (2015-Present); President, CEO and Director, Resolute Topco, Inc. (2015-Present), President & CEO, Resolute Investment Holdings, LLC (2015-Present); President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President and CEO, American Private Equity Management, LLC (2012-Present); President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Director, Chairman, President and CEO, Alpha Quant Advisors, LLC (2016-Present); Director, ARK Investment Management LLC (2016-Present); Director, Shapiro Capital Management LLC (2017-Present); Member, Investment Advisory Committee, Employees Retirement System of Texas (2017-Present); Trustee, American Beacon NextShares Trust (2015-Present); President, American Beacon Select Funds (2009-Present); President, American Beacon Mileage Funds (2009-2012); President, American Beacon Master Trust (2009–2012); President, American Beacon Institutional Funds Trust (2017-Present). |
33
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rosemary K. Behan (58) | VP, Secretary and Chief Legal Officer since 2006 | Vice President and Secretary, American Beacon Advisors, Inc. (2006-Present); Secretary, Resolute Investment Holdings, LLC (2015-Present) Secretary, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015–Present); Secretary, Lighthouse Holdings, Inc. (2008-2015); Secretary, Lighthouse Holdings Parent, Inc. (2008-2015); Secretary, American Private Equity Management, LLC (2008-Present); Secretary, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Secretary, Alpha Quant Advisors, LLC (2016-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Select Funds (2006-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Mileage Funds (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Master Trust (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Brian E. Brett (57) | VP since 2004 | Senior Vice President (2012-Present) and Vice President (2004-2012), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2004-Present); Vice President, American Beacon Mileage Funds (2004-2012); Vice President, American Beacon Master Trust (2004-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Paul B. Cavazos (48) | VP since 2016 | Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer and Assistant Treasurer, DTE Energy (2007-2016); Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Erica Duncan (47) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Melinda G. Heika (56) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present); Resolute Investment Managers, Inc. (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present); Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute Investment Holdings, LLC. (2015-Present); Treasurer, Lighthouse Holdings, Inc. (2010-2015); Treasurer, Lighthouse Holdings Parent Inc., (2010-2015); Treasurer, American Private Equity Management, LLC (2012-Present); Director and Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Treasurer, American Beacon Select Funds (2010-Present); Treasurer, American Beacon Mileage Funds (2010-2012); Treasurer, American Beacon Master Trust (2010-2012); Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Terri L. McKinney (53) | VP since 2010 | Vice President (2009-Present) and Managing Director (2003-2009), American Beacon Advisors, Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). |
34
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Jeffrey K. Ringdahl (42) | VP since 2010 | Senior Vice President (2013-Present), Vice President (2010-2013), and Director (2015-Present), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Senior Vice President (2012-Present) and Manager (2015-Present), American Private Equity Management, LLC; Senior Vice President, Lighthouse Holdings, Inc. (2013-2015); Senior Vice President, Lighthouse Holdings Parent, Inc. (2013-2015); Director and Vice President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Trustee, American Beacon NextShares Trust (2015-Present); Director and Senior Vice Present, Resolute Investment Holdings, LLC (2015-Present); Director and Senior Vice President, Resolute Topco, Inc. (2015-Present); Director and Senior Vice President, Resolute Acquisition, Inc. (2015-Present); Director and Senior Vice President, Resolute Investment Managers, Inc. (2015-Present); Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-President); Director, Shapiro Capital Management, LLC (2017-Present). | ||
Samuel J. Silver (54) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); American Beacon Institutional Funds Trust (2011-Present). | ||
Christina E. Sears (46) | Chief Compliance Officer since 2004 and Asst. Secretary since 1999 | Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Chief Compliance Officer, American Private Equity Management, LLC (2012-Present); Chief Compliance Officer and Vice President, Alpha Quant Advisors, LLC (2016-Present); Chief Compliance Officer (2004-Present) and Assistant Secretary (1999-Present), American Beacon Select Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Mileage Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Master Trust; Chief Compliance Officer and Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Sonia L. Bates (60) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-Present); Assistant Treasurer, Resolute Investment Managers, Inc. (2015-Present); Assistant Treasurer, Resolute Acquisition, Inc. (2015-Present); Assistant. Treasurer, Resolute Topco, Inc. (2015-Present); Assistant Treasurer, Resolute Investment Holdings, LLC.; Assistant Treasurer, Lighthouse Holdings, Inc. (2011-2015); Assistant Treasurer, Lighthouse Holdings Parent Inc. (2011-2015); Assistant Treasurer, American Private Equity Management, LLC (2012-Present); Assistant Treasurer, American Beacon Select Funds (2011-Present); Assistant Treasurer American Beacon Mileage Funds (2011-2012); Assistant Treasurer, American Beacon Master Trust (2011-2012); Assistant Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Shelley D. Abrahams (42) | Assistant Secretary since 2008 | Assistant Secretary, American Beacon Advisors, Inc. (2008-Present); Assistant Secretary, American Beacon Select Funds (2008-Present); Assistant Secretary, American Beacon Mileage Funds (2008-2012); Assistant Secretary, American Beacon Master Trust (2008-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
35
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rebecca L. Harris (50) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2010-Present); Assistant Secretary, American Beacon Mileage Funds (2010-2012); Assistant Secretary, American Beacon Master Trust (2010-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Diana N. Lai (41) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Advisors, Inc. (2012-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Teresa A. Oxford (59) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2015-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
* As of 11/12/2014, the Board 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 75.
** Mr. Feld is deemed to be an “interested person” of the Trusts, as defined by the 1940 Act. Mr. Feld’s law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to one or more of the Trust’s sub-advisors.
36
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2017 (Unaudited)
The American Beacon Funds recognize and respect 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:
• | information we receive from you on applications or other forms; |
• | information about your transactions with us or our service providers; and |
• | information we receive from third parties. |
We do not disclose any nonpublic personal information about our customers or former customers 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 personal information, we maintain safeguards that comply with federal standards.
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Delivery of Documents
eDelivery is NOW AVAILABLE – Stop traditional mail delivery and receive your
shareholder reports and summary prospectus on-line. Sign up at
www.americanbeaconfunds.com
If you invest in the Fund through a financial institution, you may be able to receive the Fund’s 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 Fund:
By E-mail: | On the Internet: | |
american_beacon.funds@ambeacon.com | Visit our website at www.americanbeaconfunds.com | |
By Telephone: Call (800) 658-5811 | By Mail: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 | |
Availability of Quarterly Portfolio Schedules | Availability of Proxy Voting Policy and Records | |
In addition to the Schedule of Investments provided in each semi-annual and annual report, the 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 Fund’s 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 Section, 100 F Street, NE, Washington, D.C. 20549-2736. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling (800)-SEC-0330. A complete schedule of the Fund’s portfolio holdings is also available at www.americanbeaconfunds.com approximately twenty days after the end of each month. | A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund’s Statement of Additional Information, is available free of charge on the Fund’s website www.americanbeaconfunds.com and by calling 1-800-967-9009 or by accessing the SEC’s website at www. sec.gov. The Fund’s proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund’s Forms N-PX are available on the SEC’s website at www.sec.gov. The Fund’s proxy voting record may also be obtained by calling 1-800-967-9009. |
Fund Service Providers:
CUSTODIAN State Street Bank and Trust Boston, Massachusetts | TRANSFER AGENT Boston Financial Data Services Kansas City, Missouri | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Foreside Fund Services, LLC Portland, Maine |
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current Prospectus or Summary Prospectus.
American Beacon Funds and American Beacon Garcia Hamilton Quality Bond Fund are service marks of American Beacon Advisors, Inc.
AR 10/17
About American Beacon Advisors
Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management.
Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company.
INTERNATIONAL EQUITY FUND RISKS
Investing in foreign securities may involve heightened risk due to currency fluctuations and economic and political risks. Investing in value stocks may limit downside risk over time; however, the Fund may produce more modest gains than riskier stock funds as a trade-off for this potentially lower risk. The use of futures contracts for cash management may subject the Fund to losing more money than invested. The Fund participates in a securities lending program. Please see the prospectus for a complete discussion of the Fund’s risks. There can be no assurances that the investment objectives of this Fund will be met.
Any opinions herein, including forecasts, reflect our judgment as of the end of the reporting period and are subject to change. Each advisor’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, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein.
American Beacon Funds | October 31, 2017 |
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Schedule of Investments: | ||||
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Financial Highlights: | ||||
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements | 45 | |||
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Back Cover |
Dear Shareholders,
At American Beacon, we are proud to offer a broad range of equity, fixed-income and alternative mutual fund products for institutions and individuals. Our mutual funds – which span the domestic, international, global, frontier and emerging markets – are sub-advised by experienced portfolio managers who employ distinctive investment processes to manage assets through a variety of economic and market conditions. Together, we work diligently to help our clients and shareholders meet their long-term financial goals.
Institutional wisdom, enduring value. Since our inception as a pension fiduciary in 1986, American Beacon has focused on identifying and overseeing institutional investment managers and portfolio risk management. In 1987, we leveraged our size and experience to launch a series of sub-advised, multi- | ||
manager mutual funds providing individual investors access to many of the same institutional managers as our pension clients. Following the financial crisis in 2008, we saw that investors were looking for unique solutions from managers who were not necessarily mainstream. In 2010, we began offering mutual funds from single managers with distinctive investment styles or asset classes. As we continue to expand our family of funds, our solutions-based approach provides innovative investments.
Guiding principles. Our “manager of managers” philosophy is built on a long-standing history of innovative thinking, discipline and consistency in applying our solutions-based approach. As a manager of managers, our goal is to engage the most effective money managers for each asset class, investment style or market strategy – whether through a single sub-advisor or a combination of sub-advisors. Because we take our fiduciary responsibilities very seriously, our thorough manager evaluation and selection process is rigorous and ongoing. Our guiding principles – predictability, style consistency, competitive pricing and long-term relationships – provide a strong foundation for our due-diligence process. Our broad range of mutual funds helps investors navigate the economic storms and market downturns in the U.S. and abroad. Our years of experience evaluating sub-advisors have led us to identify and partner with asset managers who have adhered to their disciplined processes for many years and through multiple market cycles.
Focus on asset protection and risk mitigation. We strive to provide innovative, long-term products without gimmicks. From offering some of the first multi-manager funds, one of the first retirement-income funds and the first open-end mutual fund in the U.S. to focus primarily on frontier-market debt, our robust history includes applying a disciplined, solutions-based approach to our product development process to help protect assets and mitigate risk.
Thank you for your continued interest in American Beacon. For additional information about our funds or to access your account information, please visit our website at www.americanbeaconfunds.com.
Best Regards,
Gene L. Needles, Jr.
President
American Beacon Funds
1
International Equity Market Overview
October 31, 2017 (Unaudited)
During the 12-month period ended October 31, 2017, developed international equity markets gained more than 20%. The growth was driven by a mounting investor focus on fundamentals, including rising corporate profits, as well as continued global economic health. International equities mostly benefited in this environment, reaching or approaching all-time highs, yet with valuations still below those of the U.S. market. The economic expansion, which began almost a year ago from a very low base, has become increasingly synchronized across global economies. However, rising geopolitical tensions, such as the one on the Korean peninsula, as well as elevated expectations for global economic growth, could make investors focus on higher market valuations.
Following multiple years of stagnation, corporate profits are accelerating and driving markets higher. This superior, fundamental improvement is partly due to improved global economic growth, greater margin leverage relative to history and cheaper currencies. Meanwhile, bond yields remain at historically low levels. This combination drove money into equities with a cyclical bent. Information Technology, Materials, Financials and Industrials were the strongest sectors, but more defensive sectors like Telecommunications, Health Care and Consumer Staples lagged.
2
American Beacon International Equity FundSM
Performance Overview
October 31, 2017 (Unaudited)
The Investor Class of the American Beacon International Equity Fund (the “Fund”) returned 22.50% for the twelve months ended October 31, 2017. The Fund underperformed the MSCI EAFE Index (the “Index”) return of 23.44%.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/07 through 10/31/17
Total Returns for the Period ended October 31, 2017 | |||||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2017 | ||||||||||||||||||||||||||||
Institutional Class (1,8) | AAIEX | 22.94 | % | 4.94 | % | 7.91 | % | 1.60 | % | $ | 11,724 | ||||||||||||||||||||||
Y Class (1,2,8) | ABEYX | 22.84 | % | 4.86 | % | 7.82 | % | 1.53 | % | $ | 11,638 | ||||||||||||||||||||||
Investor Class (1,8) | AAIPX | 22.50 | % | 4.57 | % | 7.54 | % | 1.26 | % | $ | 11,333 | ||||||||||||||||||||||
Advisor Class (1,3,8) | AAISX | 22.38 | % | 4.47 | % | 7.42 | % | 1.08 | % | $ | 11,129 | ||||||||||||||||||||||
A without Sales Charge (1,4,8) | AIEAX | 22.43 | % | 4.54 | % | 7.46 | % | 1.18 | % | $ | 11,246 | ||||||||||||||||||||||
A with Sales Charge (1,4,8) | AIEAX | 15.39 | % | 2.49 | % | 6.19 | % | 0.58 | % | $ | 10,599 | ||||||||||||||||||||||
C without Sales Charge (1,5,8) | AILCX | 21.50 | % | 3.74 | % | 6.65 | % | 0.62 | % | $ | 10,643 | ||||||||||||||||||||||
C with Sales Charge (1,5,8) | AILCX | 20.50 | % | 3.74 | % | 6.65 | % | 0.62 | % | $ | 10,643 | ||||||||||||||||||||||
R6 Class (1,6,8) | AAERX | 23.00 | % | 4.95 | % | 7.92 | % | 1.61 | % | $ | 11,730 | ||||||||||||||||||||||
MSCI EAFE Index (7) | 23.44 | % | 6.08 | % | 8.53 | % | 1.10 | % | $ | 11,158.91 |
1. | Performance shown is historical and is not indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is calculated based on the published end of day net asset values as of date indicated and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. Fund performance in the table above does not reflect the deduction of taxes a shareholder would pay on distributions or the redemption of shares. A portion of the fees charged to the Institutional Class of the Fund was waived from 2013 through 2015. Performance prior to waiving fees was lower than actual returns shown from 2013 through 2015. |
2. | Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 10/31/07 up to 8/3/09, the inception date of the Y Class, and the returns of the Y Class since its inception. Expenses of the Y Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/07. |
3
American Beacon International Equity FundSM
Performance Overview
October 31, 2017 (Unaudited)
3. | A portion of the fees charged to the Advisor Class of the Fund was waived in 2007 and 2009. Performance prior to waiving fees was lower than the actual returns shown for those periods. |
4. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 up to 5/17/10, the inception date of the A Class, and the returns of the A Class since its inception. Expenses of the A Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the A Class been in existence since 10/31/07. A portion of the fees charged to the A Class of the Fund was waived from 2010 through 2012 and partially recovered in 2013. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2012. The maximum sales charge for A Class is 5.75%. |
5. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 up to 9/1/10, the inception date of the C Class, and the returns of the C Class since its inception. Expenses of the C Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the C Class been in existence since 10/31/07. A portion of the fees charged to the C Class of the Fund was waived from 2010 through 2012 and partially recovered in 2013 and 2015. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2012. The maximum contingent deferred sales charge for C Class is 1.00% for shares redeemed within one year of the date of purchase. |
6. | Fund performance for the one-year, three-year, five-year and ten-year periods represent the returns achieved by the Institutional Class from 10/31/07 through 2/28/17, the inception date of the R6 Class, and the returns of the R6 Class since its inception. Expenses of the R6 Class are lower than those of the Institutional Class. As a result, total returns shown may be lower than they would have been had the R6 Class been in existence since 10/31/07. A portion of the fees charged to the R6 Class of the Fund has been waived since 2/28/17. Performance prior to waiving fees was lower than the actual returns shown. |
7. | The MSCI EAFE Index is a market capitalization weighted index of international stock performance composed of equities from developed markets excluding the U.S. and Canada. One cannot directly invest in an index. |
8. | The total Annual Fund Operating Expense ratios set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, C and R6 Class shares was 0.70%, 0.78%, 1.07%, 1.20%, 1.08%, 1.86% and 0.67%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. |
The Fund underperformed the Index over the twelve-month period due to stock selection in spite of help from country allocation.
Stock selections within Israel and Japan primarily contributed to the Fund’s relative underperformance, despite value added from stock selections in the United Kingdom. Lagging securities included Teva Pharmaceutical Industrials, Ltd. Sponsored ADR (down 66.21%) within Israel, and KKDI Corp. (down 11.66%) and Toshiba Corp. (down 54.38%) within Japan. The Fund’s investments in the United Kingdom, including Prudential PLC (up not in holdings 54.53%) and Royal Dutch Shell PLC B Shares (up 32.88%) helped relative performance during the prior twelve months.
From a country allocation perspective, overweighting out-of-index Korea (up 40.42%) contributed the most to the Fund’s performance relative to the Index, as did an underweight to Japan (up 18.24%), while overweighting the United Kingdom (up 20.47%) detracted during the year.
Although economic and market conditions vary from period to period, the Fund’s primary strategy of investing in undervalued companies with above-average earnings growth expectations remains consistent.
Top Ten Holdings (% Net Assets) | ||||||||
British American Tobacco PLC | 2.2 | |||||||
Novartis AG | 2.0 | |||||||
Prudential PLC | 1.8 | |||||||
Royal Dutch Shell PLC, B Shares | 1.8 | |||||||
Samsung Electronics Co., Ltd. | 1.7 | |||||||
SAP SE | 1.7 | |||||||
Volkswagen AG | 1.7 | |||||||
BP PLC | 1.6 | |||||||
KDDI Corp. | 1.5 | |||||||
Barclays PLC | 1.3 | |||||||
Total Fund Holdings | 167 |
4
American Beacon International Equity FundSM
Performance Overview
October 31, 2017 (Unaudited)
Sector Allocation (% Equities) | ||||||||
Financials | 18.9 | |||||||
Industrials | 17.3 | |||||||
Health Care | 10.5 | |||||||
Energy | 10.1 | |||||||
Consumer Discretionary | 9.5 | |||||||
Materials | 8.6 | |||||||
Consumer Staples | 7.3 | |||||||
Telecommunication Services | 7.0 | |||||||
Information Technology | 6.4 | |||||||
Real Estate | 2.3 | |||||||
Utilities | 2.1 | |||||||
Country Allocation (% Equities) | ||||||||
United Kingdom | 19.4 | |||||||
Japan | 15.7 | |||||||
France | 10.1 | |||||||
Germany | 9.7 | |||||||
Switzerland | 8.1 | |||||||
Netherlands | 6.4 | |||||||
Canada | 4.7 | |||||||
Republic of Korea | 3.7 | |||||||
United States | 3.1 | |||||||
Norway | 2.2 | |||||||
Sweden | 2.0 | |||||||
Singapore | 1.7 | |||||||
China | 1.7 | |||||||
Australia | 1.6 | |||||||
Italy | 1.6 | |||||||
Denmark | 1.5 | |||||||
Belgium | 1.4 | |||||||
Hong Kong | 1.2 | |||||||
Ireland | 1.1 | |||||||
Luxembourg | 1.0 | |||||||
Spain | 0.8 | |||||||
Finland | 0.5 | |||||||
Israel | 0.4 | |||||||
Portugal | 0.4 |
5
American Beacon International Equity FundSM
October 31, 2017 (Unaudited)
Fund Expense Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees if applicable, and (2) ongoing costs, including management fees, distribution (12b-1) fees, Sub-transfer agent fees, and other Fund expenses. The Examples 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 May 1, 2017 through October 31, 2017.
Actual Expenses
The “Actual” lines of the table provide information about actual account values and actual expenses. You may use the information on this page, 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 = $8.60), then multiply the result by the “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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 Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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, such as sales charges (loads) or redemption fees as applicable. 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 is 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.
6
American Beacon International Equity FundSM
Expense Example
October 31, 2017 (Unaudited)
International Equity Fund | |||||||||||||||
Beginning Account Value 5/1/2017 | Ending Account Value 10/31/2017 | Expenses Paid During Period 5/1/2017-10/31/2017* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,102.40 | $4.03 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.40 | $3.87 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,101.80 | $4.40 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.00 | $4.23 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,100.60 | $5.82 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.70 | $5.60 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $1,100.40 | $6.46 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.10 | $6.21 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $1,100.30 | $6.14 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.40 | $5.90 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $1,095.70 | $10.19 | ||||||||||||
Hypothetical** | $1,000.00 | $1,015.50 | $9.80 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $1,103.00 | $3.55 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.80 | $3.41 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.76%, 0.83%, 1.10%, 1.22%, 1.16%, 1.93% and 0.67% for the Institutional, Y, Investor, Advisor, A, C, and R6 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 (365) to reflect the half-year period. |
** | 5% return before expenses. |
7
American Beacon International Equity FundSM
Report of Independent Registered Public Accounting Firm (Unaudited)
The Shareholders and Board of Trustees of
American Beacon International Equity Fund
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of American Beacon International Equity Fund (one of the funds constituting the American Beacon Funds) (the Fund), as of October 31, 2017, and the related statement 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 Fund’s 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 the 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s 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 October 31, 2017, 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 American Beacon International Equity Fund at October 31, 2017, the results of its operations for the year then ended, the changes in its 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.
Dallas, Texas
December 29, 2017
8
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
Australia - 1.54% | |||||||||||||||
Common Stocks - 1.54% | |||||||||||||||
BHP Billiton PLC | 1,739,008 | $ | 31,469,165 | ||||||||||||
Caltex Australia Ltd. | 291,631 | 7,646,823 | |||||||||||||
Westfield Corp. | 1,414,266 | 8,410,313 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 47,526,301 | ||||||||||||||
|
| ||||||||||||||
Total Australia (Cost $43,630,149) | 47,526,301 | ||||||||||||||
|
| ||||||||||||||
Belgium - 1.32% | |||||||||||||||
Common Stocks - 1.32% | |||||||||||||||
Anheuser-Busch InBev S.A. | 165,244 | 20,220,485 | |||||||||||||
KBC Group N.V. | 100,844 | 8,376,649 | |||||||||||||
UCB S.A. | 166,830 | 12,143,797 | |||||||||||||
�� |
|
| |||||||||||||
Total Common Stocks | 40,740,931 | ||||||||||||||
|
| ||||||||||||||
Total Belgium (Cost $36,819,681) | 40,740,931 | ||||||||||||||
|
| ||||||||||||||
Canada - 4.48% | |||||||||||||||
Common Stocks - 4.48% | |||||||||||||||
Canadian Imperial Bank of Commerce | 27,435 | 2,414,944 | |||||||||||||
Canadian National Railway Co. | 215,600 | 17,348,606 | |||||||||||||
Canadian Pacific Railway Ltd. | 116,723 | 20,237,657 | |||||||||||||
Encana Corp. | 1,844,586 | 21,575,694 | |||||||||||||
Gildan Activewear, Inc. | 425,933 | 13,034,520 | |||||||||||||
Husky Energy, Inc.A | 990,800 | 12,841,001 | |||||||||||||
Manulife Financial Corp. | 751,100 | 15,102,344 | |||||||||||||
National Bank of Canada | 404,702 | 19,640,642 | |||||||||||||
Precision Drilling Corp.A | 729,826 | 2,189,308 | |||||||||||||
Suncor Energy, Inc. | 211,395 | 7,177,041 | |||||||||||||
Wheaton Precious Metals Corp. | 305,700 | 6,343,376 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 137,905,133 | ||||||||||||||
|
| ||||||||||||||
Total Canada (Cost $119,908,105) | 137,905,133 | ||||||||||||||
|
| ||||||||||||||
China - 1.58% | |||||||||||||||
Common Stocks - 1.58% | |||||||||||||||
China Merchants Port Holdings Co., Ltd. | 2,260,044 | 7,068,612 | |||||||||||||
China Mobile Ltd. | 2,507,776 | 25,185,768 | |||||||||||||
CNOOC Ltd. | 12,071,635 | 16,433,046 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 48,687,426 | ||||||||||||||
|
| ||||||||||||||
Total China (Cost $49,514,913) | 48,687,426 | ||||||||||||||
|
| ||||||||||||||
Denmark - 1.44% | |||||||||||||||
Common Stocks - 1.44% | |||||||||||||||
AP Moller - Maersk A/S, Class B | 7,960 | 15,288,882 | |||||||||||||
Carlsberg A/S, Class B | 153,874 | 17,571,492 | |||||||||||||
Novozymes A/S, Class B | 209,264 | 11,556,896 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 44,417,270 | ||||||||||||||
|
| ||||||||||||||
Total Denmark (Cost $39,287,595) | 44,417,270 | ||||||||||||||
|
| ||||||||||||||
Finland - 0.50% (Cost $13,595,001) | |||||||||||||||
Common Stocks - 0.50% | |||||||||||||||
Sampo OYJ, Class A | 293,056 | 15,354,649 | |||||||||||||
|
|
See accompanying notes
9
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
France - 9.59% | |||||||||||||||
Common Stocks - 9.59% | |||||||||||||||
Air Liquide S.A. | 157,699 | $ | 20,077,929 | ||||||||||||
AXA S.A. | 396,247 | 11,968,461 | |||||||||||||
BNP Paribas S.A. | 373,296 | 29,151,249 | |||||||||||||
Capgemini SE | 225,552 | 27,416,307 | |||||||||||||
Cie de Saint-Gobain | 237,229 | 13,916,285 | |||||||||||||
Cie Generale des Etablissements Michelin | 205,531 | 29,735,055 | |||||||||||||
Credit Agricole S.A. | 534,265 | 9,322,628 | |||||||||||||
Engie S.A. | 733,109 | 12,390,984 | |||||||||||||
Safran S.A. | 81,974 | 8,634,923 | |||||||||||||
Sanofi | 210,022 | 19,887,113 | |||||||||||||
Schneider Electric SEA | 386,279 | 33,949,248 | |||||||||||||
TOTAL S.A. | 273,264 | 15,237,568 | |||||||||||||
Valeo S.A. | 203,200 | 13,752,120 | |||||||||||||
Veolia Environnement S.A. | 532,142 | 12,608,061 | |||||||||||||
Vinci S.A.B | 268,679 | 26,305,179 | |||||||||||||
Zodiac Aerospace | 373,950 | 10,693,869 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 295,046,979 | ||||||||||||||
|
| ||||||||||||||
Total France (Cost $221,908,111) | 295,046,979 | ||||||||||||||
|
| ||||||||||||||
Germany - 9.27% | |||||||||||||||
Common Stocks - 7.59% | |||||||||||||||
BASF SE | 271,737 | 29,633,792 | |||||||||||||
Bayer AG | 115,131 | 14,980,119 | |||||||||||||
Deutsche Lufthansa AG | 95,937 | 3,062,010 | |||||||||||||
Deutsche Post AG | 375,069 | 17,178,866 | |||||||||||||
HeidelbergCement AG | 152,099 | 15,497,274 | |||||||||||||
Infineon Technologies AG | 423,175 | 11,586,442 | |||||||||||||
Innogy SEC | 234,560 | 10,915,423 | |||||||||||||
LANXESS AG | 212,851 | 16,631,774 | |||||||||||||
Linde AGA | 112,687 | 24,281,257 | |||||||||||||
Merck KGaA | 142,635 | 15,267,368 | |||||||||||||
SAP SE | 456,752 | 51,959,743 | |||||||||||||
Siemens AG | 106,960 | 15,262,557 | |||||||||||||
thyssenkrupp AG | 278,560 | 7,432,225 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 233,688,850 | ||||||||||||||
|
| ||||||||||||||
Preferred Stocks - 1.68% | |||||||||||||||
Volkswagen AGD | 284,260 | 51,621,627 | |||||||||||||
|
| ||||||||||||||
Total Germany (Cost $208,816,498) | 285,310,477 | ||||||||||||||
|
| ||||||||||||||
Hong Kong - 1.14% | |||||||||||||||
Common Stocks - 1.14% | |||||||||||||||
AIA Group Ltd. | 1,461,062 | 10,993,455 | |||||||||||||
CK Asset Holdings Ltd. | 1,171,582 | 9,633,782 | |||||||||||||
CK Hutchison Holdings Ltd. | 1,130,582 | 14,354,365 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 34,981,602 | ||||||||||||||
|
| ||||||||||||||
Total Hong Kong (Cost $26,018,321) | 34,981,602 | ||||||||||||||
|
| ||||||||||||||
Ireland - 1.05% | |||||||||||||||
Common Stocks - 1.05% | |||||||||||||||
Allied Irish Banks PLC | 226,992 | 1,341,624 | |||||||||||||
CRH PLC | 343,611 | 12,933,440 | |||||||||||||
Ryanair Holdings PLC, Sponsored ADRA | 160,483 | 17,991,749 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 32,266,813 | ||||||||||||||
|
| ||||||||||||||
Total Ireland (Cost $22,179,961) | 32,266,813 | ||||||||||||||
|
|
See accompanying notes
10
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
Israel - 0.37% (Cost $24,515,171) | |||||||||||||||
Common Stocks - 0.37% | |||||||||||||||
Teva Pharmaceutical Industries Ltd., Sponsored ADR | 827,634 | $ | 11,421,349 | ||||||||||||
|
| ||||||||||||||
Italy - 1.49% | |||||||||||||||
Common Stocks - 1.49% | |||||||||||||||
Eni SpA | 972,797 | 15,909,596 | |||||||||||||
UniCredit SpAA | 1,562,341 | 29,900,828 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 45,810,424 | ||||||||||||||
|
| ||||||||||||||
Total Italy (Cost $38,824,479) | 45,810,424 | ||||||||||||||
|
| ||||||||||||||
Japan - 14.96% | |||||||||||||||
Common Stocks - 14.96% | |||||||||||||||
Astellas Pharma, Inc. | 916,500 | 12,159,010 | |||||||||||||
Daiwa House Industry Co., Ltd. | 1,000,640 | 36,433,311 | |||||||||||||
Don Quijote Holdings Co., Ltd. | 666,700 | 27,763,287 | |||||||||||||
East Japan Railway Co. | 249,800 | 24,100,136 | |||||||||||||
Hitachi Ltd. | 2,097,000 | 16,542,887 | |||||||||||||
IHI Corp. | 212,400 | 7,593,386 | |||||||||||||
Inpex Corp. | 502,400 | 5,322,025 | |||||||||||||
Isuzu Motors Ltd. | 1,205,000 | 17,470,142 | |||||||||||||
Japan Airlines Co., Ltd. | 671,600 | 22,858,203 | |||||||||||||
Kao Corp. | 224,360 | 13,488,633 | |||||||||||||
KDDI Corp. | 1,699,000 | 45,185,137 | |||||||||||||
Kirin Holdings Co., Ltd. | 696,500 | 16,566,415 | |||||||||||||
Komatsu Ltd. | 544,100 | 17,690,847 | |||||||||||||
Konica Minolta, Inc. | 1,480,200 | 12,861,682 | |||||||||||||
Mitsui Fudosan Co., Ltd. | 548,300 | 12,662,907 | |||||||||||||
Omron Corp. | 145,300 | 8,076,127 | |||||||||||||
Panasonic Corp. | 631,200 | 9,439,828 | |||||||||||||
Ryohin Keikaku Co., Ltd. | 34,300 | 10,075,370 | |||||||||||||
Seven & i Holdings Co., Ltd. | 231,200 | 9,296,393 | |||||||||||||
SoftBank Group Corp. | 281,800 | 24,652,079 | |||||||||||||
Sompo Holdings, Inc. | 82,000 | 3,273,365 | |||||||||||||
Sony Corp. | 374,100 | 14,519,179 | |||||||||||||
Sumitomo Metal Mining Co., Ltd. | 402,500 | 15,773,625 | |||||||||||||
Sumitomo Mitsui Financial Group, Inc. | 743,600 | 29,539,960 | |||||||||||||
Sumitomo Rubber Industries Ltd. | 285,700 | 5,387,105 | |||||||||||||
Suntory Beverage & Food Ltd. | 215,300 | 9,827,246 | |||||||||||||
Taiheiyo Cement Corp. | 126,700 | 5,036,577 | |||||||||||||
Takeda Pharmaceutical Co., Ltd. | 336,000 | 18,897,322 | |||||||||||||
United Arrows Ltd. | 210,700 | 7,856,893 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 460,349,077 | ||||||||||||||
|
| ||||||||||||||
Total Japan (Cost $377,174,210) | 460,349,077 | ||||||||||||||
|
| ||||||||||||||
Luxembourg - 0.91% | |||||||||||||||
Common Stocks - 0.91% | |||||||||||||||
ArcelorMittalA | 118,982 | 3,411,544 | |||||||||||||
SES S.A. | 508,909 | 8,275,521 | |||||||||||||
Tenaris S.A. | 1,202,910 | 16,464,207 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 28,151,272 | ||||||||||||||
|
| ||||||||||||||
Total Luxembourg (Cost $32,413,969) | 28,151,272 | ||||||||||||||
|
| ||||||||||||||
Netherlands - 6.14% | |||||||||||||||
Common Stocks - 6.14% | |||||||||||||||
Aegon N.V. | 2,080,660 | 12,283,087 | |||||||||||||
Akzo Nobel N.V. | 345,317 | 31,270,319 |
See accompanying notes
11
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
Netherlands - 6.14% (continued) | |||||||||||||||
Common Stocks - 6.14% (continued) | |||||||||||||||
ING Groep N.V. | 1,051,871 | $ | 19,432,805 | ||||||||||||
Royal Dutch Shell PLC, Class A | 1,053,214 | 33,089,233 | |||||||||||||
Royal Dutch Shell PLC, Class B | 1,690,173 | 54,357,911 | |||||||||||||
SBM Offshore N.V. | 668,578 | 11,931,105 | |||||||||||||
Wolters Kluwer N.V. | 544,113 | 26,670,715 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 189,035,175 | ||||||||||||||
|
| ||||||||||||||
Total Netherlands (Cost $150,737,926) | 189,035,175 | ||||||||||||||
|
| ||||||||||||||
Norway - 2.10% | |||||||||||||||
Common Stocks - 2.10% | |||||||||||||||
Statoil ASAB | 752,539 | 15,238,730 | |||||||||||||
Telenor ASAB | 1,693,409 | 35,970,429 | |||||||||||||
Yara International ASA | 280,558 | 13,320,322 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 64,529,481 | ||||||||||||||
|
| ||||||||||||||
Total Norway (Cost $51,260,217) | 64,529,481 | ||||||||||||||
|
| ||||||||||||||
Portugal - 0.36% (Cost $9,288,394) | |||||||||||||||
Common Stocks - 0.36% | |||||||||||||||
Galp Energia SGPS S.A. | 600,018 | 11,154,933 | |||||||||||||
|
| ||||||||||||||
Republic of Korea - 3.54% | |||||||||||||||
Common Stocks - 3.54% | |||||||||||||||
Hana Financial Group, Inc. | 472,142 | 20,207,264 | |||||||||||||
KB Financial Group, Inc., ADR | 270,917 | 14,225,852 | |||||||||||||
Samsung Electronics Co., Ltd. | 21,464 | 52,761,955 | |||||||||||||
SK Telecom Co., Ltd. | 92,736 | 21,852,371 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 109,047,442 | ||||||||||||||
|
| ||||||||||||||
Total Republic of Korea (Cost $68,639,749) | 109,047,442 | ||||||||||||||
|
| ||||||||||||||
Singapore - 1.66% | |||||||||||||||
Common Stocks - 1.66% | |||||||||||||||
DBS Group Holdings Ltd. | 1,955,581 | 32,681,487 | |||||||||||||
Singapore Telecommunications Ltd. | 4,757,395 | 13,114,043 | |||||||||||||
United Overseas Bank Ltd. | 294,700 | 5,322,804 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 51,118,334 | ||||||||||||||
|
| ||||||||||||||
Total Singapore (Cost $37,703,396) | 51,118,334 | ||||||||||||||
|
| ||||||||||||||
Spain - 0.72% | |||||||||||||||
Common Stocks - 0.72% | |||||||||||||||
Bankia S.A. | 477,492 | 2,279,890 | |||||||||||||
CaixaBank S.A. | 1,448,171 | 6,777,969 | |||||||||||||
Red Electrica Corp. S.A. | 590,953 | 13,085,939 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 22,143,798 | ||||||||||||||
|
| ||||||||||||||
Total Spain (Cost $18,491,304) | 22,143,798 | ||||||||||||||
|
| ||||||||||||||
Sweden - 1.95% | |||||||||||||||
Common Stocks - 1.95% | |||||||||||||||
Alfa Laval AB | 430,182 | 10,898,879 | |||||||||||||
Assa Abloy AB, Class B | 1,044,021 | 22,036,100 | |||||||||||||
Getinge AB, Class BB | 483,082 | 9,509,704 | |||||||||||||
Nordea Bank AB | 1,446,708 | 17,488,410 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 59,933,093 | ||||||||||||||
|
| ||||||||||||||
Total Sweden (Cost $54,092,825) | 59,933,093 | ||||||||||||||
|
|
See accompanying notes
12
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
Switzerland - 7.75% | |||||||||||||||
Common Stocks - 7.75% | |||||||||||||||
ABB Ltd. | 1,145,782 | 29,952,383 | |||||||||||||
Aryzta AGA B | 318,414 | 10,107,925 | |||||||||||||
Cie Financiere Richemont S.A. | 273,679 | 25,237,777 | |||||||||||||
Ferguson PLC | 396,532 | 27,728,332 | |||||||||||||
Julius Baer Group Ltd.A | 225,226 | 13,319,635 | |||||||||||||
Novartis AG | 764,630 | 63,000,637 | |||||||||||||
Roche Holding AG | 140,274 | 32,409,319 | |||||||||||||
Swiss Re AG | 103,871 | 9,771,256 | |||||||||||||
UBS Group AGA | 720,258 | 12,258,789 | |||||||||||||
Zurich Insurance Group AG | 48,035 | 14,661,111 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 238,447,164 | ||||||||||||||
|
| ||||||||||||||
Total Switzerland (Cost $219,127,669) | 238,447,164 | ||||||||||||||
|
| ||||||||||||||
United Kingdom - 18.48% | |||||||||||||||
Common Stocks - 18.48% | |||||||||||||||
AstraZeneca PLC | 370,199 | 24,741,328 | |||||||||||||
Aviva PLC | 2,763,294 | 18,533,848 | |||||||||||||
BAE Systems PLC | 1,906,726 | 15,029,902 | |||||||||||||
Balfour Beatty PLC | 2,655,985 | 9,665,477 | |||||||||||||
Barclays PLC | 16,585,261 | 40,960,535 | |||||||||||||
BP PLC | 7,395,808 | 50,115,632 | |||||||||||||
British American Tobacco PLC | 1,050,840 | 67,983,239 | |||||||||||||
BT Group PLC | 2,139,242 | 7,395,733 | |||||||||||||
Cobham PLCA | 6,617,519 | 12,216,790 | |||||||||||||
ConvaTec Group PLCC | 166,271 | 432,611 | |||||||||||||
Diageo PLC | 812,597 | 27,758,328 | |||||||||||||
GlaxoSmithKline PLC | 1,289,857 | 23,255,653 | |||||||||||||
Howden Joinery Group PLC | 1,792,430 | 9,762,906 | |||||||||||||
HSBC Holdings PLC | 1,634,824 | 15,965,705 | |||||||||||||
Informa PLC | 1,554,713 | 14,392,298 | |||||||||||||
Johnson Matthey PLC | 144,790 | 6,501,759 | |||||||||||||
Kingfisher PLC | 3,118,050 | 12,945,510 | |||||||||||||
Lloyds Banking Group PLC | 14,845,572 | 13,464,839 | |||||||||||||
Micro Focus International PLC | 161,846 | 5,685,580 | |||||||||||||
Prudential PLC | 2,280,787 | 56,101,289 | |||||||||||||
RELX PLC | 1,002,430 | 23,072,771 | |||||||||||||
Rolls-Royce Holdings PLC, C Shares EntitlementA | 45,404,208 | 60,304 | |||||||||||||
Rolls-Royce Holdings PLCA | 1,111,621 | 14,365,367 | |||||||||||||
Sky PLCA | 122,860 | 1,538,754 | |||||||||||||
SSE PLC | 746,445 | 13,701,023 | |||||||||||||
Standard Chartered PLCA | 1,793,917 | 17,878,962 | |||||||||||||
Travis Perkins PLC | 544,833 | 10,999,023 | |||||||||||||
Unilever PLC | 376,845 | 21,369,133 | |||||||||||||
Vodafone Group PLC | 11,534,193 | 33,028,063 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 568,922,362 | ||||||||||||||
|
| ||||||||||||||
Total United Kingdom (Cost $543,294,371) | 568,922,362 | ||||||||||||||
|
| ||||||||||||||
United States - 2.94% | |||||||||||||||
Common Stocks - 2.94% | |||||||||||||||
Aon PLC | 171,199 | 24,555,073 | |||||||||||||
Carnival PLC | 246,688 | 16,254,154 | |||||||||||||
QIAGEN N.V.A | 274,583 | 9,299,577 | |||||||||||||
Shire PLC | 786,806 | 38,884,316 | |||||||||||||
Tahoe Resources, Inc. | 314,700 | 1,509,955 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 90,503,075 | ||||||||||||||
|
| ||||||||||||||
Total United States (Cost $83,716,853) | 90,503,075 | ||||||||||||||
|
|
See accompanying notes
13
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
SHORT-TERM INVESTMENTS - 4.20% (Cost $129,125,237) | |||||||||||||||
Investment Companies - 4.20% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%E F | 129,125,237 | 129,125,237 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 1.68% (Cost $51,596,738) | |||||||||||||||
Investment Companies - 1.68% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%E F | 51,596,738 | 51,596,738 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 101.16% (Cost $2,671,680,843) | 3,113,526,535 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (1.16%) | (35,606,326 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 3,077,920,209 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A Non-income producing security.
B All or a portion of this security is on loan at October 31, 2017.
C Security exempt from registration under the Securities Act of 1933. These securities may be resold to qualified institutional buyers pursuant to Rule 144A. At the period end, the value of these securities amounted to $11,348,034 or 0.37% of net assets. The Fund has no right to demand registration of these securities.
D A type of Preferred Stock that has no maturity date.
E 7-day yield.
F The Fund is affiliated by having the same investment advisor.
ADR - American Depositary Receipt.
PLC - Public Limited Company.
Futures Contracts Open on October 31, 2017: |
Long Futures | ||||||||||||||||
Equity Futures Contracts | ||||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||||
Amsterdam Index Futures | 39 | November 2017 | $ | 4,948,553 | $ | 5,012,628 | $ | 64,075 | ||||||||
CAC40 Index Futures | 228 | November 2017 | 14,243,530 | 14,612,457 | 368,927 | |||||||||||
DAX Index Futures | 35 | December 2017 | 12,888,111 | 13,477,597 | 589,486 | |||||||||||
FTSE 100 Index Futures | 242 | December 2017 | 23,793,875 | 23,997,862 | 203,987 | |||||||||||
FTSE/MIB Index Futures | 25 | December 2017 | 3,223,150 | 3,316,321 | 93,171 | |||||||||||
Hang Seng Index Futures | 26 | November 2017 | 4,695,397 | 4,698,916 | 3,519 | |||||||||||
IBEX 35 Index Futures | 38 | November 2017 | 4,511,776 | 4,668,248 | 156,472 | |||||||||||
OMXS30 Index Futures | 197 | November 2017 | 3,857,135 | 3,929,152 | 72,017 | |||||||||||
S&P/TSX 60 Index Futures | 89 | December 2017 | 12,413,251 | 13,056,923 | 643,672 | |||||||||||
SPI 200 Index Futures | 82 | December 2017 | 9,036,140 | 9,254,980 | 218,840 | |||||||||||
TOPIX Index Futures | 208 | December 2017 | 30,151,695 | 32,271,759 | 2,120,064 | |||||||||||
|
|
|
|
|
| |||||||||||
$ | 123,762,613 | $ | 128,296,843 | $ | 4,534,230 | |||||||||||
|
|
|
|
|
|
Forward Foreign Currency Contracts Open on October 31, 2017: | ||||||||||||||||||||||||||||
Currency Purchased | Currency Sold | Settlement Date | Counterparty | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
CHF | 1,035,860 | USD | 1,074,585 | 12/8/2017 | BNP | $ | - | $ | (38,725 | ) | $ | (38,725 | ) | |||||||||||||||
GBP | 4,732,136 | USD | 4,699,514 | 12/8/2017 | BNP | 32,622 | - | 32,622 | ||||||||||||||||||||
SEK | 2,168,021 | USD | 2,287,313 | 12/8/2017 | BOM | - | (119,292 | ) | (119,292 | ) | ||||||||||||||||||
CAD | 8,023,845 | USD | 8,481,812 | 12/8/2017 | BOM | - | (457,967 | ) | (457,967 | ) | ||||||||||||||||||
GBP | 14,842,651 | USD | 14,613,563 | 12/8/2017 | BOM | 229,088 | - | 229,088 | ||||||||||||||||||||
USD | 1,546,139 | CAD | 1,552,487 | 12/8/2017 | BOM | 6,348 | - | 6,348 | ||||||||||||||||||||
CAD | 966,143 | USD | 1,022,451 | 12/8/2017 | BRC | - | (56,308 | ) | (56,308 | ) | ||||||||||||||||||
AUD | 1,772,677 | USD | 1,809,787 | 12/8/2017 | BRC | - | (37,110 | ) | (37,110 | ) | ||||||||||||||||||
AUD | 676,325 | USD | 686,387 | 12/8/2017 | CBK | - | (10,062 | ) | (10,062 | ) | ||||||||||||||||||
JPY | 2,382,461 | USD | 2,454,847 | 12/8/2017 | CBK | - | (72,386 | ) | (72,386 | ) |
See accompanying notes
14
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Currency Purchased | Currency Sold | Settlement Date | Counterparty | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
JPY | 6,204,011 | USD | 6,217,898 | 12/8/2017 | CBK | $ | - | $ | (13,887 | ) | $ | (13,887 | ) | |||||||||||||||
SEK | 281,396 | USD | 293,589 | 12/8/2017 | DUB | - | (12,193 | ) | (12,193 | ) | ||||||||||||||||||
GBP | 1,792,187 | USD | 1,764,369 | 12/8/2017 | GSC | 27,818 | - | 27,818 | ||||||||||||||||||||
USD | 2,842,504 | GBP | 2,817,811 | 12/8/2017 | GSC | - | (24,693 | ) | (24,693 | ) | ||||||||||||||||||
CAD | 854,486 | USD | 879,412 | 12/8/2017 | HUS | - | (24,926 | ) | (24,926 | ) | ||||||||||||||||||
EUR | 2,897,903 | USD | 2,922,426 | 12/8/2017 | JPM | - | (24,523 | ) | (24,523 | ) | ||||||||||||||||||
AUD | 5,803,772 | USD | 6,052,259 | 12/8/2017 | JPM | - | (248,487 | ) | (248,487 | ) | ||||||||||||||||||
USD | 4,782,766 | EUR | 4,789,665 | 12/8/2017 | JPM | 6,899 | - | 6,899 | ||||||||||||||||||||
CHF | 996,676 | USD | 1,018,115 | 12/8/2017 | MYC | - | (21,439 | ) | (21,439 | ) | ||||||||||||||||||
GBP | 1,971,671 | USD | 1,962,335 | 12/8/2017 | MYC | 9,336 | - | 9,336 | ||||||||||||||||||||
USD | 1,105,531 | AUD | 1,107,579 | 12/8/2017 | MYC | 2,048 | - | 2,048 | ||||||||||||||||||||
CAD | 2,486,665 | USD | 2,540,609 | 12/8/2017 | RBC | - | (53,944 | ) | (53,944 | ) | ||||||||||||||||||
USD | 453,153 | SEK | 454,252 | 12/8/2017 | RBC | 1,099 | - | 1,099 | ||||||||||||||||||||
SEK | 754,021 | USD | 773,353 | 12/8/2017 | SCB | - | (19,332 | ) | (19,332 | ) | ||||||||||||||||||
JPY | 2,131,210 | USD | 2,153,346 | 12/8/2017 | SCB | - | (22,136 | ) | (22,136 | ) | ||||||||||||||||||
EUR | 3,051,960 | USD | 3,120,840 | 12/8/2017 | SCB | - | (68,880 | ) | (68,880 | ) | ||||||||||||||||||
CHF | 7,196,550 | USD | 7,530,543 | 12/8/2017 | SCB | - | (333,993 | ) | (333,993 | ) | ||||||||||||||||||
JPY | 17,756,799 | USD | 18,567,101 | 12/8/2017 | SOG | - | (810,302 | ) | (810,302 | ) | ||||||||||||||||||
EUR | 23,326,344 | USD | 23,954,252 | 12/8/2017 | SOG | - | (627,908 | ) | (627,908 | ) | ||||||||||||||||||
CHF | 2,094,657 | USD | 2,123,239 | 12/8/2017 | UAG | - | (28,582 | ) | (28,582 | ) | ||||||||||||||||||
USD | 1,439,754 | CHF | 1,441,041 | 12/8/2017 | UAG | 1,287 | - | 1,287 | ||||||||||||||||||||
SEK | 270,623 | USD | 279,618 | 12/8/2017 | WBC | - | (8,995 | ) | (8,995 | ) | ||||||||||||||||||
AUD | 680,150 | USD | 709,047 | 12/8/2017 | WBC | - | (28,897 | ) | (28,897 | ) | ||||||||||||||||||
EUR | 7,866,838 | USD | 7,957,049 | 12/8/2017 | WBC | - | (90,211 | ) | (90,211 | ) | ||||||||||||||||||
USD | 3,792,903 | JPY | 3,784,690 | 12/8/2017 | WBC | - | (8,213 | ) | (8,213 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 316,545 | $ | (3,263,391 | ) | $ | (2,946,846 | ) | |||||||||||||||||||||
|
|
|
|
|
|
Glossary: | ||
Counterparty Abbreviations: | ||
BNP | BNP Paribas, N.A. | |
BOM | Bank of Montreal | |
BRC | Barclays Bank PLC | |
CBK | Citibank, N.A. | |
DUB | Deutsche Bank AG | |
GSC | Goldman Sachs Capital Markets | |
HUS | HSBC Bank (USA) | |
JPM | JPMorgan Chase Bank, N.A. | |
MYC | Morgan Stanley Bank, N.A. | |
RBC | Royal Bank of Canada | |
SCB | Standard and Chartered Bank | |
SOG | Societe Generale | |
UAG | UBS AG | |
WBC | Westpac Banking Corporation | |
Currency Abbreviations: | ||
AUD | Australian Dollar | |
CAD | Canadian Dollar | |
CHF | Swiss Franc | |
EUR | Euro | |
GBP | Pound Sterling | |
JPY | Japanese Yen | |
SEK | Swedish Krona | |
USD | United States Dollar |
See accompanying notes
15
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2017
Index Abbreviations: | ||
CAC40 | Euronet Paris - French Stock Market Index | |
DAX | Deutsche Boerse AG German Stock Index | |
FTSE 100 | Financial Times Stock Exchange 100 Index | |
FTSE/MIB | Borsa Italiana - Italian Stock Market Index | |
Hang Seng | Hong Kong Stock Market Index | |
IBEX | Bolsa de Madrid - Spanish Stock Market Index | |
OMXS30 | Stockholm Stock Exchange’s leading share index | |
S&P | Standard & Poor’s | |
SPI 200 | Australian Equity Market Index Future | |
TOPIX | Tokyo Stock Exchange Tokyo Price Index |
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2017, the investments were classified as described below:
International Equity Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets |
| |||||||||||||||||||||||||||
Foreign Common Stocks | ||||||||||||||||||||||||||||
Australia | $ | 47,526,301 | $ | - | $ | - | $ | 47,526,301 | ||||||||||||||||||||
Belgium | 40,740,931 | - | - | 40,740,931 | ||||||||||||||||||||||||
Canada | 137,905,133 | - | - | 137,905,133 | ||||||||||||||||||||||||
China | 48,687,426 | - | - | 48,687,426 | ||||||||||||||||||||||||
Denmark | 44,417,270 | - | - | 44,417,270 | ||||||||||||||||||||||||
Finland | 15,354,649 | - | - | 15,354,649 | ||||||||||||||||||||||||
France | 295,046,979 | - | - | 295,046,979 | ||||||||||||||||||||||||
Germany | 233,688,850 | - | - | 233,688,850 | ||||||||||||||||||||||||
Hong Kong | 34,981,602 | - | - | 34,981,602 | ||||||||||||||||||||||||
Ireland | 32,266,813 | - | - | 32,266,813 | ||||||||||||||||||||||||
Israel | 11,421,349 | - | - | 11,421,349 | ||||||||||||||||||||||||
Italy | 45,810,424 | - | - | 45,810,424 | ||||||||||||||||||||||||
Japan | 460,349,077 | - | - | 460,349,077 | ||||||||||||||||||||||||
Luxembourg | 28,151,272 | - | - | 28,151,272 | ||||||||||||||||||||||||
Netherlands | 189,035,175 | - | - | 189,035,175 | ||||||||||||||||||||||||
Norway | 64,529,481 | - | - | 64,529,481 | ||||||||||||||||||||||||
Portugal | 11,154,933 | - | - | 11,154,933 | ||||||||||||||||||||||||
Republic of Korea | 109,047,442 | - | - | 109,047,442 | ||||||||||||||||||||||||
Singapore | 51,118,334 | - | - | 51,118,334 | ||||||||||||||||||||||||
Spain | 22,143,798 | - | - | 22,143,798 | ||||||||||||||||||||||||
Sweden | 59,933,093 | - | - | 59,933,093 | ||||||||||||||||||||||||
Switzerland | 238,447,164 | - | - | 238,447,164 | ||||||||||||||||||||||||
United Kingdom | 568,862,058 | 60,304 | - | 568,922,362 | ||||||||||||||||||||||||
Foreign Preferred Stocks | ||||||||||||||||||||||||||||
Germany | 51,621,627 | - | - | 51,621,627 | ||||||||||||||||||||||||
Common Stocks |
| |||||||||||||||||||||||||||
United States | 90,503,075 | - | - | 90,503,075 | ||||||||||||||||||||||||
Short-Term Investments | 129,125,237 | - | - | 129,125,237 | ||||||||||||||||||||||||
Securities Lending Collateral | 51,596,738 | - | - | 51,596,738 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 3,113,466,231 | $ | 60,304 | $ | - | $ | 3,113,526,535 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Assets |
| |||||||||||||||||||||||||||
Futures Contracts | $ | 4,534,230 | $ | - | $ | - | $ | 4,534,230 | ||||||||||||||||||||
Forward Foreign Currency Contracts | - | 316,545 | - | 316,545 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Assets | $ | 4,534,230 | $ | 316,545 | $ | - | $ | 4,850,775 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Liabilities |
| |||||||||||||||||||||||||||
Forward Foreign Currency Contracts | $ | - | $ | (3,263,391 | ) | $ | - | $ | (3,263,391 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Liabilities | $ | - | $ | (3,263,391 | ) | $ | - | $ | (3,263,391 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires all transfers between any levels to be disclosed. The end of period timing recognition has been adopted for the transfers between levels of the Fund’s assets and liabilities. During the period ended October 31, 2017, there were no transfers between levels.
See accompanying notes
16
American Beacon International Equity FundSM
Statement of Assets and Liabilities
October 31, 2017
Assets: | ||||
Investments in unaffiliated securities, at fair value† | $ | 2,932,804,560 | ||
Investments in affiliated securities, at fair value‡ | 180,721,975 | |||
Foreign currency deposits with brokers for futures contracts, at fair value¤ | 6,353,335 | |||
Dividends and interest receivable | 6,623,269 | |||
Receivable for investments sold | 14,348,371 | |||
Receivable for fund shares sold | 3,318,665 | |||
Receivable for tax reclaims | 2,561,931 | |||
Receivable for expense reimbursement (Note 2) | 445 | |||
Receivable for variation margin on open futures contracts (Note 5) | 9,962,004 | |||
Unrealized appreciation from forward currency contracts | 316,545 | |||
Prepaid expenses | 88,497 | |||
|
| |||
Total assets | 3,157,099,597 | |||
|
| |||
Liabilities: | ||||
Payable for investments purchased | 17,600,467 | |||
Payable for fund shares redeemed | 2,653,346 | |||
Payable for foreign currency, at fair value | 3,491 | |||
Payable upon return of securities loaned§ (Note 9) | 51,596,738 | |||
Management and sub-advisory fees payable (Note 2) | 3,069,942 | |||
Service fees payable (Note 2) | 133,568 | |||
Transfer agent fees payable (Note 2) | 184,689 | |||
Custody and fund accounting fees payable | 386,097 | |||
Professional fees payable | 86,732 | |||
Trustee fees payable (Note 2) | 12,831 | |||
Payable for prospectus and shareholder reports | 120,366 | |||
Unrealized depreciation from forward currency contracts | 3,263,391 | |||
Other liabilities | 67,730 | |||
|
| |||
Total liabilities | 79,179,388 | |||
|
| |||
Net assets | $ | 3,077,920,209 | ||
|
| |||
Analysis of net assets: | ||||
Paid-in-capital | $ | 2,560,945,367 | ||
Undistributed net investment income | 44,171,281 | |||
Accumulated net realized gain | 29,505,871 | |||
Unrealized appreciation of investments in unaffiliated securitiesA | 441,845,692 | |||
Unrealized (depreciation) of forward foreign currency contracts | (2,946,846 | ) | ||
Unrealized (depreciation) of foreign currency translations | (135,386 | ) | ||
Unrealized appreciation of futures contracts | 4,534,230 | |||
|
| |||
Net assets | $ | 3,077,920,209 | ||
|
|
See accompanying notes
17
American Beacon International Equity FundSM
Statement of Assets and Liabilities
October 31, 2017
Shares outstanding at no par value (unlimited shares authorized): | ||||
Institutional Class | 78,734,582 | |||
|
| |||
Y Class | 47,571,339 | |||
|
| |||
Investor Class | 15,317,569 | |||
|
| |||
Advisor Class | 2,634,805 | |||
|
| |||
A Class | 864,331 | |||
|
| |||
C Class | 382,395 | |||
|
| |||
R6 ClassB | 304,772 | |||
|
| |||
Net assets: | ||||
Institutional Class | $ | 1,644,165,106 | ||
|
| |||
Y Class | $ | 1,029,629,647 | ||
|
| |||
Investor Class | $ | 316,589,769 | ||
|
| |||
Advisor Class | $ | 55,715,606 | ||
|
| |||
A Class | $ | 17,829,657 | ||
|
| |||
C Class | $ | 7,622,425 | ||
|
| |||
R6 ClassB | $ | 6,367,999 | ||
|
| |||
Net asset value, offering and redemption price per share: | ||||
Institutional Class | $ | 20.88 | ||
|
| |||
Y Class | $ | 21.64 | ||
|
| |||
Investor Class | $ | 20.67 | ||
|
| |||
Advisor Class | $ | 21.15 | ||
|
| |||
A Class | $ | 20.63 | ||
|
| |||
A Class (offering price) | $ | 21.89 | ||
|
| |||
C Class | $ | 19.93 | ||
|
| |||
R6 ClassB | $ | 20.89 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 2,490,958,868 | ||
‡ Cost of investments in affiliated securities | $ | 180,721,975 | ||
§ Fair value of securities on loan | $ | 48,900,480 | ||
^ Cost of foreign currency | $ | 427,215 | ||
¤ Cost of foreign currency deposits with broker for futures contracts | $ | 11,502,278 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. | ||||
B Class commenced operations February 28, 2017 (Note 1). |
See accompanying notes
18
American Beacon International Equity FundSM
Statement of Operations
For the year ended October 31, 2017
Investment income: |
| |||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 74,559,751 | ||
Dividend income from affiliated securities (Note 8) | 705,742 | |||
Interest income | 2,955 | |||
Income derived from securities lending (Note 9) | 1,042,549 | |||
|
| |||
Total investment income | 76,310,997 | |||
|
| |||
Expenses: |
| |||
Management and sub-advisory fees (Note 2) | 17,367,230 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 502,454 | |||
Y Class (Note 2) | 599,651 | |||
Investor Class | 18,787 | |||
Advisor Class | 2,393 | |||
A Class | 5,645 | |||
C Class | 2,084 | |||
R6 ClassA | 2,377 | |||
Custody and fund accounting fees | 769,696 | |||
Professional fees | 151,806 | |||
Registration fees and expenses | 181,303 | |||
Service fees (Note 2): | ||||
Y Class | 347,126 | |||
Investor Class | 1,194,225 | |||
Advisor Class | 80,758 | |||
A Class | 32,779 | |||
C Class | 9,186 | |||
Distribution fees (Note 2): | ||||
Advisor Class | 80,758 | |||
A Class | 54,631 | |||
C Class | 61,243 | |||
Prospectus and shareholder report expenses | 352,333 | |||
Trustee fees (Note 2) | 172,229 | |||
Other expenses | 326,564 | |||
|
| |||
Total expenses | 22,315,258 | |||
|
| |||
Net fees waived and expenses (reimbursed) (Note 2) | (3,001 | ) | ||
|
| |||
Net expenses | 22,312,257 | |||
|
| |||
Net investment income | 53,998,740 | |||
|
| |||
Realized and unrealized gain (loss) from investments: |
| |||
Net realized gain from: | ||||
Investments in unaffiliated securitiesB | 108,161,545 | |||
Commission recapture (Note 1) | 93,828 | |||
Foreign currency transactions | 699,597 | |||
Forward foreign currency contracts | (1,991,838 | ) | ||
Futures contracts | 15,392,539 | |||
Change in net unrealized appreciation of: | ||||
Investments in unaffiliated securitiesC | 214,976,939 | |||
Foreign currency transactions | 175,215,648 | |||
Forward foreign currency contracts | 1,059,925 | |||
Futures contracts | 2,310,969 | |||
|
| |||
Net gain from investments | 515,919,152 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 569,917,892 | ||
|
| |||
† Foreign taxes | $ | 7,521,472 | ||
A Class commenced operations February 28, 2017 (Note 1). | ||||
B The Fund did not recognize net realized gains (losses) from the sale of investments in affiliated securities. | ||||
C The Fund’s investments in affiliated securities did not have a change in unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
19
American Beacon International Equity FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||
Increase (Decrease) in net assets: |
| |||||||||||
Operations: |
| |||||||||||
Net investment income | $ | 53,998,740 | $ | 53,490,297 | ||||||||
Net realized gain (loss) from investments in unaffiliated securities, commission recapture, foreign currency transactions, forward foreign currency contracts, and futures contracts | 122,355,671 | (69,713,130 | ) | |||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities, foreign currency transactions, forward foreign currency contracts, and futures contracts | 393,563,481 | (48,671,035 | ) | |||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | 569,917,892 | (64,893,868 | ) | |||||||||
|
|
|
| |||||||||
Distributions to shareholders: |
| |||||||||||
Net investment income: | ||||||||||||
Institutional Class | (34,791,829 | ) | (16,686,558 | ) | ||||||||
Y Class | (18,973,818 | ) | (8,452,221 | ) | ||||||||
Investor Class | (7,051,311 | ) | (3,881,250 | ) | ||||||||
Advisor Class | (456,420 | ) | (277,450 | ) | ||||||||
A Class | (472,655 | ) | (124,783 | ) | ||||||||
C Class | (111,074 | ) | (21,084 | ) | ||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | - | (9,476,767 | ) | |||||||||
Y Class | - | (4,762,157 | ) | |||||||||
Investor Class | - | (2,928,681 | ) | |||||||||
Advisor Class | - | (209,279 | ) | |||||||||
A Class | - | (91,005 | ) | |||||||||
C Class | - | (32,829 | ) | |||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (61,857,107 | ) | (46,944,064 | ) | ||||||||
|
|
|
| |||||||||
Capital share transactions (Note 10): |
| |||||||||||
Proceeds from sales of shares | 775,385,640 | 1,257,857,958 | ||||||||||
Reinvestment of dividends and distributions | 57,320,154 | 42,786,888 | ||||||||||
Cost of shares redeemed | (913,700,486 | ) | (638,592,286 | ) | ||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets from capital share transactions | (80,994,692 | ) | 662,052,560 | |||||||||
|
|
|
| |||||||||
Net increase in net assets | 427,066,093 | 550,214,628 | ||||||||||
|
|
|
| |||||||||
Net assets: |
| |||||||||||
Beginning of period | 2,650,854,116 | 2,100,639,488 | ||||||||||
|
|
|
| |||||||||
End of period* | $ | 3,077,920,209 | $ | 2,650,854,116 | ||||||||
|
|
|
| |||||||||
*Includes undistributed net investment income | $ | 44,171,281 | $ | 52,877,849 | ||||||||
|
|
|
|
See accompanying notes
20
American Beacon International Equity FundSM
October 31, 2017
1. Organization and Significant Accounting Policies
American Beacon Funds (the “Trust”) is organized as a Massachusetts business trust. The Fund, a series within the Trust, is registered under the Investment Company Act of 1940 (the “Act”), as amended, as a diversified, open-end management investment company. As of October 31, 2017, the Trust consists of thirty-four active series, one of which is presented in this filing: American Beacon International Equity Fund (the “Fund”). The remaining thirty-three active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a wholly-owned subsidiary of Resolute Investment Managers, Inc., which is indirectly owned by investment funds affiliated with Kelso & Company, L.P. and Estancia Capital Management, LLC, and was organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors.
Class Disclosure
The inception date of the R6 Class was February 28, 2017.
The Fund has multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
Class | Eligible Investors | Minimum Initial Investments | ||||
Institutional | Large institutional investors - sold directly or through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 | |||
Investor | All investors using intermediary organizations, such as broker-dealers or retirement plan sponsors. | $ | 2,500 | |||
Advisor Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrators. | $ | 2,500 | |||
A Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrator. Retail investors who invest directly through a financial intermediary such as a broker, bank, or registered investment advisor which may include a front-end sales charge and a contingent deferred sales charge (“CDSC”). | $ | 2,500 | |||
C Class | Retail investors who invest directly through a financial intermediary such as broker or employee directed benefit plans with applicable sales charges which may include CDSC. | $ | 1,000 | |||
R6 Class | Large institutional retirement plan investors - sold through retirement plan sponsors. | None |
Each class offered by the Trust has equal rights as to assets and voting privileges. Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets. Realized and unrealized capital gains and losses of each class are allocated daily based on the relative net assets of each class of the respective Fund. Class specific expenses, where applicable, currently include service, distribution, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Recently Adopted Accounting Pronouncements
In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017, and has been adopted accordingly.
21
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
The following is a summary of significant accounting policies, consistently followed by the Fund in preparation of the financial statements. The Fund is considered an investment company and accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services – Investment Companies, a part of Generally Accepted Accounting Principles (“U.S. GAAP”).
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security purchase or sale. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the Net Asset Value (“NAV”). The value of the security may vary with market fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date, except certain dividends from foreign securities which are recorded as soon as the information is available to the Fund. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification.
Currency Translation
All assets and liabilities initially expressed in foreign currency values are converted into U.S. dollar values at the mean of the bid and ask prices of such currencies against U.S. dollars as last quoted by a recognized dealer. Income, expenses, and purchases and sales of investments are translated into U.S. dollars at the rate of the exchange prevailing on the respective dates of such transactions. The effect of changes in foreign currency exchange rates on investments is separately identified from the fluctuations arising from changes in market values of securities held and is reported with all other foreign currency gains and losses on the Fund’s Statement of Operations.
Distributions to Shareholders
Distributions, if any, of net investment income are generally paid at least annually and recorded on the ex-dividend date. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Dividends to shareholders are determined in accordance with federal income tax regulations, which may differ in amount and character from net investment income and realized gains recognized for purposes of U.S. GAAP. To the extent necessary to fully distribute capital gains, the Fund may designate earnings and profits distributed to shareholders on the redemption of shares.
Commission Recapture
The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If a Fund’s investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. This amount is reported with the net realized gain in the Fund’s Statement of Operations, if applicable.
Allocation of Income, Trust Expenses, Gains, and Losses
Investment income, realized and unrealized gains and losses from investments of the Fund is allocated daily to each class of shares based upon the relative proportion of net assets of each class to the total net assets of the Fund. Expenses directly charged or attributable to any Fund will be paid from the assets of the Fund. Generally, expenses of the Trust will be allocated among and charged to the assets of the Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative net assets of the Fund or nature of the services performed and relative applicability to the Fund.
22
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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 trustees are indemnified against certain liabilities 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 and Investment Sub-Advisory Agreements
The Fund and the Manager are parties to a Management Agreement that obligates the Manager to provide the Fund with investment advisory and administrative services. As compensation for performing the duties under the Management Agreement, the Manager will receive an annualized management fee based on a percentage of the Fund’s average daily net assets that is calculated and accrued daily according to the following schedule:
First $15 billion | 0.35 | % | ||
Next $15 billion | 0.325 | % | ||
Over $30 billion | 0.30 | % |
The Trust, on behalf of the Fund, and the Manager have entered into Investment Advisory Agreements with Causeway Capital Management LLC; Lazard Assets Management LLC; and Templeton Investment Counsel, LLC (“Sub-Advisors”) pursuant to which the Fund has agreed to pay an annualized sub-advisory fee that is calculated and accrued daily based on the Fund’s average daily net assets.
The Management and Sub-Advisory Fees paid by the Fund for the year ended October 31, 2017 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 9,740,107 | ||||||||
Sub-Advisor Fees | 0.27 | % | 7,627,123 | |||||||||
|
|
|
| |||||||||
Total | 0.62 | % | $ | 17,367,230 | ||||||||
|
|
|
|
As compensation for services provided by the Manager in connection with securities lending activities conducted by the Fund, the lending Fund pays to the Manager, with respect to cash collateral posted by borrowers, a fee up to 10% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers, a fee up to 10% of such loan fees. These fees are included in “Income derived from securities lending” and “Management and investment advisory fees” on the Statement of Operations. During the year ended October 31, 2017, the Manager received securities lending fees of $125,630 for the securities lending activities of the Fund.
Distribution Plans
The Fund, except for the Advisor, A, and C Classes of the Fund, has adopted a “defensive” Distribution Plan (the “Plan”) in accordance with Rule 12b-1 under the Act, pursuant to which no separate fees may be charged to
23
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
the Fund for distribution purposes. However, the Plan authorizes the management fee received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Fund does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares.
Separate Distribution Plans (the “Distribution Plans”) have been adopted pursuant to Rule 12b-1 under the Act for the Advisor, A, and C Classes of the Fund. Under the Distribution Plans, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor and A Classes and 1.00% of the average daily net assets of the C 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 Plans
The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor, A, and C Classes of the Fund. As compensation for performing the duties required under the Service Plans, the Manager receives an annualized fee up to 0.10% of the average daily net assets of the Y Class, up to 0.25% of the average daily net assets of the A and C Classes, up to 0.25% of the average daily net assets of the Advisor Class, and up to 0.375% of the average daily net assets of the Investor Class of the Fund. Effective April 1, 2017, the Fund terminated the Service Plan for the Y Class.
Sub-Transfer Agent Fees
The Manager has entered into agreements, which include servicing agreements, with financial intermediaries that provide recordkeeping, processing, shareholder communications and other services to customers of the intermediaries that hold positions in the Institutional Class of the Fund and has agreed to compensate the intermediaries for providing these services. Effective April 1, 2017, the Fund agreed to compensate the intermediaries for providing services to the Y Class. Intermediaries transact with the Fund primarily through the use of omnibus accounts on behalf of its customers who hold positions in the Fund. Certain services would have been provided by the Fund’s transfer agent and other service providers if the shareholders’ accounts were maintained directly by the Fund’s transfer agent. Accordingly, the Fund, pursuant to the Trust’s Board of Trustees (the “Board”) approval, has agreed to reimburse the Manager for certain non-distribution shareholder services provided by financial intermediaries for the Institutional and Y Classes. The reimbursement amounts (sub-transfer agent fees) paid to the Manager are subject to a fee limit of up to 0.10% of an intermediary’s average net assets in the Institutional and Y Classes on an annual basis. During the year ended October 31, 2017, the sub-transfer agent fees, as reflected in “Transfer agent fees” on the Statement of Operations, were as follows:
Fund | Sub-Transfer Agent Fees | |||
International Equity | $ | 997,325 |
As of October 31, 2017, the Fund owed the Manager the following reimbursement of sub-transfer agent fees, as reflected in “Transfer agent fees payable” on the Statement of Assets and Liabilities:
Fund | Reimbursement Sub-Transfer Agent Fees | |||
International Equity | $ | 144,658 |
Investments in Affiliated Funds
The Fund may invest in the American Beacon U.S. Government Money Market Select Fund (the “USG Select Fund”). Cash collateral received by the Fund in connection with securities lending may also be invested in the USG Select Fund. The Fund and the USG Select Fund have the same investment advisor and therefore, are
24
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
considered to be affiliated. The Manager serves as investment advisor to the USG Select Fund and receives management fees and administrative fees totaling 0.10% of the average daily net assets of the USG Select Fund. During the year ended October 31, 2017, the Manager earned fees on the Fund’s direct investments and securities lending collateral investments in the USG Select Fund as shown below:
Fund | Direct Investments in USG Select Fund | Securities Lending Collateral in USG Select Fund | Total | |||||||||
International Equity | $ | 97,529 | $ | 26,926 | $ | 124,455 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the Securities and Exchange Commission (“SEC”), the Fund, along with other registered investment companies having management contracts with the Manager, may participate in a credit facility whereby each Fund, under certain conditions, is permitted to lend money directly to and borrow directly from other participating Funds for temporary purposes. The interfund credit facility is advantageous to the Fund because it provides added liquidity, and eliminates the need to maintain higher cash balances to meet redemptions. This situation could arise when shareholder redemptions exceed anticipated volumes and certain funds have insufficient cash on hand to satisfy such redemptions or when sales of securities do not settle as expected, resulting in a cash shortfall for a fund. When a Fund liquidates portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). Redemption requests normally are satisfied on the next business day. The credit facility provides a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities. The credit facility is administered by a credit facility team consisting of professionals from the Manager’s asset management, compliance, and accounting areas who report the activities of the credit facility to the Board. During the year ended October 31, 2017, the Fund did not utilize the credit facility.
Expense Reimbursement Plan
The Manager voluntarily agreed to reduce fees and/or reimburse expenses for the R6 Class of the Fund to the extent that total operating expenses exceed the expense cap. During the year ended October 31, 2017, the Manager waived and/or reimbursed expenses as follows:
Class | Expense Cap | Reimbursed Expenses | Expiration of Reimbursed Expenses | |||||||||||||
Fund | 2/28/2017 – 10/31/2017 | |||||||||||||||
International Equity | R6 | 0.66 | % | $ | 3,001 | 2020 |
Of this amount, $445 was disclosed as a receivable from the Manager on the Statement of Assets and Liabilities at October 31, 2017. The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of such fee reductions and expense reimbursements. Under the policy, the Manager can recoup from the Fund for any contractual or voluntary fee reductions or expense reimbursements if recoupment by the Manager (a) occurs within three years after the Manager’s own waiver or reimbursement and (b) does not cause the Fund’s annual operating expenses to exceed the lessor of the contractual percentage limit in effect at the time of the waiver/reimbursement or time of recoupment. The reimbursed expenses listed above will expire in 2020. The Fund did not record a liability for potential reimbursement, due to the current assessment that a reimbursement is unlikely. The carryover of excess expenses potentially reimbursable to the Manager, but not recorded as a liability are as follows:
Fund | Recouped Expenses | Excess Expense Carryover | Expired Expense Carryover | Expiration of Reimbursed Expenses | ||||||||||||
International Equity | - | 105,014 | - | 2018 |
25
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Sales Commissions
The Fund’s distributor, Foreside Fund Services, LLC (“Foreside”), may receive a portion of A Class sales charges from broker dealers and it may be used to offset distribution related expenses. During the year ended October 31, 2017, Foreside collected $5,148 for the Fund from the sale of Class A Shares.
A CDSC of 0.50% will be deducted with respect to Class A Shares on certain purchases of $1,000,000 or more that are redeemed in whole or part within 18 months of purchase, unless waived as discussed in the Fund’s Prospectus. Any applicable CDSC will be 0.50% of the lesser of the original purchase price or the value of the redemption of the Class A Shares redeemed. During the year ended October 31, 2017, fees of $625 were collected for the Class A Shares of the Fund.
A CDSC of 1.00% will be deducted with respect to Class C Shares redeemed within 12 months of purchase, unless waived as discussed in the Fund’s Prospectus. Any applicable CDSC will be 1.00% of the lesser of the original purchase price or the value of the redemption of the Class C Shares redeemed. During the year ended October 31, 2017, CDSC fees of $247 were collected for Class C Shares of the Fund.
Trustee Fees and Expenses
As compensation for their service to the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust, each Trustee receives an annual retainer of $120,000, plus $5,000 for each Board meeting attended in person or via teleconference, $2,500 for attendance by Committee members at meetings of the Audit Committee and the Investment Committee, and $1,500 for attendance by Committee members at meetings of the Nominating and Governance Committee, plus reimbursement of reasonable expenses incurred in attending Board meetings, Committee meetings, and relevant educational seminars. The Trustees also may be compensated for attendance at special Board and/or Committee meetings from time to time. The Board Chairman receives an additional annual retainer of $50,000 as well as a single $5,000 fee each quarter for his attendance at the committee meetings. The Chairpersons of the Audit Committee and the Investment Committee each receive an additional annual retainer of $25,000 and the Chairman of the Nominating and Governance Committee receives an additional annual retainer of $10,000. These expenses are allocated on a prorated basis to each Fund of the Trust according to its respective net assets.
3. Security Valuation and Fair Value Measurements
Investments are valued at the close of the New York Stock Exchange (the “Exchange”), normally at 4:00 p.m. Eastern Time, each day that the Exchange is open for business. Equity securities, including exchange-traded funds (“ETFs”) for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade.
Investments in open-end mutual funds are valued at the closing NAV per share of the mutual fund on the day of valuation.
Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value pursuant to procedures established by the Board.
Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to deposit with their futures broker, an amount of cash or U.S. Government and Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized, but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities.
26
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Other investments for which the above valuation procedures are inappropriate or are deemed not to reflect fair value, are stated at fair value as determined in good faith by the Manager’s Valuation Committee, pursuant to procedures established by the Board.
Valuation Inputs
Various inputs may be used to determine the fair value of the Fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1 | - | Quoted prices in active markets for identical securities. | ||
Level 2 | - | Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. | ||
Level 3 | - | Prices determined using other significant unobservable inputs. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment. |
Level 1 and Level 2 trading assets and trading liabilities, at fair value
Common stocks, preferred securities and financial derivative instruments, such as futures contracts that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are generally categorized as Level 2 of the fair value hierarchy. Valuation adjustments may be applied to certain securities that are solely traded on a foreign exchange to account for the market movement between the close of the foreign market and the close of the Exchange. These securities are valued using pricing service providers that consider the correlation of the trading patterns of the foreign security to the intraday trading in the U.S. markets for investments. Securities using these valuation adjustments are categorized as Level 2 of the fair value hierarchy.
Investments in registered open-end investment management companies will be valued based upon the NAVs of such investments and are categorized as Level 1 of the fair value hierarchy.
Over-the-counter (“OTC”) financial derivative instruments, such as forward foreign currency contracts, derive their value from underlying asset prices, indices, reference rates, and other inputs or a combination of these factors. These contracts are normally valued on the basis of broker dealer quotations or pricing service providers. Depending on the product and the terms of the transaction, the fair value of the financial derivative contracts can be estimated by a pricing service provider using a series of techniques, including simulation pricing models. The pricing models use inputs that are observed from actively quoted markets such as issuer details, indices, spreads, interest rates, curves, dividends, and exchange rates. Financial derivatives that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
4. Securities and Other Investments
American Depositary Receipts (“ADRs”)
ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. Depositary receipts may not be denominated in the same currency as the securities into which they may be converted. Investing in depositary receipts entails substantially the same risks as direct investment in foreign securities. There is generally less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers and listed companies. In addition, such companies may use different accounting and financial standards (and certain currencies may become unavailable for transfer from a foreign currency), resulting in the Fund’s possible inability to convert immediately
27
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
into U.S. currency proceeds realized upon the sale of portfolio securities of the affected foreign companies. In addition, the Fund may invest in unsponsored depositary receipts, the issuers of which are not obligated to disclose material information about the underlying securities to investors in the United States. Ownership of unsponsored depositary receipts may not entitle the Fund to the same benefits and rights as ownership of a sponsored depositary receipt or the underlying security.
Common Stock
Common stock generally takes the form of shares in a corporation which represent an ownership interest. It ranks below preferred stock and debt securities in claims for dividends and for assets of the company in a liquidation or bankruptcy. The value of a company’s common stock may fall as a result of factors directly relating to that company, such as decisions made by its management or decreased demand for the company’s products or services. A stock’s value may also decline because of factors affecting not just the company, but also companies in the same industry or sector. The price of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company, such as changes in interest rates, currency exchange rates or industry regulation. Companies that elect to pay dividends on their common stock generally only do so after they invest in their own business and make required payments to bondholders and on other debt and preferred stock. Therefore, the value of a company’s common stock will usually be more volatile than its bonds, other debt and preferred stock. Common stock may be exchange-traded or over-the-counter (“OTC”). OTC stock may be less liquid than exchange-traded stock.
Foreign Securities
The Funds may invest in U.S. dollar-denominated and non-U.S. dollar denominated equity and debt securities of foreign issuers and foreign branches of U.S. banks, including negotiable CDs, bankers’ acceptances, and commercial paper. Foreign issuers are issuers organized and doing business principally outside the United States and include corporations, banks, non-U.S. governments, and quasi-governmental organizations. While investments in foreign securities may be intended to reduce risk by providing further diversification, such investments involve sovereign and other risks, in addition to the credit and market risks normally associated with domestic securities. These additional risks include the possibility of adverse political and economic developments (including political or social instability, nationalization, expropriation, or confiscatory taxation); the potentially adverse effects of unavailability of public information regarding issuers, different governmental supervision and regulation of financial markets, reduced liquidity of certain financial markets, and the lack of uniform accounting, auditing, and financial reporting standards or the application of standards that are different or less stringent than those applied in the United States; different laws and customs governing securities tracking; and possibly limited access to the courts to enforce the Funds’ rights as an investor.
Illiquid and Restricted Securities
The Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities may be sold privately, but are required to be registered or exempted from such registration before being sold to the public. Private placement securities are generally considered to be restricted except for those securities traded between qualified institutional investors under the provisions of Rule 144A of the Securities Act of 1933 (the “Securities Act”). Illiquid securities have included securities that have not been registered under the Securities Act, securities that are otherwise not readily marketable, and repurchase agreements having a remaining maturity of longer than seven calendar days. Disposal of both illiquid and restricted securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult to achieve. Restricted securities outstanding during the year ended October 31, 2017 are disclosed in the Fund’s Notes to the Schedule of Investments.
Regulation S under the Securities Act permits the sale abroad of securities that are not registered for sale in the United States and includes a provision for U.S. investors, such as the Funds, to purchase such unregistered securities if certain conditions are met.
28
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Other Investment Company Securities and Other Exchange-Traded Products
The Fund may invest in shares of other investment companies, including open-end funds, closed-end funds, business development companies, ETFs, unit investment trusts, and other investment companies of the Trust. The Fund may invest in investment company securities advised by the Manager or a sub-advisor. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. By investing in another investment company, the Fund becomes a shareholder of that investment company. As a result, the Fund’s shareholders indirectly will bear the Fund’s proportionate share of the fees and expenses paid by shareholders of the other investment company, in addition to the fees and expenses the Fund’s shareholders directly bear in connection with the Fund’s own operations. These other fees and expenses are reflected as Acquired Fund Fees and Expenses and are included in the Fees and Expenses Table for the Fund in its Prospectus, if applicable. Investments in other investment companies may involve the payment of substantial premiums above the value of such issuer’s portfolio securities.
Preferred Stock
A preferred stock blends the characteristics of a bond and common stock. It can offer the higher yield of a bond and has priority over common stock in equity ownership, but does not have the seniority of a bond and its participation in the issuer’s growth may be limited. Preferred stock generally has preference over common stock in the receipt of dividends and in any residual assets after payment to creditors should the issuer be dissolved. Although the dividend is set at a fixed or variable rate, in some circumstances it can be changed or omitted by the issuer.
Rights and Warrants
Rights are short-term warrants issued in conjunction with new stock or bond issues. Warrants are options to purchase an issuer’s securities at a stated price during a stated term. If the market price of the underlying common stock does not exceed the warrant’s exercise price during the life of the warrant, the warrant will expire worthless. Warrants usually have no voting rights, pay no dividends and have no rights with respect to the assets of the corporation issuing them. The percentage increase or decrease in the value of a warrant may be greater than the percentage increase or decrease in the value of the underlying common stock. Warrants may be purchased with values that vary depending on the change in value of one or more specified indices (“index warrants”). Index warrants are generally issued by banks or other financial institutions and give the holder the right, at any time during the term of the warrant, to receive upon exercise of the warrant a cash payment from the issuer based on the value of the underlying index at the time of the exercise. The market for warrants or rights may be very limited and it may be difficult to sell them promptly at an acceptable price. There is no specific limit on the percentage of assets the Fund may invest in rights and warrants.
5. Financial Derivative Instruments
The Fund may utilize derivative instruments to gain market exposure on cash balances or reduce market exposure in anticipation of liquidity needs. When considering the Fund’s use of derivatives, it is important to note that the Fund does not use derivatives for the purpose of creating financial leverage.
Forward Foreign Currency Contracts
The Fund may enter into forward foreign currency contracts to hedge the exchange rate risk on investment transactions or to hedge the value of the Fund’s securities denominated in foreign currencies. Forward foreign currency contracts are valued at the forward exchange rate prevailing on the day of valuation. The Fund may also use currency contracts to increase exposure to a foreign currency or to shift exposure to foreign currency fluctuations from one country to another. The Fund bears the market risk that arises from changes in foreign exchange rates, and accordingly, the unrealized gain (loss) on these contracts is reflected in the accompanying financial statements. The Fund also bears the credit risk if the counterparty fails to perform under the contract.
29
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
During the year ended October 31, 2017, the foreign Fund entered into forward foreign currency exchange contracts primarily for hedging foreign currency fluctuations.
The Fund’s forward foreign currency contract notional dollar values outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the average quarterly volume of forward foreign currency contracts. For the purpose of this disclosure, volume is measured by the amounts bought and sold in USD at each quarter end.
Average Forward Foreign Currency Notional Amount Outstanding | ||||||||||||
Fund | Purchased Contracts | Sold Contracts | ||||||||||
International Equity | $ | 158,344,916 | $ | 69,908,741 |
Futures Contracts
Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Fund may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities or that the counterparty will fail to perform its obligations.
Upon entering into a futures contract, the Fund is required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents a portion of the face value of the futures contract. The Fund usually reflects this amount on the Schedule of Investments as a U.S. Treasury Bill held as collateral for futures contracts or as cash deposited with broker on the Statement of Assets and Liabilities. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded.
During the year ended October 31, 2017, the Fund entered into future contracts primarily for exposing cash to markets.
The Fund’s average futures contracts outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the average quarterly volume of futures contracts. For purpose of this disclosure, volume is measured by contracts outstanding at each quarter end.
Average Futures Contracts Outstanding | ||||
Fund | Year Ended October 31, 2017 | |||
International Equity | 933 |
30
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
The following is a summary of the fair valuations of the Fund’s derivative instruments categorized by risk exposure(1):
Fair values of financial instruments on the Statement of Assets and Liabilities as of October 31, 2017: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized appreciation of forward foreign currency contracts | $ | – | $ | 316,545 | $ | – | $ | – | $ | – | $ | 316,545 | |||||||||||||||||||||||||||||||||||||||||||
Receivable for variation margin from open futures contracts(2) | – | – | – | – | 4,534,230 | 4,534,230 | |||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized depreciation of forward foreign currency contracts | $ | – | $ | (3,263,391 | ) | $ | – | $ | – | $ | – | $ | (3,263,391 | ) | |||||||||||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statement of Operations as of October 31, 2017: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) of derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign currency contracts | $ | – | $ | (1,991,838 | ) | $ | – | $ | – | $ | – | $ | (1,991,838 | ) | |||||||||||||||||||||||||||||||||||||||||
Futures contracts | – | – | – | – | 15,392,539 | 15,392,539 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign currency contracts | $ | – | $ | 1,059,925 | $ | – | $ | – | $ | – | $ | 1,059,925 | |||||||||||||||||||||||||||||||||||||||||||
Futures contracts | – | – | – | – | 2,310,969 | 2,310,969 |
(1) See Note 3 in the Notes to Financial Statements for additional information.
(2) Includes cumulative appreciation (depreciation) of futures contracts as reported in the Fund’s Schedule of Investments footnotes. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
Master Agreements
Master Securities Forward Transaction Agreements (“Master Forward Agreements”) govern the considerations and factors surrounding the settlement of certain forward settling transactions, such as delayed delivery or sale-buyback financing transactions by and between a Fund and select counterparties. The Master Forward Agreements maintain provisions for, among other things, initiation and confirmation, payment and transfer, events of default, termination, and maintenance of collateral.
6. Principal Risks
Investing in the Fund may involve certain risks including, but not limited to, those described below.
Counterparty Risk
The Fund is subject to the risk that a party or participant to a transaction, such as a broker or derivative counterparty, will be unwilling or unable to satisfy its obligation to make timely principal, interest or settlement payments or to otherwise honor its obligations to the Fund.
31
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Derivatives Risk
Derivatives may involve significant risk. The use of derivative instruments may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities or other instruments underlying those derivatives, including the high degree of leverage often embedded in such instruments, and potential material and prolonged deviations between the theoretical value and realizable value of a derivative. Some derivatives have the potential for unlimited loss, regardless of the size of the Fund’s initial investment. Derivatives may be illiquid and may be more volatile than other types of investments. The Fund may buy or sell derivatives not traded on an exchange and which may be subject to heightened liquidity and valuation risk. Derivative investments can increase portfolio turnover and transaction costs. Derivatives also are subject to counterparty risk. As a result, the Fund may obtain no recovery of its investment or may only obtain a limited recovery, and any recovery may be delayed. Not all derivative transactions require a counterparty to post collateral, which may expose the Fund to greater losses in the event of a default by a counterparty.
Currency Risk
The Fund may have exposure to foreign currencies by making direct investments in non-U.S. currencies, in securities denominated in non-U.S. currencies or by purchasing or selling forward currency exchange contracts in non-U.S. currencies. Foreign currencies will fluctuate, and may decline in value relative to the U.S. dollar and other currencies and thereby affect the Fund’s investments in foreign (non-U.S.) currencies or in securities that traded in, and receive revenues in, or in derivatives that provide exposure to, foreign (non-U.S.) currencies.
Equity Investment Risk
Equity securities are subject to market risk. The Fund’s investments in equity securities may include common stocks, preferred stocks, securities convertible into or exchangeable for common stocks, REITs, depositary receipts, and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. Such investments may expose the Fund to additional risk. The value of a company’s common stock may fall as a result of factors affecting the company, companies in the same industry or sector, or the financial markets overall. Common stock generally is subordinate to preferred stock upon the liquidation or bankruptcy of the issuing company. Preferred stocks and convertible securities are sensitive to movements in interest rates. Preferred stocks may be less liquid than common stocks and, unlike common stocks, participation in the growth of an issuer may be limited. Distributions on preferred stocks generally are payable at the discretion of an issuer and after required payments to bond holders. Convertible securities are subject to the risk that the credit standing of the issuer may have an effect on the convertible securities’ investment value. Investments in REITs are subject to the risks associated with investing in the real estate industry such as adverse developments affecting the real estate industry and real property values. Depositary receipts and U.S. dollar-denominated foreign stocks traded on U.S. exchanges are subject to certain of the risks associated with investing directly in foreign securities, including, but not limited to, currency fluctuations and political and financial instability in the home country of a particular depositary receipt or foreign stock.
Foreign Investing Risk
The Fund may invest in securities issued by foreign companies through ADRs and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. The Fund may also invest in local currency investments. ADRs are subject to many of the risks inherent in currency fluctuations and political and financial instability in the home country of a particular ADR or foreign stock. Non-U.S. investments carry potential risks not associated with U.S. investments. Such risks include, but are not limited to: (1) currency exchange rate fluctuations, (2) political and financial instability, (3) less liquidity and greater volatility, (4) lack of uniform accounting, auditing and financial reporting standards, (5) increased price volatility, (6) less government regulation and supervision of foreign stock exchanges, brokers and listed companies, and (7) delays in transaction settlement in some foreign markets.
32
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Futures Contracts Risk
Futures contracts are derivative instruments where one party pays a fixed price for an agreed amount of securities or other underlying assets at an agreed date. The use of such derivative instruments may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. Futures contracts may experience potentially dramatic price changes (losses) and imperfect correlation between the price of the contract and the underlying security or index, which will increase the volatility of the Fund and may involve a small investment of cash (the amount of initial and variation margin) relative to the magnitude of the risk assumed (the potential increase or decrease in the price of the futures contract).
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects, which have resulted, and may continue to result, in fixed-income instruments experiencing unusual liquidity issues, increased price volatility and, in some cases, credit downgrades and increased likelihood of default. These events have reduced the willingness and ability of some lenders to extend credit, and have made it more difficult for some borrowers to obtain financing on attractive terms, if at all. In addition, global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations.
In addition, political events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. High public debt in the U.S. and other countries creates ongoing systemic and market risks and policymaking uncertainty. Because the impact on the markets has been widespread, it may be difficult to identify both risks and opportunities using past models of the interplay of market forces, or to predict the duration of these market conditions. Interest rates have been unusually low in recent years in the U.S. and abroad. Because there is little precedent for this situation, it is difficult to predict the impact on various markets of a significant rate increase, whether brought about by U.S. policy makers or by dislocations in world markets. In addition, there is a risk that the prices of goods and services in the U.S. and many foreign economies may decline over time, known as deflation (the opposite of inflation). Deflation may have an adverse effect on stock prices and creditworthiness and may make defaults on debt more likely.
Market Timing Risk
Because the Fund invests in foreign securities, it is particularly subject to the risk of market timing activities. Frequent trading by Fund shareholders poses risks to other shareholders in the Fund, including (i) the dilution of the Fund’s net asset value (“NAV”), (ii) an increase in the Fund’s expenses, and (iii) interference with the portfolio manager’s ability to execute efficient investment strategies. Because of specific securities in which the Fund may invest, it could be subject to the risk of market timing activities by shareholders.
Multiple Sub-Advisor Risk
The Manager may allocate the Fund’s assets among multiple sub-advisors, each of which is responsible for investing its allocated portion of the Fund’s assets. To a significant extent, the Fund’s performance will depend on the success of the Manager in allocating the Fund’s assets to sub-advisors and its selection and oversight of the sub-advisors.
33
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Other Investment Companies Risk
The Fund may invest in shares of other registered investment companies, including money market funds. To the extent that the Fund invests in shares of other registered investment companies, the Fund will indirectly bear the fees and expenses charged by the underlying funds in addition to the Fund’s direct fees and expenses and will be subject to the risks associated with investments in those funds. For example, money market funds are subject to interest rate risk, credit risk, and market risk.
Securities Lending Risk
To the extent the Fund lends its securities, it may be subject to the following risks; i) borrowers of the Fund’s securities typically provide collateral in the form of cash that is reinvested in securities, ii) the securities in which the collateral is invested may not perform sufficiently to cover the return collateral payments owed to borrowers, iii) delays may occur in the recovery of securities from borrowers, which could interfere with the Fund’s ability to vote proxies or to settle transactions, and iv) there is the risk of possible loss of rights in the collateral should the borrower fail financially.
Valuation Risk
The Fund may value certain assets at a price different from the price at which they can be sold. This risk may be especially pronounced for investments, such as certain derivatives, which may be illiquid or which may become illiquid.
Offsetting Assets and Liabilities
The Fund is a party to enforceable master netting agreements between brokers and counterparties which provide for the right to offset under certain circumstances. The Fund employs multiple money managers and counterparties and has elected not to offset qualifying financial and derivative instruments on the Statement of Assets and Liabilities, as such all financial and derivative instruments are presented on a gross basis. The impacts of netting arrangements that provide the right to offset are detailed below. The net amount represents the net receivable or payable that would be due from or to the counterparty in the event of default. Exposure from borrowings and other financing agreements such as repurchase agreements can only be netted across transactions governed by the same Master Agreement with the same legal entity. All amounts reported below represent the balance as of the report date, October 31, 2017.
Offsetting of Financial and Derivative Assets as of October 31, 2017: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | 4,534,230 | $ | - | ||||||||
Forward Foreign Currency Contracts | 316,545 | 3,263,391 | ||||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 4,850,775 | $ | 3,263,391 | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | (4,534,230 | ) | - | |||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities subject to an MNA | $ | 316,545 | $ | 3,263,391 | ||||||||
|
|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2017 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 51,596,738 | $ | - | $ | - | $ | - | $ | 51,596,738 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 51,596,738 | $ | - | $ | - | $ | - | $ | 51,596,738 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 51,596,738 | ||||||||||||||||||||||||||||||||||
|
|
34
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Financial Assets, Derivatives, and Collateral Received/(Pledged) by Counterparty as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||
Gross Amounts of Assets Presented in the Statement of Assets and Liabilities | Derivatives Available for Offset | Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||||||||||||
Counterparty | Non-Cash Collateral Pledged |
| Cash Collateral Pledged |
| Net Amount | |||||||||||||||||||||||||||||||
BNP Paribas, N.A. | $ | 32,622 | $ | (32,622 | ) | $ | - | $ | - | $ | - | |||||||||||||||||||||||||
Bank of Montreal | 235,436 | (235,436 | ) | - | - | - | ||||||||||||||||||||||||||||||
Goldman Sachs Capital Markets | 27,818 | (24,693 | ) | - | - | 3,125 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank, N.A. | 6,899 | (6,899 | ) | - | - | - | ||||||||||||||||||||||||||||||
Morgan Stanley Bank, N.A. | 11,384 | (11,384 | ) | - | - | - | ||||||||||||||||||||||||||||||
Royal Bank of Canada | 1,099 | (1,099 | ) | - | - | - | ||||||||||||||||||||||||||||||
UBS AG | 1,287 | (1,287 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | $ | 316,545 | $ | (313,420 | ) | $ | - | $ | - | $ | 3,125 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities | Derivatives Available for Offset | Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||||||||||||
Counterparty | Non-Cash Collateral Received |
| Cash Collateral Received | Net Amount | ||||||||||||||||||||||||||||||||
BNP Paribas, N.A. | $ | 38,725 | $ | (32,622 | ) | $ | - | $ | - | $ | 6,103 | |||||||||||||||||||||||||
Bank of Montreal | 577,259 | (235,436 | ) | - | - | 341,823 | ||||||||||||||||||||||||||||||
Barclays Bank PLC | 93,418 | - | - | - | 93,418 | |||||||||||||||||||||||||||||||
Citibank, N.A. | 96,335 | - | - | - | 96,335 | |||||||||||||||||||||||||||||||
Deutsche Bank AG | 12,193 | - | - | - | 12,193 | |||||||||||||||||||||||||||||||
Goldman Sachs Capital Markets | 24,693 | (24,693 | ) | - | - | - | ||||||||||||||||||||||||||||||
HSBC Bank (USA) | 24,926 | - | - | - | 24,926 | |||||||||||||||||||||||||||||||
JPMorgan Chase Bank, N.A. | 273,010 | (6,899 | ) | - | - | 266,111 | ||||||||||||||||||||||||||||||
Morgan Stanley Bank, N.A. | 21,439 | (11,384 | ) | - | - | 10,055 | ||||||||||||||||||||||||||||||
Royal Bank of Canada | 53,944 | (1,099 | ) | - | - | 52,845 | ||||||||||||||||||||||||||||||
Societe Generale | 1,438,210 | - | - | - | 1,438,210 | |||||||||||||||||||||||||||||||
Standard and Chartered Bank | 444,341 | - | - | - | 444,341 | |||||||||||||||||||||||||||||||
UBS AG | 28,582 | (1,287 | ) | - | - | 27,295 | ||||||||||||||||||||||||||||||
Westpac Banking Corporation | 136,316 | - | - | - | 136,316 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | $ | 3,263,391 | $ | (313,420 | ) | $ | - | $ | - | $ | 2,949,971 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
7. Federal Income and Excise Taxes
It is the policy of the Fund to qualify as a regulated investment company (“RIC”), by complying with all applicable provisions of Subchapter M of the Internal Revenue Code, as amended, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. For federal income tax purposes, the Fund is treated as a single entity for the purpose of determining such qualification.
The Fund does not have any unrecorded tax liabilities in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2017 remain subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in “Other expenses” on the Statement of Operations.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns of income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation (depreciation), as applicable, as the income is earned or capital gains are recorded.
Dividends are categorized in accordance with income tax regulations which may treat certain transactions differently than U.S. GAAP. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. The Fund utilized earnings and profits distributed to shareholders from redemption of shares as part of the dividends paid deduction.
35
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
The tax character of distributions paid were as follows:
Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||
Distributions paid from: | ||||||||||||
Ordinary income* | ||||||||||||
Institutional ClassA | $ | 34,791,829 | $ | 16,689,014 | ||||||||
Y Class | 18,973,818 | 8,453,455 | ||||||||||
Investors Class | 7,051,311 | 3,882,009 | ||||||||||
Advisor ClassB | 456,420 | 277,504 | ||||||||||
A Class | 472,655 | 124,807 | ||||||||||
C Class | 111,074 | 21,093 | ||||||||||
Long-term capital gains | ||||||||||||
Institutional ClassA | – | 9,474,311 | ||||||||||
Y Class | – | 4,760,923 | ||||||||||
Investors Class | – | 2,927,922 | ||||||||||
Advisor ClassB | – | 209,225 | ||||||||||
A Class | – | 90,981 | ||||||||||
C Class | – | 32,820 | ||||||||||
|
|
|
| |||||||||
Total distributions paid | $ | 61,857,107 | $ | 46,944,064 | ||||||||
|
|
|
|
* For tax purposes, short-term gains are considered ordinary income distributions.
A Includes AMR Class distributions due to merger with the Institutional Class on May 31, 2016.
B Includes Retirement Class distributions due to merger with Advisor Class on January 15, 2016.
As of October 31, 2017 the components of distributable earnings (deficits) on a tax basis were as follows:
Fund | Tax Cost | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
International Equity | $ | 2,688,053,083 | $ | 514,522,295 | $ | (85,430,665 | ) | $ | 429,091,630 |
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Other Temporary Differences | Distributable Earnings | ||||||||||||||||||||||||||||||||||||||
International Equity | $ | 429,091,630 | $ | 53,141,053 | $ | 34,742,158 | $ | – | $ | 1 | $ | 516,974,842 |
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation (depreciation) are attributable primarily to the tax deferral of losses from wash sales and the realization for tax purposes of unrealized gains (losses) on certain derivative instruments, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies.
Due to inherent differences in the recognition of income, expenses, and realized gains (losses) under U.S. GAAP and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent differences derived from foreign currency reclasses, gains (losses) from sales of investments in passive foreign investment companies, Section 732 basis adjustments, and utilization of earnings and profits distributed to shareholders from redemption of shares as of October 31, 2017:
Fund | Paid-In-Capital | Undistributed (Overdistribution of) Net Investment Income | Accumulated Net Realized Gain (Loss) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
International Equity | $ | 5,476,315 | $ | (848,201 | ) | $ | (4,628,114 | ) | $ | – |
36
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Under the Regulated Investment Company Modernization Act of 2010 (“RIC MOD”), net capital losses recognized by the Fund in taxable years beginning after December 22, 2010 are carried forward indefinitely and retain their character as short-term and/or long-term losses.
As of October 31, 2017, the Fund did not any have capital loss carryforwards. The Fund utilized $21,948,151 short-term and $44,112,278 long-term capital loss carryforwards.
8. Investment Transactions
The aggregate cost of purchases and proceeds from sales and maturities of investments, other than short-term obligations, for the year ended October 31, 2017 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Sales (non-U.S. Government Securities) | ||||||||||
International Equity | $ | 847,210,002 | $ | 956,188,817 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2017 were as follows:
Fund | Type of Transaction | October 31, 2016 Shares/Fair Value | Purchases | Sales | October 31, 2017 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
International Equity | Direct | $ | 87,141,057 | $ | 1,216,967,874 | $ | 1,174,983,694 | $ | 129,125,237 | $ | 705,742 | |||||||||||||||||||||||||||||||
International Equity | Securities Lending | 1,283,708 | 944,926,084 | 894,613,054 | 51,596,738 | N/A |
9. Securities Lending
The Fund may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. The borrowers are required to secure their loans continuously with collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Collateral is monitored and marked-to-market daily. Daily mark-to-market amounts are required to be paid to the borrower or received from the borrower by the end of the following business day. This one day settlement for mark-to-market amounts may result in the collateral being temporarily less than the value of the securities on loan or temporarily more than the required minimum collateral.
To the extent that a loan is collateralized by cash, such cash collateral shall be invested by the securities lending agent (the “Agent”) in money market mutual funds and other short-term investments, provided the investments meet certain quality and diversification requirements. Securities purchased with cash collateral proceeds are listed in the Fund’s Schedule of Investments and the collateral is shown on the Statement of Assets and Liabilities as a payable.
Securities lending income is generated from the demand premium (if any) paid by the borrower to borrow a specific security and from the return on investment of cash collateral, reduced by negotiated rebate fees paid to the borrower and transaction costs. To the extent that a loan is secured by non-cash collateral, securities lending income is generated as a demand premium reduced by transaction costs. The Fund, the Agent, and the Manager retained 80%, 10%, and 10%, respectively, of the income generated from securities lending.
While securities are on loan, the Fund continues to receive certain income associated with that security and any gain or loss in the market price that may occur during the term of the loan. In the case of domestic equities, the value of any dividend is received in the form of a substitute payment approximately equal to the dividend. In the case of foreign securities, a negotiated amount is received that is less than the actual dividend, but higher than the dividend amount minus the foreign tax that the Fund would be subject to on the dividend.
37
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Securities lending transactions pose certain risks to the Fund, including that the borrower may not provide additional collateral when required or return the securities when due, that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower, that non-cash collateral may be subject to legal constraints in the event of a borrower bankruptcy, and that the cash collateral investments could become illiquid and unable to be used to return collateral to the borrower. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower and any action which impairs its ability to liquidate non-cash collateral to satisfy a borrower default.
As of October 31, 2017, the value of outstanding securities on loan and the value of collateral were as follows:
Fund | Market Value of Securities on Loan | Cash Collateral Received | Non-Cash Collateral Received | Total Collateral Received | ||||||||||||||||||||||||
International Equity | $ | 48,900,480 | $ | 51,596,738 | $ | – | $ | 51,596,738 |
Cash collateral is listed on the Fund’s Schedule of Investments and is shown on the Statement of Assets and Liabilities. Income earned on these investments is included in “Income derived from securities lending” on the Statement of Operations.
Non-cash collateral received by the Fund may not be sold or re-pledged except to satisfy a borrower default. Therefore, non-cash collateral is not included on the Fund’s Schedule of Investments or Statement of Assets and Liabilities.
10. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016B | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 24,547,005 | $ | 463,671,500 | 39,315,483 | $ | 674,540,803 | ||||||||||||||||||||||
Reinvestment of dividends | 1,852,549 | 31,919,427 | 1,293,027 | 22,763,428 | ||||||||||||||||||||||||
Shares redeemed | (30,936,620 | ) | (572,495,075 | ) | (17,470,092 | ) | (305,075,450 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (4,537,066 | ) | $ | (76,904,148 | ) | 23,138,418 | $ | 392,228,781 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 9,603,129 | $ | 188,451,831 | 27,158,767 | $ | 459,233,941 | ||||||||||||||||||||||
Reinvestment of dividends | 972,177 | 17,372,801 | 685,248 | 12,498,922 | ||||||||||||||||||||||||
Shares redeemed | (8,510,279 | ) | (164,255,587 | ) | (12,558,440 | ) | (226,108,345 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 2,065,027 | $ | 41,569,045 | 15,285,575 | $ | 245,624,518 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 3,314,057 | $ | 61,659,507 | 5,700,250 | $ | 96,710,198 | ||||||||||||||||||||||
Reinvestment of dividends | 410,726 | 7,027,516 | 388,556 | 6,791,967 | ||||||||||||||||||||||||
Shares redeemed | (7,835,357 | ) | (145,535,610 | ) | (5,089,939 | ) | (87,258,245 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (4,110,574 | ) | $ | (76,848,587 | ) | 998,867 | $ | 16,243,920 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
38
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2017
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016C | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,750,129 | $ | 35,235,104 | 775,088 | $ | 13,279,031 | ||||||||||||||||||||||
Reinvestment of dividends | 26,039 | 456,207 | 27,102 | 486,499 | ||||||||||||||||||||||||
Shares redeemed | (486,266 | ) | (9,383,666 | ) | (787,201 | ) | (13,645,734 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 1,289,902 | $ | 26,307,645 | 14,989 | $ | 119,796 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 806,495 | $ | 14,930,964 | 798,761 | $ | 13,513,325 | ||||||||||||||||||||||
Reinvestment of dividends | 25,526 | 435,992 | 11,164 | 195,041 | ||||||||||||||||||||||||
Shares redeemed | (1,051,715 | ) | (20,195,546 | ) | (303,956 | ) | (5,233,453 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (219,694 | ) | $ | (4,828,590 | ) | 505,969 | $ | 8,474,913 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 293,130 | $ | 5,116,728 | 34,805 | $ | 580,660 | ||||||||||||||||||||||
Reinvestment of dividends | 6,515 | 108,211 | 2,988 | 51,031 | ||||||||||||||||||||||||
Shares redeemed | (93,337 | ) | (1,664,605 | ) | (77,300 | ) | (1,271,059 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 206,308 | $ | 3,560,334 | (39,507 | ) | $ | (639,368 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
R6 Class | ||||||||||||||||||||||||||||
February 28, 2017A to October 31, 2017 | Year Ended October 31, 2016 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 313,319 | $ | 6,320,006 | – | $ | – | ||||||||||||||||||||||
Shares redeemed | (8,547 | ) | (170,397 | ) | – | – | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 304,772 | $ | 6,149,609 | – | $ | – | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
A Commencement of operations.
B Includes AMR Class transactions prior to the merger with the Institutional Class on May 31, 2016.
C Includes Retirement Class transactions prior to the merger with the Advisor Class on January 15, 2016.
11. Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
39
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.41 | $ | 18.79 | $ | 19.51 | $ | 20.07 | $ | 16.05 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.39 | 0.29 | 0.35 | 0.54 | 0.36 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 3.51 | (1.24 | ) | (0.55 | ) | (0.77 | ) | 4.07 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 3.90 | (0.95 | ) | (0.20 | ) | (0.23 | ) | 4.43 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.43 | ) | (0.27 | ) | (0.52 | ) | (0.33 | ) | (0.41 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.16 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.43 | ) | (0.43 | ) | (0.52 | ) | (0.33 | ) | (0.41 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0 | B | 0 | B | 0 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 20.88 | $ | 17.41 | $ | 18.79 | $ | 19.51 | $ | 20.07 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 22.94 | % | (5.07 | )% | (0.99 | )% | (1.18 | )% | 28.14 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 1,644,165,106 | $ | 1,450,052,040 | $ | 1,037,148,821 | $ | 956,960,452 | $ | 870,729,423 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.73 | % | 0.69 | % | 0.70 | % | 0.72 | % | 0.72 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.73 | % | 0.69 | % | 0.69 | % | 0.70 | % | 0.71 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 2.01 | % | 2.22 | % | 1.93 | % | 2.74 | % | 2.16 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 2.01 | % | 2.22 | % | 1.94 | % | 2.76 | % | 2.17 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 25 | % | 33 | % | 23 | % | 27 | % | ||||||||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 18.03 | $ | 19.46 | $ | 20.21 | $ | 20.81 | $ | 16.65 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.38 | 0.41 | 0.35 | 0.50 | 0.62 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 3.65 | (1.40 | ) | (0.57 | ) | (0.77 | ) | 3.97 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 4.03 | (0.99 | ) | (0.22 | ) | (0.27 | ) | 4.59 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.42 | ) | (0.28 | ) | (0.53 | ) | (0.33 | ) | (0.43 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.16 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.42 | ) | (0.44 | ) | (0.53 | ) | (0.33 | ) | (0.43 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0 | B | 0 | B | 0 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 21.64 | $ | 18.03 | $ | 19.46 | $ | 20.21 | $ | 20.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 22.84 | % | (5.14 | )% | (1.06 | )% | (1.31 | )% | 28.04 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 1,029,629,647 | $ | 820,596,038 | $ | 587,949,806 | $ | 530,836,707 | $ | 441,945,876 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.80 | % | 0.77 | % | 0.77 | % | 0.82 | % | 0.85 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.80 | % | 0.77 | % | 0.77 | % | 0.82 | % | 0.85 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.95 | % | 2.43 | % | 1.87 | % | 2.62 | % | 2.55 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.95 | % | 2.43 | % | 1.87 | % | 2.62 | % | 2.55 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 25 | % | 33 | % | 23 | % | 27 | % |
A | On May 31, 2016, the AMR Class closed and the assets were merged into the Institutional Class. |
B | Amount represents less than $0.01 per share. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
40
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.24 | $ | 18.60 | $ | 19.32 | $ | 19.86 | $ | 15.88 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.35 | 0.34 | 0.31 | 0.46 | 0.25 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 3.45 | (1.33 | ) | (0.57 | ) | (0.76 | ) | 4.09 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 3.80 | (0.99 | ) | (0.26 | ) | (0.30 | ) | 4.34 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.37 | ) | (0.21 | ) | (0.46 | ) | (0.24 | ) | (0.36 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.16 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.37 | ) | (0.37 | ) | (0.46 | ) | (0.24 | ) | (0.36 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0 | B | 0 | B | 0 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 20.67 | $ | 17.24 | $ | 18.60 | $ | 19.32 | $ | 19.86 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 22.50 | % | (5.38 | )% | (1.35 | )% | (1.54 | )% | 27.81 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 316,589,769 | $ | 334,895,337 | $ | 342,720,411 | $ | 348,541,811 | $ | 337,424,064 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.07 | % | 1.06 | % | 1.03 | % | 1.05 | % | 1.04 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.07 | % | 1.06 | % | 1.03 | % | 1.05 | % | 1.04 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.69 | % | 1.95 | % | 1.60 | % | 2.36 | % | 1.67 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.69 | % | 1.95 | % | 1.60 | % | 2.36 | % | 1.67 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 25 | % | 33 | % | 23 | % | 27 | % | ||||||||||||||||||||||||||
Advisor ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.62 | $ | 19.01 | $ | 19.76 | $ | 20.36 | $ | 16.36 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income (loss) | 0.23 | 0.35 | 0.38 | 0.44 | (0.41 | ) | ||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 3.64 | (1.37 | ) | (0.68 | ) | (0.77 | ) | 4.83 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 3.87 | (1.02 | ) | (0.30 | ) | (0.33 | ) | 4.42 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.34 | ) | (0.21 | ) | (0.45 | ) | (0.27 | ) | (0.42 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.16 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.34 | ) | (0.37 | ) | (0.45 | ) | (0.27 | ) | (0.42 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0 | B | 0 | B | 0 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 21.15 | $ | 17.62 | $ | 19.01 | $ | 19.76 | $ | 20.36 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 22.38 | % | (5.40 | )% | (1.51 | )% | (1.64 | )% | 27.51 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 55,715,606 | $ | 23,692,313 | $ | 22,912,069 | $ | 7,677,201 | $ | 5,231,812 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.20 | % | 1.19 | % | 1.16 | % | 1.19 | % | 1.20 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.20 | % | 1.19 | % | 1.16 | % | 1.19 | % | 1.20 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.51 | % | 1.87 | % | 1.55 | % | 2.21 | % | 1.39 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.51 | % | 1.87 | % | 1.55 | % | 2.21 | % | 1.39 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 25 | % | 33 | % | 23 | % | 27 | % |
A | On January 15, 2016, the Retirement Class closed and the assets were merged into the Advisor Class. |
B | Amount represents less than $0.01 per share. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
41
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.23 | $ | 18.59 | $ | 19.32 | $ | 19.92 | $ | 16.02 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.30 | 0.32 | 0.31 | 0.46 | 0.43 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 3.48 | (1.30 | ) | (0.59 | ) | (0.78 | ) | 3.89 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 3.78 | (0.98 | ) | (0.28 | ) | (0.32 | ) | 4.32 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.38 | ) | (0.22 | ) | (0.45 | ) | (0.28 | ) | (0.42 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.16 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.38 | ) | (0.38 | ) | (0.45 | ) | (0.28 | ) | (0.42 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0 | A | 0 | A | 0 | A | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 20.63 | $ | 17.23 | $ | 18.59 | $ | 19.32 | $ | 19.92 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 22.43 | % | (5.34 | )% | (1.42 | )% | (1.65 | )% | 27.51 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 17,829,657 | $ | 18,673,142 | $ | 10,747,749 | $ | 8,540,234 | $ | 4,113,299 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.12 | % | 1.07 | % | 1.08 | % | 1.15 | % | 1.21 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.12 | % | 1.07 | % | 1.08 | % | 1.15 | % | 1.25 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.65 | % | 1.94 | % | 1.55 | % | 2.31 | % | 1.73 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.65 | % | 1.94 | % | 1.55 | % | 2.31 | % | 1.69 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 25 | % | 33 | % | 23 | % | 27 | % | ||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.73 | $ | 18.09 | $ | 18.83 | $ | 19.47 | $ | 15.70 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.17 | 0.18 | 0.16 | 0.30 | 0.52 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 3.36 | (1.28 | ) | (0.56 | ) | (0.75 | ) | 3.59 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 3.53 | (1.10 | ) | (0.40 | ) | (0.45 | ) | 4.11 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.33 | ) | (0.10 | ) | (0.34 | ) | (0.19 | ) | (0.34 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | – | (0.16 | ) | – | – | – | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.33 | ) | (0.26 | ) | (0.34 | ) | (0.19 | ) | (0.34 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | – | – | 0 | A | 0 | A | 0 | A | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 19.93 | $ | 16.73 | $ | 18.09 | $ | 18.83 | $ | 19.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 21.50 | % | (6.12 | )% | (2.12 | )% | (2.36 | )% | 26.56 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 7,622,425 | $ | 2,945,246 | $ | 3,899,081 | $ | 3,028,934 | $ | 1,219,537 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.88 | % | 1.85 | % | 1.82 | % | 1.90 | % | 1.95 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.88 | % | 1.85 | % | 1.83 | % | 1.90 | % | 1.99 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.96 | % | 1.12 | % | 0.77 | % | 1.53 | % | 1.13 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.96 | % | 1.12 | % | 0.77 | % | 1.53 | % | 1.09 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 25 | % | 33 | % | 23 | % | 27 | % |
A | Amount represents less than $0.01 per share. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
42
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||
February 28, 2017A to October 31, 2017 | ||||
|
| |||
Net asset value, beginning of period | $ | 17.80 | ||
|
| |||
Income from investment operations: | ||||
Net investment income | 0.08 | |||
Net gains on investments (both realized and unrealized) | 3.01 | |||
|
| |||
Total income from investment operations | 3.09 | |||
|
| |||
Less distributions: | ||||
Dividends from net investment income | – | |||
|
| |||
Net asset value, end of period | $ | 20.89 | ||
|
| |||
Total returnB | 17.36 | %C | ||
|
| |||
Ratios and supplemental data: |
| |||
Net assets, end of period | $ | 6,367,999 | ||
Ratios to average net assets: | ||||
Expenses, before reimbursements | 0.89 | %D | ||
Expenses, net of reimbursements | 0.66 | %D | ||
Net investment income, before expense reimbursements | 1.63 | %D | ||
Net investment income, net of reimbursements | 1.85 | %D | ||
Portfolio turnover rate | 32 | %E |
A | Commencement of operations. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
C | Not annualized. |
D | Annualized. |
E | Portfolio turnover is for the period from February 28, 2017 through October 31, 2017 and is annualized. |
See accompanying notes
43
American Beacon International Equity FundSM
October 31, 2017 (Unaudited)
Certain tax information regarding the Fund is required to be provided to shareholders based upon the Fund’s income and distributions for the taxable year ended October 31, 2017. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2017.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2017. All designations are based on financial information available as of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code of 1986, as amended, and the regulations there under.
Corporate Dividends-Received Deduction:
International Equity | 0.00 | % |
Qualified Dividend Income:
International Equity | 96.99 | % |
Long-Term Capital Gain Distributions:
International Equity | $ | 5,252,994 |
Short-Term Capital Gain Distributions:
International Equity | $ | - |
Shareholders will receive notification in January 2018 of the applicable tax information necessary to prepare their 2017 income tax returns.
The Fund designated a foreign tax credit of $7,521,472 based on foreign sourced income of $82,081,222 for the year ended October 31, 2017.
44
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
Renewal and Approval of Management Agreement and Investment Advisory Agreements
At in-person meetings held on May 16, 2017 and June 7, 2017 (collectively, the “Meetings”), the Board of Trustees (“Board”) considered and then, at its June 7 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (the “Trust”), on behalf of American Beacon International Equity Fund (“Fund”);
(2) the Investment Advisory Agreements among the Manager, the Trust, on behalf of the Fund, and each of Causeway Capital Management LLC (“Causeway”), Lazard Asset Management LLC (“Lazard”) and Templeton Investment Counsel, LLC (“Templeton”) (each, a “subadvisor” and collectively, the “subadvisors”).
The Investment Advisory Agreements are referred to herein as the “Investment Advisory Agreements”. The Management Agreement and the Investment Advisory Agreements are collectively referred to herein as the “Agreements.” In preparation for its consideration of the renewal of the Agreements, the Board undertook steps to gather and consider information furnished by the Manager, the subadvisor, Broadridge, Inc. (“Broadridge”) and Morningstar, Inc. (“Morningstar”). The Board, with the assistance of independent legal counsel, requested and received certain relevant information from the Manager and each subadvisor.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge and Morningstar regarding the performance, fees and expenses of the Fund as well as information from the Manager and the subadvisors. At the Meetings, the Board considered the information provided. Further, the Board took into consideration information furnished for the Board’s review and consideration throughout the year at regular meetings of the Board and its committees, as well as information specifically prepared in connection with the renewal process.
In connection with the Board’s consideration of the Agreements, the Trustees received and evaluated such information as they deemed necessary. The information requested on behalf of the Board included, among other information, the following materials. References herein to the “firm” refer to the Manager and/or the subadvisors.
• | comparisons of the performance of an appropriate share class of the Fund to comparable investment companies and appropriate benchmark indices, including peer group averages and performance analyses provided by Broadridge and Morningstar, and to the performance of certain similar accounts or a composite of similar accounts, as applicable, managed by the firm; |
• | comparisons of the Fund’s management and subadvisory fee rates and expense ratio with the management fee rates paid by comparable mutual funds and their expense ratios, including peer group averages and fee and expense analyses provided by Broadridge and Morningstar, and the advisory fee rates charged to other clients for which similar services are provided by a firm; |
• | the Manager’s profitability with respect to the services that it provided to the Fund; |
• | any actual or anticipated economies of scale in relation to the services the firm provides or will provide to the Fund and whether the current fee rates charged or to be charged to the Fund reflect these economies of scale for the benefit of the Fund’s investors; |
• | an evaluation of other benefits to the firm or Fund as a result of their relationship, if any; |
• | information regarding the administrative, accounting-related, cash management and securities lending services that the Manager provides to the Fund and the fees that the Manager receives for such services; and |
• | information regarding a firm’s financial condition, the personnel of the Manager who are assigned primary responsibility for managing the Fund, staffing levels, portfolio managers’ compensation, insurance coverage, material pending litigation, code of ethics, compliance matters, actual or potential conflicts of interest that the firm experiences, or anticipates that it will experience, in providing services to the Fund, and the Manager’s disaster recovery plans. |
45
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
The Board noted that the Manager provides management and administrative services to the Fund pursuant to the Management Agreement. The Board considered that many mutual funds have separate contracts governing both types of services, and observed that the actual management fee rates provided by Broadridge for peer group funds reflect the combined advisory and administrative expenses, reduced by any fee waivers and/or reimbursements.
A firm may not have been able to, or opted not to, provide information in response to certain information requests, in which case the Board conducted its evaluation of the firm based on information that was provided. In such cases, the Board determined that the omission of any such information was not material to its considerations. The class of shares used for comparative performance purposes was the share class with the lowest expenses available for purchase by the general public, which was the Institutional Class. The Board also considered that the use of Institutional Class performance generally facilitates a meaningful comparison for expense and performance purposes.
Provided below is an overview of certain factors the Board considered in connection with its renewal and approval of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew or approve each Agreement, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Independent Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the renewal and approval of each Agreement. The memorandum explained the regulatory requirements surrounding the Trustees’ process for evaluating investment advisors and the terms of investment advisory contracts. Based on its evaluation, the Board unanimously concluded that the terms of each Agreement were reasonable and fair and that the renewal and approval of each Agreement was in the best interests of the Fund and its shareholders.
Considerations With Respect to the Renewal of the Management Agreement and The Investment Advisory Agreements
In determining whether to renew the Agreements, the Trustees considered the best interests of the Fund. While the Management Agreement and the Investment Advisory Agreements for the Fund were considered at the Meetings, the Board considered the Fund’s investment management and subadvisory relationships separately.
In each instance, the Board considered, among other things, the following factors: (1) the nature, extent and quality of the services provided; (2) the investment performance of the Fund; (3) the costs incurred by the Manager in rendering services to the Fund and its resulting profits or losses; (4) comparisons of services and fee rates with contracts entered into by the Manager or the subadvisors or their affiliates with other clients (such as pension funds and other institutional clients); (5) the extent to which economies of scale, if any, have been taken into account in setting each fee rate schedule; (6) whether fee rate levels reflect economies of scale, if any, for the benefit of Fund investors; and (7) any other benefits derived or anticipated to be derived by the Manager or the subadvisors from their relationship with the Fund.
Nature, Extent and Quality of Services. With respect to the renewal of the Management Agreement, the Board considered, among other factors: the Fund’s long-term performance and the length of service of key investment personnel at the Manager; the cost structure of the Fund; the Manager’s culture of compliance and support for compliance operations that reduce risks to the Fund; the Manager’s quality of services; the Manager’s active role in monitoring and, as appropriate, recommending additional or replacement subadvisors; and the Manager’s efforts to retain key employees and maintain staffing levels.
With respect to the renewal of the Investment Advisory Agreements, the Trustees considered the level of staffing and the size of the subadvisors. The Board also considered the adequacy of the resources committed to the Fund by the subadvisors, and whether those resources were commensurate with the needs of the Fund and are sufficient to sustain appropriate levels of performance and compliance needs. In this regard, the Board considered the financial stability of the subadvisors. The Board also considered the subadvisors’ representations regarding their compliance program and code of ethics. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and the subadvisors were appropriate for the Fund.
46
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
Investment Performance. The Board evaluated the comparative information provided by Broadridge and the Manager regarding the performance of the Fund relative to its Broadridge performance universe, Morningstar Category, and benchmark index, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding its independent peer selection methodology to select all Broadridge performance universes. The Board also considered that the performance universe selected by Broadridge may not provide appropriate comparisons for the Fund. In addition, the Board considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Board also evaluated the comparative information provided by each subadvisor regarding the performance of its portion of the Fund relative to the performance of other comparable investment accounts managed by the subadvisor and the Fund’s benchmark index. In addition, the Board considered the Manager’s recommendation to continue to retain each subadvisor. A discussion regarding the Board’s considerations with respect to the Fund’s performance appears below under “Additional Considerations and Conclusions with Respect to the Fund.”
Costs of the Services Provided to the Fund and the Profits Realized by the Manager from its Relationship with the Fund. In analyzing the cost of services and profitability of the Manager, the Board considered the revenues earned and the expenses incurred by the Manager, before and after the payment of distribution-related expenses by the Manager. The profits or losses were noted at both an aggregate level for all funds within the group of mutual funds sponsored by the Manager (the “Fund Complex”) and at an individual Fund level, with the Fund being profitable for the Manager before and after the payment of distribution-related expenses. The Board also considered comparative information provided by the Manager regarding the Manager’s overall profitability with respect to the Fund Complex relative to the overall profitability of other firms in the mutual fund industry, as disclosed in publicly available sources. Although the Board noted that, in certain cases, the fee rates paid by other clients of the Manager are lower than the fee rate paid by the Fund, the Manager represented that, among other matters, the difference is attributable to the fact that the Manager does not perform administrative services for non-investment company clients and reflects the greater level of responsibility and regulatory requirements associated with managing the Fund.
The Board considered that, with respect to the Fund, the Management Agreement provides for the Manager to receive a management fee comprised of an annualized fee that is retained by the Manager. In addition, the Board considered that the Manager receives fees for overseeing the securities lending program on behalf of the Fund. The Board also noted that certain share classes of the Fund maintain higher expense ratios in order to compensate third-party financial intermediaries.
In analyzing the fee rates charged by each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, with respect to Lazard and Templeton, the Manager has negotiated the lowest fee rate the subadvisor charges for any comparable client accounts and, with respect to Causeway, the Fund’s subadvisory fee rate schedule was generally favorable compared to other comparable client accounts. The Board did not request profitability data from the subadvisors because the Board did not view this data as imperative to its deliberations given the arm’s-length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fee rates. In addition, the Board noted that a subadvisor may not account for its profits on an account-by-account basis and, to the extent it does, it likely employs different methodologies in connection with these calculations.
Based on the foregoing information, the Board concluded that the profitability levels of the Manager were reasonable in light of the services performed by the Manager. A discussion regarding the Board’s considerations with respect to the Fund’s fee rates is set forth below under “Additional Considerations and Conclusions with Respect to the Fund.”
Economies of Scale. In considering the reasonableness of the management and investment advisory fees rates, the Board considered whether economies of scale will be realized as the Fund grows and whether fee rate levels reflect these economies of scale for the benefit of Fund shareholders. In this regard, the Board considered that, with respect to each subadviser, the Manager has negotiated breakpoints in the subadvisory fee rates for the
47
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
Fund. In addition, the Board noted the Manager’s representation that the Management Agreement contains fee schedule breakpoints at higher asset levels with respect to the Fund. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee rate schedules for the Fund provide for a reasonable sharing of benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Fund. The Board considered the “fall-out” or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Fund, including greater exposure in the marketplace with respect to the Manager’s or subadvisor’s investment process and expanding the level of assets under management by the Manager and the subadvisors. In addition, the Board noted that each subadviser benefits from soft dollar arrangements for third-party and proprietary research. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Fund appears to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made versus the Fund’s Broadridge performance universe and Morningstar Category. With respect to the Broadridge performance universe, the 1st Quintile represents the top twenty percent of the universe based on performance and the 5th Quintile representing the bottom twenty percent of the universe based on performance. References below to the Fund’s Broadridge performance universe are to the universe of mutual funds with a comparable investment classification/objective included in the analysis provided by Broadridge. Information regarding the performance of individual subadvisors is calculated by the Manager using information provided by the Fund’s custodian. In reviewing the performance, the Trustees viewed longer-term performance over a full market cycle, typically five years or longer, as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events.
The expense comparisons below were made versus the Fund’s Broadridge expense universe and Broadridge expense group, with the 1st Quintile representing the top twenty percent of the universe or group based on lowest total expense and the 5th Quintile representing the bottom twenty percent of the universe or group based on highest total expense. References below to the Fund’s expense group and expense universe are to the respective group or universe of comparable mutual funds included in the analysis by Broadridge. The Broadridge expense group consists of the Fund and a representative sample of funds with similar operating structures and asset sizes, as selected by Broadridge. The Broadridge expense universe includes all funds in the investment classification/objective with a similar operating structure as the share class of the Fund included in the Broadridge comparative information and provides a broader view of expenses across the Fund’s investment classification/objective. The Trustees also considered the Fund’s Morningstar fee level category. In reviewing expenses, information regarding the subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
In considering the renewal of the Management Agreement for the Fund, the Trustees considered the following additional factors:
Broadridge Total Expenses Excluding 12b-1 Fees and Morningstar Fee Level Ranking
Compared to Broadridge Expense Group | 1st Quintile | |
Compared to Broadridge Expense Universe | 1st Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Below Average Expense Ratio |
Broadridge and Morningstar Performance Analysis (five-year period ended February 28, 2017)
Compared to Broadridge Performance Universe | 2nd Quintile | |
Compared to Morningstar Category | 2nd Quintile |
48
Disclosure Regarding Approval of the Management and
Investment Advisory Agreements (Unaudited)
In considering the renewal of the Investment Advisory Agreements with Causeway, Lazard, and Templeton, the Trustees considered that the diversification of investment strategies facilitated by the Fund’s multi-manager structure permits the Fund to mitigate the risks associated with a single subadvisor. The Trustees also considered the following additional factors:
Subadvisor Performance (compared to Broadridge Performance Universe for period indicated, ending February 28, 2017)
Causeway | 5 years | 1st Quintile | ||
Lazard | 5 years | 1st Quintile | ||
Templeton | 5 years | 3rd Quintile |
The Trustees also considered: (1) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor’s allocation of the Fund; and (2) the Manager’s recommendation to continue to retain each subadvisor.
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable; and (2) determined that the Fund and its shareholders would benefit from the Manager’s and subadvisors’ continued management of the Fund.
49
Trustees and Officers of the American Beacon FundsSM (Unaudited)
The Trustees and officers of the American Beacon Funds (the “Trust”) are listed below, together with their principal occupations during the past five years. The address of each person listed below is 220 Las Colinas Boulevard East, Suite 1200, Irving, Texas 75039. Each Trustee oversees thirty-six funds in the fund complex that includes the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust. The Trust’s Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Alan D. Feld** (80) | Trustee since 1996 | Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present); Trustee, American Beacon Mileage Funds (1996-2012); Trustee, American Beacon Select Funds (1999-Present); Trustee, American Beacon Master Trust (1996-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (47) | Trustee since 2015 | Director, Kura MD, Inc. (local telehealth organization) (2015-present); Vice President & CFO, Sierra Health Foundation (health conversion private foundation) (2006-Present); Vice President & CFO, Sierra Health Foundation: Center for Health Program Management (California public benefit corporation) (2012-Present); Director, Innovative North State (2012-2015); Director, Sacramento Regional Technology Alliance (2011-2016); Director, Women’s Empowerment (2009-2014); Director, Valley Healthcare Staffing (2017–present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Joseph B. Armes (55) | Trustee since 2015 | Chairman & CEO, CSW Industrials f/k/a Capital Southwest Corporation (investment company) (2015-Present); Chairman of the Board of Capital Southwest Corporation, predecessor to CSW Industrials, Inc. (2014-present) (investment company); CEO, Capital Southwest Corporation (2013-2015); President & CEO, JBA Investment Partners (family investment vehicle) (2010-Present); Director and Chair of Audit Committee, RSP Permian (oil and gas producer) (2013-Present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Gerard J. Arpey (59) | Trustee since 2012 | Director, The Home Depot, Inc. (2015-Present); Partner, Emerald Creek Group (private equity firm) (2011-Present); Director, S.C. Johnson & Son, Inc. (privately held company) (2008-present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Brenda A. Cline (56) | Trustee since 2004 | Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). |
50
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Eugene J. Duffy (63) | Trustee since 2008 | Managing Director, Institutional Services, Intercontinental Real Estate Corporation (2014-Present); Principal and Executive Vice President, Paradigm Asset Management (1994-2014); Director, Sunrise Bank of Atlanta (2008-2013); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Thomas M. Dunning (75) | Trustee since 2008 | Chairman Emeritus, Lockton Dunning Benefits (consulting firm in employee benefits) (2008–Present); Board Director, Oncor Electric Delivery Company LLC (2007-Present); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Richard A. Massman (74) | Trustee since 2004 Chairman since 2008 | Consultant and General Counsel Emeritus, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (2009-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Barbara J. McKenna, CFA (54) | Trustee since 2012 | Managing Principal, Longfellow Investment Management Company (2005-Present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
R. Gerald Turner (71) | Trustee since 2001 | President, Southern Methodist University (1995-Present); Director, J.C. Penney Company, Inc. (1996-Present); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Trustee, American Beacon Mileage Funds (2001-2012); Trustee, American Beacon Select Funds (2001-Present); Trustee, American Beacon Master Trust (2001-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (62) | President since 2009 | President, CEO and Director, American Beacon Advisors, Inc. (2009-Present); President, CEO and Director, Resolute Investment Managers, Inc. (2015-Present); President, CEO and Director, Resolute Acquisition, Inc. (2015-Present); President, CEO and Director, Resolute Topco, Inc. (2015-Present), President & CEO, Resolute Investment Holdings, LLC (2015-Present); President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President and CEO, American Private Equity Management, LLC (2012-Present); President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Director, Chairman, President and CEO, Alpha Quant Advisors, LLC (2016-Present); Director, ARK Investment Management LLC (2016-Present); Director, Shapiro Capital Management LLC (2017-Present); Member, Investment Advisory Committee, Employees Retirement System of Texas (2017-Present); Trustee, American Beacon NextShares Trust (2015-Present); President, American Beacon Select Funds (2009-Present); President, American Beacon Mileage Funds (2009-2012); President, American Beacon Master Trust (2009–2012); President, American Beacon Institutional Funds Trust (2017-Present). |
51
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rosemary K. Behan (58) | VP, Secretary and Chief Legal Officer since 2006 | Vice President and Secretary, American Beacon Advisors, Inc. (2006-Present); Secretary, Resolute Investment Holdings, LLC (2015-Present) Secretary, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015–Present); Secretary, Lighthouse Holdings, Inc. (2008-2015); Secretary, Lighthouse Holdings Parent, Inc. (2008-2015); Secretary, American Private Equity Management, LLC (2008-Present); Secretary, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Secretary, Alpha Quant Advisors, LLC (2016-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Select Funds (2006-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Mileage Funds (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Master Trust (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Brian E. Brett (57) | VP since 2004 | Senior Vice President (2012-Present) and Vice President (2004-2012), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2004-Present); Vice President, American Beacon Mileage Funds (2004-2012); Vice President, American Beacon Master Trust (2004-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Paul B. Cavazos (48) | VP since 2016 | Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer and Assistant Treasurer, DTE Energy (2007-2016); Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Erica Duncan (47) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Melinda G. Heika (56) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present); Resolute Investment Managers, Inc. (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present); Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute Investment Holdings, LLC. (2015-Present); Treasurer, Lighthouse Holdings, Inc. (2010-2015); Treasurer, Lighthouse Holdings Parent Inc., (2010-2015); Treasurer, American Private Equity Management, LLC (2012-Present); Director and Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Treasurer, American Beacon Select Funds (2010-Present); Treasurer, American Beacon Mileage Funds (2010-2012); Treasurer, American Beacon Master Trust (2010-2012); Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Terri L. McKinney (53) | VP since 2010 | Vice President (2009-Present) and Managing Director (2003-2009), American Beacon Advisors, Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). |
52
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Jeffrey K. Ringdahl (42) | VP since 2010 | Senior Vice President (2013-Present), Vice President (2010-2013), and Director (2015-Present), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Senior Vice President (2012-Present) and Manager (2015-Present), American Private Equity Management, LLC; Senior Vice President, Lighthouse Holdings, Inc. (2013-2015); Senior Vice President, Lighthouse Holdings Parent, Inc. (2013-2015); Director and Vice President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Trustee, American Beacon NextShares Trust (2015-Present); Director and Senior Vice Present, Resolute Investment Holdings, LLC (2015-Present); Director and Senior Vice President, Resolute Topco, Inc. (2015-Present); Director and Senior Vice President, Resolute Acquisition, Inc. (2015-Present); Director and Senior Vice President, Resolute Investment Managers, Inc. (2015-Present); Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-President); Director, Shapiro Capital Management, LLC (2017-Present). | ||
Samuel J. Silver (54) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); American Beacon Institutional Funds Trust (2011-Present). | ||
Christina E. Sears (46) | Chief Compliance Officer since 2004 and Asst. Secretary since 1999 | Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Chief Compliance Officer, American Private Equity Management, LLC (2012-Present); Chief Compliance Officer and Vice President, Alpha Quant Advisors, LLC (2016-Present); Chief Compliance Officer (2004-Present) and Assistant Secretary (1999-Present), American Beacon Select Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Mileage Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Master Trust; Chief Compliance Officer and Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Sonia L. Bates (60) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-Present); Assistant Treasurer, Resolute Investment Managers, Inc. (2015-Present); Assistant Treasurer, Resolute Acquisition, Inc. (2015-Present); Assistant. Treasurer, Resolute Topco, Inc. (2015-Present); Assistant Treasurer, Resolute Investment Holdings, LLC.; Assistant Treasurer, Lighthouse Holdings, Inc. (2011-2015); Assistant Treasurer, Lighthouse Holdings Parent Inc. (2011-2015); Assistant Treasurer, American Private Equity Management, LLC (2012-Present); Assistant Treasurer, American Beacon Select Funds (2011-Present); Assistant Treasurer American Beacon Mileage Funds (2011-2012); Assistant Treasurer, American Beacon Master Trust (2011-2012); Assistant Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Shelley D. Abrahams (42) | Assistant Secretary since 2008 | Assistant Secretary, American Beacon Advisors, Inc. (2008-Present); Assistant Secretary, American Beacon Select Funds (2008-Present); Assistant Secretary, American Beacon Mileage Funds (2008-2012); Assistant Secretary, American Beacon Master Trust (2008-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
53
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rebecca L. Harris (50) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2010-Present); Assistant Secretary, American Beacon Mileage Funds (2010-2012); Assistant Secretary, American Beacon Master Trust (2010-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Diana N. Lai (41) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Advisors, Inc. (2012-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Teresa A. Oxford (59) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2015-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
* As of 11/12/2014, the Board 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 75.
** Mr. Feld is deemed to be an “interested person” of the Trusts, as defined by the 1940 Act. Mr. Feld’s law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to one or more of the Trust’s sub-advisors.
54
American Beacon FundsSM
October 31, 2017 (Unaudited)
The American Beacon Funds recognize and respect 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:
• | information we receive from you on applications or other forms; |
• | information about your transactions with us or our service providers; and |
• | information we receive from third parties. |
We do not disclose any nonpublic personal information about our customers or former customers 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 personal information, we maintain safeguards that comply with federal standards.
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Delivery of Documents
eDelivery is NOW AVAILABLE – Stop traditional mail delivery and receive your
shareholder reports and summary prospectus on-line. Sign up at
www.americanbeaconfunds.com
If you invest in the Fund through a financial institution, you may be able to receive the Fund’s 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 Fund:
By E-mail: | On the Internet: | |
american_beacon.funds@ambeacon.com | Visit our website at www.americanbeaconfunds.com | |
By Telephone: Call (800) 658-5811 | By Mail: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 | |
Availability of Quarterly Portfolio Schedules | Availability of Proxy Voting Policy and Records | |
In addition to the Schedule of Investments provided in each semi-annual and annual report, the 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 Fund’s 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 Section, 100 F Street, NE, Washington, D.C. 20549-2736. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling (800)-SEC-0330. A complete schedule of the Fund’s portfolio holdings is also available at www.americanbeaconfunds.com approximately twenty days after the end of each month. | A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund’s Statement of Additional Information, is available free of charge on the Fund’s website www.americanbeaconfunds.com and by calling 1-800-967-9009 or by accessing the SEC’s website at www.sec.gov. The Fund’s proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund’s Forms N-PX are available on the SEC’s website at www.sec.gov. The Fund’s proxy voting record may also be obtained by calling 1-800-967-9009. |
Fund Service Providers:
CUSTODIAN State Street Bank and Trust Boston, Massachusetts | TRANSFER AGENT Boston Financial Data Services Kansas City, Missouri | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Foreside Fund Services, LLC Portland, Maine |
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current Prospectus or Summary Prospectus.
American Beacon Funds and American Beacon International Equity Fund are service marks of American Beacon Advisors, Inc.
AR 10/17
About American Beacon Advisors
Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management.
Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company.
SMALL CAP VALUE FUND RISKS
Investing in small-capitalization stocks may involve greater volatility and lower liquidity than larger company stocks. Investing in value stocks may limit downside risk over time; however, the Fund may produce more modest gains than riskier stock funds as a trade-off for this potentially lower risk. Investing in foreign securities may involve heightened risk due to currency fluctuations and economic and political risks. The use of futures contracts for cash management may subject the Fund to losing more money than invested. The Fund participates in a securities lending program. Please see the prospectus for a complete discussion of the Fund’s risks. There can be no assurances that the investment objectives of this Fund will be met.
Any opinions herein, including forecasts, reflect our judgment as of the end of the reporting period and are subject to change. Each advisor’s strategies and the 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, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein.
American Beacon Funds | October 31, 2017 |
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements | 49 | |||
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| Back Cover |
Dear Shareholders,
At American Beacon, we are proud to offer a broad range of equity, fixed-income and alternative mutual fund products for institutions and individuals. Our mutual funds – which span the domestic, international, global, frontier and emerging markets – are sub-advised by experienced portfolio managers who employ distinctive investment processes to manage assets through a variety of economic and market conditions. Together, we work diligently to help our clients and shareholders meet their long-term financial goals.
Institutional wisdom, enduring value. Since our inception as a pension fiduciary in 1986, American Beacon has focused on identifying and overseeing institutional investment managers and portfolio risk management. In 1987, we leveraged our size and experience to launch a series of sub-advised, multi- |
manager mutual funds providing individual investors access to many of the same institutional managers as our pension clients. Following the financial crisis in 2008, we saw that investors were looking for unique solutions from managers who were not necessarily mainstream. In 2010, we began offering mutual funds from single managers with distinctive investment styles or asset classes. As we continue to expand our family of funds, our solutions-based approach provides innovative investments.
Guiding principles. Our “manager of managers” philosophy is built on a long-standing history of innovative thinking, discipline and consistency in applying our solutions-based approach. As a manager of managers, our goal is to engage the most effective money managers for each asset class, investment style or market strategy – whether through a single sub-advisor or a combination of sub-advisors. Because we take our fiduciary responsibilities very seriously, our thorough manager evaluation and selection process is rigorous and ongoing. Our guiding principles – predictability, style consistency, competitive pricing and long-term relationships – provide a strong foundation for our due-diligence process. Our broad range of mutual funds helps investors navigate the economic storms and market downturns in the U.S. and abroad. Our years of experience evaluating sub-advisors have led us to identify and partner with asset managers who have adhered to their disciplined processes for many years and through multiple market cycles.
Focus on asset protection and risk mitigation. We strive to provide innovative, long-term products without gimmicks. From offering some of the first multi-manager funds, one of the first retirement-income funds and the first open-end mutual fund in the U.S. to focus primarily on frontier-market debt, our robust history includes applying a disciplined, solutions-based approach to our product development process to help protect assets and mitigate risk.
Thank you for your continued interest in American Beacon. For additional information about our funds or to access your account information, please visit our website at www.americanbeaconfunds.com.
Best Regards,
Gene L. Needles, Jr.
President
American Beacon Funds
1
Domestic Equity Market Overview
October 31, 2017 (Unaudited)
At the beginning of the 12-month period ended October 31, 2017, U.S. presidential election news dominated headlines. Following Donald Trump’s victory, the post-election optimism of investors and the Trump administration’s emphasis on tax cuts and infrastructure spending pushed markets higher. Over the trailing 12 months, the S&P 500 Index and the Dow Jones Industrial Average (“DJIA”) increased 23.6% and 32.1%, respectively. From January 2017 through October 2017, the S&P 500 Index and DJIA were up 16.9% and 20.6%, respectively, while market volatility remained elusive.
With the exception of the Telecommunications sector, all S&P 500 Index sectors were up for the trailing 12-month period. The Information Technology and Financials sectors remained the front runners, followed by the Basic Materials and Industrials sectors. Even with the significant decline in oil prices year-to-date in 2017, the Energy sector was able to pump out a 2.5% trailing 12-month return. The Consumer Staples sector has been hard-hit since this summer’s news about Amazon.com, Inc.’s surprise acquisition of Whole Foods.
With strength in the Information Technology and Health Care sectors, growth stocks continued to trounce value stocks in the trailing 12-month period. While large-cap securities have performed very well thus far, small-cap securities have done even better – perhaps driven by improved prospects of tax reform. The Russell 2000 Index was up 27.9% in the period under review, while the Russell 1000 Index gained 23.7% and the Russell Midcap Index rose 21.1%.
Federal Reserve (the “Fed”) Chair Janet Yellen has reiterated the importance of measured rate normalization following a decade of near-zero interest rates. The Fed increased short-term interest rates by 0.25% in December 2016, March 2017 and June 2017. Following the June 2017 rate hike, short-term interest rates ranged from 1.00% to 1.25%. Long-term inflation expectations initially increased sharply in the wake of the presidential election, but ultimately proved elusive. Consumer confidence consistently surprised to the upside for the last 12 months, despite mixed economic data and slower job growth. Gross domestic product (“GDP”) for first quarter was revised up to 1.4%, driven largely by consumer spending. The upward revision doubled the original 0.7% GDP reported in April, but still undershot expectations. Final second-quarter GDP growth beat expectations at 3.1%. GDP expanded at a 3% annual rate in the third quarter. From a macro perspective, the resilience of the U.S. economy was tested by major hurricanes hitting Texas, Florida and Puerto Rico. With the help of soaring stock prices and rising business and consumer confidence, the U.S. economy posted its best six-month stretch of growth in three years. At the end of the period, investors awaited President Trump’s nominee for Ms. Yellen’s successor.
The U.S. is clearly in the back half of what is being viewed as a very long economic cycle, which continues to be fueled by the acceleration of global profit growth, a pickup in domestic and global manufacturing, and early signs of better capital expenditure and higher wages. In other words, the U.S. economic recovery could very well continue for the foreseeable future. The U.S. equity market appears to be accepting of a gradual return to normalized interest rates and balance-sheet reductions. The U.S. market also appears to be holding its own even in light of headwinds that include everything from natural disasters, to domestic terrorism, to dealing with an unpredictable foreign dictator. The resilience of the U.S. equity market has been notable.
2
American Beacon Small Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
The Investor Class of the American Beacon Small Cap Value Fund (the “Fund”) returned 24.43% for the twelve months ended October 31, 2017, underperforming the Russell 2000® Value Index (the “Index”) return of 24.81% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/07 through 10/31/17
Total Returns for the Period ended October 31, 2017 | |||||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2007- 10/31/2017 | ||||||||||||||||||||||||||||
Institutional Class (1,8) | AVFIX | 24.85 | % | 9.60 | % | 14.70 | % | 8.42 | % | $ | 22,447 | ||||||||||||||||||||||
Y Class (1,2,8) | ABSYX | 24.70 | % | 9.51 | % | 14.59 | % | 8.32 | % | $ | 22,228 | ||||||||||||||||||||||
Investor Class (1,8) | AVPAX | 24.43 | % | 9.25 | % | 14.32 | % | 8.06 | % | $ | 21,705 | ||||||||||||||||||||||
Advisor Class (1,3,8) | AASSX | 24.26 | % | 9.08 | % | 14.13 | % | 7.88 | % | $ | 21,359 | ||||||||||||||||||||||
A without Sales Charge (1,4,8) | ABSAX | 24.36 | % | 9.17 | % | 14.20 | % | 7.95 | % | $ | 21,498 | ||||||||||||||||||||||
A with Sales Charge (1,4,8) | ABSAX | 17.22 | % | 7.04 | % | 12.86 | % | 7.32 | % | $ | 20,261 | ||||||||||||||||||||||
C without Sales Charge (1,5,8) | ASVCX | 23.44 | % | 8.35 | % | 13.35 | % | 7.36 | % | $ | 20,345 | ||||||||||||||||||||||
C with Sales Charge (1,5,8) | ASVCX | 22.44 | % | 8.35 | % | 13.35 | % | 7.36 | % | $ | 20,345 | ||||||||||||||||||||||
R6 Class (1,6,8) | AASRX | 24.85 | % | 9.60 | % | 14.70 | % | 8.42 | % | $ | 22,447 | ||||||||||||||||||||||
Russell 2000® Value Index (7) | 24.81 | % | 9.67 | % | 13.58 | % | 7.04 | % | $ | 19,745 |
1. | Performance shown is historical and is not indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is calculated based on the published end of day net asset values as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. 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 10/31/07 up to 8/3/09, the inception date of the Y Class. Expenses of the Y Class are higher than those of the Institutional Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/07. |
3. | A portion of the fees charged to the Advisor Class of the Fund was waived in 2009. Performance prior to waiving fees was lower than the actual returns shown for the ten-year period. |
3
American Beacon Small Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
4. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 up to 5/17/10, the inception date of the A Class, and the returns of the A Class since its inception. Expenses of the A Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the A Class been in existence since 10/31/07. A portion of the fees charged to the A Class of the Fund was waived in 2010, 2012, 2013, and 2014 and fully recovered in 2015. Performance prior to waiving fees was lower than the actual returns shown in 2010, 2012, 2013, and 2014. The maximum sales charge for A Class is 5.75%. |
5. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 up to 9/1/10, the inception date of the C Class, and the returns of the C Class since its inception. Expenses of the C Class are higher than those of the Investor Class. As a result, total returns shown may be higher than they would have been had the C Class been in existence since 10/31/07. A portion of the fees charged to the C Class of the Fund was waived in 2010, 2012, and 2013 and fully recovered in 2015. Performance prior to waiving fees was lower than the actual returns shown in 2010, 2012 and 2013. The maximum contingent deferred sales charge for C Class is 1.00% for shares redeemed within one year of the date of purchase. |
6. | Fund performance for the one-year, three-year, five-year and ten-year periods represent the returns achieved by the Institutional Class from 10/31/07 through 2/28/17, the inception date of the R6 Class, and the returns of the R6 Class since its inception. Expenses of the R6 Class are lower than those of the Institutional Class. As a result, total returns shown may be lower than they would have been had the R6 Class been in existence since 10/31/07. A portion of the fees charged to the R6 Class of the Fund has been waived since 2/28/17. Performance prior to waiving fees was lower than the actual returns shown. |
7. | The Russell 2000 Value Index is an unmanaged index of those stocks in the Russell 2000 Index with lower price-to-book ratios and lower forecasted growth values. Russell 2000 Value Index and Russell 2000 Index are registered trademarks of the Frank Russell Company. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data, and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. One cannot directly invest in an index. |
8. | The Total Annual Fund Operating Expense ratios set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, C, and R6 Class shares was 0.84%, 0.91%, 1.15%, 1.32%, 1.22%, 1.97%, and 0.82%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. |
Prior to the deduction of expenses, the Fund outperformed the Index through sector allocation. Stock selection detracted value relative to the Index.
From a sector allocation perspective the Fund’s underweight position in Real Estate, one of the poorer performing sectors, contributed to performance. An overweight in Industrials, the second best performing sector, also added relative value. The aforementioned performance was slightly offset by an underweight in Financials which detracted from the Fund’s returns.
Most of the Fund’s performance related to security selection was attributed to holdings in the Health Care and Energy sectors. In Health Care, the Fund’s absence from Bluebird Bio, Inc., which was up 191.3% in the Index, negatively impacted performance. The Fund’s position in LifePoint Health, Inc., (down 26.2%) also detracted relative value. Companies in the Energy sector detracting from performance included Callon Petroleum Co. (down 14.9%) and Range Resources Corp. (down 43.8%). Good security selection in the Real Estate sector added relative value. The GEO Group, Inc., (up 76.1%) was the largest contributor in the Real Estate sector.
The sub-advisors continue to focus on uncovering investment opportunities through stock selection that should benefit the Fund’s performance over the longer term.
Top Ten Holdings (% Net Assets) | ||||||||
Vishay Intertechnology, Inc. | 1.0 | |||||||
Brooks Automation, Inc. | 0.8 | |||||||
Associated Banc-Corp | 0.8 | |||||||
Texas Capital Bancshares, Inc. | 0.8 | |||||||
UMB Financial Corp. | 0.8 | |||||||
II-VI, Inc. | 0.7 | |||||||
Diodes, Inc. | 0.7 | |||||||
Allegheny Technologies, Inc. | 0.7 | |||||||
Portland General Electric Co. | 0.7 | |||||||
Fulton Financial Corp. | 0.7 | |||||||
Total Fund Holdings | 578 |
4
American Beacon Small Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
Sector Allocation (% Equities) | ||||||||
Financials | 25.5 | |||||||
Industrials | 20.5 | |||||||
Information Technology | 15.3 | |||||||
Consumer Discretionary | 14.3 | |||||||
Materials | 6.5 | |||||||
Real Estate | 4.3 | |||||||
Energy | 4.0 | |||||||
Health Care | 4.0 | |||||||
Utilities | 2.7 | |||||||
Consumer Staples | 2.4 | |||||||
Exchange-Traded Instruments | 0.3 | |||||||
Telecommunication Services | 0.2 |
5
American Beacon Small Cap Value FundSM
October 31, 2017 (Unaudited)
Fund Expense Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees if applicable, and (2) ongoing costs, including management fees, distribution (12b-1) fees, Sub-transfer agent fees, and other Fund expenses. The Examples 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 May 1, 2017 through October 31, 2017.
Actual Expenses
The “Actual” lines of the table provide information about actual account values and actual expenses. You may use the information on this page, 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 = $8.60), then multiply the result by the “Expenses Paid During Period” to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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 Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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, such as sales charges (loads) or redemption fees, as applicable. 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.
6
American Beacon Small Cap Value FundSM
Expense Example
October 31, 2017 (Unaudited)
Small Cap Value Fund | |||||||||||||||
Beginning Account Value 5/1/2017 | Ending Account Value 10/31/2017 | Expenses Paid During Period 5/1/2017-10/31/2017* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,055.80 | $4.25 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.10 | $4.18 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,055.40 | $4.66 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.70 | $4.58 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,054.50 | $5.85 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.50 | $5.75 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $1,053.20 | $6.73 | ||||||||||||
Hypothetical** | $1,000.00 | $1,018.70 | $6.61 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $1,053.80 | $6.26 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.10 | $6.16 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $1,049.80 | $10.23 | ||||||||||||
Hypothetical** | $1,000.00 | $1,015.20 | $10.06 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $1,055.80 | $4.15 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.20 | $4.08 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.82%, 0.90%, 1.13%, 1.30%, 1.21%, 1.98%, and 0.80% for the Institutional, Y, Investor, Advisor, A, C, and R6 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 (365) to reflect the half-year period. |
** | 5% return before expenses. |
7
American Beacon Small Cap Value FundSM
Report of Independent Registered Public Accounting Firm
The Shareholders and Board of Trustees of
American Beacon Small Cap Value Fund
We have audited the accompanying statement of assets and liabilities, including the schedule of investments, of American Beacon Small Cap Value Fund (one of the funds constituting the American Beacon Funds) (the Fund), as of October 31, 2017, and the related statement 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 Fund’s 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 the 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. We were not engaged to perform an audit of the Fund’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s 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 October 31, 2017, 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 American Beacon Small Cap Value Fund at October 31, 2017, the results of its operations for the year then ended, the changes in its 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.
Dallas, Texas
December 29, 2017
8
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% | |||||||||||||||
Consumer Discretionary - 13.84% | |||||||||||||||
Auto Components - 2.32% | |||||||||||||||
American Axle & Manufacturing Holdings, Inc.A | 2,670,507 | $ | 47,508,319 | ||||||||||||
Cooper Tire & Rubber Co. | 351,343 | 11,524,050 | |||||||||||||
Cooper-Standard Holdings, Inc.A | 50,231 | 5,599,752 | |||||||||||||
Dana, Inc. | 1,110,181 | 33,849,419 | |||||||||||||
Gentex Corp. | 920,800 | 17,872,728 | |||||||||||||
Gentherm, Inc.A | 493,951 | 16,547,358 | |||||||||||||
Standard Motor Products, Inc. | 81,931 | 3,577,927 | |||||||||||||
Superior Industries International, Inc. | 176,316 | 2,741,714 | |||||||||||||
Tenneco, Inc. | 415,562 | 24,148,308 | |||||||||||||
|
| ||||||||||||||
163,369,575 | |||||||||||||||
|
| ||||||||||||||
Automobiles - 0.17% | |||||||||||||||
Winnebago Industries, Inc. | 246,700 | 12,125,305 | |||||||||||||
|
| ||||||||||||||
Diversified Consumer Services - 1.00% | |||||||||||||||
Adtalem Global Education, Inc. | 593,549 | 21,931,635 | |||||||||||||
American Public Education, Inc.A | 71,210 | 1,424,200 | |||||||||||||
Bridgepoint Education, Inc.A | 322,854 | 3,125,227 | |||||||||||||
Graham Holdings Co., Class B | 14,800 | 8,235,460 | |||||||||||||
H&R Block, Inc. | 536,900 | 13,282,906 | |||||||||||||
K12, Inc.A | 67,200 | 1,089,984 | |||||||||||||
Sotheby’sA | 101,674 | 5,268,747 | |||||||||||||
Strayer Education, Inc. | 84,984 | 7,965,550 | |||||||||||||
Weight Watchers International, Inc.A | 179,778 | 8,075,628 | |||||||||||||
|
| ||||||||||||||
70,399,337 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 0.72% | |||||||||||||||
Belmond Ltd., Class AA | 1,005,041 | 13,216,289 | |||||||||||||
Bloomin’ Brands, Inc. | 509,951 | 9,066,929 | |||||||||||||
Cheesecake Factory, Inc.B | 423,870 | 18,963,944 | |||||||||||||
International Speedway Corp., Class A | 79,120 | 3,073,812 | |||||||||||||
Ruby Tuesday, Inc.A | 181,383 | 429,878 | |||||||||||||
SeaWorld Entertainment, Inc.B | 328,743 | 3,773,969 | |||||||||||||
Speedway Motorsports, Inc. | 124,236 | 2,478,508 | |||||||||||||
|
| ||||||||||||||
51,003,329 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 2.64% | |||||||||||||||
Cavco Industries, Inc.A | 56,218 | 8,820,604 | |||||||||||||
Ethan Allen Interiors, Inc. | 389,472 | 11,586,792 | |||||||||||||
Helen of Troy Ltd.A | 194,628 | 18,080,941 | |||||||||||||
KB Home | 760,045 | 20,848,034 | |||||||||||||
La-Z-Boy, Inc. | 130,757 | 3,523,901 | |||||||||||||
LGI Homes, Inc.A B | 69,200 | 4,174,836 | |||||||||||||
Lifetime Brands, Inc. | 39,020 | 727,723 | |||||||||||||
M/I Homes, Inc.A | 153,275 | 5,119,385 | |||||||||||||
MDC Holdings, Inc. | 165,357 | 6,124,823 | |||||||||||||
Meritage Homes Corp.A | 129,297 | 6,296,764 | |||||||||||||
Taylor Morrison Home Corp., Class AA | 498,824 | 12,046,600 | |||||||||||||
Tempur Sealy International, Inc.A | 150,500 | 9,838,185 | |||||||||||||
TRI Pointe Group, Inc.A | 2,360,637 | 41,759,669 | |||||||||||||
Tupperware Brands Corp. | 162,575 | 9,551,281 | |||||||||||||
Whirlpool Corp. | 111,457 | 18,271,146 | |||||||||||||
William Lyon Homes, Class AA | 324,876 | 9,015,309 | |||||||||||||
|
| ||||||||||||||
185,785,993 | |||||||||||||||
|
| ||||||||||||||
Internet & Direct Marketing Retail - 0.15% | |||||||||||||||
Shutterfly, Inc.A | 240,035 | 10,249,495 | |||||||||||||
|
|
See accompanying notes
9
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Consumer Discretionary - 13.84% (continued) | |||||||||||||||
Leisure Products - 0.20% | |||||||||||||||
Brunswick Corp. | 256,300 | $ | 12,981,595 | ||||||||||||
Johnson Outdoors, Inc., Class A | 10,025 | 753,980 | |||||||||||||
Sturm Ruger & Co., Inc.B | 13,900 | 688,745 | |||||||||||||
|
| ||||||||||||||
14,424,320 | |||||||||||||||
|
| ||||||||||||||
Media - 1.88% | |||||||||||||||
AMC Networks, Inc., Class AA | 176,600 | 8,985,408 | |||||||||||||
EW Scripps Co., Class AA | 874,679 | 15,166,934 | |||||||||||||
Gray Television, Inc.A | 683,500 | 10,642,095 | |||||||||||||
John Wiley & Sons, Inc., Class A | 95,057 | 5,194,865 | |||||||||||||
MDC Partners, Inc., Class AA | 983,600 | 11,311,400 | |||||||||||||
Meredith Corp.B | 332,316 | 17,612,748 | |||||||||||||
MSG Networks, Inc., Class AA | 197,050 | 3,418,818 | |||||||||||||
New York Times Co., Class A | 1,298,401 | 24,799,459 | |||||||||||||
Scholastic Corp. | 381,141 | 14,079,349 | |||||||||||||
Sinclair Broadcast Group, Inc., Class A | 627,615 | 19,895,395 | |||||||||||||
TEGNA, Inc. | 85,200 | 1,041,996 | |||||||||||||
|
| ||||||||||||||
132,148,467 | |||||||||||||||
|
| ||||||||||||||
Multiline Retail - 0.51% | |||||||||||||||
Big Lots, Inc. | 338,126 | 17,349,245 | |||||||||||||
Dillard’s, Inc., Class AB | 354,864 | 18,027,091 | |||||||||||||
Fred’s, Inc., Class AB | 94,957 | 418,761 | |||||||||||||
|
| ||||||||||||||
35,795,097 | |||||||||||||||
|
| ||||||||||||||
Specialty Retail - 3.48% | |||||||||||||||
Aaron’s, Inc. | 347,327 | 12,781,634 | |||||||||||||
Abercrombie & Fitch Co., Class A | 239,402 | 3,215,169 | |||||||||||||
America’s Car-Mart, Inc.A | 28,840 | 1,235,794 | |||||||||||||
Asbury Automotive Group, Inc.A | 59,100 | 3,628,740 | |||||||||||||
Ascena Retail Group, Inc.A B | 743,869 | 1,443,106 | |||||||||||||
AutoNation, Inc.A B | 218,800 | 10,371,120 | |||||||||||||
Bed Bath & Beyond, Inc. | 171,500 | 3,412,850 | |||||||||||||
Buckle, Inc.B | 191,094 | 3,143,496 | |||||||||||||
Caleres, Inc. | 337,411 | 9,221,443 | |||||||||||||
Cato Corp., Class A | 57,357 | 737,611 | |||||||||||||
Chico’s FAS, Inc. | 437,704 | 3,497,255 | |||||||||||||
Children’s Place, Inc. | 49,200 | 5,352,960 | |||||||||||||
DSW, Inc., Class A | 248,521 | 4,759,177 | |||||||||||||
Express, Inc.A | 1,101,412 | 7,456,559 | |||||||||||||
Finish Line, Inc., Class A | 167,446 | 1,552,225 | |||||||||||||
Genesco, Inc.A | 66,770 | 1,635,865 | |||||||||||||
Group 1 Automotive, Inc. | 171,530 | 13,477,112 | |||||||||||||
Guess?, Inc. | 1,409,858 | 22,853,798 | |||||||||||||
Hibbett Sports, Inc.A B | 197,744 | 2,531,123 | |||||||||||||
Kirkland’s, Inc.A | 138,189 | 1,616,811 | |||||||||||||
Lithia Motors, Inc., Class A | 67,100 | 7,594,378 | |||||||||||||
Lumber Liquidators Holdings, Inc.A B | 93,385 | 2,874,390 | |||||||||||||
Michaels Cos, Inc.A | 396,900 | 7,707,798 | |||||||||||||
Office Depot, Inc. | 8,601,468 | 26,664,551 | |||||||||||||
Penske Automotive Group, Inc. | 285,325 | 13,301,852 | |||||||||||||
Pier 1 Imports, Inc. | 461,913 | 1,921,558 | |||||||||||||
Rent-A-Center, Inc.B | 84,106 | 836,014 | |||||||||||||
Shoe Carnival, Inc. | 40,946 | 768,556 | |||||||||||||
Sleep Number Corp.A | 122,361 | 3,976,733 | |||||||||||||
Sonic Automotive, Inc., Class A | 1,221,151 | 24,239,847 | |||||||||||||
Urban Outfitters, Inc.A | 576,804 | 14,143,234 |
See accompanying notes
10
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Consumer Discretionary - 13.84% (continued) | |||||||||||||||
Specialty Retail - 3.48% (continued) | |||||||||||||||
Williams-Sonoma, Inc.B | 457,019 | $ | 23,582,180 | ||||||||||||
Zumiez, Inc.A | 184,142 | 3,250,106 | |||||||||||||
|
| ||||||||||||||
244,785,045 | |||||||||||||||
|
| ||||||||||||||
Textiles, Apparel & Luxury Goods - 0.77% | |||||||||||||||
Crocs, Inc.A | 375,648 | 3,831,610 | |||||||||||||
Deckers Outdoor Corp.A | 428,637 | 29,250,189 | |||||||||||||
Fossil Group, Inc.A B | 83,876 | 660,943 | |||||||||||||
G-III Apparel Group Ltd.A | 208,897 | 5,293,450 | |||||||||||||
Movado Group, Inc. | 107,201 | 2,969,468 | |||||||||||||
Oxford Industries, Inc. | 151,702 | 9,799,949 | |||||||||||||
Vera Bradley, Inc.A | 317,392 | 2,285,222 | |||||||||||||
|
| ||||||||||||||
54,090,831 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 974,176,794 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 2.29% | |||||||||||||||
Beverages - 0.37% | |||||||||||||||
Boston Beer Co., Inc., Class AA B | 145,773 | 25,954,883 | |||||||||||||
|
| ||||||||||||||
Food & Staples Retailing - 0.98% | |||||||||||||||
Andersons, Inc. | 268,203 | 10,044,202 | |||||||||||||
Chefs’ Warehouse, Inc.A | 96,065 | 1,916,497 | |||||||||||||
SpartanNash Co. | 402,236 | 9,874,894 | |||||||||||||
Sprouts Farmers Market, Inc.A | 790,024 | 14,607,544 | |||||||||||||
United Natural Foods, Inc.A | 785,697 | 30,461,473 | |||||||||||||
Weis Markets, Inc. | 55,296 | 2,147,143 | |||||||||||||
|
| ||||||||||||||
69,051,753 | |||||||||||||||
|
| ||||||||||||||
Food Products - 0.76% | |||||||||||||||
Darling Ingredients, Inc.A | 1,541,200 | 28,126,900 | |||||||||||||
Fresh Del Monte Produce, Inc. | 170,663 | 7,596,210 | |||||||||||||
Hain Celestial Group, Inc.A | 196,219 | 7,067,809 | |||||||||||||
Sanderson Farms, Inc. | 72,816 | 10,891,089 | |||||||||||||
|
| ||||||||||||||
53,682,008 | |||||||||||||||
|
| ||||||||||||||
Household Products - 0.11% | |||||||||||||||
Energizer Holdings, Inc. | 172,400 | 7,411,476 | |||||||||||||
|
| ||||||||||||||
Tobacco - 0.07% | |||||||||||||||
Universal Corp. | 87,327 | 5,008,203 | |||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 161,108,323 | ||||||||||||||
|
| ||||||||||||||
Energy - 3.92% | |||||||||||||||
Energy Equipment & Services - 1.61% | |||||||||||||||
C&J Energy Services, Inc.A | 403,900 | 11,507,111 | |||||||||||||
CARBO Ceramics, Inc.A B | 335,018 | 2,773,949 | |||||||||||||
Dril-Quip, Inc.A | 236,125 | 9,940,862 | |||||||||||||
Frank’s International N.V. | 3,162,619 | 20,904,912 | |||||||||||||
Key Energy Services, Inc.A B | 86,500 | 920,360 | |||||||||||||
McDermott International, Inc.A | 2,437,403 | 16,135,608 | |||||||||||||
Natural Gas Services Group, Inc.A | 225,207 | 6,260,755 | |||||||||||||
Newpark Resources, Inc.A | 1,107,368 | 9,689,470 | |||||||||||||
Oceaneering International, Inc. | 334,982 | 6,773,336 | |||||||||||||
Oil States International, Inc.A | 86,092 | 1,984,421 | |||||||||||||
Patterson-UTI Energy, Inc. | 1,043,946 | 20,649,252 |
See accompanying notes
11
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Energy - 3.92% (continued) | |||||||||||||||
Energy Equipment & Services - 1.61% (continued) | |||||||||||||||
SEACOR Holdings, Inc.A | 90,002 | $ | 4,248,094 | ||||||||||||
Unit Corp.A | 66,247 | 1,240,144 | |||||||||||||
|
| ||||||||||||||
113,028,274 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 2.31% | |||||||||||||||
Aegean Marine Petroleum Network, Inc. | 158,178 | 711,801 | |||||||||||||
Alliance Resource Partners LP, MLP | 157,459 | 3,101,942 | |||||||||||||
Arch Coal, Inc., Class A | 52,951 | 4,046,515 | |||||||||||||
Callon Petroleum Co.A | 3,943,366 | 43,731,929 | |||||||||||||
Cobalt International Energy, Inc.A B | 156,186 | 151,500 | |||||||||||||
Delek US Holdings, Inc. | 43,161 | 1,124,344 | |||||||||||||
Denbury Resources, Inc.A | 1,799,385 | 2,213,244 | |||||||||||||
Energy XXI Gulf Coast, Inc.A | 659,900 | 5,642,145 | |||||||||||||
Gran Tierra Energy, Inc.A | 1,238,162 | 2,686,811 | |||||||||||||
Gulfport Energy Corp.A | 402,560 | 5,515,072 | |||||||||||||
Kosmos Energy Ltd.A B | 2,436,067 | 18,708,995 | |||||||||||||
Oasis Petroleum, Inc.A | 1,248,876 | 11,801,878 | |||||||||||||
PBF Energy, Inc., Class A | 358,700 | 10,391,539 | |||||||||||||
PDC Energy, Inc.A | 278,800 | 14,199,284 | |||||||||||||
Peabody Energy Corp. | 125,212 | 3,867,799 | |||||||||||||
Renewable Energy Group, Inc.A B | 148,706 | 1,799,343 | |||||||||||||
SRC Energy, Inc.A | 1,514,826 | 14,451,440 | |||||||||||||
Whiting Petroleum Corp.A | 3,120,800 | 18,756,008 | |||||||||||||
|
| ||||||||||||||
162,901,589 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 275,929,863 | ||||||||||||||
|
| ||||||||||||||
Financials - 24.74% | |||||||||||||||
Banks - 14.46% | |||||||||||||||
Associated Banc-Corp | 2,191,629 | 55,448,214 | |||||||||||||
Banc of California, Inc.B | 128,400 | 2,702,820 | |||||||||||||
BancorpSouth, Inc. | 227,007 | 7,173,421 | |||||||||||||
Bank of NT Butterfield & Son Ltd. | 187,700 | 7,010,595 | |||||||||||||
BankUnited, Inc. | 216,500 | 7,545,025 | |||||||||||||
Banner Corp. | 294,320 | 16,870,422 | |||||||||||||
Berkshire Hills Bancorp, Inc. | 279,136 | 10,690,909 | |||||||||||||
BOK Financial Corp. | 134,691 | 11,646,731 | |||||||||||||
Boston Private Financial Holdings, Inc. | 131,104 | 2,084,554 | |||||||||||||
Brookline Bancorp, Inc. | 437,930 | 6,744,122 | |||||||||||||
Bryn Mawr Bank Corp. | 173,726 | 7,617,885 | |||||||||||||
Cathay General Bancorp | 359,603 | 15,031,405 | |||||||||||||
CenterState Bank Corp. | 250,600 | 6,675,984 | |||||||||||||
Central Pacific Financial Corp. | 333,396 | 10,375,284 | |||||||||||||
Chemical Financial Corp. | 265,620 | 13,995,518 | |||||||||||||
CoBiz Financial, Inc. | 304,819 | 6,230,500 | |||||||||||||
ConnectOne Bancorp, Inc. | 67,600 | 1,815,060 | |||||||||||||
Customers Bancorp, Inc.A | �� | 414,179 | 11,323,654 | ||||||||||||
CVB Financial Corp. | 448,570 | 10,702,880 | |||||||||||||
Enterprise Financial Services Corp. | 51,103 | 2,228,091 | |||||||||||||
FCB Financial Holdings, Inc., Class AA | 280,652 | 13,106,448 | |||||||||||||
First BanCorpA | 2,043,310 | 10,523,046 | |||||||||||||
First Busey Corp. | 254,700 | 7,926,264 | |||||||||||||
First Citizens BancShares, Inc., Class A | 16,723 | 6,772,815 | |||||||||||||
First Commonwealth Financial Corp. | 273,169 | 3,977,341 | |||||||||||||
First Financial Corp. | 114,839 | 5,454,852 | |||||||||||||
First Hawaiian, Inc. | 1,013,396 | 29,631,699 | |||||||||||||
First Horizon National Corp. | 1,103,976 | 20,721,630 |
See accompanying notes
12
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Financials - 24.74% (continued) | |||||||||||||||
Banks - 14.46% (continued) | |||||||||||||||
First Interstate BancSystem, Inc., Class A | 473,996 | $ | 18,628,043 | ||||||||||||
First Merchants Corp. | 88,886 | 3,822,098 | |||||||||||||
First Midwest Bancorp, Inc. | 612,510 | 14,142,856 | |||||||||||||
Flushing Financial Corp. | 49,669 | 1,489,077 | |||||||||||||
FNB Corp. | 1,081,511 | 14,589,583 | |||||||||||||
Fulton Financial Corp. | 2,654,929 | 48,319,708 | |||||||||||||
Great Western Bancorp, Inc. | 134,010 | 5,439,466 | |||||||||||||
Hancock Holding Co. | 526,653 | 25,674,334 | |||||||||||||
Hanmi Financial Corp. | 59,080 | 1,816,710 | |||||||||||||
Heartland Financial USA, Inc. | 58,850 | 2,898,362 | |||||||||||||
Heritage Financial Corp. | 257,807 | 7,863,113 | |||||||||||||
Hilltop Holdings, Inc. | 509,194 | 11,996,611 | |||||||||||||
Horizon Bancorp | 64,200 | 1,766,784 | |||||||||||||
IBERIABANK Corp. | 132,498 | 9,771,727 | |||||||||||||
International Bancshares Corp. | 485,870 | 19,726,322 | |||||||||||||
Investors Bancorp, Inc. | 1,063,801 | 14,627,264 | |||||||||||||
MB Financial, Inc. | 159,537 | 7,329,130 | |||||||||||||
National Bank Holdings Corp., Class A | 67,843 | 2,226,607 | |||||||||||||
Old National Bancorp | 2,083,117 | 37,912,729 | |||||||||||||
People’s United Financial, Inc. | 704,694 | 13,149,590 | |||||||||||||
Popular, Inc. | 626,154 | 22,967,329 | |||||||||||||
Prosperity Bancshares, Inc. | 639,713 | 42,080,321 | |||||||||||||
Renasant Corp. | 107,527 | 4,451,618 | |||||||||||||
Republic Bancorp, Inc., Class A | 42,600 | 1,675,032 | |||||||||||||
S&T Bancorp, Inc. | 85,575 | 3,499,162 | |||||||||||||
Seacoast Banking Corp. of FloridaA | 599,047 | 14,850,375 | |||||||||||||
Simmons First National Corp., Class A | 52,000 | 3,000,400 | |||||||||||||
South State Corp. | 126,834 | 11,421,402 | |||||||||||||
Sterling Bancorp | 840,926 | 21,065,196 | |||||||||||||
TCF Financial Corp. | 2,157,578 | 39,311,071 | |||||||||||||
Texas Capital Bancshares, Inc.A | 619,537 | 53,311,159 | |||||||||||||
Trustmark Corp. | 353,580 | 11,646,925 | |||||||||||||
UMB Financial Corp. | 721,137 | 53,025,204 | |||||||||||||
Umpqua Holdings Corp. | 2,115,337 | 43,279,795 | |||||||||||||
Union Bankshares Corp. | 401,609 | 13,859,527 | |||||||||||||
United Community Banks, Inc. | 574,541 | 15,753,914 | |||||||||||||
Valley National Bancorp | 1,230,431 | 14,149,956 | |||||||||||||
Webster Financial Corp. | 598,585 | 32,916,189 | |||||||||||||
WesBanco, Inc. | 249,812 | 10,092,405 | |||||||||||||
Westamerica BancorpB | 116,410 | 6,778,554 | |||||||||||||
Wintrust Financial Corp. | 286,782 | 23,312,509 | |||||||||||||
|
| ||||||||||||||
1,017,665,326 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 1.53% | |||||||||||||||
AllianceBernstein Holding LP, MLP | 271,655 | 7,022,282 | |||||||||||||
Cohen & Steers, Inc. | 318,326 | 13,843,998 | |||||||||||||
Donnelley Financial Solutions, Inc.A | 171,057 | 3,677,725 | |||||||||||||
Evercore, Inc., Class A | 100,800 | 8,074,080 | |||||||||||||
Federated Investors, Inc., Class B | 795,731 | 24,723,362 | |||||||||||||
INTL. FCStone, Inc.A | 42,600 | 1,768,326 | |||||||||||||
Lazard Ltd., Class A | 70,934 | 3,372,202 | |||||||||||||
Morningstar, Inc. | 127,587 | 10,871,688 | |||||||||||||
OM Asset Management PLC | 281,800 | 4,305,904 | |||||||||||||
Oppenheimer Holdings, Inc., Class A | 266,597 | 5,798,485 | |||||||||||||
Stifel Financial Corp. | 225,028 | 11,933,235 | |||||||||||||
Virtus Investment Partners, Inc. | 32,912 | 3,830,957 | |||||||||||||
Waddell & Reed Financial, Inc., Class AB | 465,706 | 8,704,045 | |||||||||||||
|
| ||||||||||||||
107,926,289 | |||||||||||||||
|
|
See accompanying notes
13
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Financials - 24.74% (continued) | |||||||||||||||
Consumer Finance - 0.97% | |||||||||||||||
Credit Acceptance Corp.A | 67,095 | $ | 19,238,149 | ||||||||||||
Encore Capital Group, Inc.A | 54,500 | 2,531,525 | |||||||||||||
EZCORP, Inc., Class AA | 284,358 | 2,914,669 | |||||||||||||
Green Dot Corp., Class AA | 103,048 | 5,834,578 | |||||||||||||
Nelnet, Inc., Class A | 185,301 | 10,847,521 | |||||||||||||
PRA Group, Inc.A B | 234,700 | 6,548,130 | |||||||||||||
Santander Consumer USA Holdings, Inc.A | 788,500 | 13,120,640 | |||||||||||||
SLM Corp.A | 699,800 | 7,410,882 | |||||||||||||
|
| ||||||||||||||
68,446,094 | |||||||||||||||
|
| ||||||||||||||
Insurance - 5.62% | |||||||||||||||
Ambac Financial Group, Inc.A | 138,395 | 2,253,071 | |||||||||||||
American Equity Investment Life Holding Co. | 494,653 | 14,597,210 | |||||||||||||
AMERISAFE, Inc. | 43,890 | 2,839,683 | |||||||||||||
Argo Group International Holdings Ltd. | 211,479 | 13,312,603 | |||||||||||||
Aspen Insurance Holdings Ltd. | 220,728 | 9,469,231 | |||||||||||||
Assurant, Inc. | 156,483 | 15,750,014 | |||||||||||||
Assured Guaranty Ltd. | 328,189 | 12,175,812 | |||||||||||||
Axis Capital Holdings Ltd. | 206,458 | 11,229,251 | |||||||||||||
CNO Financial Group, Inc. | 1,521,791 | 36,477,330 | |||||||||||||
eHealth, Inc.A | 80,288 | 2,037,709 | |||||||||||||
Employers Holdings, Inc. | 72,944 | 3,479,429 | |||||||||||||
Enstar Group Ltd.A | 188,374 | 42,911,597 | |||||||||||||
FBL Financial Group, Inc., Class A | 43,483 | 3,363,410 | |||||||||||||
First American Financial Corp. | 242,839 | 13,215,298 | |||||||||||||
Global Indemnity Ltd.A | 395,323 | 16,591,706 | |||||||||||||
Hanover Insurance Group, Inc. | 202,768 | 19,948,316 | |||||||||||||
Horace Mann Educators Corp. | 710,121 | 31,103,300 | |||||||||||||
Infinity Property & Casualty Corp. | 42,362 | 3,996,855 | |||||||||||||
Kemper Corp. | 148,996 | 9,550,644 | |||||||||||||
National General Holdings Corp. | 338,300 | 6,826,894 | |||||||||||||
National Western Life Group, Inc., Class A | 5,590 | 1,998,872 | |||||||||||||
Navigators Group, Inc. | 76,730 | 4,450,340 | |||||||||||||
Old Republic International Corp. | 708,786 | 14,381,268 | |||||||||||||
Primerica, Inc. | 137,296 | 12,150,696 | |||||||||||||
ProAssurance Corp. | 127,808 | 7,163,638 | |||||||||||||
RenaissanceRe Holdings Ltd. | 106,671 | 14,759,000 | |||||||||||||
Safety Insurance Group, Inc. | 121,172 | 9,960,338 | |||||||||||||
Selective Insurance Group, Inc. | 340,898 | 20,317,521 | |||||||||||||
State Auto Financial Corp. | 59,973 | 1,537,708 | |||||||||||||
Third Point Reinsurance Ltd.A | 275,784 | 4,605,593 | |||||||||||||
United Fire Group, Inc. | 62,141 | 2,864,079 | |||||||||||||
Universal Insurance Holdings, Inc. | 122,378 | 2,918,715 | |||||||||||||
Validus Holdings Ltd. | 240,541 | 12,527,375 | |||||||||||||
White Mountains Insurance Group Ltd. | 16,647 | 14,801,680 | |||||||||||||
|
| ||||||||||||||
395,566,186 | |||||||||||||||
|
| ||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) - 0.04% | |||||||||||||||
Apollo Commercial Real Estate Finance, Inc. | 164,209 | 2,967,257 | |||||||||||||
|
| ||||||||||||||
Thrifts & Mortgage Finance - 2.12% | |||||||||||||||
Beneficial Bancorp, Inc. | 175,525 | 2,896,162 | |||||||||||||
BofI Holding, Inc.A B | 145,700 | 3,919,330 | |||||||||||||
Capitol Federal Financial, Inc. | 398,689 | 5,497,921 | |||||||||||||
Dime Community Bancshares, Inc. | 83,138 | 1,833,193 | |||||||||||||
Essent Group Ltd.A | 215,790 | 9,196,970 | |||||||||||||
Flagstar Bancorp, Inc.A | 146,851 | 5,487,822 |
See accompanying notes
14
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Financials - 24.74% (continued) | |||||||||||||||
Thrifts & Mortgage Finance - 2.12% (continued) | |||||||||||||||
Kearny Financial Corp. | 212,200 | $ | 3,193,610 | ||||||||||||
Meridian Bancorp, Inc. | 108,407 | 2,135,618 | |||||||||||||
MGIC Investment Corp.A | 3,316,000 | 47,418,800 | |||||||||||||
Nationstar Mortgage Holdings, Inc.A | 225,748 | 4,395,314 | |||||||||||||
Northfield Bancorp, Inc. | 167,295 | 2,854,053 | |||||||||||||
Northwest Bancshares, Inc. | 297,860 | 5,024,898 | |||||||||||||
Oritani Financial Corp. | 109,696 | 1,859,347 | |||||||||||||
PHH Corp.A | 172,787 | 2,282,516 | |||||||||||||
Provident Financial Services, Inc. | 172,618 | 4,695,210 | |||||||||||||
Radian Group, Inc. | 552,800 | 11,586,688 | |||||||||||||
United Financial Bancorp, Inc. | 130,446 | 2,388,466 | |||||||||||||
Walker & Dunlop, Inc.A | 80,210 | 4,402,727 | |||||||||||||
Washington Federal, Inc. | 799,994 | 27,839,791 | |||||||||||||
|
| ||||||||||||||
148,908,436 | |||||||||||||||
|
| ||||||||||||||
Total Financials | 1,741,479,588 | ||||||||||||||
|
| ||||||||||||||
Health Care - 3.83% | |||||||||||||||
Health Care Equipment & Supplies - 0.77% | |||||||||||||||
Anika Therapeutics, Inc.A | 140,965 | 7,700,918 | |||||||||||||
Globus Medical, Inc., Class AA | 510,671 | 16,275,085 | |||||||||||||
Integra LifeSciences Holdings Corp.A | 40,557 | 1,897,256 | |||||||||||||
Invacare Corp. | 1,177,498 | 18,251,219 | |||||||||||||
Meridian Bioscience, Inc. | 139,041 | 2,078,663 | |||||||||||||
Natus Medical, Inc.A | 195,000 | 8,268,000 | |||||||||||||
|
| ||||||||||||||
54,471,141 | |||||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 2.17% | |||||||||||||||
Aceto Corp. | 368,226 | 3,708,036 | |||||||||||||
Almost Family, Inc.A | 44,260 | 1,958,505 | |||||||||||||
Amedisys, Inc.A | 233,531 | 11,235,177 | |||||||||||||
AMN Healthcare Services, Inc.A | 685,747 | 30,104,293 | |||||||||||||
Community Health Systems, Inc.A B | 427,717 | 2,523,530 | |||||||||||||
Hanger, Inc.A | 697,921 | 8,305,260 | |||||||||||||
HealthSouth Corp. | 801,880 | 36,998,743 | |||||||||||||
LifePoint Health, Inc.A | 230,290 | 11,088,464 | |||||||||||||
Magellan Health, Inc.A | 156,850 | 13,379,305 | |||||||||||||
Owens & Minor, Inc. | 450,813 | 11,076,475 | |||||||||||||
Select Medical Holdings Corp.A | 476,315 | 9,121,432 | |||||||||||||
Tivity Health, Inc.A | 287,039 | 13,275,554 | |||||||||||||
|
| ||||||||||||||
152,774,774 | |||||||||||||||
|
| ||||||||||||||
Health Care Technology - 0.33% | |||||||||||||||
HMS Holdings Corp.A | 87,165 | 1,677,055 | |||||||||||||
Omnicell, Inc.A | 291,914 | 14,537,317 | |||||||||||||
Quality Systems, Inc.A | 506,813 | 7,130,859 | |||||||||||||
|
| ||||||||||||||
23,345,231 | |||||||||||||||
|
| ||||||||||||||
Life Sciences Tools & Services - 0.31% | |||||||||||||||
Cambrex Corp.A | 341,963 | 14,789,900 | |||||||||||||
Charles River Laboratories International, Inc.A | 62,757 | 7,298,011 | |||||||||||||
|
| ||||||||||||||
22,087,911 | |||||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 0.25% | |||||||||||||||
Innoviva, Inc.A | 304,900 | 3,731,976 | |||||||||||||
Supernus Pharmaceuticals, Inc.A | 325,033 | 13,521,373 | |||||||||||||
|
| ||||||||||||||
17,253,349 | |||||||||||||||
|
| ||||||||||||||
Total Health Care | 269,932,406 | ||||||||||||||
|
|
See accompanying notes
15
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Industrials - 19.84% | |||||||||||||||
Aerospace & Defense - 1.57% | |||||||||||||||
AAR Corp. | 577,409 | $ | 22,455,436 | ||||||||||||
Aerojet Rocketdyne Holdings, Inc.A | 235,633 | 7,441,290 | |||||||||||||
Aerovironment, Inc.A | 346,363 | 17,719,931 | |||||||||||||
Cubic Corp. | 126,706 | 6,911,812 | |||||||||||||
Embraer S.A., Sponsored ADR | 908,100 | 17,381,034 | |||||||||||||
Esterline Technologies Corp.A | 81,340 | 7,715,099 | |||||||||||||
KLX, Inc.A | 165,750 | 9,093,045 | |||||||||||||
Moog, Inc., Class AA | 98,246 | 8,622,069 | |||||||||||||
Triumph Group, Inc. | 303,969 | 9,438,238 | |||||||||||||
Wesco Aircraft Holdings, Inc.A | 438,963 | 3,972,615 | |||||||||||||
|
| ||||||||||||||
110,750,569 | |||||||||||||||
|
| ||||||||||||||
Air Freight & Logistics - 0.74% | |||||||||||||||
Air Transport Services Group, Inc.A | 1,039,453 | 25,154,763 | |||||||||||||
Atlas Air Worldwide Holdings, Inc.A | 80,980 | 4,968,123 | |||||||||||||
Hub Group, Inc., Class AA | 506,918 | 21,949,549 | |||||||||||||
|
| ||||||||||||||
52,072,435 | |||||||||||||||
|
| ||||||||||||||
Airlines - 0.11% | |||||||||||||||
SkyWest, Inc. | 165,742 | 7,806,448 | |||||||||||||
|
| ||||||||||||||
Building Products - 2.61% | |||||||||||||||
Apogee Enterprises, Inc. | 167,540 | 7,996,684 | |||||||||||||
Armstrong Flooring, Inc.A | 324,800 | 4,807,040 | |||||||||||||
Builders FirstSource, Inc.A | 360,100 | 6,489,002 | |||||||||||||
Gibraltar Industries, Inc.A | 469,721 | 15,618,223 | |||||||||||||
Masonite International Corp.A | 521,106 | 34,966,213 | |||||||||||||
Ply Gem Holdings, Inc.A | 612,499 | 10,351,233 | |||||||||||||
Simpson Manufacturing Co., Inc. | 584,953 | 32,605,280 | |||||||||||||
Trex Co., Inc.A | 357,472 | 39,125,310 | |||||||||||||
Universal Forest Products, Inc. | 155,344 | 17,538,338 | |||||||||||||
USG Corp.A | 416,430 | 14,296,042 | |||||||||||||
|
| ||||||||||||||
183,793,365 | |||||||||||||||
|
| ||||||||||||||
Commercial Services & Supplies - 1.83% | |||||||||||||||
ACCO Brands Corp.A | 712,192 | 9,294,106 | |||||||||||||
Brink’s Co. | 44,955 | 3,421,075 | |||||||||||||
Deluxe Corp. | 231,421 | 16,118,473 | |||||||||||||
Essendant, Inc. | 176,746 | 1,710,901 | |||||||||||||
Herman Miller, Inc. | 191,500 | 6,434,400 | |||||||||||||
Interface, Inc. | 611,872 | 13,950,682 | |||||||||||||
Knoll, Inc. | 727,929 | 15,446,653 | |||||||||||||
LSC Communications, Inc. | 1,154,395 | 18,678,111 | |||||||||||||
Matthews International Corp., Class A | 101,284 | 6,365,699 | |||||||||||||
McGrath RentCorp | 68,625 | 3,067,538 | |||||||||||||
Mobile Mini, Inc. | 568,269 | 18,809,704 | |||||||||||||
MSA Safety, Inc. | 86,797 | 6,900,361 | |||||||||||||
Steelcase, Inc., Class A | 244,100 | 3,551,655 | |||||||||||||
Team, Inc.A B | 135,390 | 1,665,297 | |||||||||||||
Viad Corp. | 65,300 | 3,790,665 | |||||||||||||
|
| ||||||||||||||
129,205,320 | |||||||||||||||
|
| ||||||||||||||
Construction & Engineering - 3.18% | |||||||||||||||
AECOMA | 499,245 | 17,503,530 | |||||||||||||
Aegion Corp.A | 292,419 | 6,810,438 | |||||||||||||
Argan, Inc. | 31,800 | 2,186,250 | |||||||||||||
Comfort Systems USA, Inc. | 705,787 | 31,266,364 |
See accompanying notes
16
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Industrials - 19.84% (continued) | |||||||||||||||
Construction & Engineering - 3.18% (continued) | |||||||||||||||
EMCOR Group, Inc. | 331,625 | $ | 26,699,129 | ||||||||||||
Granite Construction, Inc. | 287,654 | 18,320,683 | |||||||||||||
KBR, Inc. | 1,469,695 | 28,850,113 | |||||||||||||
MasTec, Inc.A | 230,700 | 10,046,985 | |||||||||||||
Primoris Services Corp. | 864,477 | 24,438,765 | |||||||||||||
Quanta Services, Inc.A | 271,872 | 10,257,731 | |||||||||||||
Tutor Perini Corp.A | 1,258,409 | 35,487,134 | |||||||||||||
Valmont Industries, Inc. | 74,838 | 11,891,758 | |||||||||||||
|
| ||||||||||||||
223,758,880 | |||||||||||||||
|
| ||||||||||||||
Electrical Equipment - 1.32% | |||||||||||||||
Encore Wire Corp. | 346,208 | 15,631,291 | |||||||||||||
EnerSys | 563,586 | 39,095,961 | |||||||||||||
Generac Holdings, Inc.A | 231,242 | 12,045,396 | |||||||||||||
Regal Beloit Corp. | 257,883 | 20,927,206 | |||||||||||||
TPI Composites, Inc.A | 207,846 | 5,206,542 | |||||||||||||
|
| ||||||||||||||
92,906,396 | |||||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 0.03% | |||||||||||||||
Raven Industries, Inc. | 53,142 | 1,788,228 | |||||||||||||
|
| ||||||||||||||
Machinery - 5.02% | |||||||||||||||
Actuant Corp., Class A | 174,472 | 4,449,036 | |||||||||||||
Altra Industrial Motion Corp. | 72,702 | 3,482,426 | |||||||||||||
Astec Industries, Inc. | 172,417 | 8,957,063 | |||||||||||||
Barnes Group, Inc. | 574,273 | 37,379,430 | |||||||||||||
Briggs & Stratton Corp. | 418,800 | 10,553,760 | |||||||||||||
Chart Industries, Inc.A | 444,359 | 19,329,616 | |||||||||||||
Colfax Corp.A | 585,000 | 24,400,350 | |||||||||||||
Columbus McKinnon Corp. | 118,841 | 4,701,350 | |||||||||||||
Crane Co. | 285,035 | 23,692,109 | |||||||||||||
EnPro Industries, Inc. | 195,507 | 16,371,756 | |||||||||||||
Federal Signal Corp. | 982,300 | 20,972,105 | |||||||||||||
Global Brass & Copper Holdings, Inc. | 490,957 | 17,183,495 | |||||||||||||
Greenbrier Cos, Inc.B | 186,331 | 9,726,478 | |||||||||||||
Hillenbrand, Inc. | 383,801 | 15,179,330 | |||||||||||||
Hyster-Yale Materials Handling, Inc. | 126,157 | 9,902,063 | |||||||||||||
Kennametal, Inc. | 133,278 | 5,817,585 | |||||||||||||
Lindsay Corp. | 146,360 | 13,400,722 | |||||||||||||
Meritor, Inc.A | 555,853 | 14,457,737 | |||||||||||||
Miller Industries, Inc. | 226,733 | 6,405,207 | |||||||||||||
Navistar International Corp.A | 106,166 | 4,491,883 | |||||||||||||
Park-Ohio Holdings Corp. | 57,956 | 2,732,625 | |||||||||||||
Sun Hydraulics Corp. | 118,300 | 6,805,799 | |||||||||||||
Tennant Co. | 60,328 | 4,183,747 | |||||||||||||
Terex Corp. | 739,239 | 34,825,549 | |||||||||||||
TriMas Corp.A | 145,134 | 3,853,308 | |||||||||||||
Trinity Industries, Inc. | 668,816 | 21,749,896 | |||||||||||||
Wabash National Corp.B | 192,826 | 4,338,585 | |||||||||||||
Watts Water Technologies, Inc., Class A | 61,789 | 4,164,579 | |||||||||||||
|
| ||||||||||||||
353,507,589 | |||||||||||||||
|
| ||||||||||||||
Marine - 0.45% | |||||||||||||||
Kirby Corp.A | 138,712 | 9,827,745 | |||||||||||||
Matson, Inc. | 806,547 | 21,962,275 | |||||||||||||
|
| ||||||||||||||
31,790,020 | |||||||||||||||
|
|
See accompanying notes
17
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Industrials - 19.84% (continued) | |||||||||||||||
Professional Services - 1.15% | |||||||||||||||
Heidrick & Struggles International, Inc. | 159,718 | $ | 3,968,992 | ||||||||||||
Hudson Global, Inc.A | 623,926 | 942,128 | |||||||||||||
ICF International, Inc.A | 37,800 | 2,029,860 | |||||||||||||
Kelly Services, Inc., Class A | 408,767 | 10,754,660 | |||||||||||||
Korn/Ferry International | 1,077,749 | 45,082,241 | |||||||||||||
Navigant Consulting, Inc.A | 158,930 | 2,751,078 | |||||||||||||
Resources Connection, Inc. | 330,848 | 5,210,856 | |||||||||||||
RPX Corp.A | 198,176 | 2,580,252 | |||||||||||||
TrueBlue, Inc.A | 274,107 | 7,428,300 | |||||||||||||
|
| ||||||||||||||
80,748,367 | |||||||||||||||
|
| ||||||||||||||
Road & Rail - 0.43% | |||||||||||||||
ArcBest Corp. | 32,700 | 1,066,020 | |||||||||||||
Marten Transport Ltd. | 454,363 | 8,928,233 | |||||||||||||
Ryder System, Inc. | 171,600 | 13,913,328 | |||||||||||||
Werner Enterprises, Inc. | 180,193 | 6,423,880 | |||||||||||||
|
| ||||||||||||||
30,331,461 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 1.40% | |||||||||||||||
Air Lease Corp. | 330,657 | 14,367,047 | |||||||||||||
Aircastle Ltd. | 782,778 | 18,207,416 | |||||||||||||
Applied Industrial Technologies, Inc. | 109,206 | 6,950,962 | |||||||||||||
DXP Enterprises, Inc.A | 28,236 | 905,528 | |||||||||||||
GATX Corp.B | 125,249 | 7,441,043 | |||||||||||||
Kaman Corp. | 160,977 | 9,005,053 | |||||||||||||
MRC Global, Inc.A | 249,431 | 4,277,742 | |||||||||||||
MSC Industrial Direct Co., Inc., Class A | 150,014 | 12,436,161 | |||||||||||||
Rush Enterprises, Inc., Class AA | 457,374 | 23,225,452 | |||||||||||||
Textainer Group Holdings Ltd.A | 81,695 | 1,597,137 | |||||||||||||
|
| ||||||||||||||
98,413,541 | |||||||||||||||
|
| ||||||||||||||
Total Industrials | 1,396,872,619 | ||||||||||||||
|
| ||||||||||||||
Information Technology - 14.85% | |||||||||||||||
Communications Equipment - 1.93% | |||||||||||||||
ADTRAN, Inc. | 249,154 | 5,257,149 | |||||||||||||
ARRIS International PLCA | 1,684,326 | 48,003,291 | |||||||||||||
Ciena Corp.A | 689,612 | 14,668,047 | |||||||||||||
Comtech Telecommunications Corp. | 49,219 | 1,058,701 | |||||||||||||
Digi International, Inc.A | 82,188 | 854,755 | |||||||||||||
EchoStar Corp., Class AA | 133,268 | 7,456,345 | |||||||||||||
InterDigital, Inc. | 27,100 | 1,987,785 | |||||||||||||
NETGEAR, Inc.A | 413,528 | 19,291,081 | |||||||||||||
NetScout Systems, Inc.A | 401,603 | 11,405,525 | |||||||||||||
Oclaro, Inc.A B | 433,400 | 3,584,218 | |||||||||||||
Plantronics, Inc. | 496,952 | 22,541,743 | |||||||||||||
|
| ||||||||||||||
136,108,640 | |||||||||||||||
|
| ||||||||||||||
Electronic Equipment, Instruments & Components - 6.10% | |||||||||||||||
Anixter International, Inc.A | 195,810 | 13,452,147 | |||||||||||||
Avnet, Inc. | 382,347 | 15,217,411 | |||||||||||||
AVX Corp. | 506,673 | 9,545,719 | |||||||||||||
Belden, Inc. | 128,758 | 10,289,052 | |||||||||||||
Benchmark Electronics, Inc.A | 172,866 | 5,350,203 | |||||||||||||
Celestica, Inc.A | 486,285 | 4,887,164 | |||||||||||||
FabrinetA | 223,200 | 8,298,576 | |||||||||||||
FARO Technologies, Inc.A | 459,899 | 23,822,768 |
See accompanying notes
18
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Information Technology - 14.85% (continued) | |||||||||||||||
Electronic Equipment, Instruments & Components - 6.10% (continued) | |||||||||||||||
II-VI, Inc.A | 1,147,531 | $ | 51,868,401 | ||||||||||||
Insight Enterprises, Inc.A | 312,134 | 14,061,637 | |||||||||||||
Itron, Inc.A | 146,688 | 11,463,667 | |||||||||||||
Jabil, Inc. | 460,300 | 13,017,284 | |||||||||||||
Methode Electronics, Inc. | 312,323 | 14,647,949 | |||||||||||||
MTS Systems Corp. | 376,705 | 19,607,495 | |||||||||||||
PC Connection, Inc. | 31,560 | 852,120 | |||||||||||||
Plexus Corp.A | 679,945 | 41,769,021 | |||||||||||||
Sanmina Corp.A | 917,026 | 30,009,676 | |||||||||||||
ScanSource, Inc.A | 303,837 | 13,049,799 | |||||||||||||
SYNNEX Corp. | 128,000 | 17,264,640 | |||||||||||||
Tech Data Corp.A | 325,214 | 30,170,103 | |||||||||||||
TTM Technologies, Inc.A | 326,100 | 5,145,858 | |||||||||||||
VeriFone Systems, Inc.A | 234,346 | 4,471,322 | |||||||||||||
Vishay Intertechnology, Inc.B | 3,187,066 | 70,912,218 | |||||||||||||
|
| ||||||||||||||
429,174,230 | |||||||||||||||
|
| ||||||||||||||
Internet Software & Services - 0.45% | |||||||||||||||
Actua Corp.A | 77,720 | 1,200,774 | |||||||||||||
LivePerson, Inc.A | 368,717 | 5,180,474 | |||||||||||||
NIC, Inc. | 462,893 | 7,869,181 | |||||||||||||
Shutterstock, Inc.A B | 166,244 | 6,481,854 | |||||||||||||
Web.com Group, Inc.A | 442,445 | 10,662,924 | |||||||||||||
|
| ||||||||||||||
31,395,207 | |||||||||||||||
|
| ||||||||||||||
IT Services - 2.00% | |||||||||||||||
Acxiom Corp.A | 664,195 | 16,711,146 | |||||||||||||
CACI International, Inc., Class AA | 50,989 | 7,329,669 | |||||||||||||
Convergys Corp. | 418,698 | 10,773,100 | |||||||||||||
CSG Systems International, Inc. | 431,767 | 18,281,015 | |||||||||||||
CSRA, Inc. | 523,300 | 16,740,367 | |||||||||||||
DST Systems, Inc. | 285,670 | 16,745,975 | |||||||||||||
EVERTEC, Inc. | 232,700 | 3,490,500 | |||||||||||||
ManTech International Corp., Class A | 171,466 | 7,957,737 | |||||||||||||
Science Applications International Corp. | 86,364 | 6,333,936 | |||||||||||||
Sykes Enterprises, Inc.A | 93,733 | 2,712,633 | |||||||||||||
Teradata Corp.A | 479,109 | 16,026,196 | |||||||||||||
Travelport Worldwide Ltd. | 973,325 | 15,271,469 | |||||||||||||
Unisys Corp.A B | 318,398 | 2,785,982 | |||||||||||||
|
| ||||||||||||||
141,159,725 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 3.51% | |||||||||||||||
Advanced Energy Industries, Inc.A | 118,600 | 10,047,792 | |||||||||||||
Amkor Technology, Inc.A | 1,038,757 | 12,018,418 | |||||||||||||
Brooks Automation, Inc. | 1,693,033 | 58,223,405 | |||||||||||||
ChipMOS TECHNOLOGIES, Inc., ADRB | 115,144 | 2,302,880 | |||||||||||||
Cirrus Logic, Inc.A | 528,618 | 29,602,608 | |||||||||||||
Cree, Inc.A | 273,800 | 9,774,660 | |||||||||||||
Diodes, Inc.A | 1,474,523 | 50,635,120 | |||||||||||||
First Solar, Inc.A | 402,166 | 22,046,740 | |||||||||||||
IXYS Corp.A | 222,410 | 5,493,527 | |||||||||||||
Kulicke & Soffa Industries, Inc.A | 253,595 | 5,743,927 | |||||||||||||
Photronics, Inc.A | 2,691,219 | 26,104,824 | |||||||||||||
Veeco Instruments, Inc.A | 172,174 | 3,107,741 | |||||||||||||
Xcerra Corp.A | 1,194,440 | 11,765,234 | |||||||||||||
|
| ||||||||||||||
246,866,876 | |||||||||||||||
|
|
See accompanying notes
19
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Information Technology - 14.85% (continued) | |||||||||||||||
Software - 0.53% | |||||||||||||||
CommVault Systems, Inc.A | 91,057 | $ | 4,739,517 | ||||||||||||
MicroStrategy, Inc., Class AA | 71,644 | 9,475,635 | |||||||||||||
Verint Systems, Inc.A | 526,309 | 22,210,240 | |||||||||||||
Zix Corp.A | 160,015 | 776,073 | |||||||||||||
|
| ||||||||||||||
37,201,465 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 0.33% | |||||||||||||||
3D Systems Corp.A B | 94,990 | 1,175,976 | |||||||||||||
Cray, Inc.A | 440,777 | 9,102,045 | |||||||||||||
NCR Corp.A | 388,385 | 12,463,275 | |||||||||||||
Stratasys Ltd.A | 39,846 | 897,332 | |||||||||||||
|
| ||||||||||||||
23,638,628 | |||||||||||||||
|
| ||||||||||||||
Total Information Technology | 1,045,544,771 | ||||||||||||||
|
| ||||||||||||||
Materials - 6.33% | |||||||||||||||
Chemicals - 2.39% | |||||||||||||||
A Schulman, Inc. | 199,898 | 7,855,991 | |||||||||||||
Cabot Corp. | 447,276 | 27,265,945 | |||||||||||||
Flotek Industries, Inc.A B | 930,942 | 4,580,235 | |||||||||||||
HB Fuller Co. | 118,173 | 6,720,499 | |||||||||||||
Innophos Holdings, Inc. | 47,155 | 2,307,294 | |||||||||||||
Innospec, Inc. | 70,619 | 4,367,785 | |||||||||||||
Koppers Holdings, Inc.A | 58,300 | 2,830,465 | |||||||||||||
Kraton Corp.A | 169,357 | 8,303,574 | |||||||||||||
Kronos Worldwide, Inc. | 312,998 | 8,234,977 | |||||||||||||
LSB Industries, Inc.A B | 123,064 | 929,133 | |||||||||||||
Minerals Technologies, Inc. | 94,330 | 6,782,327 | |||||||||||||
PolyOne Corp. | 721,880 | 33,257,012 | |||||||||||||
Scotts Miracle-Gro Co. | 246,052 | 24,511,700 | |||||||||||||
Stepan Co. | 253,306 | 20,229,017 | |||||||||||||
Trinseo S.A. | 141,200 | 10,025,200 | |||||||||||||
|
| ||||||||||||||
168,201,154 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 0.43% | |||||||||||||||
Greif, Inc., Class A | 100,821 | 5,598,590 | |||||||||||||
Owens-Illinois, Inc.A | 1,045,490 | 24,976,756 | |||||||||||||
|
| ||||||||||||||
30,575,346 | |||||||||||||||
|
| ||||||||||||||
Metals & Mining - 2.71% | |||||||||||||||
Allegheny Technologies, Inc.A B | 1,938,700 | 48,816,466 | |||||||||||||
Carpenter Technology Corp. | 405,809 | 20,205,230 | |||||||||||||
Coeur Mining, Inc.A | 525,642 | 3,989,623 | |||||||||||||
Commercial Metals Co. | 595,174 | 11,593,990 | |||||||||||||
Ferroglobe PLC | 2,562,970 | 40,981,890 | |||||||||||||
Ferroglobe Representation & Warranty InsuranceC | 2,123,070 | - | |||||||||||||
Haynes International, Inc. | 25,949 | 925,860 | |||||||||||||
Hecla Mining Co. | 2,586,986 | 12,210,574 | |||||||||||||
Materion Corp. | 240,300 | 12,339,405 | |||||||||||||
Pan American Silver Corp. | 355,222 | 5,800,775 | |||||||||||||
Real Industry, Inc.A B | 722,432 | 1,264,256 | |||||||||||||
Reliance Steel & Aluminum Co. | 233,615 | 17,950,977 | |||||||||||||
Schnitzer Steel Industries, Inc., Class A | 197,179 | 5,806,922 | |||||||||||||
Worthington Industries, Inc. | 201,200 | 9,154,600 | |||||||||||||
|
| ||||||||||||||
191,040,568 | |||||||||||||||
|
|
See accompanying notes
20
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Materials - 6.33% (continued) | |||||||||||||||
Paper & Forest Products - 0.80% | |||||||||||||||
Boise Cascade Co.A | 46,415 | $ | 1,645,412 | ||||||||||||
Domtar Corp. | 389,847 | 18,447,560 | |||||||||||||
Louisiana-Pacific Corp.A | 994,179 | 27,021,785 | |||||||||||||
Mercer International, Inc. | 232,462 | 3,417,191 | |||||||||||||
PH Glatfelter Co. | 73,753 | 1,545,863 | |||||||||||||
Schweitzer-Mauduit International, Inc. | 91,264 | 3,854,079 | |||||||||||||
|
| ||||||||||||||
55,931,890 | |||||||||||||||
|
| ||||||||||||||
Total Materials | 445,748,958 | ||||||||||||||
|
| ||||||||||||||
Real Estate - 4.19% | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 4.08% | |||||||||||||||
Agree Realty Corp. | 168,390 | 7,963,163 | |||||||||||||
Ashford Hospitality Trust, Inc. | 789,190 | 5,548,006 | |||||||||||||
Brandywine Realty Trust | 751,419 | 13,142,318 | |||||||||||||
Education Realty Trust, Inc. | 242,816 | 8,474,278 | |||||||||||||
GEO Group, Inc. | 1,021,986 | 26,520,537 | |||||||||||||
Granite Real Estate Investment Trust | 593,260 | 22,988,825 | |||||||||||||
Hospitality Properties Trust | 108,731 | 3,107,532 | |||||||||||||
LaSalle Hotel Properties | 388,108 | 10,948,527 | |||||||||||||
Lexington Realty Trust | 1,521,350 | 15,396,062 | |||||||||||||
Mack-Cali Realty Corp. | 374,361 | 8,524,200 | |||||||||||||
Medical Properties Trust, Inc. | 540,332 | 7,148,592 | |||||||||||||
New York REIT, Inc. | 505,100 | 3,813,505 | |||||||||||||
Outfront Media, Inc. | 393,714 | 9,232,593 | |||||||||||||
Pebblebrook Hotel TrustB | 451,017 | 16,083,266 | |||||||||||||
Preferred Apartment Communities, Inc., Class A | 523,930 | 10,400,011 | |||||||||||||
QTS Realty Trust, Inc., Class A | 281,402 | 16,279,106 | |||||||||||||
Ramco-Gershenson Properties Trust | 422,455 | 5,335,607 | |||||||||||||
RLJ Lodging Trust | 284,472 | 6,161,664 | |||||||||||||
Ryman Hospitality Properties, Inc. | 125,994 | 8,331,983 | |||||||||||||
Select Income REIT | 447,912 | 10,821,554 | |||||||||||||
Seritage Growth PropertiesB | 680,000 | 27,968,400 | |||||||||||||
STAG Industrial, Inc. | 464,292 | 12,675,172 | |||||||||||||
STORE Capital Corp. | 370,247 | 9,141,398 | |||||||||||||
Tanger Factory Outlet Centers, Inc.B | 406,467 | 9,247,124 | |||||||||||||
Washington Prime Group, Inc. | 1,527,329 | 11,958,986 | |||||||||||||
|
| ||||||||||||||
287,212,409 | |||||||||||||||
|
| ||||||||||||||
Real Estate Management & Development - 0.11% | |||||||||||||||
Jones Lang LaSalle, Inc. | 35,400 | 4,583,946 | |||||||||||||
Marcus & Millichap, Inc.A | 106,800 | 3,035,256 | |||||||||||||
Tejon Ranch Co.A | 26,132 | 492,588 | |||||||||||||
|
| ||||||||||||||
8,111,790 | |||||||||||||||
|
| ||||||||||||||
Total Real Estate | 295,324,199 | ||||||||||||||
|
| ||||||||||||||
Telecommunication Services - 0.17% | |||||||||||||||
Diversified Telecommunication Services - 0.05% | |||||||||||||||
Iridium Communications, Inc.A B | 312,268 | 3,747,216 | |||||||||||||
|
| ||||||||||||||
Wireless Telecommunication Services - 0.12% | |||||||||||||||
Telephone & Data Systems, Inc. | 287,400 | 8,377,710 | |||||||||||||
|
| ||||||||||||||
Total Telecommunication Services | 12,124,926 | ||||||||||||||
|
|
See accompanying notes
21
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.65% (continued) | |||||||||||||||
Utilities - 2.65% | |||||||||||||||
Electric Utilities - 1.15% | |||||||||||||||
ALLETE, Inc. | 146,083 | $ | 11,445,603 | ||||||||||||
Hawaiian Electric Industries, Inc. | 376,888 | 13,741,337 | |||||||||||||
IDACORP, Inc. | 72,805 | 6,700,244 | |||||||||||||
Portland General Electric Co. | 1,020,369 | 48,712,416 | |||||||||||||
|
| ||||||||||||||
80,599,600 | |||||||||||||||
|
| ||||||||||||||
Gas Utilities - 0.76% | |||||||||||||||
Chesapeake Utilities Corp. | 175,832 | 14,163,268 | |||||||||||||
National Fuel Gas Co. | 219,600 | 12,747,780 | |||||||||||||
Southwest Gas Holdings, Inc. | 100,893 | 8,312,574 | |||||||||||||
WGL Holdings, Inc. | 213,087 | 18,261,556 | |||||||||||||
|
| ||||||||||||||
53,485,178 | |||||||||||||||
|
| ||||||||||||||
Independent Power & Renewable Electricity Producers - 0.15% | |||||||||||||||
NRG Yield, Inc., Class A | 110,840 | 2,033,914 | |||||||||||||
NRG Yield, Inc., Class C | 467,360 | 8,692,896 | |||||||||||||
|
| ||||||||||||||
10,726,810 | |||||||||||||||
|
| ||||||||||||||
Multi-Utilities - 0.46% | |||||||||||||||
Black Hills Corp. | 173,465 | 11,320,326 | |||||||||||||
NorthWestern Corp. | 139,950 | 8,296,236 | |||||||||||||
Vectren Corp. | 186,034 | 12,676,356 | |||||||||||||
|
| ||||||||||||||
32,292,918 | |||||||||||||||
|
| ||||||||||||||
Water Utilities - 0.13% | |||||||||||||||
American States Water Co. | 172,348 | 9,263,705 | |||||||||||||
|
| ||||||||||||||
Total Utilities | 186,368,211 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $5,380,288,229) | 6,804,610,658 | ||||||||||||||
|
| ||||||||||||||
EXCHANGE-TRADED INSTRUMENTS - 0.31% (Cost $21,337,897) | |||||||||||||||
Exchange-Traded Funds - 0.31% | |||||||||||||||
iShares Russell 2000 Value ETF | 172,800 | 21,458,304 | |||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 2.98% (Cost $209,651,676) | |||||||||||||||
Investment Companies - 2.98% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%D E | 209,651,676 | 209,651,676 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 3.35% (Cost $236,088,074) | |||||||||||||||
Investment Companies - 3.35% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%D E | 236,088,074 | 236,088,074 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 103.29% (Cost $5,847,365,876) | 7,271,808,712 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (3.29%) | (231,440,017 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 7,040,368,695 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A Non-income producing security.
B All or a portion of this security is on loan at October 31, 2017.
C Fair valued pursuant to procedures approved by the Board of Trustees. At period end, the value of this security amounted to $0 or 0.00% of net assets. Value was determined using significant unobservable inputs.
D 7-day yield.
E The Fund is affiliated by having the same investment advisor.
ETF - Exchange Traded Fund.
LP - Limited Partnership.
PLC - Public Limited Company.
See accompanying notes
22
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2017
PRIME - A rate, charged by banks, based on the U.S. Federal Funds rate.
REIT - Real Estate Investment Trust.
Futures Contracts Open on October 31, 2017: | ||||||||||||||
Long Futures | ||||||||||||||
Equity Futures Contracts | ||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||
Russell 2000 Mini Index Futures | 2,661 | December 2017 | $193,372,895 | $ | 199,934,235 | $ | 6,561,340 | |||||||
|
|
|
| |||||||||||
$193,372,895 | $ | 199,934,235 | $ | 6,561,340 | ||||||||||
|
|
|
|
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2017, the investments were classified as described below:
Small Cap Value Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets |
| |||||||||||||||||||||||||||
Common Stocks | $ | 6,804,610,658 | $ | - | $ | 0 | (1) | $ | 6,804,610,658 | |||||||||||||||||||
Exchange-Traded Instruments | 21,458,304 | - | - | 21,458,304 | ||||||||||||||||||||||||
Short-Term Investments | 209,651,676 | - | - | 209,651,676 | ||||||||||||||||||||||||
Securities Lending Collateral | 236,088,074 | - | - | 236,088,074 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 7,271,808,712 | $ | - | $ | - | $ | 7,271,808,712 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Assets |
| |||||||||||||||||||||||||||
Futures Contracts | $ | 6,561,340 | $ | - | $ | - | $ | 6,561,340 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Assets | $ | 6,561,340 | $ | - | $ | - | $ | 6,561,340 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
(1) Investment held in the Fund’s Portfolio with $0 fair value.
U.S. GAAP requires all transfers between any levels to be disclosed. The end of period timing recognition has been adopted for the transfers between levels of the Fund’s assets and liabilities. During the period ended October 31, 2017, there were no transfers between levels.
The following table is a reconciliation of Level 3 assets within the Fund for which significant unobservable inputs were used to determine fair value. Transfers in or out of Level 3 represent the ending value of any security or instrument where a change in the level has occurred from the beginning to the end of the period:
Security Type | Balance as of 10/31/2016 | Net Purchases | Net Sales | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Transfer into Level 3 | Transfer out of Level 3 | Balance as of 10/31/2017 | Change in Unrealized Appreciation (Depreciation) at Period end** | ||||||||||||||||||||||||
Common Stocks | $ - | $ - | $ - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 0 | (1) | $ | - |
** | Change in unrealized appreciation (depreciation) attributable to Level 3 securities held at period end. This balance is included in the change in unrealized appreciation (depreciation) on the Statements of Operations. |
(1) | Investment held in the Fund’s Portfolio with $0 fair value. |
The common stock, classified as Level 3, is beneficial interest units in a representation and warranty insurance trust. The shares have been fair valued at $0 due to limited market transparency.
See accompanying notes
23
American Beacon Small Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2017
Assets: |
| |||
Investments in unaffiliated securities, at fair value† | $ | 6,826,068,962 | ||
Investments in affiliated securities, at fair value‡ | 445,739,750 | |||
Deposit with brokers for futures contracts | 7,317,750 | |||
Dividends and interest receivable | 2,057,247 | |||
Receivable for investments sold | 40,101,326 | |||
Receivable for fund shares sold | 5,291,060 | |||
Receivable for variation margin on open futures contracts (Note 5) | 1,157,090 | |||
Prepaid expenses | 116,904 | |||
|
| |||
Total assets | 7,327,850,089 | |||
|
| |||
Liabilities: | ||||
Payable for investments purchased | 36,285,097 | |||
Payable for fund shares redeemed | 7,546,813 | |||
Cash due to custodian | 1,899,590 | |||
Payable upon return of securities loaned§ (Note 9) | 236,088,074 | |||
Management and sub-advisory fees payable (Note 2) | 4,491,787 | |||
Service fees payable (Note 2) | 224,969 | |||
Transfer agent fees payable (Note 2) | 177,403 | |||
Custody and fund accounting fees payable | 389,565 | |||
Professional fees payable | 98,104 | |||
Trustee fees payable (Note 2) | 30,960 | |||
Payable for prospectus and shareholder reports | 146,699 | |||
Other liabilities | 102,333 | |||
|
| |||
Total liabilities | 287,481,394 | |||
|
| |||
Net assets | $ | 7,040,368,695 | ||
|
| |||
Analysis of net assets: | ||||
Paid-in-capital | $ | 5,051,931,353 | ||
Undistributed net investment income | 17,711,165 | |||
Accumulated net realized gain | 539,722,440 | |||
Unrealized appreciation of investments in unaffiliated securitiesA | 1,424,442,836 | |||
Unrealized (depreciation) of foreign currency translations | (439 | ) | ||
Unrealized appreciation of futures contracts | 6,561,340 | |||
|
| |||
Net assets | $ | 7,040,368,695 | ||
|
|
See accompanying notes
24
American Beacon Small Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2017
Shares outstanding at no par value (unlimited shares authorized): | ||||
Institutional Class | 187,295,566 | |||
|
| |||
Y Class | 13,023,160 | |||
|
| |||
Investor Class | 23,200,595 | |||
|
| |||
Advisor Class | 3,514,848 | |||
|
| |||
A Class | 2,268,139 | |||
|
| |||
C Class | 568,403 | |||
|
| |||
R6 ClassB | 10,023,994 | |||
|
| |||
Net assets: | ||||
Institutional Class | $ | 5,527,380,111 | ||
|
| |||
Y Class | $ | 379,409,116 | ||
|
| |||
Investor Class | $ | 660,241,571 | ||
|
| |||
Advisor Class | $ | 98,718,359 | ||
|
| |||
A Class | $ | 63,481,305 | ||
|
| |||
C Class | $ | 15,335,554 | ||
|
| |||
R6 ClassB | $ | 295,802,679 | ||
|
| |||
Net asset value, offering and redemption price per share: | ||||
Institutional Class | $ | 29.51 | ||
|
| |||
Y Class | $ | 29.13 | ||
|
| |||
Investor Class | $ | 28.46 | ||
|
| |||
Advisor Class | $ | 28.09 | ||
|
| |||
A Class | $ | 27.99 | ||
|
| |||
A Class (offering price) | $ | 29.70 | ||
|
| |||
C Class | $ | 26.98 | ||
|
| |||
R6 ClassB | $ | 29.51 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 5,401,626,126 | ||
‡ Cost of investments in affiliated securities | $ | 445,739,750 | ||
§ Fair value of securities on loan | $ | 232,456,946 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
| |||
B Class commenced operations February 28, 2017 (Note 1). |
|
See accompanying notes
25
American Beacon Small Cap Value FundSM
Statement of Operations
For the year ended October 31, 2017
Investment income: | ||||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 89,825,272 | ||
Dividend income from affiliated securities | 1,593,255 | |||
Income derived from securities lending (Note 9) | 3,621,551 | |||
|
| |||
Total investment income | 95,040,078 | |||
|
| |||
Expenses: | ||||
Management and sub-advisory fees (Note 2) | 51,374,313 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 1,648,276 | |||
Y Class (Note 2) | 227,827 | |||
Investor Class | 38,204 | |||
Advisor Class | 9,313 | |||
A Class | 8,486 | |||
C Class | 3,240 | |||
R6 ClassA | 2,475 | |||
Custody and fund accounting fees | 759,407 | |||
Professional fees | 253,449 | |||
Registration fees and expenses | 166,991 | |||
Service fees (Note 2): | ||||
Y Class | 153,673 | |||
Investor Class | 2,186,145 | |||
Advisor Class | 266,025 | |||
A Class | 96,981 | |||
C Class | 23,047 | |||
Distribution fees (Note 2): | ||||
Advisor Class | 266,025 | |||
A Class | 161,635 | |||
C Class | 153,644 | |||
Prospectus and shareholder report expenses | 428,846 | |||
Trustee fees (Note 2) | 419,694 | |||
Other expenses | 485,727 | |||
|
| |||
Total expenses | 59,133,423 | |||
|
| |||
Net investment income | 35,906,655 | |||
|
| |||
Realized and unrealized gain (loss) from investments: |
| |||
Net realized gain (loss) from: | ||||
Investments in unaffiliated securitiesB | 546,378,866 | |||
Commission recapture (Note 1) | 44,676 | |||
Foreign currency transactions | (11,558 | ) | ||
Futures contracts | 32,908,282 | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investments in unaffiliated securitiesC | 795,114,798 | |||
Foreign currency transactions | (368 | ) | ||
Futures contracts | 12,653,193 | |||
|
| |||
Net gain from investments | 1,387,087,889 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 1,422,994,544 | ||
|
| |||
† Foreign taxes | $ | 334,578 | ||
A Class commenced operations February 28, 2017 (Note 1). | ||||
B The Fund did not recognize net realized gains (losses) from the sale of investments in affiliated securities. | ||||
C The Fund’s investments in affiliated securities did not have a change in unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
26
American Beacon Small Cap Value FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||
Increase (decrease) in net assets: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 35,906,655 | $ | 53,881,192 | ||||||||
Net realized gain from investments in unaffiliated securities, commission recapture, foreign currency transactions, and futures contracts | 579,320,266 | 132,744,476 | ||||||||||
Change in net unrealized appreciation of investments in unaffiliated securities, foreign currency transactions, and futures contracts | 807,767,623 | 95,192,574 | ||||||||||
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 1,422,994,544 | 281,818,242 | ||||||||||
|
|
|
| |||||||||
Distributions to shareholders: | ||||||||||||
Net investment income: | ||||||||||||
Institutional Class | (44,712,589 | ) | (35,441,317 | ) | ||||||||
Y Class | (2,820,317 | ) | (1,930,427 | ) | ||||||||
Investor Class | (3,777,116 | ) | (3,345,737 | ) | ||||||||
Advisor Class | (514,722 | ) | (382,344 | ) | ||||||||
A Class | (310,111 | ) | (300,302 | ) | ||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | (122,225,000 | ) | (202,232,279 | ) | ||||||||
Y Class | (8,295,210 | ) | (11,745,307 | ) | ||||||||
Investor Class | (15,742,672 | ) | (34,525,476 | ) | ||||||||
Advisor Class | (2,933,912 | ) | (5,445,704 | ) | ||||||||
A Class | (1,474,164 | ) | (2,612,559 | ) | ||||||||
C Class | (344,117 | ) | (617,973 | ) | ||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (203,149,930 | ) | (298,579,425 | ) | ||||||||
|
|
|
| |||||||||
Capital share transactions: | ||||||||||||
Proceeds from sales of shares | 2,041,595,238 | 1,494,089,157 | ||||||||||
Reinvestment of dividends and distributions | 196,388,754 | 288,838,431 | ||||||||||
Cost of shares redeemed | (2,233,807,450 | ) | (1,428,769,445 | ) | ||||||||
|
|
|
| |||||||||
Net increase in net assets from capital share transactions | 4,176,542 | 354,158,143 | ||||||||||
|
|
|
| |||||||||
Net increase in net assets | 1,224,021,156 | 337,396,960 | ||||||||||
|
|
|
| |||||||||
Net assets: | ||||||||||||
Beginning of period | 5,816,347,539 | 5,478,950,579 | ||||||||||
|
|
|
| |||||||||
End of period * | $ | 7,040,368,695 | $ | 5,816,347,539 | ||||||||
|
|
|
| |||||||||
* Includes undistributed net investment income | $ | 17,711,165 | $ | 43,851,960 | ||||||||
|
|
|
|
See accompanying notes
27
American Beacon Small Cap Value FundSM
October 31, 2017
1. Organization and Significant Accounting Policies
American Beacon Funds (the “Trust”), is organized as a Massachusetts business trust. The Fund, a series within the Trust, is registered under the Investment Company Act of 1940 (the “Act”), as amended, as a diversified, open-end management investment company. As of October 31, 2017, the Trust consists of thirty-four active series, one of which is presented in this filing: American Beacon Small Cap Value Fund (the “Fund”). The remaining thirty-three active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a wholly-owned subsidiary of Resolute Investment Managers, Inc., which is indirectly owned by investment funds affiliated with Kelso & Company, L.P. and Estancia Capital Management, LLC, and was organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors.
Class Disclosure
The inception date of the R6 Class was February 28, 2017.
The Fund has multiple classes of shares designed to meet the needs of different groups of investors. The following table sets forth the differences amongst the classes:
Class | Eligible Investors | Minimum Initial Investments | ||||
Institutional | Large institutional investors - sold directly or through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 | |||
Investor | All investors using intermediary organizations, such as broker-dealers or retirement plan sponsors. | $ | 2,500 | |||
Advisor Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrators. | $ | 2,500 | |||
A Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrator. Retail investors who invest directly through a financial intermediary such as a broker, bank, or registered investment advisor which may include a front-end sales charge and a contingent deferred sales charge (“CDSC”). | $ | 2,500 | |||
C Class | Retail investors who invest directly through a financial intermediary, such as broker or employee directed benefit plans with applicable sales charges which may include CDSC. | $ | 1,000 | |||
R6 | Large institutional retirement plan investors - sold through retirement plan sponsors. | None |
Each class offered by the Trust has equal rights as to assets and voting privileges. Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets. Realized and unrealized capital gains and losses of each class are allocated daily based on the relative net assets of each class of the Fund. Class specific expenses, where applicable, currently include service, distribution, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Recently Adopted Accounting Pronouncements
In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017, and has been adopted accordingly.
28
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
The following is a summary of significant accounting policies, consistently followed by the Fund in preparation of the financial statements. The Fund is considered an investment company and accordingly, follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services – Investment Companies, a part of Generally Accepted Accounting Principles (“U.S. GAAP”).
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security purchase or sale. The Fund may purchase securities with delivery or payment to occur at a later date. At the time the Fund enters into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the Net Asset Value (“NAV”). The value of the security may vary with market fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date, except certain dividends from foreign securities which are recorded as soon as the information is available to the Fund. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification.
Distributions to Shareholders
Distributions, if any, of net investment income are generally paid at least annually and recorded on the ex-dividend date. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Dividends to shareholders are determined in accordance with federal income tax regulations, which may differ in amount and character from net investment income and realized gains recognized for purposes of U.S. GAAP. To the extent necessary to fully distribute capital gains, the Fund may designate earnings and profits distributed to shareholders on the redemption of shares.
Commission Recapture
The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If a Fund’s investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Fund. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Fund. This amount is reported with the net realized gain in the Fund’s Statement of Operations, if applicable.
Allocation of Income, Trust Expenses, Gains, and Losses
Investment income, realized and unrealized gains and losses from investments of the Fund is allocated daily to each class of shares based upon the relative proportion of net assets of each class to the total net assets of the Fund. Expenses directly charged or attributable to any Fund will be paid from the assets of the Fund. Generally, expenses of the Trust will be allocated among and charged to the assets of the Fund on a basis that the Trustees deem fair and equitable, which may be based on the relative net assets of the Fund or nature of the services performed and relative applicability to the Fund.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
29
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Other
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities 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 and Investment Sub-Advisory Agreements
The Fund and the Manager are parties to a Management Agreement that obligates the Manager to provide the Fund with investment advisory and administrative services. As compensation for performing the duties under the Management Agreement, the Manager will receive an annualized management fee based on a percentage of the Fund’s average daily net assets that is calculated and accrued daily according to the following schedule:
First $15 billion | 0.35 | % | ||
Next $15 billion | 0.325 | % | ||
Over $30 billion | 0.30 | % |
The Trust, on behalf of the Fund, and the Manager have entered into Investment Advisory Agreements with Barrow, Hanley, Mewhinney & Strauss, LLC; Brandywine Global Investment Management, LLC; Foundry Partners, LLC; Hillcrest Asset Management, LLC; Hotchkis and Wiley Capital Management, LLC; and The Boston Company Asset Management, LLC (“Sub-Advisors”) pursuant to which the Fund has agreed to pay an annualized sub-advisory fee that is calculated and accrued daily based on the Fund’s average daily net assets.
The Management and Sub-Advisory Fees paid by the Fund for the year ended October 31, 2017 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 24,267,744 | ||||||||
Sub-Advisor Fees | 0.40 | % | 27,106,569 | |||||||||
|
|
|
| |||||||||
Total | 0.75 | % | $ | 51,374,313 | ||||||||
|
|
|
|
As compensation for services provided by the Manager in connection with securities lending activities conducted by the Fund, the lending Fund pays to the Manager, with respect to cash collateral posted by borrowers, a fee up to 10% of the net monthly interest income (the gross interest income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers, a fee up to 10% of such loan fees. These fees are included in “Income derived from securities lending” and “Management and investment advisory fees” on the Statement of Operations. During the year ended October 31, 2017, the Manager received securities lending fees of $404,609 for the securities lending activities of the Fund.
Distribution Plans
The Fund, except for the Advisor, A, and C Classes of the Fund, has adopted a “defensive” Distribution Plan (the “Plan”) in accordance with Rule 12b-1 under the Act, pursuant to which no separate fees may be charged to the Fund for distribution purposes. However, the Plan authorizes the management fee received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Fund does not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares.
30
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Separate Distribution Plans (the “Distribution Plans”) have been adopted pursuant to Rule 12b-1 under the Act for the Advisor, A, and C Classes of the Fund. Under the Distribution Plans, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor and A Classes and 1.00% of the average daily net assets of the C 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 Plans
The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor, A, and C Classes of the Fund. As compensation for performing the duties required under the Service Plans, the Manager receives an annualized fee up to 0.10% of the average daily net assets of the Y Class, up to 0.25% of the average daily net assets of the A and C Classes, up to 0.25% of the average daily net assets of the Advisor Class, and up to 0.375% of the average daily net assets of the Investor Class of the Fund. Effective April 1, 2017, the Fund terminated the Service Plan for the Y Class.
Sub-Transfer Agent Fees
The Manager has entered into agreements, which include servicing agreements, with financial intermediaries that provide recordkeeping, processing, shareholder communications and other services to customers of the intermediaries that hold positions in the Institutional Class of the Fund and has agreed to compensate the intermediaries for providing these services. Effective April 1, 2017, the Fund agreed to compensate the intermediaries for providing services to the Y Class. Intermediaries transact with the Fund primarily through the use of omnibus accounts on behalf of its customers who hold positions in the Fund. Certain services would have been provided by the Fund’s transfer agent and other service providers if the shareholders’ accounts were maintained directly by the Fund’s transfer agent. Accordingly, the Fund, pursuant to the Trust’s Board of Trustees (the “Board”) approval, has agreed to reimburse the Manager for certain non-distribution shareholder services provided by financial intermediaries for the Institutional and Y Classes. The reimbursement amounts (sub-transfer agent fees) paid to the Manager are subject to a fee limit of up to 0.10% of an intermediary’s average net assets in the Institutional and Y Classes on an annual basis. During the year ended October 31, 2017, the sub-transfer agent fees, as reflected in “Transfer agent fees” on the Statement of Operations, were as follows:
Fund | Sub-Transfer Agent Fees | |||
Small Cap Value | $ | 1,620,617 |
As of October 31, 2017, the Fund owed the Manager the following reimbursement of sub-transfer agent fees, as reflected in “Transfer agent fees payable” on the Statement of Assets and Liabilities:
Fund | Reimbursement Sub-Transfer Agent Fees | |||
Small Cap Value | $ | 105,950 |
Brokerage Commissions
Affiliated entities of a sub-advisor to the Fund received net commissions on purchases and sales of the Fund’s portfolio securities totaling $148,591 for the year ended October 31, 2017.
Investments in Affiliated Funds
The Fund may invest in the American Beacon U.S. Government Money Market Select Fund (the “USG Select Fund”). Cash collateral received by the Fund in connection with securities lending may also be invested in the USG Select Fund. The Fund and the USG Select Fund have the same investment advisor and therefore, are considered to
31
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
be affiliated. The Manager serves as investment advisor to the USG Select Fund and receives management fees and administrative fees totaling 0.10% of the average daily net assets of the USG Select Fund. During the year ended October 31, 2017, the Manager earned fees on the Fund’s direct investments and securities lending collateral investments in the USG Select Fund as shown below:
Fund | Direct Investments in USG Select Fund | Securities Lending Collateral in USG Select Fund | Total | |||||||||
Small Cap Value | $ | 244,293 | $ | 204,327 | $ | 448,620 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the Securities and Exchange Commission (“SEC”), the Fund, along with other registered investment companies having management contracts with the Manager, may participate in a credit facility whereby each Fund, under certain conditions, is permitted to lend money directly to and borrow directly from other participating Funds for temporary purposes. The interfund credit facility is advantageous to the Fund because it provides added liquidity, and eliminates the need to maintain higher cash balances to meet redemptions. This situation could arise when shareholder redemptions exceed anticipated volumes and certain funds have insufficient cash on hand to satisfy such redemptions or when sales of securities do not settle as expected, resulting in a cash shortfall for a fund. When a Fund liquidates portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). Redemption requests normally are satisfied on the next business day. The credit facility provides a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities. The credit facility is administered by a credit facility team consisting of professionals from the Manager’s asset management, compliance, and accounting areas who report the activities of the credit facility to the Board. During the year ended October 31, 2017, the Fund did not utilize the credit facility.
Expense Reimbursement Plan
The Fund has adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of such fee reductions and expense reimbursements. Under the policy, the Manager can recoup from the Fund for any contractual or voluntary fee reductions or expense reimbursements if recoupment by the Manager (a) occurs within three years after the Manager’s own waiver or reimbursement and (b) does not cause the Fund’s annual operating expenses to exceed the lesser of the contractual percentage limit in effect at the time of the waiver/reimbursement or time of recoupment. During the year ended October 31, 2017 there were no waived fees, expenses reimbursed, or recouped expenses.
Sales Commissions
The Fund’s distributor, Foreside Fund Services, LLC (“Foreside”), may receive a portion of A Class sales charges from broker dealers and it may be used to offset distribution related expenses. During the year ended October 31, 2017, Foreside collected $8,648 for the Fund from the sale of Class A Shares.
A CDSC of 0.50% will be deducted with respect to Class A Shares on certain purchases of $1,000,000 or more that are redeemed in whole or part within 18 months of purchase, unless waived as discussed in the Fund’s Prospectus. Any applicable CDSC will be 0.50% of the lesser of the original purchase price or the value of the redemption of the Class A Shares redeemed. During the year ended October 31, 2017, there were no CDSC fees collected for the Class A Shares of the Fund.
A CDSC of 1.00% will be deducted with respect to Class C Shares redeemed within 12 months of purchase, unless waived as discussed in the Fund’s Prospectus. Any applicable CDSC will be 1.00% of the lesser of the original purchase price or the value of the redemption of the Class C Shares redeemed. During the year ended October 31, 2017, CDSC fees of $1,611 were collected for Class C Shares of the Fund.
32
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Trustee Fees and Expenses
As compensation for their service to the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust, each Trustee receives an annual retainer of $120,000, plus $5,000 for each Board meeting attended in person or via teleconference, $2,500 for attendance by Committee members at meetings of the Audit Committee and the Investment Committee, and $1,500 for attendance by Committee members at meetings of the Nominating and Governance Committee, plus reimbursement of reasonable expenses incurred in attending Board meetings, Committee meetings, and relevant educational seminars. The Trustees also may be compensated for attendance at special Board and/or Committee meetings from time to time. The Board Chairman receives an additional annual retainer of $50,000 as well as a single $5,000 fee each quarter for his attendance at the committee meetings. The Chairpersons of the Audit Committee and the Investment Committee each receive an additional annual retainer of $25,000 and the Chairman of the Nominating and Governance Committee receives an additional annual retainer of $10,000. These expenses are allocated on a prorated basis to each Fund of the Trust according to its respective net assets.
3. Security Valuation and Fair Value Measurements
Investments are valued at the close of the New York Stock Exchange (the “Exchange”), normally at 4:00 p.m. Eastern Time, each day that the Exchange is open for business. Equity securities, including exchange-traded funds (“ETFs”) for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade.
Investments in open-end mutual funds are valued at the closing NAV per share of the mutual fund on the day of valuation.
Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value pursuant to procedures established by the Board.
Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Fund is required to deposit with their futures broker, an amount of cash or U.S. Government and Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Fund. Gains or losses are recognized, but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statement of Assets and Liabilities.
Other investments for which the above valuation procedures are inappropriate or are deemed not to reflect fair value, are stated at fair value as determined in good faith by the Manager’s Valuation Committee, pursuant to procedures established by the Board.
Valuation Inputs
Various inputs may be used to determine the fair value of the Fund’s investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1 | - | Quoted prices in active markets for identical securities. | ||
Level 2 | - | Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. | ||
Level 3 | - | Prices determined using other significant unobservable inputs. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment. |
33
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Level 1 and Level 2 trading assets and trading liabilities, at fair value
Common stocks, ETFs, preferred securities, and financial derivative instruments, such as futures contracts that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are generally categorized as Level 2 of the fair value hierarchy.
Investments in registered open-end investment management companies will be valued based upon the NAVs of such investments and are categorized as Level 1 of the fair value hierarchy.
Level 3 trading assets and trading liabilities, at fair value
The valuation techniques and significant inputs used in determining the fair values of financial instruments classified as Level 3 of the fair value hierarchy are as follows.
Securities and other assets for which market quotes are not readily available are valued at fair value as determined in good faith by the Board or persons acting at their direction and may be categorized as Level 3 of the fair value hierarchy.
Market quotes are considered not readily available in circumstances where there is an absence of current or reliable market-based data (e.g., trade information or broker quotes), including where events occur after the close of the relevant market, but prior to the Exchange close, that materially affect the values of the Fund’s securities or assets. In addition, market quotes are considered not readily available when, due to extraordinary circumstances, the exchanges or markets on which the securities trade, do not open for trading for the entire day and no other market prices are available. The Board has delegated to the Manager the responsibility for monitoring significant events that may materially affect the fair values of a Fund’s securities or assets and for determining whether the value of the applicable securities or assets should be re-evaluated in light of such significant events.
The Board has adopted methods for valuing securities and other assets in circumstances where market quotes are not readily available, and has delegated the responsibility for applying the valuation methods to the Manager. For instances in which daily market quotes are not readily available, investments may be valued pursuant to guidelines established by the Board. In the event that the security or asset cannot be valued, pursuant to one of the valuation methods established by the Board, the fair value of the security or asset will be determined in good faith by the Valuation Committee, generally based upon recommendations provided by the Manager.
When a Fund uses fair valuation methods applied by the Manager that use significant unobservable inputs to determine its NAV, the securities priced using this methodology are categorized as Level 3 of the fair value hierarchy. These methods may require subjective determinations about the value of a security. While the Trust’s policy is intended to result in a calculation of the Fund’s NAV that fairly reflects security values as of the time of pricing, the Trust cannot guarantee that values determined by the Board or persons acting at their direction would accurately reflect the price that a Fund could obtain for a security if it were to dispose of that security as of the time of pricing (for instance, in a forced or distressed sale). The prices used by a Fund may differ from the value that would be realized if the securities were sold.
4. Securities and Other Investments
American Depositary Receipts (“ADRs”)
ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. Depositary receipts may not be denominated in the same currency as the securities into which they may be converted. Investing in depositary receipts entails substantially the same risks as direct investment in foreign
34
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
securities. There is generally less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers and listed companies. In addition, such companies may use different accounting and financial standards (and certain currencies may become unavailable for transfer from a foreign currency), resulting in the Fund’s possible inability to convert immediately into U.S. currency proceeds realized upon the sale of portfolio securities of the affected foreign companies. In addition, the Fund may invest in unsponsored depositary receipts, the issuers of which are not obligated to disclose material information about the underlying securities to investors in the United States. Ownership of unsponsored depositary receipts may not entitle the Fund to the same benefits and rights as ownership of a sponsored depositary receipt or the underlying security.
Common Stock
Common stock generally takes the form of shares in a corporation which represent an ownership interest. It ranks below preferred stock and debt securities in claims for dividends and for assets of the company in a liquidation or bankruptcy. The value of a company’s common stock may fall as a result of factors directly relating to that company, such as decisions made by its management or decreased demand for the company’s products or services. A stock’s value may also decline because of factors affecting not just the company, but also companies in the same industry or sector. The price of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company, such as changes in interest rates, currency exchange rates or industry regulation. Companies that elect to pay dividends on their common stock generally only do so after they invest in their own business and make required payments to bondholders and on other debt and preferred stock. Therefore, the value of a company’s common stock will usually be more volatile than its bonds, other debt and preferred stock. Common stock may be exchange-traded or over-the-counter (“OTC”). OTC stock may be less liquid than exchange-traded stock.
Real Estate Investment Trusts
The Fund may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. The Fund re-characterizes distributions received from REIT investments based on information provided by the REITs into the following categories: ordinary income, long-term capital gains, and return of capital. If information is not available on a timely basis from the REITs, the re-characterization will be estimated based on available information, which may include the previous year allocation. If new or additional information becomes available from the REITs at a later date, a re-characterization will be made the following year.
Other Investment Company Securities and Other Exchange-Traded Products
The Fund may invest in shares of other investment companies, including open-end funds, closed-end funds, business development companies, ETFs, unit investment trusts, and other investment companies of the Trust. The Fund may invest in investment company securities advised by the Manager or a sub-advisor. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. By investing in another investment company, the Fund becomes a shareholder of that investment company. As a result, the Fund’s shareholders indirectly will bear the Fund’s proportionate share of the fees and expenses paid by shareholders of the other investment company, in addition to the fees and expenses the Fund’s shareholders directly bear in connection with the Fund’s own operations. These other fees and expenses are reflected as Acquired Fund Fees and Expenses and are included in the Fees and Expenses Table for the Fund in its Prospectus, if applicable. Investments in other investment companies may involve the payment of substantial premiums above the value of such issuer’s portfolio securities.
5. Financial Derivative Instruments
The Fund may utilize derivative instruments to gain market exposure on cash balances or reduce market exposure in anticipation of liquidity needs. When considering the Fund’s use of derivatives, it is important to note that the Fund does not use derivatives for the purpose of creating financial leverage.
35
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Futures Contracts
Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Fund may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities or that the counterparty will fail to perform its obligations.
Upon entering into a futures contract, the Fund is required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents a portion of the face value of the futures contract. The Fund usually reflects this amount on the Schedule of Investments as a U.S. Treasury Bill held as collateral for futures contracts or as cash deposited with broker on the Statement of Assets and Liabilities. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains (losses) are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded.
During the year ended October 31, 2017, the Fund entered into futures contracts primarily for exposing cash to markets.
The Fund’s average futures contracts outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the average quarterly volume of futures contracts. For purpose of this disclosure, volume is measured by contracts outstanding at each quarter end.
Average Futures Contracts Outstanding | ||||
Fund | Year Ended October 31, 2017 | |||
Small Cap Value | 3,353 |
The following is a summary of the fair valuations of the Fund’s derivative instruments categorized by risk exposure(1):
Fair values of financial instruments on the Statement of Assets and Liabilities as of October 31, 2017: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Assets: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Receivable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | 6,561,340 | $ | 6,561,340 | |||||||||||||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statement of Operations as of October 31, 2017: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) of derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures Contracts | $ | - | $ | - | $ | - | $ | - | $ | 32,908,282 | $ | 32,908,282 | |||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 12,653,193 | $ | 12,653,193 |
(1) See Note 3 in the Notes to Financial Statements for additional information.
(2) Includes cumulative appreciation (depreciation) of futures contracts as reported in the Fund’s Schedule of Investments footnotes. Only current day’s variation margin is reported within the Statement of Assets and Liabilities.
36
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
6. Principal Risks
Investing in the Fund may involve certain risks including, but not limited to, those described below.
Equity Investment Risk
Equity securities are subject to market risk. The Fund’s investments in equity securities may include common stocks, preferred stocks, securities convertible into or exchangeable for common stocks, REITs, depositary receipts, and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. Such investments may expose the Fund to additional risk. The value of a company’s common stock may fall as a result of factors affecting the company, companies in the same industry or sector, or the financial markets overall. Common stock generally is subordinate to preferred stock upon the liquidation or bankruptcy of the issuing company. Preferred stocks and convertible securities are sensitive to movements in interest rates. Preferred stocks may be less liquid than common stocks and, unlike common stocks, participation in the growth of an issuer may be limited. Distributions on preferred stocks generally are payable at the discretion of an issuer and after required payments to bond holders. Convertible securities are subject to the risk that the credit standing of the issuer may have an effect on the convertible securities’ investment value. Investments in REITs are subject to the risks associated with investing in the real estate industry such as adverse developments affecting the real estate industry and real property values. Depositary receipts and U.S. dollar-denominated foreign stocks traded on U.S. exchanges are subject to certain of the risks associated with investing directly in foreign securities, including, but not limited to, currency fluctuations and political and financial instability in the home country of a particular depositary receipt or foreign stock.
Foreign Investing Risk
The Fund may invest in securities issued by foreign companies through ADRs and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. The Fund may also invest in local currency investments. ADRs are subject to many of the risks inherent in currency fluctuations and political and financial instability in the home country of a particular ADR or foreign stock. Non-U.S. investments carry potential risks not associated with U.S. investments. Such risks include, but are not limited to: (1) currency exchange rate fluctuations, (2) political and financial instability, (3) less liquidity and greater volatility, (4) lack of uniform accounting, auditing and financial reporting standards, (5) increased price volatility, (6) less government regulation and supervision of foreign stock exchanges, brokers and listed companies, and (7) delays in transaction settlement in some foreign markets.
Futures Contracts Risk
Futures contracts are derivative instruments where one party pays a fixed price for an agreed amount of securities or other underlying assets at an agreed date. The use of such derivative instruments may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities underlying those derivatives. Futures contracts may experience potentially dramatic price changes (losses) and imperfect correlation between the price of the contract and the underlying security or index, which will increase the volatility of the Fund and may involve a small investment of cash (the amount of initial and variation margin) relative to the magnitude of the risk assumed (the potential increase or decrease in the price of the futures contract).
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects, which have resulted, and may continue to result, in an unusually high degree of volatility in the financial markets, both domestic and foreign. In addition, global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations.
37
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
In addition, political events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. High public debt in the U.S. and other countries creates ongoing systemic and market risks and policymaking uncertainty. Because the impact on the markets has been widespread, it may be difficult to identify both risks and opportunities using past models of the interplay of market forces, or to predict the duration of these market conditions. Interest rates have been unusually low in recent years in the U.S. and abroad. Because there is little precedent for this situation, it is difficult to predict the impact of a rate increase on various markets. In addition, there is a risk that the prices of goods and services in the U.S. and many foreign economies may decline over time, known as deflation (the opposite of inflation). Deflation may have an adverse effect on stock prices and creditworthiness and may make defaults on debt more likely.
Multiple Sub-Advisor Risk
The Manager may allocate the Fund’s assets among multiple sub-advisors, each of which is responsible for investing its allocated portion of the Fund’s assets. To a significant extent, the Fund’s performance will depend on the success of the Manager in allocating the Fund’s assets to sub-advisors and its selection and oversight of the sub-advisors. Because each sub-adviser manages its allocated portion of the Fund independently from another sub-adviser, the same security may be held in different portions of the Fund, or may be acquired for one portion of the Fund at a time when a sub-adviser to another portion deems it appropriate to dispose of the security from that other portion, resulting in higher expenses without accomplishing any net result in the Fund’s holdings. Similarly, under some market conditions, one sub-adviser may believe that temporary, defensive investments in short-term instruments or cash are appropriate when another sub-adviser believes continued exposure to the equity or debt markets is appropriate for its allocated portion of the Fund. Because each sub-adviser directs the trading for its own portion of the Fund and does not aggregate its transactions with those of the other sub-advisors, the Fund may incur higher brokerage costs than would be the case if a single sub-adviser were managing the entire Fund. In addition, while the Manager seeks to allocate the Fund’s assets among the Fund’s sub-advisors in a manner that it believes is consistent with achieving the Fund’s investment objective(s), the Manager may be subject to potential conflicts of interest in allocating the Fund’s assets among sub-advisors, because the Manager pays different fees to the sub-adviser and due to other factors that could impact the Manager’s revenues and profits
Other Investment Companies Risk
The Fund may invest in shares of other registered investment companies, including ETFs and money market funds. To the extent that the Fund invest in shares of other registered investment companies, the Fund will indirectly bear the fees and expenses charged by the underlying funds in addition to the Fund’s direct fees and expenses and will be subject to the risks associated with investments in those funds. For example, ETF shares may trade at a premium or discount to their net asset value. An ETF that tracks an index may not precisely replicate the returns of its benchmark index.
Securities Lending Risk
To the extent the Fund lends its securities, it may be subject to the following risks; i) borrowers of the Fund’s securities typically provide collateral in the form of cash that is reinvested in securities, ii) the securities in which the collateral is invested may not perform sufficiently to cover the return collateral payments owed to borrowers, iii) delays may occur in the recovery of securities from borrowers, which could interfere with the Fund’s ability to vote proxies or to settle transactions, and iv) there is the risk of possible loss of rights in the collateral should the borrower fail financially.
Offsetting Assets and Liabilities
The Fund is a party to enforceable master netting agreements between brokers and counterparties which provide for the right to offset under certain circumstances. The Fund employs multiple money managers and
38
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
counterparties and has elected not to offset qualifying financial and derivative instruments on the Statement of Assets and Liabilities, as such all financial and derivative instruments are presented on a gross basis. The impacts of netting arrangements that provide the right to offset are detailed below. The net amount represents the net receivable or payable that would be due from or to the counterparty in the event of default. Exposure from borrowings and other financing agreements such as repurchase agreements can only be netted across transactions governed by the same Master Agreement with the same legal entity. All amounts reported below represent the balance as of the report date, October 31, 2017.
Offsetting of Financial and Derivative Assets as of October 31, 2017: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | 6,561,340 | $ | - | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 6,561,340 | $ | - | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | (6,561,340 | ) | $ | - | |||||||
|
|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2017 | ||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||
Securities Lending Transactions Common Stocks | $ | 236,088,074 | $ | - | $ | - | $ | - | $ | 236,088,074 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Total Borrowings | $ | 236,088,074 | $ | - | $ | - | $ | - | $ | 236,088,074 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 236,088,074 | ||||||||||||||||||||||||||||||
|
|
7. Federal Income and Excise Taxes
It is the policy of the Fund to qualify as a regulated investment company (“RIC”), by complying with all applicable provisions of Subchapter M of the Internal Revenue Code, as amended, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. For federal income tax purposes, the Fund is treated as a single entity for the purpose of determining such qualification.
The Fund does not have any unrecorded tax liabilities in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2017 remain subject to examination by the Internal Revenue Service. If applicable, the Fund recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in “Other expenses” on the Statement of Operations.
The Fund may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns of income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation (depreciation), as applicable, as the income is earned or capital gains are recorded.
Dividends are categorized in accordance with income tax regulations which may treat certain transactions differently than U.S. GAAP. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements.
39
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
The tax character of distributions paid were as follows:
Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||||||
Distributions paid from: | ||||||||||||||||
Ordinary income* | ||||||||||||||||
Institutional Class | $ | 47,650,547 | $ | 35,450,206 | ||||||||||||
Y Class | 3,019,712 | 1,930,943 | ||||||||||||||
Investors Class | 4,155,527 | 3,347,255 | ||||||||||||||
Advisor ClassA | 585,244 | 382,583 | ||||||||||||||
A Class | 345,546 | 300,417 | ||||||||||||||
C Class | 8,272 | 27 | ||||||||||||||
Long-term capital gains | ||||||||||||||||
Institutional Class | 119,287,042 | 202,223,390 | ||||||||||||||
Y Class | 8,095,815 | 11,744,791 | ||||||||||||||
Investors Class | 15,364,261 | 34,523,958 | ||||||||||||||
Advisor ClassA | 2,863,390 | 5,445,465 | ||||||||||||||
A Class | 1,438,729 | 2,612,444 | ||||||||||||||
C Class | 335,845 | 617,946 | ||||||||||||||
|
|
|
| |||||||||||||
Total distributions paid | $ | 203,149,930 | $ | 298,579,425 | ||||||||||||
|
|
|
|
*For tax purposes, short-term gains are considered ordinary income distributions.
AIncludes Retirement Class distributions due to merger with the Advisor Class on January 15, 2016.
As of October 31, 2017 the components of distributable earnings (deficits) on a tax basis were as follows:
Fund | Tax Cost | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Small Cap Value | $ | 5,901,204,988 | $ | 1,607,714,740 | $ | (237,111,455 | ) | $ | 1,370,603,285 |
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other Losses | Other Temporary Differences | Distributable Earnings | ||||||||||||||||||||||||||||||||||||||
Small Cap Value | $ | 1,370,603,285 | $ | 126,865,636 | $ | 490,968,421 | $ | – | $ | – | $ | 1,988,437,342 |
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation (depreciation) are attributable primarily to the tax deferral of losses from wash sales, the realization for tax purposes of unrealized gains (losses) on certain derivative instruments, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies, and the reclassifications of income from real estate investment securities and publicly traded partnerships.
Due to inherent differences in the recognition of income, expenses, and realized gains (losses) under U.S. GAAP and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statement of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent differences derived from foreign currency reclasses, gains (losses) from sales of investments in passive foreign investment companies, and reclassifications of income from real estate investment securities and publicly traded partnerships as of October 31, 2017:
Fund | Paid-In-Capital | Undistributed (Overdistribution of) Net Investment Income | Accumulated Net Realized Gain (Loss) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Small Cap Value | $ | - | $ | (9,912,595 | ) | $ | 9,912,595 | - |
40
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Under the Regulated Investment Company Modernization Act of 2010 (“RIC MOD”), net capital losses recognized by the Fund in taxable years beginning after December 22, 2010 are carried forward indefinitely and retain their character as short-term and/or long-term losses.
For the period ended October 31, 2017, the Fund did not have capital loss carryforwards.
8. Investment Transactions
The aggregate cost of purchases and proceeds from sales and maturities of investments, other than short-term obligations, for the year ended October 31, 2017 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Sales (non-U.S. Government Securities) | ||||||||||
Small Cap Value | $ | 3,151,038,386 | $ | 3,229,762,859 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2017 were as follows:
Fund | Type of Transaction | October 31, 2016 Shares/Fair Value | Purchases | Sales | October 31, 2017 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
Small Cap Value | Direct | $ | 176,509,560 | $ | 2,204,715,832 | $ | 2,171,573,716 | $ | 209,651,676 | $ | 1,593,255 | |||||||||||||||||||||||||||||||
Small Cap Value | Securities Lending | 182,435,584 | 1,239,512,135 | 1,185,859,645 | 236,088,074 | N/A |
9. Securities Lending
The Fund may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. The borrowers are required to secure their loans continuously with collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Collateral is monitored and marked-to-market daily. Daily mark-to-market amounts are required to be paid to the borrower or received from the borrower by the end of the following business day. This one day settlement for mark-to-market amounts may result in the collateral being temporarily less than the value of the securities on loan or temporarily more than the required minimum collateral.
To the extent that a loan is collateralized by cash, such cash collateral shall be invested by the securities lending agent (the “Agent”) in money market mutual funds and other short-term investments, provided the investments meet certain quality and diversification requirements. Securities purchased with cash collateral proceeds are listed in the Fund’s Schedule of Investments and the collateral is shown on the Statement of Assets and Liabilities as a payable.
Securities lending income is generated from the demand premium (if any) paid by the borrower to borrow a specific security and from the return on investment of cash collateral, reduced by negotiated rebate fees paid to the borrower and transaction costs. To the extent that a loan is secured by non-cash collateral, securities lending income is generated as a demand premium reduced by transaction costs. The Fund, the Agent, and the Manager retained 80%, 10%, and 10%, respectively, of the income generated from securities lending.
While securities are on loan, the Fund continues to receive certain income associated with that security and any gain or loss in the market price that may occur during the term of the loan. In the case of domestic equities, the value of any dividend is received in the form of a substitute payment approximately equal to the dividend. In the case of foreign securities, a negotiated amount is received that is less than the actual dividend, but higher than the dividend amount minus the foreign tax that the Fund would be subject to on the dividend.
41
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Securities lending transactions pose certain risks to the Fund, including that the borrower may not provide additional collateral when required or return the securities when due, that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower, that non-cash collateral may be subject to legal constraints in the event of a borrower bankruptcy, and that the cash collateral investments could become illiquid and unable to be used to return collateral to the borrower. The Fund could also experience delays and costs in gaining access to the collateral. The Fund bears the risk of any deficiency in the amount of the cash collateral available for return to the borrower and any action which impairs its ability to liquidate non-cash collateral to satisfy a borrower default.
As of October 31, 2017, the value of outstanding securities on loan and the value of collateral were as follows:
Fund | Market Value of Securities on Loan | Cash Collateral Received | Non-Cash Collateral Received | Total Collateral Received | ||||||||||||||||||||||||
Small Cap Value | $ | 232,456,946 | $ | 236,088,074 | $ | - | $ | 236,088,074 |
Cash collateral is listed on the Fund’s Schedule of Investments and is shown on the Statement of Assets and Liabilities. Income earned on these investments is included in “Income derived from securities lending” on the Statement of Operations.
Non-cash collateral received by the Fund may not be sold or re-pledged except to satisfy a borrower default. Therefore, non-cash collateral is not included on the Fund’s Schedule of Investments or Statement of Assets and Liabilities.
10. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 49,422,685 | $ | 1,376,685,742 | 50,066,083 | $ | 1,141,562,636 | ||||||||||||||||||||||
Reinvestment of dividends | 5,798,690 | 161,493,508 | 10,230,460 | 229,980,745 | ||||||||||||||||||||||||
Shares redeemed | (61,608,781 | ) | (1,720,366,623 | ) | (41,325,796 | ) | (964,710,175 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (6,387,406 | ) | $ | (182,187,373 | ) | 18,970,747 | $ | 406,833,206 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 5,596,098 | $ | 152,304,889 | 6,190,151 | $ | 138,267,948 | ||||||||||||||||||||||
Reinvestment of dividends | 377,530 | 10,385,850 | 561,615 | 12,479,092 | ||||||||||||||||||||||||
Shares redeemed | (5,257,927 | ) | (143,345,782 | ) | (4,742,116 | ) | (108,967,301 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 715,701 | $ | 19,344,957 | 2,009,650 | $ | 41,779,739 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 5,842,502 | $ | 156,520,663 | 5,975,063 | $ | 132,337,020 | ||||||||||||||||||||||
Reinvestment of dividends | 705,910 | 19,003,095 | 1,707,590 | 37,152,459 | ||||||||||||||||||||||||
Shares redeemed | (9,608,715 | ) | (256,230,663 | ) | (11,718,144 | ) | (259,411,145 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (3,060,303 | ) | $ | (80,706,905 | ) | (4,035,491 | ) | $ | (89,921,666 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
42
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2017
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016A | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,009,536 | $ | 26,701,726 | 2,143,395 | $ | 45,656,821 | ||||||||||||||||||||||
Reinvestment of dividends | 129,599 | 3,448,634 | 271,451 | 5,828,048 | ||||||||||||||||||||||||
Shares redeemed | (2,369,756 | ) | (62,775,350 | ) | (2,430,956 | ) | (52,219,934 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,230,621 | ) | $ | (32,624,990 | ) | (16,110 | ) | $ | (735,065 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,059,496 | $ | 27,970,034 | 1,532,151 | $ | 32,767,569 | ||||||||||||||||||||||
Reinvestment of dividends | 66,206 | 1,754,460 | 133,614 | 2,863,338 | ||||||||||||||||||||||||
Shares redeemed | (1,591,955 | ) | (41,214,901 | ) | (1,259,802 | ) | (27,791,679 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (466,253 | ) | $ | (11,490,407 | ) | 405,963 | $ | 7,839,228 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 226,407 | $ | 5,808,095 | 160,094 | $ | 3,424,578 | ||||||||||||||||||||||
Reinvestment of dividends | 11,793 | 303,207 | 25,623 | 534,749 | ||||||||||||||||||||||||
Shares redeemed | (203,109 | ) | (5,189,248 | ) | (165,427 | ) | (3,556,022 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 35,091 | $ | 922,054 | 20,290 | $ | 403,305 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
AMR Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016B | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | - | $ | - | 2,918 | $ | 72,585 | ||||||||||||||||||||||
Shares redeemed | - | - | (508,200 | ) | (12,113,189 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | - | $ | - | (505,582 | ) | $ | (12,040,604 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
R6 Class | ||||||||||||||||||||||||||||
February 28, 2017C to October 31, 2017 | ||||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | ||||||||||||||||||||||||||
Shares sold | 10,184,651 | $ | 295,604,089 | |||||||||||||||||||||||||
Shares redeemed | (160,657 | ) | (4,684,883 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
Net increase in shares outstanding | 10,023,994 | $ | 290,919,206 | |||||||||||||||||||||||||
|
|
|
|
A Includes Retirement Class transactions prior to the merger with the Advisor Class on January 15, 2016.
B The AMR Class closed on December 11, 2015.
C Commencement of operations.
11. Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
43
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016A | 2015 | 2014B | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 24.36 | $ | 24.69 | $ | 27.80 | $ | 28.04 | $ | 21.04 | ||||||||||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.17 | 0.23 | 0.24 | 0.17 | 0.25 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 5.83 | 0.79 | 0.02 | 2.18 | 7.60 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 6.00 | 1.02 | 0.26 | 2.35 | 7.85 | |||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.23 | ) | (0.20 | ) | (0.19 | ) | (0.14 | ) | (0.27 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.58 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.85 | ) | (1.35 | ) | (3.37 | ) | (2.59 | ) | (0.85 | ) | ||||||||||||||||||||||||||
|
|
|
|
| �� |
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|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 29.51 | $ | 24.36 | $ | 24.69 | $ | 27.80 | $ | 28.04 | ||||||||||||||||||||||||||
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|
|
|
|
|
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| |||||||||||||||||||||||||||
Total returnC | 24.80 | % | 4.58 | % | 0.87 | % | 8.78 | % | 38.59 | % | ||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 5,527,380,111 | $ | 4,717,291,753 | $ | 4,313,522,956 | $ | 4,002,884,144 | $ | 3,430,107,382 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.82 | % | 0.83 | % | 0.81 | % | 0.80 | % | 0.82 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.82 | % | 0.83 | % | 0.81 | % | 0.80 | % | 0.82 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.58 | % | 1.01 | % | 0.99 | % | 0.67 | % | 1.01 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.58 | % | 1.01 | % | 0.99 | % | 0.67 | % | 1.01 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 48 | % | 53 | % | 47 | % | 73 | % | 48 | % | ||||||||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016A | 2015 | 2014B | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 24.06 | $ | 24.41 | $ | 27.52 | $ | 27.81 | $ | 20.89 | ||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.12 | 0.23 | 0.23 | 0.18 | 0.22 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 5.78 | 0.76 | 0.01 | 2.12 | 7.55 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 5.90 | 0.99 | 0.24 | 2.30 | 7.77 | |||||||||||||||||||||||||||||||
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|
|
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|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.21 | ) | (0.19 | ) | (0.17 | ) | (0.14 | ) | (0.27 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.58 | ) | ||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||
Total distributions | (0.83 | ) | (1.34 | ) | (3.35 | ) | (2.59 | ) | (0.85 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 29.13 | $ | 24.06 | $ | 24.41 | $ | 27.52 | $ | 27.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.70 | % | 4.49 | % | 0.79 | % | 8.67 | % | 38.45 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 379,409,116 | $ | 296,082,333 | $ | 251,360,287 | $ | 190,416,114 | $ | 122,849,739 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.90 | % | 0.90 | % | 0.90 | % | 0.89 | % | 0.91 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.90 | % | 0.90 | % | 0.90 | % | 0.89 | % | 0.91 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.50 | % | 0.94 | % | 0.90 | % | 0.58 | % | 0.74 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.50 | % | 0.94 | % | 0.90 | % | 0.58 | % | 0.74 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 48 | % | 53 | % | 47 | % | 73 | % | 48 | % |
A | On June 20, 2016, Dreman Value Management, LLC was terminated and ceased managing assets of the Small Cap Value Fund, and was replaced by Foundry Asset Management. |
B | On August 19, 2014, Opus Capital Group, LLC was terminated and ceased managing assets of the Small Cap Value Fund. On March 17, 2014, Barrow Hanley, Mewhinney & Strauss, LLC began managing additional assets of the Small Cap Value Fund. On September 19, 2014, Hillcrest Asset Management, LLC began managing assets of the Small Cap Value Fund. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
44
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016B | 2015 | 2014C | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.52 | $ | 23.86 | $ | 26.96 | $ | 27.27 | $ | 20.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.11 | 0.19 | 0.18 | 0.10 | 0.18 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.60 | 0.73 | (0.02 | ) | 2.09 | 7.38 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 5.71 | 0.92 | 0.16 | 2.19 | 7.56 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.15 | ) | (0.11 | ) | (0.08 | ) | (0.05 | ) | (0.18 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.58 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.77 | ) | (1.26 | ) | (3.26 | ) | (2.50 | ) | (0.76 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.46 | $ | 23.52 | $ | 23.86 | $ | 26.96 | $ | 27.27 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnD | 24.43 | % | 4.27 | % | 0.50 | % | 8.40 | % | 38.11 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 660,241,571 | $ | 617,552,712 | $ | 723,044,801 | $ | 851,731,763 | $ | 934,041,370 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.12 | % | 1.14 | % | 1.15 | % | 1.16 | % | 1.18 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.12 | % | 1.14 | % | 1.15 | % | 1.16 | % | 1.18 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.27 | % | 0.70 | % | 0.67 | % | 0.33 | % | 0.73 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.27 | % | 0.70 | % | 0.67 | % | 0.33 | % | 0.73 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 48 | % | 53 | % | 47 | % | 73 | % | 48 | % | ||||||||||||||||||||||||||
Advisor ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016B | 2015 | 2014C | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.22 | $ | 23.60 | $ | 26.69 | $ | 27.06 | $ | 20.35 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.03 | 0.12 | 0.13 | 0.06 | 0.14 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 5.57 | 0.73 | 0.01 | 2.07 | 7.34 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 5.60 | 0.85 | 0.14 | 2.13 | 7.48 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.11 | ) | (0.08 | ) | (0.05 | ) | (0.05 | ) | (0.19 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.58 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.73 | ) | (1.23 | ) | (3.23 | ) | (2.50 | ) | (0.77 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.09 | $ | 23.22 | $ | 23.60 | $ | 26.69 | $ | 27.06 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnD | 24.26 | % | 4.01 | % | 0.41 | % | 8.22 | % | 37.93 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 98,718,359 | $ | 110,205,158 | $ | 98,224,328 | $ | 102,681,998 | $ | 88,032,906 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.30 | % | 1.31 | % | 1.31 | % | 1.29 | % | 1.31 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.30 | % | 1.31 | % | 1.31 | % | 1.29 | % | 1.31 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.11 | % | 0.53 | % | 0.51 | % | 0.18 | % | 0.46 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.11 | % | 0.53 | % | 0.51 | % | 0.18 | % | 0.46 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 48 | % | 53 | % | 47 | % | 73 | % | 48 | % |
A | On January 15, 2016, the Retirement Class closed and the assets were merged into the Advisor Class. |
B | On June 20, 2016, Dreman Value Management, LLC was terminated and ceased managing assets of the Small Cap Value Fund, and was replaced by Foundry Asset Management. |
C | On August 19, 2014, Opus Capital Group, LLC was terminated and ceased managing assets of the Small Cap Value Fund. On March 17, 2014, Barrow Hanley, Mewhinney & Strauss, LLC began managing additional assets of the Small Cap Value Fund. On September 19, 2014, Hillcrest Asset Management, LLC began managing assets of the Small Cap Value Fund. |
D | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
45
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016A | 2015 | 2014B | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 23.14 | $ | 23.54 | $ | 26.63 | $ | 27.03 | $ | 20.35 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.07 | 0.15 | 0.13 | 0.11 | 0.16 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 5.53 | 0.73 | 0.02 | 2.03 | 7.30 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 5.60 | 0.88 | 0.15 | 2.14 | 7.46 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.13 | ) | (0.13 | ) | (0.06 | ) | (0.09 | ) | (0.20 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.58 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.75 | ) | (1.28 | ) | (3.24 | ) | (2.54 | ) | (0.78 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Net asset value, end of period | $ | 27.99 | $ | 23.14 | $ | 23.54 | $ | 26.63 | $ | 27.03 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.36 | % | 4.17 | % | 0.45 | % | 8.30 | % | 37.83 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 63,481,305 | $ | 63,277,387 | $ | 54,815,183 | $ | 29,569,753 | $ | 13,417,645 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.20 | % | 1.21 | % | 1.21 | % | 1.27 | % | 1.35 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.20 | % | 1.21 | % | 1.22 | % | 1.27 | % | 1.32 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.20 | % | 0.64 | % | 0.56 | % | 0.19 | % | 0.30 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.20 | % | 0.64 | % | 0.54 | % | 0.20 | % | 0.34 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 48 | % | 53 | % | 47 | % | 73 | % | 48 | % | ||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016A | 2015 | 2014B | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 22.39 | $ | 22.84 | $ | 26.05 | $ | 26.60 | $ | 20.07 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income (loss) | (0.14 | ) | (0.02 | ) | 0.03 | (0.07 | ) | 0.03 | ||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 5.35 | 0.72 | (0.06 | ) | 1.97 | 7.17 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 5.21 | 0.70 | (0.03 | ) | 1.90 | 7.20 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | - | - | - | - | (0.09 | ) | ||||||||||||||||||||||||||||||
Distributions from net realized gains | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.58 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | (0.67 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 26.98 | $ | 22.39 | $ | 22.84 | $ | 26.05 | $ | 26.60 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 23.39 | % | 3.42 | % | (0.31 | )% | 7.46 | % | 36.88 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 15,335,554 | $ | 11,938,196 | $ | 11,718,580 | $ | 9,676,368 | $ | 6,396,419 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.96 | % | 1.96 | % | 1.97 | % | 2.03 | % | 2.09 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.96 | % | 1.96 | % | 1.98 | % | 2.03 | % | 2.07 | % | ||||||||||||||||||||||||||
Net investment (loss), before expense reimbursements | (0.58 | )% | (0.12 | )% | (0.17 | )% | (0.56 | )% | (0.41 | )% | ||||||||||||||||||||||||||
Net investment (loss), net of reimbursements | (0.58 | )% | (0.12 | )% | (0.17 | )% | (0.56 | )% | (0.39 | )% | ||||||||||||||||||||||||||
Portfolio turnover rate | 48 | % | 53 | % | 47 | % | 73 | % | 48 | % |
A | On June 20, 2016, Dreman Value Management, LLC was terminated and ceased managing assets of the Small Cap Value Fund, and was replaced by Foundry Asset Management. |
B | On August 19, 2014, Opus Capital Group, LLC was terminated and ceased managing assets of the Small Cap Value Fund. On March 17, 2014, Barrow Hanley, Mewhinney & Strauss, LLC began managing additional assets of the Small Cap Value Fund. On September 19, 2014, Hillcrest Asset Management, LLC began managing assets of the Small Cap Value Fund. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
46
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||
February 28, 2017A to October 31, 2017 | ||||
|
| |||
Net asset value, beginning of period | $ | 28.03 | ||
|
| |||
Income from investment operations: | ||||
Net investment income | - | E | ||
Net gains on investments (both realized and unrealized) | 1.48 | |||
|
| |||
Total income from investment operations | 1.48 | |||
|
| |||
Net asset value, end of period | $ | 29.51 | ||
|
| |||
Total returnB | 5.28 | %C | ||
|
| |||
Ratios and supplemental data: | ||||
Net assets, end of period | $ | 295,802,679 | ||
Ratios to average net assets: | ||||
Expenses, before reimbursements | 0.80 | %D | ||
Expenses, net of reimbursements | 0.80 | %D | ||
Net investment income, before expense reimbursements | (0.04 | )%D | ||
Net investment income, net of reimbursements | (0.04 | )%D | ||
Portfolio turnover rate | 48 | %F |
A | Commencement of operations. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
C | Not annualized. |
D | Annualized. |
E | Amount represents less than $0.01 per share. |
F | Portfolio turnover is for the period from February 28, 2017 through October 31, 2017 and is annualized. |
See accompanying notes
47
American Beacon Small Cap Value FundSM
October 31, 2017 (Unaudited)
Certain tax information regarding the Fund is required to be provided to shareholders based upon the Fund’ income and distributions for the taxable year ended October 31, 2017. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2017.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2017. All designations are based on financial information available as of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Fund to designate the maximum amount permitted under the Internal Revenue Code of 1986, as amended, and the regulations there under.
Corporate Dividends-Received Deduction:
Small Cap Value | 71.51 | % |
Qualified Dividend Income:
Small Cap Value | 100.00 | % |
Long-Term Capital Gain Distributions:
Small Cap Value | $ | 147,385,082 |
Short-Term Capital Gain Distributions:
Small Cap Value | $ | 3,642,642 |
Shareholders will receive notification in January 2018 of the applicable tax information necessary to prepare their 2017 income tax returns.
48
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Renewal and Approval of Management Agreement and Investment Advisory Agreements
At in-person meetings held on May 16, 2017 and June 7, 2017 (collectively, the “Meetings”), the Board of Trustees (“Board”) considered and then, at its June 7 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (the “Trust”), on behalf of American Beacon Small Cap Value Fund (“Fund”);
(2) the Investment Advisory Agreements among the Manager, the Trust, on behalf of the Fund, and each of Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow”), Brandywine Global Investment Management, LLC (“Brandywine”), Foundry Partners, LLC (“Foundry”), Hillcrest Asset Management, LLC (“Hillcrest”), Hotchkis and Wiley Capital Management, LLC (“Hotchkis”) and The Boston Company Asset Management, LLC (“TBCAM”) (each, a “subadvisor” and collectively, the “subadvisors”).
The Investment Advisory Agreements are referred to herein as the “Investment Advisory Agreements”. The Management Agreement and the Investment Advisory Agreements are collectively referred to herein as the “Agreements.” In preparation for its consideration of the renewal of the Agreements, the Board undertook steps to gather and consider information furnished by the Manager, the subadvisor, Broadridge, Inc. (“Broadridge”) and Morningstar, Inc. (“Morningstar”). The Board, with the assistance of independent legal counsel, requested and received certain relevant information from the Manager and each subadvisor.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge and Morningstar regarding the performance, fees and expenses of the Fund as well as information from the Manager and the subadvisors. At the Meetings, the Board considered the information provided. Further, the Board took into consideration information furnished for the Board’s review and consideration throughout the year at regular meetings of the Board and its committees, as well as information specifically prepared in connection with the renewal process.
In connection with the Board’s consideration of the Agreements, the Trustees received and evaluated such information as they deemed necessary. The information requested on behalf of the Board included, among other information, the following materials. References herein to the “firm” refer to the Manager and/or the subadvisors.
• | comparisons of the performance of an appropriate share class of the Fund to comparable investment companies and appropriate benchmark indices, including peer group averages and performance analyses provided by Broadridge and Morningstar, and to the performance of certain similar accounts or a composite of similar accounts, as applicable, managed by the firm; |
• | comparisons of the Fund’s management and subadvisory fee rates and expense ratio with the management fee rates paid by comparable mutual funds and their expense ratios, including peer group averages and fee and expense analyses provided by Broadridge and Morningstar, and the advisory fee rates charged to other clients for which similar services are provided by a firm; |
• | the Manager’s profitability with respect to the services that it provided to the Fund; |
• | any actual or anticipated economies of scale in relation to the services the firm provides or will provide to the Fund and whether the current fee rates charged or to be charged to the Fund reflect these economies of scale for the benefit of the Fund’s investors; |
• | an evaluation of other benefits to the firm or Fund as a result of their relationship, if any; |
• | information regarding the administrative, accounting-related, cash management and securities lending services that the Manager provides to the Fund and the fees that the Manager receives for such services; and |
49
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
• | information regarding a firm’s financial condition, the personnel of the Manager who are assigned primary responsibility for managing the Fund, staffing levels, portfolio managers’ compensation, insurance coverage, material pending litigation, code of ethics, compliance matters, actual or potential conflicts of interest that the firm experiences, or anticipates that it will experience, in providing services to the Fund, and the Manager’s disaster recovery plans. |
The Board noted that the Manager provides management and administrative services to the Fund pursuant to the Management Agreement. The Board considered that many mutual funds have separate contracts governing both types of services, and observed that the actual management fee rates provided by Broadridge for peer group funds reflect the combined advisory and administrative expenses, reduced by any fee waivers and/or reimbursements.
A firm may not have been able to, or opted not to, provide information in response to certain information requests, in which case the Board conducted its evaluation of the firm based on information that was provided. In such cases, the Board determined that the omission of any such information was not material to its considerations. The class of shares used for comparative performance purposes was the share class with the lowest expenses available for purchase by the general public, which was the Institutional Class. The Board also considered that the use of Institutional Class performance generally facilitates a meaningful comparison for expense and performance purposes.
Provided below is an overview of certain factors the Board considered in connection with its renewal and approval of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew or approve each Agreement, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Independent Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the renewal and approval of each Agreement. The memorandum explained the regulatory requirements surrounding the Trustees’ process for evaluating investment advisors and the terms of investment advisory contracts. Based on its evaluation, the Board unanimously concluded that the terms of each Agreement were reasonable and fair and that the renewal and approval of each Agreement was in the best interests of the Fund and its shareholders.
Considerations With Respect to the Renewal of the Management Agreement and The Investment Advisory Agreements
In determining whether to renew the Agreements, the Trustees considered the best interests of the Fund. While the Management Agreement and the Investment Advisory Agreements for the Fund were considered at the Meetings, the Board considered the Fund’s investment management and subadvisory relationships separately.
In each instance, the Board considered, among other things, the following factors: (1) the nature, extent and quality of the services provided; (2) the investment performance of the Fund; (3) the costs incurred by the Manager in rendering services to the Fund and its resulting profits or losses; (4) comparisons of services and fee rates with contracts entered into by the Manager or the subadvisors or their affiliates with other clients (such as pension funds and other institutional clients); (5) the extent to which economies of scale, if any, have been taken into account in setting each fee rate schedule; (6) whether fee rate levels reflect economies of scale, if any, for the benefit of Fund investors; and (7) any other benefits derived or anticipated to be derived by the Manager or the subadvisors from their relationship with the Fund.
Nature, Extent and Quality of Services. With respect to the renewal of the Management Agreement, the Board considered, among other factors: the Fund’s long-term performance and the length of service of key investment personnel at the Manager; the cost structure of the Fund; the Manager’s culture of compliance and support for compliance operations that reduce risks to the Fund; the Manager’s quality of services; the Manager’s active role in monitoring and, as appropriate, recommending additional or replacement subadvisors; and the Manager’s efforts to retain key employees and maintain staffing levels.
50
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
With respect to the renewal of the Investment Advisory Agreements, the Trustees considered the level of staffing and the size of the subadvisors. The Board also considered the adequacy of the resources committed to the Fund by the subadvisors, and whether those resources were commensurate with the needs of the Fund and are sufficient to sustain appropriate levels of performance and compliance needs. In this regard, the Board considered the financial stability of the subadvisors. The Board also considered the subadvisors’ representations regarding their compliance program and code of ethics. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and the subadvisors were appropriate for the Fund.
Investment Performance. The Board evaluated the comparative information provided by Broadridge and the Manager regarding the performance of the Fund relative to its Broadridge performance universe, Morningstar Category, and benchmark index, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding its independent peer selection methodology to select all Broadridge performance universes. The Board also considered that the performance universe selected by Broadridge may not provide appropriate comparisons for the Fund. In addition, the Board considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Board also evaluated the comparative information provided by each subadvisor regarding the performance of its portion of the Fund relative to the performance of other comparable investment accounts managed by the subadvisor, the Fund’s benchmark index and, with respect to certain subadvisors, an additional market. In addition, the Board considered the Manager’s recommendation to continue to retain each subadvisor. A discussion regarding the Board’s considerations with respect to the Fund’s performance appears below under “Additional Considerations and Conclusions with Respect to the Fund.”
Costs of the Services Provided to the Fund and the Profits Realized by the Manager from its Relationship with the Fund. In analyzing the cost of services and profitability of the Manager, the Board considered the revenues earned and the expenses incurred by the Manager, before and after the payment of distribution-related expenses by the Manager. The profits or losses were noted at both an aggregate level for all funds within the group of mutual funds sponsored by the Manager (the “Fund Complex”) and at an individual Fund level, with the Fund being profitable for the Manager before and after the payment of distribution-related expenses. The Board also considered comparative information provided by the Manager regarding the Manager’s overall profitability with respect to the Fund Complex relative to the overall profitability of other firms in the mutual fund industry, as disclosed in publicly available sources. Although the Board noted that, in certain cases, the fee rates paid by other clients of the Manager are lower than the fee rate paid by the Fund, the Manager represented that, among other matters, the difference is attributable to the fact that the Manager does not perform administrative services for non-investment company clients and reflects the greater level of responsibility and regulatory requirements associated with managing the Fund.
The Board considered that, with respect to the Fund, the Management Agreement provides for the Manager to receive a management fee comprised of an annualized fee that is retained by the Manager. In addition, the Board considered that the Manager receives fees for overseeing the securities lending program on behalf of the Fund. The Board also noted that certain share classes of the Fund maintain higher expense ratios in order to compensate third-party financial intermediaries.
In analyzing the fee rates charged by each subadvisor in connection with its investment advisory services to the Fund, the Board considered that, with respect to each subadvisor, except for Foundry, the Manager has negotiated the lowest fee rate the subadvisor charges for any comparable client accounts and, with respect to Foundry, the subadvisor represented that, for fee comparison purposes, it does not manage any comparable client accounts. The Board did not request profitability data from the subadvisors because the Board did not view this data as imperative to its deliberations given the arm’s-length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fee rates. In addition, the Board noted that a subadvisor may not account for its profits on an account-by-account basis and, to the extent it does, it likely employs different methodologies in connection with these calculations.
51
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Based on the foregoing information, the Board concluded that the profitability levels of the Manager were reasonable in light of the services performed by the Manager. A discussion regarding the Board’s considerations with respect to the Fund’s fee rates is set forth below under “Additional Considerations and Conclusions with Respect to the Fund.”
Economies of Scale. In considering the reasonableness of the management and investment advisory fees rates, the Board considered whether economies of scale will be realized as the Fund grows and whether fee rate levels reflect these economies of scale for the benefit of Fund shareholders. In this regard, the Board considered that, with respect to each subadvisor, except for Foundry, the Manager has negotiated breakpoints in the subadvisory fee rates for the Fund. In addition, the Board noted the Manager’s representation that the Management Agreement contains fee schedule breakpoints at higher asset levels with respect to the Fund. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee rate schedules for the Fund provide for a reasonable sharing of benefits from any economies of scale with the Fund.
Benefits Derived from the Relationship with the Fund. The Board considered the “fall-out” or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Fund, including greater exposure in the marketplace with respect to the Manager’s or subadvisor’s investment process and expanding the level of assets under management by the Manager and the subadvisors. In addition, the Board noted that each subadvisor, except for Foundry and Hillcrest, benefits from soft dollar arrangements for third-party and proprietary research. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Fund appears to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made versus the Fund’s Broadridge performance universe and Morningstar Category. With respect to the Broadridge performance universe, the 1st Quintile represents the top twenty percent of the universe based on performance and the 5th Quintile representing the bottom twenty percent of the universe based on performance. References below to the Fund’s Broadridge performance universe are to the universe of mutual funds with a comparable investment classification/objective included in the analysis provided by Broadridge. Information regarding the performance of individual subadvisors is calculated by the Manager using information provided by the Fund’s custodian. In reviewing the performance, the Trustees viewed longer-term performance over a full market cycle, typically five years or longer, as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events.
The expense comparisons below were made versus the Fund’s Broadridge expense universe and Broadridge expense group, with the 1st Quintile representing the top twenty percent of the universe or group based on lowest total expense and the 5th Quintile representing the bottom twenty percent of the universe or group based on highest total expense. References below to the Fund’s expense group and expense universe are to the respective group or universe of comparable mutual funds included in the analysis by Broadridge. The Broadridge expense group consists of the Fund and a representative sample of funds with similar operating structures and asset sizes, as selected by Broadridge. The Broadridge expense universe includes all funds in the investment classification/objective with a similar operating structure as the share class of the Fund included in the Broadridge comparative information and provides a broader view of expenses across the Fund’s investment classification/objective. The Trustees also considered the Fund’s Morningstar fee level category. In reviewing expenses, information regarding the subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
In considering the renewal of the Management Agreement for the Fund, the Trustees considered the following additional factors:
Broadridge Total Expense Analysis Excluding 12b-1 Fees and Morningstar Fee Level Ranking
Compared to Broadridge Expense Group | 2nd Quintile | |
Compared to Broadridge Expense Universe | 1st Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Low Expense Ratio |
52
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Broadridge and Morningstar Performance Analysis (five-year period ended February 28, 2017)
Compared to Broadridge Performance Universe | 2nd Quintile | |
Compared to Morningstar Category | 2nd Quintile |
In considering the renewal of the Investment Advisory Agreements with Barrow, Brandywine, Foundry, Hillcrest, Hotchkis and TBCAM, the Trustees considered that the diversification of investment strategies facilitated by the Fund’s multi-manager structure permits the Fund to mitigate the risks associated with a single subadvisor. The Trustees also considered the following additional factors:
Subadvisor Performance (compared to Broadridge Performance Universe for period indicated, ending February 28, 2017)
Barrow (Fundamental Strategy) | 5 Years | 1st Quintile | ||
Barrow (Diversified Strategy) | 1 Year | 4th Quintile | ||
Brandywine | 5 Years | 1st Quintile | ||
Foundry | 5 Years | 1st Quintile | ||
Hillcrest | 1 Year | 3rd Quintile | ||
Hotchkis | 5 Years | 1st Quintile | ||
TBCAM | 5 Years | 2nd Quintile |
The Trustees also considered: (1) the Manager’s representation that the one-year period was not long enough to fully evaluate the performance of the Barrow Diversified Strategy and Hillcrest; (2) information provided by each subadvisor, other than Foundry, regarding fee rates charged for managing accounts in the same strategy as the subadvisor’s allocation of the Fund; (3) Foundry’s representation that, for fee comparison purposes, it manages no other accounts in the same strategy as the subadvisor’s allocation of the Fund; and (4) the Manager’s recommendation to continue to retain each subadvisor.
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable; and (2) determined that the Fund and its shareholders would benefit from the Manager’s and subadvisors’ continued management of the Fund.
Approval of Amendment to Investment Advisory Agreements with Hotchkis and Foundry
At its August 22-23, 2017 meetings, the Board considered the approval of: (1) an amendment (the “Foundry Amendment”) to the existing investment advisory agreement among the Manager, Foundry and the Trust, on behalf of the Fund (the “Foundry Agreement”); and (2) an amendment (the “Hotchkis Amendment”) to the existing investment advisory agreement among the Manager, Hotchkis and the Trust, on behalf of the Fund (the “Hotchkis Agreement”). The Foundry Amendment and Hotchkis Amendment are collectively referred to herein as the “Amendments.”
Prior to the meeting, the Board reviewed information provided by Hotchkis in response to requests from the Board and/or the Manager in connection with the Board’s consideration of the Hotchkis Amendment. Also in attendance at that meeting were representatives of the Manager. In determining whether to approve the Amendments, the Board considered information that had been provided to the Board by Hotchkis and Foundry at the Board’s May 16, 2017 and June 6-7, 2017 meetings in connection with the review of the Foundry Agreement and the Hotchkis Agreement.
Provided below is an overview of the primary factors the Board considered at its August 22-23, 2017 meetings at which the Board considered the approval of the Amendments. In determining whether to approve the Amendments, the Board determined that it did not need to consider certain factors that it typically considers during its review of investment advisory agreements because the Board had reviewed, among other matters, the nature, extent and quality of services being provided to the Fund by Foundry and Hotchkis at the Board’s May 16, 2017 and June 6-7, 2017 meetings. Additionally, the Board considered that the Foundry Amendment would result in
53
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
the addition of a breakpoint to the fee schedule included in the Foundry Agreement and that, at current asset levels, the addition of the breakpoint would result in a blended fee rate that is lower than the current fee rate payable to Foundry by the Fund. The Board also considered that the Hotchkis Amendment was being proposed in connection with a proposal to add a small cap diversified value strategy (the “Diversified Strategy”) to the Fund, which would be managed by Hotchkis. The Board considered that the Hotchkis Amendment would provide that the fee rate payable with respect to the assets of the Fund managed pursuant to the Diversified Strategy is lower than the fee rate payable with respect to the assets of the Fund managed pursuant to the existing fundamental small cap value strategy (“Fundamental Strategy”) employed by Hotchkis.
The Board did not identify any particular information that was most relevant to its consideration of the Amendments, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Independent Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the approval of investment advisory contracts. The memorandum explained the regulatory requirements surrounding the Trustees’ process for evaluating investment advisors and the terms of investment advisory contracts. Based on its evaluation, the Board unanimously concluded that the terms of each of the Amendments were reasonable and fair and that the approval of each o the Amendments was in the best interests of the Fund.
Additional Considerations and Conclusions with Respect to the Hotchkis Amendment
Performance of Hotchkis. The Board evaluated the information provided by Hotchkis regarding a composite of accounts managed pursuant to the Diversified Strategy (the “Hotchkis Composite”) relative to the performance of the Russell 2000 Value Index and Russell 2000 Index. The Board considered Hotchkis’ representation that, for the periods ended June 30, 2017, the Hotchkis Composite outperformed the Russell 2000 Value Index and Russell 2000 Index for the 1-, 3- and 5-year and since-inception periods.
Comparisons of the amounts to be paid under the Hotchkis Amendment with those under contracts between Hotchkis and its other clients. In evaluating the Hotchkis Amendment, the Board reviewed the proposed advisory fee rate for services to be performed by Hotchkis on behalf of the Fund with respect to assets managed pursuant to the Diversified Strategy. The Board considered that Hotchkis’ investment advisory fee rate under the Hotchkis Amendment would be paid to Hotchkis by the Fund. The Board considered Hotchkis’ representation that the advisory fee rate proposed for the assets of the Fund managed pursuant to the Diversified Strategy is below the Diversified Strategy’s standard advisory fee schedule and the fee rate paid by another mutual fund managed by Hotchkis pursuant to the Diversified Strategy. The Board also considered Hotchkis’ representation that, due to differences in investment processes, the advisory fee rate proposed for the assets of the Fund managed pursuant to the Diversified Strategy is lower than the current advisory fee rate for assets of the Fund managed pursuant to the Fundamental Strategy. After evaluating this information, the Board concluded that Hotchkis’ advisory fee rate under the Hotchkis Amendment was reasonable in light of the services to be provided to the Fund.
Costs of the services provided and profits realized by Hotchkis and its affiliates from its relationship with the Fund. The Board did not consider the costs of the services currently provided and to be provided, and profits realized or to be realized by Hotchkis from its relationship with the Fund, noting instead, among other matters, the arm’s-length nature of the relationship between the Manager and Hotchkis with respect to the negotiation of the advisory fee rate on behalf of the Fund.
Economies of Scale. The Board considered Hotchkis’ representation that Hotchkis believes that the proposed advisory fee schedule for the assets of the Fund to be managed pursuant to the Diversified Strategy, which includes breakpoints, reflects economies of scale.
Board’s Conclusion. Based on the various considerations described above, the Board, including a majority of Trustees who are not “interested persons” of the Fund, the Manager or Hotchkis, as that term is defined in the 1940 Act, concluded that the proposed investment advisory fee rate is fair and reasonable and the approval of the Amendment is in the best interests of the Fund and approved the Hotchkis Amendment.
54
Trustees and Officers of the American Beacon FundsSM (Unaudited)
The Trustees and officers of the American Beacon Funds (the “Trust”) are listed below, together with their principal occupations during the past five years. The address of each person listed below is 220 Las Colinas Boulevard East, Suite 1200, Irving, Texas 75039. Each Trustee oversees thirty-six funds in the fund complex that includes the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust. The Trust’s Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Alan D. Feld** (80) | Trustee since 1996 | Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present); Trustee, American Beacon Mileage Funds (1996-2012); Trustee, American Beacon Select Funds (1999-Present); Trustee, American Beacon Master Trust (1996-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (47) | Trustee since 2015 | Director, Kura MD, Inc. (local telehealth organization) (2015-present); Vice President & CFO, Sierra Health Foundation (health conversion private foundation) (2006-Present); Vice President & CFO, Sierra Health Foundation: Center for Health Program Management (California public benefit corporation) (2012-Present); Director, Innovative North State (2012-2015); Director, Sacramento Regional Technology Alliance (2011-2016); Director, Women’s Empowerment (2009-2014); Director, Valley Healthcare Staffing (2017–present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Joseph B. Armes (55) | Trustee since 2015 | Chairman & CEO, CSW Industrials f/k/a Capital Southwest Corporation (investment company) (2015-Present); Chairman of the Board of Capital Southwest Corporation, predecessor to CSW Industrials, Inc. (2014-present) (investment company); CEO, Capital Southwest Corporation (2013-2015); President & CEO, JBA Investment Partners (family investment vehicle) (2010-Present); Director and Chair of Audit Committee, RSP Permian (oil and gas producer) (2013-Present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Gerard J. Arpey (59) | Trustee since 2012 | Director, The Home Depot, Inc. (2015-Present); Partner, Emerald Creek Group (private equity firm) (2011-Present); Director, S.C. Johnson & Son, Inc. (privately held company) (2008-present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Brenda A. Cline (56) | Trustee since 2004 | Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). |
55
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Eugene J. Duffy (63) | Trustee since 2008 | Managing Director, Institutional Services, Intercontinental Real Estate Corporation (2014-Present); Principal and Executive Vice President, Paradigm Asset Management (1994-2014); Director, Sunrise Bank of Atlanta (2008-2013); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Thomas M. Dunning (75) | Trustee since 2008 | Chairman Emeritus, Lockton Dunning Benefits (consulting firm in employee benefits) (2008–Present); Board Director, Oncor Electric Delivery Company LLC (2007-Present); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Richard A. Massman (74) | Trustee since 2004 Chairman since 2008 | Consultant and General Counsel Emeritus, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (2009-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Barbara J. McKenna, CFA (54) | Trustee since 2012 | Managing Principal, Longfellow Investment Management Company (2005-Present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
R. Gerald Turner (71) | Trustee since 2001 | President, Southern Methodist University (1995-Present); Director, J.C. Penney Company, Inc. (1996-Present); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Trustee, American Beacon Mileage Funds (2001-2012); Trustee, American Beacon Select Funds (2001-Present); Trustee, American Beacon Master Trust (2001-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (62) | President since 2009 | President, CEO and Director, American Beacon Advisors, Inc. (2009-Present); President, CEO and Director, Resolute Investment Managers, Inc. (2015-Present); President, CEO and Director, Resolute Acquisition, Inc. (2015-Present); President, CEO and Director, Resolute Topco, Inc. (2015-Present), President & CEO, Resolute Investment Holdings, LLC (2015-Present); President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President and CEO, American Private Equity Management, LLC (2012-Present); President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Director, Chairman, President and CEO, Alpha Quant Advisors, LLC (2016-Present); Director, ARK Investment Management LLC (2016-Present); Director, Shapiro Capital Management LLC (2017-Present); Member, Investment Advisory Committee, Employees Retirement System of Texas (2017—Present); Trustee, American Beacon NextShares Trust (2015-Present); President, American Beacon Select Funds (2009-Present); President, American Beacon Mileage Funds (2009-2012); President, American Beacon Master Trust (2009–2012); President, American Beacon Institutional Funds Trust (2017-Present). |
56
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rosemary K. Behan (58) | VP, Secretary and Chief Legal Officer since 2006 | Vice President and Secretary, American Beacon Advisors, Inc. (2006-Present); Secretary, Resolute Investment Holdings, LLC (2015-Present) Secretary, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015 – Present); Secretary, Lighthouse Holdings, Inc. (2008-2015); Secretary, Lighthouse Holdings Parent, Inc. (2008-2015); Secretary, American Private Equity Management, LLC (2008-Present); Secretary, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Secretary, Alpha Quant Advisors, LLC (2016-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Select Funds (2006-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Mileage Funds (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Master Trust (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Brian E. Brett (57) | VP since 2004 | Senior Vice President (2012-Present) and Vice President (2004-2012), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2004-Present); Vice President, American Beacon Mileage Funds (2004-2012); Vice President, American Beacon Master Trust (2004-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Paul B. Cavazos(48) | VP since 2016 | Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer and Assistant Treasurer, DTE Energy (2007-2016); Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Erica Duncan (47) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Melinda G. Heika (56) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present); Resolute Investment Managers, Inc. (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present); Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute Investment Holdings, LLC. (2015-Present); Treasurer, Lighthouse Holdings, Inc. (2010-2015); Treasurer, Lighthouse Holdings Parent Inc., (2010-2015); Treasurer, American Private Equity Management, LLC (2012-Present); Director and Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Treasurer, American Beacon Select Funds (2010-Present); Treasurer, American Beacon Mileage Funds (2010-2012); Treasurer, American Beacon Master Trust (2010-2012); Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Terri L. McKinney (53) | VP since 2010 | Vice President (2009-Present) and Managing Director (2003-2009), American Beacon Advisors, Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). |
57
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Jeffrey K. Ringdahl (42) | VP since 2010 | Senior Vice President (2013-Present), Vice President (2010-2013), and Director (2015-Present), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Senior Vice President (2012-Present) and Manager (2015-Present), American Private Equity Management, LLC; Senior Vice President, Lighthouse Holdings, Inc. (2013-2015); Senior Vice President, Lighthouse Holdings Parent, Inc. (2013-2015); Director and Vice President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Trustee, American Beacon NextShares Trust (2015-Present); Director and Senior Vice Present, Resolute Investment Holdings, LLC (2015-Present); Director and Senior Vice President, Resolute Topco, Inc. (2015-Present); Director and Senior Vice President, Resolute Acquisition, Inc. (2015-Present); Director and Senior Vice President, Resolute Investment Managers, Inc. (2015-Present); Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-President); Director, Shapiro Capital Management, LLC (2017-Present). | ||
Samuel J. Silver (54) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); American Beacon Institutional Funds Trust (2011-Present). | ||
Christina E. Sears (46) | Chief Compliance Officer since 2004 and Asst. Secretary since 1999 | Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Chief Compliance Officer, American Private Equity Management, LLC (2012-Present); Chief Compliance Officer and Vice President, Alpha Quant Advisors, LLC (2016-Present); Chief Compliance Officer (2004-Present) and Assistant Secretary (1999-Present), American Beacon Select Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Mileage Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Master Trust; Chief Compliance Officer and Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Sonia L. Bates (60) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-Present); Assistant Treasurer, Resolute Investment Managers, Inc. (2015-Present); Assistant Treasurer, Resolute Acquisition, Inc. (2015-Present); Assistant. Treasurer, Resolute Topco, Inc. (2015-Present); Assistant Treasurer, Resolute Investment Holdings, LLC.; Assistant Treasurer, Lighthouse Holdings, Inc. (2011-2015); Assistant Treasurer, Lighthouse Holdings Parent Inc. (2011-2015); Assistant Treasurer, American Private Equity Management, LLC (2012-Present); Assistant Treasurer, American Beacon Select Funds (2011-Present); Assistant Treasurer American Beacon Mileage Funds (2011-2012); Assistant Treasurer, American Beacon Master Trust (2011-2012); Assistant Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Shelley D. Abrahams (42) | Assistant Secretary since 2008 | Assistant Secretary, American Beacon Advisors, Inc. (2008-Present); Assistant Secretary, American Beacon Select Funds (2008-Present); Assistant Secretary, American Beacon Mileage Funds (2008-2012); Assistant Secretary, American Beacon Master Trust (2008-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
58
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of Office and Length of Time Served with the Trust | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
Rebecca L. Harris (50) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2010-Present); Assistant Secretary, American Beacon Mileage Funds (2010-2012); Assistant Secretary, American Beacon Master Trust (2010-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Diana N. Lai (41) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Advisors, Inc. (2012-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Teresa A. Oxford (59) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2015-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
* As of 11/12/2014, the Board 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 75.
** Mr. Feld is deemed to be an “interested person” of the Trusts, as defined by the 1940 Act. Mr. Feld’s law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to one or more of the Trust’s sub-advisors.
59
American Beacon FundsSM
October 31, 2016 (Unaudited)
The American Beacon Funds recognize and respect 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:
• | information we receive from you on applications or other forms; |
• | information about your transactions with us or our service providers; and |
• | information we receive from third parties. |
We do not disclose any nonpublic personal information about our customers or former customers 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 personal information, we maintain safeguards that comply with federal standards.
60
Delivery of Documents
eDelivery is NOW AVAILABLE - Stop traditional mail delivery and receive your
shareholder reports and summary prospectus on-line. Sign up at
www.americanbeaconfunds.com
If you invest in the Fund through a financial institution, you may be able to receive the Fund’s 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 Fund:
By E-mail: | On the Internet: | |
american_beacon.funds@ambeacon.com | Visit our website at www.americanbeaconfunds.com | |
By Telephone: Call (800) 658-5811 | By Mail: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 | |
Availability of Quarterly Portfolio Schedules | Availability of Proxy Voting Policy and Records | |
In addition to the Schedule of Investments provided in each semi-annual and annual report, the 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 Fund’s 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 Section, 100 F Street, NE, Washington, D.C. 20549-1520. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling (800)-SEC-0330. A complete schedule of the Fund’s portfolio holdings is also available at www.americanbeaconfunds.com approximately twenty days after the end of each month. | A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund’s Statement of Additional Information, is available free of charge on the Fund’s website www.americanbeaconfunds.com and by calling 1-800-967-9009 or by accessing the SEC’s website at www.sec.gov. The Fund’s proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund’s Forms N-PX are available on the SEC’s website at www.sec.gov. The Fund’s proxy voting record may also be obtained by calling 1-800-967-9009. |
Fund Service Providers:
CUSTODIAN State Street Bank and Trust Boston, Massachusetts | TRANSFER AGENT Boston Financial Data Services Kansas City, Missouri | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Foreside Fund Services, LLC Portland, Maine |
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current Prospectus or Summary Prospectus.
American Beacon Funds and American Beacon Small Cap Value Fund are service marks of American Beacon Advisors, Inc.
AR 10/17
About American Beacon Advisors
Since 1986, American Beacon Advisors has offered a variety of products and investment advisory services to numerous institutional and retail clients, including a variety of mutual funds, corporate cash management, and separate account management.
Our clients include defined benefit plans, defined contribution plans, foundations, endowments, corporations, financial planners, and other institutional investors. With American Beacon Advisors, you can put the experience of a multi-billion dollar asset management firm to work for your company.
BALANCED FUND RISKS
The use of fixed-income securities entails interest rate and credit risks. Investing in foreign securities may involve heightened risk due to currency fluctuations and economic and political risks. Investing in value stocks may limit downside risk over time; however, the Fund may produce more modest gains than riskier stock funds as a trade-off for this potentially lower risk. The use of futures contracts for cash management may subject the Fund to losing more money than invested. The Fund participates in a securities lending program. Please see the prospectus for a complete discussion of the Fund’s risks. There can be no assurances that the investment objectives of this Fund will be met.
MID-CAP VALUE FUND RISKS
Investing in medium-capitalization stocks may involve greater volatility and lower liquidity than larger company stocks. Investing in value stocks may limit downside risk over time; however, the Fund may produce more modest gains than riskier stock funds as a trade-off for this potentially lower risk. Investing in foreign securities may involve heightened risk due to currency fluctuations and economic and political risks. The use of futures contracts for cash management may subject the Fund to losing more money than invested. The Fund participates in a securities lending program. Please see the prospectus for a complete discussion of the Fund’s risks. There can be no assurances that the investment objectives of this Fund will be met.
Any opinions herein, including forecasts, reflect our judgment as of the end of the reporting period and are subject to change. Each advisor’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, American Beacon Advisors, Inc. makes no representation as to the completeness or accuracy of the statements contained herein.
American Beacon Funds | October 31, 2017 |
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Schedules of Investments: | ||||
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Financial Highlights: | ||||
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Disclosure Regarding Approvals of the Management and Investment Advisory Agreements | 70 | |||
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| Back Cover |
Dear Shareholders,
At American Beacon, we are proud to offer a broad range of equity, fixed-income and alternative mutual fund products for institutions and individuals. Our mutual funds – which span the domestic, international, global, frontier and emerging markets – are sub-advised by experienced portfolio managers who employ distinctive investment processes to manage assets through a variety of economic and market conditions. Together, we work diligently to help our clients and shareholders meet their long-term financial goals.
Institutional wisdom, enduring value. Since our inception as a pension fiduciary in 1986, American Beacon has focused on identifying and overseeing institutional investment managers and portfolio risk management. In 1987, we leveraged our size and experience to launch a series of sub-advised, multi- |
manager mutual funds providing individual investors access to many of the same institutional managers as our pension clients. Following the financial crisis in 2008, we saw that investors were looking for unique solutions from managers who were not necessarily mainstream. In 2010, we began offering mutual funds from single managers with distinctive investment styles or asset classes. As we continue to expand our family of funds, our solutions-based approach provides innovative investments.
Guiding principles. Our “manager of managers” philosophy is built on a long-standing history of innovative thinking, discipline and consistency in applying our solutions-based approach. As a manager of managers, our goal is to engage the most effective money managers for each asset class, investment style or market strategy – whether through a single sub-advisor or a combination of sub-advisors. Because we take our fiduciary responsibilities very seriously, our thorough manager evaluation and selection process is rigorous and ongoing. Our guiding principles – predictability, style consistency, competitive pricing and long-term relationships – provide a strong foundation for our due-diligence process. Our broad range of mutual funds helps investors navigate the economic storms and market downturns in the U.S. and abroad. Our years of experience evaluating sub-advisors have led us to identify and partner with asset managers who have adhered to their disciplined processes for many years and through multiple market cycles.
Focus on asset protection and risk mitigation. We strive to provide innovative, long-term products without gimmicks. From offering some of the first multi-manager funds, one of the first retirement-income funds and the first open-end mutual fund in the U.S. to focus primarily on frontier-market debt, our robust history includes applying a disciplined, solutions-based approach to our product development process to help protect assets and mitigate risk.
Thank you for your continued interest in American Beacon. For additional information about our funds or to access your account information, please visit our website at www.americanbeaconfunds.com.
Best Regards,
Gene L. Needles, Jr.
President
American Beacon Funds
1
Domestic Bond and Domestic Equity Market Overviews
October 31, 2017 (Unaudited)
Domestic Bond Market Overview
After hiking the federal funds rate at each quarterly meeting from December 2016 through June 2017, the Federal Reserve (the “Fed”) suspended further rate hikes during the September Federal Open Market Committee (“FOMC”) meeting and maintained the target federal funds rate in a range of 1.00% to 1.25%. However, this meeting did usher in a new phase of monetary policy. The quantitative easing policies, which began in 2008, were replaced with balance sheet reduction, which started in October. This phase began slowly, but will increase in future quarters to substantial amounts. The minutes from the September FOMC meeting continued to indicate a divided Fed that is puzzled about the lack of inflation despite tight labor market conditions. While several voting members determined that another increase in the federal funds rate was warranted by year end, a few preferred to remain on hold pending further economic data. Fed Chair Janet Yellen made her case for reduced accommodation by stating that the labor market could become overheated without future rate hikes. Additionally, she indicated that persistently easy monetary policy could lead to financial instability. The initial reading of third quarter gross domestic product was 3.0%, following growth of 3.1% in the second quarter, but measures of inflation remained muted.
During the past year, the 10-year Treasury note touched a low of 1.78% shortly before the U.S. presidential election, moved to a high of 2.63% in March 2017 and has generally been range bound since. It finished October at 2.38%, representing a rise of 55 basis points (0.55%) for the period. Shorter-term rates increased significantly more than longer-term rates as the two-year note increased 76 basis points (0.76%) to 1.60% while the 30-year bond increased just 30 basis points (0.30%) to 2.88%. These moves caused the yield curve to flatten by 46 basis points (0.46%) to 128 basis points (1.28%).
Despite the rise in interest rates, the bond market delivered modestly positive performance for the 12-month period ended October 31, 2017, with a total return on the Bloomberg Barclays U.S. Aggregate Index (the “Index”) of 0.90%. Investors in spread products were generally rewarded during the period as three of the four spread sectors delivered positive excess returns. Corporates led the way with an excess return of 427 basis points (4.27%). Agencies and asset-backed securities followed with excess returns of 136 basis points (1.36%) and 61 basis points (0.61%), respectively. Agency mortgage-backed securities lagged with -10 basis points (-0.10%) of excess return.
Domestic Equity Market Overview
At the beginning of the 12-month period ended October 31, 2017, U.S. presidential election news dominated headlines. Following Donald Trump’s victory, the post-election optimism of investors and the Trump administration’s emphasis on tax cuts and infrastructure spending pushed markets higher. Over the trailing 12 months, the S&P 500 Index and the Dow Jones Industrial Average (“DJIA”) increased 23.6% and 32.1%, respectively. From January 2017 through October 2017, the S&P 500 Index and DJIA were up 16.9% and 20.6%, respectively, while market volatility remained elusive.
With the exception of the Telecommunications sector, all S&P 500 Index sectors were up for the trailing 12-month period. The Information Technology and Financials sectors remained the front runners, followed by the Basic Materials and Industrials sectors. Even with the significant decline in oil prices year-to-date in 2017, the Energy sector was able to pump out a 2.5% trailing 12-month return. The Consumer Staples sector has been hard-hit since this summer’s news about Amazon.com, Inc.’s surprise acquisition of Whole Foods.
With strength in the Information Technology and Health Care sectors, growth stocks continued to trounce value stocks in the trailing 12-month period. While large-cap securities have performed very well thus far, small-cap securities have done even better – perhaps driven by improved prospects of tax reform. The Russell 2000 Index was up 27.9% in the period under review, while the Russell 1000 Index gained 23.7% and the Russell Midcap Index rose 21.1%.
2
Domestic Bond and Domestic Equity Market Overviews
October 31, 2017 (Unaudited)
Fed Chair Janet Yellen has reiterated the importance of measured rate normalization following a decade of near-zero interest rates. The Fed increased short-term interest rates by 0.25% in December 2016, March 2017 and June 2017. Following the June 2017 rate hike, short-term interest rates ranged from 1.00% to 1.25%. Long-term inflation expectations initially increased sharply in the wake of the presidential election, but ultimately proved elusive. Consumer confidence consistently surprised to the upside for the last 12 months, despite mixed economic data and slower job growth. Gross domestic product (“GDP”) for first quarter was revised up to 1.4%, driven largely by consumer spending. The upward revision doubled the original 0.7% GDP reported in April, but still undershot expectations. Final second-quarter GDP growth beat expectations at 3.1%. GDP expanded at a 3% annual rate in the third quarter. From a macro perspective, the resilience of the U.S. economy was tested by major hurricanes hitting Texas, Florida and Puerto Rico. With the help of soaring stock prices and rising business and consumer confidence, the U.S. economy posted its best six-month stretch of growth in three years. At the end of the period, investors awaited President Trump’s nominee for Ms. Yellen’s successor.
The U.S. is clearly in the back half of what is being viewed as a very long economic cycle, which continues to be fueled by the acceleration of global profit growth, a pickup in domestic and global manufacturing, and early signs of better capital expenditure and higher wages. In other words, the U.S. economic recovery could very well continue for the foreseeable future. The U.S. equity market appears to be accepting of a gradual return to normalized interest rates and balance-sheet reductions. The U.S. market also appears to be holding its own even in light of headwinds that include everything from natural disasters, to domestic terrorism, to dealing with an unpredictable foreign dictator. The resilience of the U.S. equity market has been notable.
3
American Beacon Balanced FundSM
Performance Overview
October 31, 2017 (Unaudited)
The Investor Class of the American Beacon Balanced Fund (the “Fund”) returned 15.52% for the twelve months ended October 31, 2017, outperforming the 60% Russell 1000® Value Index/40% Bloomberg Barclays Capital U.S. Aggregate Index return (“Balanced Composite Index”) of 10.85% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/07 through 10/31/17
Total Returns for the Period ended October 31, 2017 | |||||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2007- 10/31/2017 | ||||||||||||||||||||||||||||
Institutional Class (1,7) | AADBX | 15.82 | % | 6.13 | % | 9.61 | % | 5.87 | % | $ | 17,685 | ||||||||||||||||||||||
Y Class (1,2,7) | ACBYX | 16.05 | % | 6.12 | % | 9.55 | % | 5.80 | % | $ | 17,576 | ||||||||||||||||||||||
Investor Class (1,7) | AABPX | 15.52 | % | 5.79 | % | 9.24 | % | 5.53 | % | $ | 17,126 | ||||||||||||||||||||||
Advisor Class (1,7) | ABLSX | 15.32 | % | 5.60 | % | 9.07 | % | 5.34 | % | $ | 16,827 | ||||||||||||||||||||||
A without Sales Charge (1,3,7) | ABFAX | 15.36 | % | 5.70 | % | 9.13 | % | 5.44 | % | $ | 16,987 | ||||||||||||||||||||||
A with Sales Charge (1,3,7) | ABFAX | 8.69 | % | 3.63 | % | 7.85 | % | 4.82 | % | $ | 16,011 | ||||||||||||||||||||||
C without Sales Charge (1,4,7) | ABCCX | 14.50 | % | 4.92 | % | 8.30 | % | 4.86 | % | $ | 16,078 | ||||||||||||||||||||||
C with Sales Charge (1,4,7) | ABCCX | 13.50 | % | 4.92 | % | 8.30 | % | 4.86 | % | $ | 16,078 | ||||||||||||||||||||||
Bloomberg Barclays Capital U.S. Aggregate Index (6) | 0.90 | % | 2.40 | % | 2.04 | % | 4.19 | % | $ | 15,069 | |||||||||||||||||||||||
Russell 1000® Value Index (6) | 17.78 | % | 7.99 | % | 13.48 | % | 5.99 | % | $ | 17,893 | |||||||||||||||||||||||
Balanced Composite Index (5) . | 10.85 | % | 5.88 | % | 8.91 | % | 5.61 | % | $ | 17,257 |
1. | Performance shown is historical and is not indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is calculated based on the published end of day net asset values as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. 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 10/31/07 up to 3/1/10, the inception date of the Y Class, and the returns of the Y Class since its inception. Expenses of the Y Class are higher than those of the Institutional Class. Therefore, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/07. A portion of the fees charged to the Y Class of the Fund was waived in 2011, partially recovered in 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown in 2011. |
4
American Beacon Balanced FundSM
Performance Overview
October 31, 2017 (Unaudited)
3. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 up to 5/17/10, the inception date of the A Class, and the returns of the A Class since its inception. Expenses of the A Class are higher than those of the Investor Class. Therefore, total returns shown may be higher than they would have been had the A Class been in existence since 10/31/07. A portion of the fees charged to the A Class of the Fund was waived in 2011 and 2012, partially recovered in 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown in 2011 and 2012. A Class has a maximum sales charge of 5.75%. |
4. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 up to 9/1/10, the inception date of the C Class, and the returns of the C Class since its inception. Expenses of the C Class are higher than those of the Investor Class. Therefore, total returns shown may be higher than they would have been had the C Class been in existence since 10/31/07. A portion of the fees charged to the C Class of the Fund was waived from 2010 through 2012, and partially recovered in 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2012. The maximum contingent deferred sales charge for C Class is 1% for shares redeemed within one year of the date of purchase. |
5. | To reflect the Fund’s allocation of its assets between investment grade fixed-income securities and equity securities, the returns of the Russell 1000 Value Index and the Bloomberg Barclays Capital Aggregate U.S. Index have been combined in a 60% / 40% proportion. |
6. | The Russell 1000 Value Index is an unmanaged index of those stocks in the Russell 1000 Index with lower price-to-book ratios and lower forecasted values. Russell 1000 Value Index and Russell 1000 Index are registered trademarks of Frank Russell Company. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data, and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. The Bloomberg Barclays Capital Aggregate U.S. Index is a market value weighted index of government, corporate, mortgage-backed and asset-backed fixed-rate debt securities of all maturities. One cannot directly invest in an index. |
7. | The Total Annual Fund Operating Expense ratio set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, and C Class shares was 0.63%, 0.73%, 0.96%, 1.13%, 1.03%, and 1.78%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. |
During the twelve-month period, the Fund’s assets on average were invested 67% in equities (including equitized cash) and 33% in fixed-income securities, ending the period with 67% in equities (including equitized cash) and 33% in fixed-income securities.
The equity portion of the Fund (excluding equitized cash) returned 23.88% for the period, outperforming the Russell 1000 Value Index (the “Index”) return of 17.78%. The Fund outperformed the Index as both stock selection and sector allocation contributed value relative to the Index.
Stock selection in the Information Technology, Financials, and Energy sectors contributed the majority of the outperformance during the twelve-month period. In the Information Technology sector, Micron Technology Inc. (up 157.67%) added value, followed closely by Microsoft Corp., which rose 41.56%, and IPG Photonics Corp. (up 109.17%). In the Financials sector, the Fund’s position in Bank of America Corp. (up 68.21%) and Citigroup Inc. (up 48.77%) were star selections. Within Energy, positions in BP PLC. Sponsored ADR (up 20.57%) and Royal Dutch Shell PLC, Class A, Sponsored ADR (up 33.29%) both had positive impacts on performance.
The Fund’s underweight to Consumer Staples and Real Estate (up 3.13% and 4.96%, respectively) helped the most performance through sector allocation. On the other hand, being overweight in Consumer Discretionary (up 12.82%) was the only sector that detracted from relative value.
The fixed-income portion of the Fund returned 1.3% for the twelve-month period, outperforming the Bloomberg Barclays U.S. Aggregate Bond Index (the “Barclays Index”) return of 0.9%. The Fund’s fixed-income excess performance relative to the Barclays Index was due to security selection. The Fund’s selections in U.S. Treasuries (up 1.0%) added relative value. Good selection in Commercial Mortgage-Backed Securities (up 1.3%) also benefited the Fund, as did an overweight to the Manufacturing sector. From a duration perspective, the portfolio was helped by an overweight allocation to the 0 to 1 year range, as well as selections in the 5 to 7 year and 10 to 30 year ranges.
The sub-advisors continue to focus on the disciplined selection of attractive securities that should allow the Fund to benefit long-term.
5
American Beacon Balanced FundSM
Performance Overview
October 31, 2017 (Unaudited)
Top Ten Holdings (% Net Assets) | ||||||||
U.S. Treasury Notes/Bonds 1.307%, Due 7/31/2018 | 4.5 | |||||||
Citigroup, Inc. | 2.8 | |||||||
Bank of America Corp. | 2.4 | |||||||
BP PLC | 1.9 | |||||||
JPMorgan Chase & Co. | 1.8 | |||||||
American International Group, Inc. | 1.8 | |||||||
Microsoft Corp. | 1.6 | |||||||
Oracle Corp. | 1.5 | |||||||
Wells Fargo & Co. | 1.5 | |||||||
General Motors Co. | 1.2 | |||||||
Total Fund Holdings | 503 | |||||||
Sector Allocation (% Equities) | ||||||||
Financials | 27.7 | |||||||
Energy | 15.6 | |||||||
Information Technology | 12.1 | |||||||
Health Care | 11.2 | |||||||
Consumer Discretionary | 10.6 | |||||||
Industrials | 10.3 | |||||||
Materials | 4.6 | |||||||
Consumer Staples | 4.1 | |||||||
Telecommunication Services | 2.1 | |||||||
Utilities | 1.7 | |||||||
Sector Allocation (% Fixed Income) | ||||||||
U.S. Treasury Obligations | 41.2 | |||||||
U.S. Agency Mortgage-Backed Obligations | 15.7 | |||||||
Financial | 13.0 | |||||||
Consumer, Cyclical | 4.6 | |||||||
Communications | 4.4 | |||||||
Consumer, Non-Cyclical | 4.1 | |||||||
Technology | 3.1 | |||||||
Industrial | 3.0 | |||||||
Utilities | 2.5 | |||||||
Commercial Mortgage-Backed Obligations | 2.2 | |||||||
Asset-Backed Obligations | 2.2 | |||||||
Energy | 1.7 | |||||||
Municipal Obligations | 0.9 | |||||||
Basic Materials | 0.9 | |||||||
Foreign Sovereign Obligations | 0.5 |
6
American Beacon Mid-Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
The Investor Class of the American Beacon Mid-Cap Value Fund (the “Fund”) returned 24.52% for the twelve months ended October 31, 2017, outperforming the Russell Midcap® Value Index (the “Index”) return of 17.12% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/07 through 10/31/17
Total Returns for the Period ended October 31, 2017 | |||||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2007- 10/31/2017 | ||||||||||||||||||||||||||||
Institutional Class (1,3,9) | AACIX | 24.71 | % | 9.47 | % | 15.01 | % | 8.73 | % | $ | 23,101 | ||||||||||||||||||||||
Y Class (1,4,9) | ACMYX | 24.60 | % | 9.41 | % | 14.93 | % | 8.68 | % | $ | 22,984 | ||||||||||||||||||||||
Investor Class (1,2,9) | AMPAX | 24.52 | % | 9.24 | % | 14.74 | % | 8.53 | % | $ | 22,673 | ||||||||||||||||||||||
Advisor Class (1,5,9) | AMCSX | 24.10 | % | 8.92 | % | 14.41 | % | 8.23 | % | $ | 22,058 | ||||||||||||||||||||||
A without Sales Charge (1,6,9) | ABMAX | 24.26 | % | 9.08 | % | 14.53 | % | 8.28 | % | $ | 22,151 | ||||||||||||||||||||||
A with Sales Charge (1,6,9) | ABMAX | 17.08 | % | 6.95 | % | 13.18 | % | 7.64 | % | $ | 20,875 | ||||||||||||||||||||||
C without Sales Charge (1,7,9) | AMCCX | 23.27 | % | 8.23 | % | 13.65 | % | 7.70 | % | $ | 20,990 | ||||||||||||||||||||||
C with Sales Charge (1,7,9) | AMCCX | 22.27 | % | 8.23 | % | 13.65 | % | 7.70 | % | $ | 20,990 | ||||||||||||||||||||||
Russell Midcap® Value Index (8) | 17.12 | % | 8.26 | % | 14.49 | % | 7.90 | % | $ | 21,382 |
1. | Performance shown is historical and is not indicative of future returns. Investment returns and principal value will vary, and shares may be worth more or less at redemption than at original purchase. Performance shown is calculated based on the published end of day net asset values as of date indicated, and current performance may be lower or higher than the performance data quoted. To obtain performance as of the most recent month end, please visit www.americanbeaconfunds.com or call 1-800-967-9009. 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. | A portion of the fees charged to the Investor Class of the Fund was waived from 2007 through 2013 and recovered in 2014. Performance prior to waiving fees was lower than actual returns shown from 2007 through 2013. |
3. | A portion of the fees charged to the Institutional Class of the Fund was waived from 2007 through 2013 and recovered in 2014. Performance prior to waiving fees was lower than actual returns shown from 2007 through 2013. |
7
American Beacon Mid-Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
4. | Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 10/31/07 up to 3/1/10, the inception date of the Y Class and the returns of the Y Class since its inception. Expenses of the Institutional Class are lower than those of the Y Class. As a result, total returns shown may be higher than they would have been had the Y Class been in existence since 10/31/07. A portion of the fees charged to the Y Class of the Fund was waived from 2010 through 2013. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2013. |
5. | A portion of the fees charged to the Advisor Class of the Fund was waived from 2007 through 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown from 2007 through 2013. |
6. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 to 5/17/10, the inception date of the A Class, and the returns of the A Class since its inception. Expenses of the Investor Class are lower than those of the A Class. As a result, total returns shown may be higher than they would have been had the A Class been in existence since 10/31/07. A portion of the fees charged to the A Class of the Fund was waived from 2010 through 2012 and fully recovered in 2013. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2012. A Class shares have a maximum sales charge of 5.75%. |
7. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/07 to 9/1/10, the inception date of the C Class, and the returns of the C Class since its inception. Expenses of the Investor Class are lower than those of the C Class. As a result, total returns shown may be higher than they would have been had the C Class been in existence since 10/31/07. A portion of the fees charged to the C Class of the Fund was waived from 2010 through 2013 and recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown from 2010 through 2013. The maximum contingent deferred sales charge for C Class is 1.00% for shares redeemed within one year of the date of purchase. |
8. | The Russell Midcap Value Index is an unmanaged index of those stocks in the Russell Midcap Index with lower price-to-book ratios and lower forecasted growth values. The Russell Midcap Index measures the performance of the 800 smallest companies in the Russell 1000 Index. Russell Midcap Value Index, Russell Midcap Index and Russell 1000 Index are registered trademarks of Frank Russell Company. Frank Russell Company (“Russell”) is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Frank Russell Company. Neither Russell nor its licensors accept any liability for any errors or omissions in the Russell Indexes and/or Russell ratings or underlying data, and no party may rely on any Russell Indexes and/or Russell ratings and/or underlying data contained in this communication. No further distribution of Russell Data is permitted without Russell’s express written consent. Russell does not promote, sponsor or endorse the content of this communication. One cannot directly invest in an index. |
9. | The Total Annual Fund Operating Expense ratio set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, and C Class shares was 0.90%, 0.97%, 1.13%, 1.41%, 1.27%, and 2.05%, respectively. The expense ratios above may vary from the expense ratios presented in other sections of this report that are based on expenses incurred during the period covered by this report. |
The Fund outperformed the Index as both stock selection and sector allocation added value relative to the Index.
From a security selection perspective the Fund’s performance was attributed to holdings in the Consumer Discretionary and Industrials sectors. Companies in the Consumer Discretionary sector contributing to performance included Dana, Inc. (up 101.4%), Royal Caribbean Cruises Ltd. (up 66.4%) and Wyndham Worldwide (up 68.4%). In the Industrials sector, Terex Corp. (up 99.5%), Owens Corning (up 71.4%) and Dover Corp. (up 46.1%) were the largest contributors.
The Fund’s underweight positions in the Real Estate and Consumer Staples sectors added value relative to the Index through sector allocation. Overweight positions in Financials and Information Technology, the two best performing sectors, also contributed to the Fund’s performance.
The sub-advisors’ philosophy of investing in undervalued companies that exhibit improving profitability and earnings growth potential should allow the Fund to benefit longer term.
8
American Beacon Mid-Cap Value FundSM
Performance Overview
October 31, 2017 (Unaudited)
Top Ten Holdings (% Net Assets) | ||||||||
Dover Corp. | 2.2 | |||||||
Willis Towers Watson PLC | 1.9 | |||||||
Murphy Oil Corp. | 1.8 | |||||||
Lamar Advertising Co. | 1.7 | |||||||
KeyCorp | 1.7 | |||||||
Pinnacle West Capital Corp. | 1.7 | |||||||
Avnet, Inc. | 1.6 | |||||||
Microchip Technology, Inc. | 1.5 | |||||||
FNF Group | 1.5 | |||||||
Cardinal Health, Inc. | 1.5 | |||||||
Total Fund Holdings | 119 | |||||||
Sector Allocation (% Equities) | ||||||||
Financials | 25.8 | |||||||
Industrials | 15.5 | |||||||
Consumer Discretionary | 13.2 | |||||||
Information Technology | 12.7 | |||||||
Energy | 9.2 | |||||||
Health Care | 7.9 | |||||||
Utilities | 5.7 | |||||||
Materials | 4.9 | |||||||
Real Estate | 4.4 | |||||||
Consumer Staples | 0.7 |
9
American Beacon FundSM
October 31, 2017 (Unaudited)
Fund Expense Example
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and redemption fees if applicable, and (2) ongoing costs, including management fees, distribution (12b-1) fees, sub-transfer agent fees, and other Fund expenses. The Examples are intended to help you understand the ongoing cost (in dollars) of investing in the Funds 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 May 1, 2017 through October 31, 2017.
Actual Expenses
The “Actual” lines on the tables provide information about actual account values and actual expenses. You may use the information on this page, 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 = $8.60), then multiply the result by the “Expenses Paid During Period” for the applicable Fund to estimate the expenses you paid on your account during this period. Shareholders of the Investor and Institutional Classes that invest in the Fund through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 higher.
Hypothetical Example for Comparison Purposes
The “Hypothetical” line of the tables 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 Funds 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 Investor and Institutional Classes that invest in the Funds through an IRA or Roth IRA may be subject to a custodial IRA fee of $15 that is typically deducted each December. If your account was subject to a custodial IRA fee during the period, your costs would have been $15 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 Funds, such as sales charges (loads) or redemption fees, as applicable. 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 tables 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.
10
American Beacon FundsSM
Expense Examples
October 31, 2017 (Unaudited)
Balanced Fund | |||||||||||||||
Beginning Account Value 5/1/2017 | Ending Account Value 10/31/2017 | Expenses Paid During Period 5/1/2017-10/31/2017* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,059.80 | $3.69 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.60 | $3.62 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,060.00 | $3.53 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.80 | $3.47 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,059.10 | $4.62 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.70 | $4.53 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $1,058.10 | $5.65 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.70 | $5.55 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $1,058.00 | $5.19 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.20 | $5.09 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $1,054.10 | $9.06 | ||||||||||||
Hypothetical** | $1,000.00 | $1,016.40 | $8.89 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.59%, 0.68%, 0.89%, 1.09%, 1.00%, and 1.75% for the Institutional, Y, Investor, Advisor, A, and C 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 (365) to reflect the half-year period. |
** | 5% return before expenses. |
Mid-Cap Value Fund | |||||||||||||||
Beginning Account Value 5/1/2017 | Ending Account Value 10/31/2017 | Expenses Paid During Period 5/1/2017-10/31/2017* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,073.40 | $4.65 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.70 | $4.53 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,072.70 | $5.07 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.30 | $4.94 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,072.80 | $5.69 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.70 | $5.55 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $1,070.60 | $7.41 | ||||||||||||
Hypothetical** | $1,000.00 | $1,018.00 | $7.22 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $1,071.90 | $6.68 | ||||||||||||
Hypothetical** | $1,000.00 | $1,018.80 | $6.51 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $1,066.90 | $10.63 | ||||||||||||
Hypothetical** | $1,000.00 | $1,014.90 | $10.36 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.89%, 0.97%, 1.09%, 1.42%, 1.28%, and 2.04% for the Institutional, Y, Investor, Advisor, A, and C 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 (365) to reflect the half-year period. |
** | 5% return before expenses. |
11
American Beacon FundsSM
Report of Independent Registered Public Accounting Firm
The Board of Trustees and Shareholders of
American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund
We have audited the accompanying statements of assets and liabilities, including the schedules of investments, of American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund (two of the funds constituting the American Beacon Funds) (the Funds), as of October 31, 2017, 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 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 the 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. We were not engaged to perform an audit of the Funds’ internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose 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. Our procedures included confirmation of securities owned as of October 31, 2017, 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 American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund at October 31, 2017, 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.
Dallas, Texas
December 29, 2017
12
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 64.80% | |||||||||||||||
Consumer Discretionary - 6.88% | |||||||||||||||
Auto Components - 1.46% | |||||||||||||||
Adient PLC | 7,132 | $ | 601,655 | ||||||||||||
Goodyear Tire & Rubber Co. | 71,508 | 2,187,430 | |||||||||||||
Magna International, Inc. | 43,027 | 2,347,123 | |||||||||||||
|
| ||||||||||||||
5,136,208 | |||||||||||||||
|
| ||||||||||||||
Automobiles - 1.44% | |||||||||||||||
General Motors Co. | 101,332 | 4,355,249 | |||||||||||||
Harley-Davidson, Inc.A | 8,141 | 385,395 | |||||||||||||
Honda Motor Co., Ltd., Sponsored ADR | 11,293 | 351,100 | |||||||||||||
|
| ||||||||||||||
5,091,744 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 0.27% | |||||||||||||||
Carnival Corp. | 6,442 | 427,684 | |||||||||||||
Norwegian Cruise Line Holdings Ltd.B | 9,365 | 522,099 | |||||||||||||
|
| ||||||||||||||
949,783 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 0.34% | |||||||||||||||
DR Horton, Inc. | 26,711 | 1,180,893 | |||||||||||||
|
| ||||||||||||||
Media - 1.46% | |||||||||||||||
CBS Corp., Class B, NVDR | 16,352 | 917,674 | |||||||||||||
Comcast Corp., Class A | 28,260 | 1,018,208 | |||||||||||||
Discovery Communications, Inc., Class AA B | 67,900 | 1,281,952 | |||||||||||||
Discovery Communications, Inc., Class CB | 33,399 | 594,836 | |||||||||||||
Omnicom Group, Inc. | 4,186 | 281,258 | |||||||||||||
Regal Entertainment Group, Class A | 43,500 | 711,225 | |||||||||||||
Walt Disney Co. | 3,600 | 352,063 | |||||||||||||
|
| ||||||||||||||
5,157,216 | |||||||||||||||
|
| ||||||||||||||
Multiline Retail - 0.69% | |||||||||||||||
Dollar General Corp. | 24,489 | 1,979,691 | |||||||||||||
Target Corp. | 7,728 | 456,261 | |||||||||||||
|
| ||||||||||||||
2,435,952 | |||||||||||||||
|
| ||||||||||||||
Specialty Retail - 1.00% | |||||||||||||||
Advance Auto Parts, Inc. | 12,700 | 1,038,098 | |||||||||||||
Bed Bath & Beyond, Inc. | 19,424 | 386,537 | |||||||||||||
Lowe’s Cos, Inc. | 26,126 | 2,088,774 | |||||||||||||
|
| ||||||||||||||
3,513,409 | |||||||||||||||
|
| ||||||||||||||
Textiles, Apparel & Luxury Goods - 0.22% | |||||||||||||||
Hanesbrands, Inc.A | 34,700 | 780,750 | |||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 24,245,955 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 2.65% | |||||||||||||||
Beverages - 0.37% | |||||||||||||||
Molson Coors Brewing Co., Class B | 16,000 | 1,293,920 | |||||||||||||
|
| ||||||||||||||
Food & Staples Retailing - 0.88% | |||||||||||||||
CVS Health Corp. | 34,304 | 2,350,853 | |||||||||||||
Wal-Mart Stores, Inc. | 8,740 | 763,089 | |||||||||||||
|
| ||||||||||||||
3,113,942 | |||||||||||||||
|
| ||||||||||||||
Food Products - 0.11% | |||||||||||||||
Kellogg Co. | 6,292 | 393,439 | |||||||||||||
|
|
See accompanying notes
13
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 64.80% (continued) | |||||||||||||||
Consumer Staples - 2.65% (continued) | |||||||||||||||
Tobacco - 1.29% | |||||||||||||||
Altria Group, Inc. | 24,120 | $ | 1,548,987 | ||||||||||||
Imperial Brands PLC, Sponsored ADR | 30,307 | 1,252,891 | |||||||||||||
Philip Morris International, Inc. | 16,533 | 1,730,013 | |||||||||||||
|
| ||||||||||||||
4,531,891 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 9,333,192 | ||||||||||||||
|
| ||||||||||||||
Energy - 10.14% | |||||||||||||||
Energy Equipment & Services - 0.84% | |||||||||||||||
Helmerich & Payne, Inc.A | 32,900 | 1,786,799 | |||||||||||||
National Oilwell Varco, Inc. | 24,600 | 841,074 | |||||||||||||
Oceaneering International, Inc. | 17,155 | 346,874 | |||||||||||||
|
| ||||||||||||||
2,974,747 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 9.30% | |||||||||||||||
Anadarko Petroleum Corp. | 20,297 | 1,002,063 | |||||||||||||
Andeavor | 9,200 | 977,408 | |||||||||||||
Apache Corp. | 45,814 | 1,895,325 | |||||||||||||
BP PLC, Sponsored ADR | 160,633 | 6,532,944 | |||||||||||||
Canadian Natural Resources Ltd. | 102,465 | 3,576,029 | |||||||||||||
Chevron Corp. | 17,281 | 2,002,695 | |||||||||||||
Cobalt International Energy, Inc.A B | 11,869 | 11,513 | |||||||||||||
ConocoPhillips | 84,035 | 4,298,390 | |||||||||||||
Devon Energy Corp. | 50,307 | 1,856,328 | |||||||||||||
Hess Corp. | 38,732 | 1,710,405 | |||||||||||||
Kinder Morgan, Inc. | 55,200 | 999,672 | |||||||||||||
Kosmos Energy Ltd.A B | 71,569 | 549,650 | |||||||||||||
Marathon Oil Corp. | 169,131 | 2,405,043 | |||||||||||||
Murphy Oil Corp. | 45,275 | 1,211,106 | |||||||||||||
Phillips 66 | 25,679 | 2,338,844 | |||||||||||||
Royal Dutch Shell PLC, Class A, Sponsored ADR | 22,235 | 1,401,472 | |||||||||||||
|
| ||||||||||||||
32,768,887 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 35,743,634 | ||||||||||||||
|
| ||||||||||||||
Financials - 17.97% | |||||||||||||||
Banks - 9.49% | |||||||||||||||
Bank of America Corp. | 305,672 | 8,372,356 | |||||||||||||
BNP Paribas S.A., ADR | 25,500 | 997,509 | |||||||||||||
CIT Group, Inc. | 6,650 | 310,023 | |||||||||||||
Citigroup, Inc. | 132,473 | 9,736,765 | |||||||||||||
Citizens Financial Group, Inc. | 36,468 | 1,386,149 | |||||||||||||
JPMorgan Chase & Co. | 63,214 | 6,359,961 | |||||||||||||
PNC Financial Services Group, Inc. | 8,503 | 1,163,125 | |||||||||||||
Wells Fargo & Co. | 91,513 | 5,137,540 | |||||||||||||
|
| ||||||||||||||
33,463,428 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 2.31% | |||||||||||||||
Bank of New York Mellon Corp. | 7,415 | 381,502 | |||||||||||||
Blackstone Group LP, MLP | 67,430 | 2,244,745 | |||||||||||||
Goldman Sachs Group, Inc. | 4,397 | 1,066,184 | |||||||||||||
KKR & Co. LP | 164,084 | 3,289,884 | |||||||||||||
Morgan Stanley | 8,137 | 406,850 | |||||||||||||
State Street Corp. | 8,306 | 764,152 | |||||||||||||
|
| ||||||||||||||
8,153,317 | |||||||||||||||
|
|
See accompanying notes
14
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 64.80% (continued) | |||||||||||||||
Financials - 17.97% (continued) | |||||||||||||||
Consumer Finance - 2.32% | |||||||||||||||
Ally Financial, Inc. | 25,900 | $ | 676,767 | ||||||||||||
Capital One Financial Corp. | 22,529 | 2,076,723 | |||||||||||||
Discover Financial Services | 19,400 | 1,290,682 | |||||||||||||
Navient Corp. | 44,030 | 548,614 | |||||||||||||
OneMain Holdings, Inc.B | 20,865 | 662,881 | |||||||||||||
Santander Consumer USA Holdings, Inc.B | 75,579 | 1,257,634 | |||||||||||||
SLM Corp.B | 72,256 | 765,191 | |||||||||||||
Synchrony Financial | 27,406 | 893,984 | |||||||||||||
|
| ||||||||||||||
8,172,476 | |||||||||||||||
|
| ||||||||||||||
Diversified Financial Services - 0.63% | |||||||||||||||
Berkshire Hathaway, Inc., Class BB | 11,942 | 2,232,437 | |||||||||||||
|
| ||||||||||||||
Insurance - 2.91% | |||||||||||||||
American International Group, Inc. | 97,921 | 6,326,676 | |||||||||||||
Brighthouse Financial, Inc.B | 10,711 | 666,010 | |||||||||||||
Travelers Companies, Inc. | 9,157 | 1,212,845 | |||||||||||||
XL Group Ltd. | 50,437 | 2,041,185 | |||||||||||||
|
| ||||||||||||||
10,246,716 | |||||||||||||||
|
| ||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) - 0.11% | |||||||||||||||
Two Harbors Investment Corp. | 39,557 | 387,659 | |||||||||||||
|
| ||||||||||||||
Thrifts & Mortgage Finance - 0.20% | |||||||||||||||
Radian Group, Inc. | 34,261 | 718,111 | |||||||||||||
|
| ||||||||||||||
Total Financials | 63,374,144 | ||||||||||||||
|
| ||||||||||||||
Health Care - 7.23% | |||||||||||||||
Biotechnology - 1.05% | |||||||||||||||
AbbVie, Inc. | 10,385 | 937,246 | |||||||||||||
Biogen, Inc.B | 2,072 | 645,760 | |||||||||||||
Celgene Corp.B | 6,486 | 654,891 | |||||||||||||
Gilead Sciences, Inc. | 11,420 | 856,043 | |||||||||||||
Shire PLC, ADR | 4,100 | 605,283 | |||||||||||||
|
| ||||||||||||||
3,699,223 | |||||||||||||||
|
| ||||||||||||||
Health Care Equipment & Supplies - 1.61% | |||||||||||||||
Koninklijke Philips N.V. | 38,893 | 1,586,445 | |||||||||||||
Medtronic PLC | 45,926 | 3,697,962 | |||||||||||||
Zimmer Biomet Holdings, Inc. | 3,432 | 417,400 | |||||||||||||
|
| ||||||||||||||
5,701,807 | |||||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 1.09% | |||||||||||||||
Anthem, Inc. | 18,333 | 3,835,447 | |||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 3.48% | |||||||||||||||
GlaxoSmithKline PLC, Sponsored ADR | 35,143 | 1,280,260 | |||||||||||||
Horizon Pharma PLCB | 51,712 | 701,215 | |||||||||||||
Jazz Pharmaceuticals PLCB | 3,393 | 480,211 | |||||||||||||
Johnson & Johnson | 9,686 | 1,350,325 | |||||||||||||
Mallinckrodt PLCB | 17,712 | 560,939 | |||||||||||||
Merck & Co., Inc. | 32,431 | 1,786,624 | |||||||||||||
Mylan N.V.B | 25,444 | 908,605 | |||||||||||||
Pfizer, Inc. | 83,463 | 2,926,213 | |||||||||||||
Sanofi, ADR | 48,071 | 2,272,797 | |||||||||||||
|
| ||||||||||||||
12,267,189 | |||||||||||||||
|
| ||||||||||||||
Total Health Care | 25,503,666 | ||||||||||||||
|
|
See accompanying notes
15
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 64.80% (continued) | |||||||||||||||
Industrials - 6.68% | |||||||||||||||
Aerospace & Defense - 1.21% | |||||||||||||||
Embraer S.A., Sponsored ADR | 14,824 | $ | 283,731 | ||||||||||||
General Dynamics Corp. | 3,511 | 712,663 | |||||||||||||
Raytheon Co. | 8,354 | 1,505,391 | |||||||||||||
Rockwell Collins, Inc. | 7,664 | 1,039,238 | |||||||||||||
United Technologies Corp. | 5,947 | 712,213 | |||||||||||||
|
| ||||||||||||||
4,253,236 | |||||||||||||||
|
| ||||||||||||||
Airlines - 1.15% | |||||||||||||||
American Airlines Group, Inc. | 28,561 | 1,337,226 | |||||||||||||
Delta Air Lines, Inc. | 30,545 | 1,528,167 | |||||||||||||
United Continental Holdings, Inc.B | 20,400 | 1,192,992 | |||||||||||||
|
| ||||||||||||||
4,058,385 | |||||||||||||||
|
| ||||||||||||||
Building Products - 1.02% | |||||||||||||||
Johnson Controls International PLC | 87,129 | 3,606,269 | |||||||||||||
|
| ||||||||||||||
Construction & Engineering - 0.20% | |||||||||||||||
AECOMB | 20,581 | 721,570 | |||||||||||||
|
| ||||||||||||||
Electrical Equipment - 0.43% | |||||||||||||||
Eaton Corp. PLC | 19,006 | 1,520,860 | |||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 0.78% | |||||||||||||||
General Electric Co. | 68,300 | 1,376,928 | |||||||||||||
Honeywell International, Inc. | 9,467 | 1,364,763 | |||||||||||||
|
| ||||||||||||||
2,741,691 | |||||||||||||||
|
| ||||||||||||||
Machinery - 1.29% | |||||||||||||||
CNH Industrial N.V. | 128,580 | 1,632,966 | |||||||||||||
Cummins, Inc. | 10,472 | 1,852,287 | |||||||||||||
PACCAR, Inc. | 5,939 | 426,005 | |||||||||||||
Parker-Hannifin Corp. | 3,399 | 620,691 | |||||||||||||
|
| ||||||||||||||
4,531,949 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 0.60% | |||||||||||||||
AerCap Holdings N.V.B | 40,491 | 2,131,446 | |||||||||||||
|
| ||||||||||||||
Total Industrials | 23,565,406 | ||||||||||||||
|
| ||||||||||||||
Information Technology - 7.81% | |||||||||||||||
Communications Equipment - 1.33% | |||||||||||||||
Cisco Systems, Inc. | 71,571 | 2,444,150 | |||||||||||||
Telefonaktiebolaget LM Ericsson, Sponsored ADR | 356,220 | 2,226,375 | |||||||||||||
|
| ||||||||||||||
4,670,525 | |||||||||||||||
|
| ||||||||||||||
Electronic Equipment, Instruments & Components - 0.79% | |||||||||||||||
Corning, Inc. | 74,495 | 2,332,439 | |||||||||||||
TE Connectivity Ltd. | 4,958 | 451,029 | |||||||||||||
|
| ||||||||||||||
2,783,468 | |||||||||||||||
|
| ||||||||||||||
IT Services - 0.46% | |||||||||||||||
First Data Corp., Class AB | 68,400 | 1,218,204 | |||||||||||||
Teradata Corp.B | 12,518 | 418,727 | |||||||||||||
|
| ||||||||||||||
1,636,931 | |||||||||||||||
|
|
See accompanying notes
16
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 64.80% (continued) | |||||||||||||||
Information Technology - 7.81% (continued) | |||||||||||||||
Semiconductors & Semiconductor Equipment - 1.07% | |||||||||||||||
Micron Technology, Inc.B | 47,735 | $ | 2,115,138 | ||||||||||||
QUALCOMM, Inc. | 27,884 | 1,422,363 | |||||||||||||
Versum Materials, Inc. | 5,744 | 241,707 | |||||||||||||
|
| ||||||||||||||
3,779,208 | |||||||||||||||
|
| ||||||||||||||
Software - 3.07% | |||||||||||||||
Microsoft Corp. | 67,655 | 5,627,543 | |||||||||||||
Oracle Corp. | 102,165 | 5,200,199 | |||||||||||||
|
| ||||||||||||||
10,827,742 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 1.09% | |||||||||||||||
Hewlett Packard Enterprise Co. | 274,808 | 3,825,327 | |||||||||||||
|
| ||||||||||||||
Total Information Technology | 27,523,201 | ||||||||||||||
|
| ||||||||||||||
Materials - 2.98% | |||||||||||||||
Chemicals - 1.93% | |||||||||||||||
Air Products & Chemicals, Inc. | 14,332 | 2,284,951 | |||||||||||||
DowDuPont, Inc. | 40,711 | 2,943,812 | |||||||||||||
Eastman Chemical Co. | 17,285 | 1,569,651 | |||||||||||||
|
| ||||||||||||||
6,798,414 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 0.58% | |||||||||||||||
Crown Holdings, Inc.B | 22,835 | 1,373,982 | |||||||||||||
International Paper Co. | 11,725 | 671,491 | |||||||||||||
|
| ||||||||||||||
2,045,473 | |||||||||||||||
|
| ||||||||||||||
Metals & Mining - 0.30% | |||||||||||||||
Reliance Steel & Aluminum Co. | 13,687 | 1,051,709 | |||||||||||||
|
| ||||||||||||||
Paper & Forest Products - 0.17% | |||||||||||||||
Louisiana-Pacific Corp.B | 22,209 | 603,640 | |||||||||||||
|
| ||||||||||||||
Total Materials | �� | 10,499,236 | |||||||||||||
|
| ||||||||||||||
Telecommunication Services - 1.34% | |||||||||||||||
Diversified Telecommunication Services - 0.84% | |||||||||||||||
AT&T, Inc. | 57,040 | 1,919,396 | |||||||||||||
Verizon Communications, Inc. | 21,938 | 1,050,172 | |||||||||||||
|
| ||||||||||||||
2,969,568 | |||||||||||||||
|
| ||||||||||||||
Wireless Telecommunication Services - 0.50% | |||||||||||||||
Vodafone Group PLC, Sponsored ADR | 60,532 | 1,754,217 | |||||||||||||
|
| ||||||||||||||
Total Telecommunication Services | 4,723,785 | ||||||||||||||
|
| ||||||||||||||
Utilities - 1.12% | |||||||||||||||
Electric Utilities - 0.54% | |||||||||||||||
Entergy Corp. | 15,013 | 1,295,021 | |||||||||||||
PPL Corp. | 8,047 | 302,245 | |||||||||||||
Southern Co. | 6,143 | 320,665 | |||||||||||||
|
| ||||||||||||||
1,917,931 | |||||||||||||||
|
| ||||||||||||||
Independent Power & Renewable Electricity Producers - 0.36% | |||||||||||||||
Calpine Corp.B | 84,568 | 1,263,446 | |||||||||||||
|
|
See accompanying notes
17
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 64.80% (continued) | |||||||||||||||
Utilities - 1.12% (continued) | |||||||||||||||
Multi-Utilities - 0.22% | |||||||||||||||
CenterPoint Energy, Inc. | 26,082 | $ | 771,506 | ||||||||||||
|
| ||||||||||||||
Total Utilities | 3,952,883 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $175,055,399) | 228,465,102 | ||||||||||||||
|
| ||||||||||||||
Principal Amount | |||||||||||||||
CORPORATE OBLIGATIONS - 10.59% | |||||||||||||||
Basic Materials - 0.20% | |||||||||||||||
Dow Chemical Co., | |||||||||||||||
4.125%, Due 11/15/2021 | $ | 145,000 | 153,727 | ||||||||||||
3.500%, Due 10/1/2024 | 299,000 | 309,247 | |||||||||||||
EI du Pont de Nemours & Co., 2.200%, Due 5/1/2020 | 70,000 | 70,268 | |||||||||||||
Nucor Corp., | |||||||||||||||
4.125%, Due 9/15/2022 | 77,000 | 82,132 | |||||||||||||
4.000%, Due 8/1/2023 | 80,000 | 84,791 | |||||||||||||
|
| ||||||||||||||
700,165 | |||||||||||||||
|
| ||||||||||||||
Communications - 0.95% | |||||||||||||||
Amazon.com, Inc., 3.875%, Due 8/22/2037C | 70,000 | 72,560 | |||||||||||||
AT&T, Inc., | |||||||||||||||
4.450%, Due 4/1/2024 | 80,000 | 84,835 | |||||||||||||
3.400%, Due 5/15/2025 | 169,000 | 166,865 | |||||||||||||
4.500%, Due 5/15/2035 | 106,000 | 103,321 | |||||||||||||
6.350%, Due 3/15/2040 | 60,000 | 69,641 | |||||||||||||
CBS Corp., 3.375%, Due 3/1/2022 | 337,000 | 346,928 | |||||||||||||
Charter Communications Operating LLC / Charter Communications Operating Capital, 3.750%, Due 2/15/2028C | 130,000 | 125,712 | |||||||||||||
Comcast Corp., | |||||||||||||||
5.875%, Due 2/15/2018 | 200,000 | 202,509 | |||||||||||||
3.150%, Due 3/1/2026 | 84,000 | 84,561 | |||||||||||||
6.550%, Due 7/1/2039 | 217,000 | 299,114 | |||||||||||||
eBay, Inc., 2.150%, Due 6/5/2020 | 95,000 | 95,074 | |||||||||||||
NBCUniversal Enterprise, Inc., 1.735%, Due 4/1/2021, (3 mo. USD LIBOR + 0.400%)C D | 735,000 | 735,881 | |||||||||||||
Time Warner, Inc., | |||||||||||||||
4.875%, Due 3/15/2020 | 217,000 | 230,065 | |||||||||||||
4.750%, Due 3/29/2021 | 157,000 | 168,297 | |||||||||||||
Verizon Communications, Inc., | |||||||||||||||
4.600%, Due 4/1/2021 | 173,000 | 186,048 | |||||||||||||
4.125%, Due 3/16/2027 | 180,000 | 187,836 | |||||||||||||
Walt Disney Co., 1.800%, Due 6/5/2020 | 190,000 | 189,538 | |||||||||||||
|
| ||||||||||||||
3,348,785 | |||||||||||||||
|
| ||||||||||||||
Consumer, Cyclical - 1.49% | |||||||||||||||
American Honda Finance Corp., | |||||||||||||||
1.700%, Due 2/22/2019 | 140,000 | 139,796 | |||||||||||||
3.875%, Due 9/21/2020C | 250,000 | 261,641 | |||||||||||||
Costco Wholesale Corp., 2.150%, Due 5/18/2021 | 265,000 | 265,315 | |||||||||||||
CVS Health Corp., 2.125%, Due 6/1/2021 | 110,000 | 108,380 | |||||||||||||
Daimler Finance North America LLC, | |||||||||||||||
2.250%, Due 9/3/2019C | 169,000 | 169,555 | |||||||||||||
2.450%, Due 5/18/2020C | 313,000 | 315,187 | |||||||||||||
Delphi Corp., 4.150%, Due 3/15/2024 | 155,000 | 164,448 | |||||||||||||
Ford Motor Credit Co., LLC, | |||||||||||||||
2.220%, Due 6/15/2018, (3 mo. USD LIBOR + 0.900%)D | 472,000 | 473,646 | |||||||||||||
2.350%, Due 1/9/2020, (3 mo. USD LIBOR + 1.000%)D | 222,000 | 224,100 | |||||||||||||
5.875%, Due 8/2/2021 | 200,000 | 222,953 | |||||||||||||
3.810%, Due 1/9/2024 | 95,000 | 97,452 | |||||||||||||
General Motors Financial Co., Inc., | |||||||||||||||
2.289%, Due 4/13/2020, (3 mo. USD LIBOR + 0.930%)D | 805,000 | 811,248 | |||||||||||||
3.150%, Due 6/30/2022 | 90,000 | 90,946 |
See accompanying notes
18
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.59% (continued) | |||||||||||||||
Consumer, Cyclical - 1.49% (continued) | |||||||||||||||
Home Depot, Inc., | |||||||||||||||
2.700%, Due 4/1/2023 | $ | 72,000 | $ | 73,046 | |||||||||||
3.350%, Due 9/15/2025 | 65,000 | 67,210 | |||||||||||||
McDonald’s Corp., 3.700%, Due 1/30/2026 | 183,000 | 191,287 | |||||||||||||
Newell Brands, Inc., 5.500%, Due 4/1/2046 | 85,000 | 100,891 | |||||||||||||
Nissan Motor Acceptance Corp., 2.350%, Due 3/4/2019C | 289,000 | 290,356 | |||||||||||||
PACCAR Financial Corp., | |||||||||||||||
1.300%, Due 5/10/2019 | 58,000 | 57,511 | |||||||||||||
2.200%, Due 9/15/2019 | 92,000 | 92,542 | |||||||||||||
Toyota Motor Credit Corp., 2.125%, Due 7/18/2019 | 320,000 | 321,621 | |||||||||||||
Volkswagen Group of America Finance LLC, 2.450%, Due 11/20/2019C | 313,000 | 314,409 | |||||||||||||
Wal-Mart Stores, Inc., 7.550%, Due 2/15/2030 | 169,000 | 246,159 | |||||||||||||
Walgreens Boots Alliance, Inc., 3.800%, Due 11/18/2024 | 145,000 | 148,805 | |||||||||||||
|
| ||||||||||||||
5,248,504 | |||||||||||||||
|
| ||||||||||||||
Consumer, Non-Cyclical - 1.25% | |||||||||||||||
Abbott Laboratories, | |||||||||||||||
2.350%, Due 11/22/2019 | 90,000 | 90,556 | |||||||||||||
4.900%, Due 11/30/2046 | 90,000 | 101,061 | |||||||||||||
AbbVie, Inc., | |||||||||||||||
3.600%, Due 5/14/2025 | 85,000 | 87,376 | |||||||||||||
4.300%, Due 5/14/2036 | 87,000 | 91,245 | |||||||||||||
Altria Group, Inc., 4.750%, Due 5/5/2021 | 145,000 | 157,342 | |||||||||||||
Amgen, Inc., 4.400%, Due 5/1/2045 | 95,000 | 100,027 | |||||||||||||
Anheuser-Busch InBev Finance, Inc., | |||||||||||||||
1.900%, Due 2/1/2019 | 1,060,000 | 1,061,040 | |||||||||||||
2.650%, Due 2/1/2021 | 170,000 | 172,169 | |||||||||||||
3.650%, Due 2/1/2026 | 170,000 | 175,419 | |||||||||||||
Baxalta, Inc., 4.000%, Due 6/23/2025 | 67,000 | 70,206 | |||||||||||||
Bayer US Finance LLC, 2.375%, Due 10/8/2019C | 300,000 | 301,601 | |||||||||||||
Becton Dickinson and Co., 3.125%, Due 11/8/2021 | 94,000 | 96,069 | |||||||||||||
Cardinal Health, Inc., 3.200%, Due 3/15/2023 | 115,000 | 116,540 | |||||||||||||
Celgene Corp., 5.250%, Due 8/15/2043 | 70,000 | 81,078 | |||||||||||||
General Mills, Inc., 2.200%, Due 10/21/2019 | 289,000 | 290,169 | |||||||||||||
Genzyme Corp., 5.000%, Due 6/15/2020 | 39,000 | 41,856 | |||||||||||||
Humana, Inc., 3.150%, Due 12/1/2022 | 145,000 | 147,850 | |||||||||||||
Kaiser Foundation Hospitals, 4.150%, Due 5/1/2047 | 45,000 | 48,046 | |||||||||||||
Kraft Heinz Foods Co., | |||||||||||||||
3.500%, Due 7/15/2022 | 65,000 | 67,161 | |||||||||||||
5.000%, Due 7/15/2035 | 65,000 | 71,282 | |||||||||||||
Medtronic, Inc., 3.500%, Due 3/15/2025 | 313,000 | 325,050 | |||||||||||||
Molson Coors Brewing Co., 3.000%, Due 7/15/2026 | 135,000 | 131,474 | |||||||||||||
Philip Morris International, Inc., 2.625%, Due 3/6/2023 | 85,000 | 84,813 | |||||||||||||
Reynolds American, Inc., 5.850%, Due 8/15/2045 | 65,000 | 79,891 | |||||||||||||
UnitedHealth Group, Inc., | |||||||||||||||
1.625%, Due 3/15/2019 | 120,000 | 119,823 | |||||||||||||
3.950%, Due 10/15/2042 | 80,000 | 81,901 | |||||||||||||
Zimmer Biomet Holdings, Inc., 3.550%, Due 4/1/2025 | 135,000 | 137,341 | |||||||||||||
Zoetis, Inc., 3.000%, Due 9/12/2027 | 95,000 | 93,005 | |||||||||||||
|
| ||||||||||||||
4,421,391 | |||||||||||||||
|
| ||||||||||||||
Energy - 0.31% | |||||||||||||||
Buckeye Partners LP, 4.875%, Due 2/1/2021 | 80,000 | 84,777 | |||||||||||||
Chevron Corp., 1.790%, Due 11/16/2018 | 100,000 | 100,165 | |||||||||||||
Columbia Pipeline Group, Inc., 4.500%, Due 6/1/2025 | 101,000 | 108,247 | |||||||||||||
Energy Transfer LP, 5.300%, Due 4/15/2047 | 53,000 | 52,505 | |||||||||||||
Enterprise Products Operating LLC, 6.125%, Due 10/15/2039 | 65,000 | 81,190 | |||||||||||||
EOG Resources, Inc., 4.150%, Due 1/15/2026 | 70,000 | 74,572 | |||||||||||||
Marathon Petroleum Corp., 3.625%, Due 9/15/2024 | 80,000 | 82,030 | |||||||||||||
MPLX LP, | |||||||||||||||
4.875%, Due 12/1/2024 | 87,000 | 94,617 | |||||||||||||
5.200%, Due 3/1/2047 | 46,000 | 49,250 | |||||||||||||
Phillips 66, 4.300%, Due 4/1/2022 | 82,000 | 87,838 | |||||||||||||
Phillips 66 Partners LP | |||||||||||||||
3.550%, Due 10/1/2026 | 53,000 | 52,453 | |||||||||||||
3.750%, Due 3/1/2028 | 70,000 | 70,266 |
See accompanying notes
19
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.59% (continued) | |||||||||||||||
Energy - 0.31% (continued) | |||||||||||||||
Spectra Energy Partners LP, 3.375%, Due 10/15/2026 | $ | 63,000 | $ | 62,702 | |||||||||||
Sunoco Logistics Partners Operations LP, 4.250%, Due 4/1/2024 | 48,000 | 49,646 | |||||||||||||
TC PipeLines LP, 3.900%, Due 5/25/2027 | 55,000 | 55,531 | |||||||||||||
|
| ||||||||||||||
1,105,789 | |||||||||||||||
|
| ||||||||||||||
Financial - 3.70% | |||||||||||||||
American Campus Communities Operating Partnership LP, 3.625%, Due 11/15/2027 | 85,000 | 85,017 | |||||||||||||
American Express Co., 4.050%, Due 12/3/2042 | 110,000 | 113,149 | |||||||||||||
American Express Credit Corp., 2.125%, Due 3/18/2019 | 180,000 | 180,669 | |||||||||||||
American International Group, Inc., 4.875%, Due 6/1/2022 | 289,000 | 316,437 | |||||||||||||
Bank of America Corp., | |||||||||||||||
3.124%, Due 1/20/2023, (3 mo. USD LIBOR + 1.160%)D | 265,000 | 269,057 | |||||||||||||
4.125%, Due 1/22/2024 | 193,000 | 205,582 | |||||||||||||
6.110%, Due 1/29/2037 | 176,000 | 221,313 | |||||||||||||
5.000%, Due 1/21/2044 | 245,000 | 284,760 | |||||||||||||
Bank of New York Mellon Corp., | |||||||||||||||
2.200%, Due 3/4/2019 | 176,000 | 176,767 | |||||||||||||
3.250%, Due 5/16/2027 | 175,000 | 176,464 | |||||||||||||
BB&T Corp., | |||||||||||||||
1.450%, Due 1/12/2018 | 166,000 | 166,001 | |||||||||||||
2.750%, Due 4/1/2022 | 205,000 | 207,680 | |||||||||||||
Boston Properties LP, 3.650%, Due 2/1/2026 | 175,000 | 178,164 | |||||||||||||
Capital One Financial Corp., 2.450%, Due 4/24/2019 | 135,000 | 135,736 | |||||||||||||
CBOE Holdings, Inc., 3.650%, Due 1/12/2027 | 125,000 | 127,779 | |||||||||||||
Chubb INA Holdings, Inc., 3.350%, Due 5/3/2026 | 70,000 | 71,932 | |||||||||||||
Citigroup, Inc., | |||||||||||||||
2.064%, Due 4/27/2018, (3 mo. USD LIBOR + 0.690%)D | 1,012,000 | 1,014,461 | |||||||||||||
3.700%, Due 1/12/2026 | 178,000 | 183,501 | |||||||||||||
3.887%, Due 1/10/2028, (3 mo. USD LIBOR + 1.563%)D | 175,000 | 180,374 | |||||||||||||
5.875%, Due 1/30/2042 | 145,000 | 186,321 | |||||||||||||
Crown Castle International Corp., 3.400%, Due 2/15/2021 | 84,000 | 86,343 | |||||||||||||
Digital Realty Trust LP, 3.700%, Due 8/15/2027 | 95,000 | 96,238 | |||||||||||||
ERP Operating LP, 3.000%, Due 4/15/2023 | 77,000 | 78,370 | |||||||||||||
Goldman Sachs Group, Inc., | |||||||||||||||
5.750%, Due 1/24/2022 | 385,000 | 431,006 | |||||||||||||
2.908%, Due 6/5/2023, (3 mo. USD LIBOR + 1.053%)D | 225,000 | 224,572 | |||||||||||||
3.500%, Due 1/23/2025 | 95,000 | 96,480 | |||||||||||||
3.272%, Due 9/29/2025E | 85,000 | 84,704 | |||||||||||||
Intercontinental Exchange, Inc., 2.750%, Due 12/1/2020 | 92,000 | 93,871 | |||||||||||||
JPMorgan Chase & Co., | |||||||||||||||
3.625%, Due 5/13/2024 | 434,000 | 452,286 | |||||||||||||
3.782%, Due 2/1/2028, (3 mo. USD LIBOR + 1.337%)D | 160,000 | 164,756 | |||||||||||||
3.882%, Due 7/24/2038, (3 mo. USD LIBOR + 1.360%)D | 140,000 | 141,190 | |||||||||||||
5.500%, Due 10/15/2040 | 313,000 | 387,766 | |||||||||||||
JPMorgan Chase Bank NA, 1.776%, Due 9/21/2018, (3 mo. USD LIBOR + 0.450%)D | 217,000 | 217,457 | |||||||||||||
KeyCorp, 5.100%, Due 3/24/2021 | 60,000 | 65,355 | |||||||||||||
Liberty Mutual Group, Inc., 4.250%, Due 6/15/2023C | 113,000 | 120,168 | |||||||||||||
Mastercard, Inc., 3.375%, Due 4/1/2024 | 120,000 | 125,549 | |||||||||||||
MetLife, Inc., | |||||||||||||||
6.375%, Due 6/15/2034 | 169,000 | 223,431 | |||||||||||||
4.721%, Due 12/15/2044 | 193,000 | 216,536 | |||||||||||||
Metropolitan Life Global Funding I, 1.544%, Due 9/19/2019C E | 355,000 | 355,499 | |||||||||||||
Morgan Stanley, | |||||||||||||||
7.300%, Due 5/13/2019 | 361,000 | 389,019 | |||||||||||||
5.625%, Due 9/23/2019 | 169,000 | 179,711 | |||||||||||||
3.700%, Due 10/23/2024 | 235,000 | 244,144 | |||||||||||||
3.591%, Due 7/22/2028, (3 mo. USD LIBOR + 1.340%)D | 145,000 | 145,958 | |||||||||||||
National Rural Utilities Cooperative Finance Corp., | |||||||||||||||
1.650%, Due 2/8/2019 | 92,000 | 91,799 | |||||||||||||
2.950%, Due 2/7/2024 | 90,000 | 91,111 | |||||||||||||
PNC Financial Services Group, Inc., 3.300%, Due 3/8/2022 | 160,000 | 165,656 | |||||||||||||
Prudential Financial, Inc., 4.600%, Due 5/15/2044 | 313,000 | 346,923 | |||||||||||||
Public Storage, 2.370%, Due 9/15/2022 | 125,000 | 124,266 | |||||||||||||
Raymond James Financial, Inc., 3.625%, Due 9/15/2026 | 125,000 | 126,211 |
See accompanying notes
20
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.59% (continued) | |||||||||||||||
Financial - 3.70% (continued) | |||||||||||||||
Simon Property Group LP, | |||||||||||||||
2.200%, Due 2/1/2019 | $ | 240,000 | $ | 241,099 | |||||||||||
3.375%, Due 10/1/2024 | 313,000 | 322,071 | |||||||||||||
State Street Corp., 2.550%, Due 8/18/2020 | 65,000 | 66,170 | |||||||||||||
SunTrust Bank, 2.450%, Due 8/1/2022 | 140,000 | 139,393 | |||||||||||||
Travelers Companies, Inc., 4.000%, Due 5/30/2047 | 90,000 | 94,047 | |||||||||||||
US Bancorp, 1.950%, Due 11/15/2018 | 255,000 | 255,608 | |||||||||||||
Ventas Realty LP, 5.700%, Due 9/30/2043 | 65,000 | 77,892 | |||||||||||||
Visa, Inc., | |||||||||||||||
2.800%, Due 12/14/2022 | 95,000 | 96,787 | |||||||||||||
3.150%, Due 12/14/2025 | 130,000 | 132,869 | |||||||||||||
Vornado Realty LP, 2.500%, Due 6/30/2019 | 95,000 | 95,497 | |||||||||||||
Wells Fargo & Co., | |||||||||||||||
2.150%, Due 1/30/2020, Series N | 70,000 | 70,158 | |||||||||||||
2.550%, Due 12/7/2020 | 110,000 | 110,946 | |||||||||||||
2.396%, Due 7/26/2021, (3 mo. USD LIBOR + 1.025%)D | 1,087,000 | 1,111,231 | |||||||||||||
3.000%, Due 10/23/2026 | 65,000 | 63,693 | |||||||||||||
4.750%, Due 12/7/2046 | 90,000 | 98,355 | |||||||||||||
|
| ||||||||||||||
13,023,355 | |||||||||||||||
|
| ||||||||||||||
Industrial - 0.85% | |||||||||||||||
BAE Systems Holdings, Inc., 3.800%, Due 10/7/2024C | 313,000 | 327,958 | |||||||||||||
Burlington Northern Santa Fe LLC, | |||||||||||||||
3.650%, Due 9/1/2025 | 65,000 | 68,518 | |||||||||||||
5.750%, Due 5/1/2040 | 202,000 | 258,692 | |||||||||||||
Caterpillar Financial Services Corp., 1.350%, Due 5/18/2019 | 125,000 | 124,032 | |||||||||||||
CSX Corp., 5.500%, Due 4/15/2041 | 157,000 | 189,303 | |||||||||||||
Eaton Corp., | |||||||||||||||
5.600%, Due 5/15/2018 | 77,000 | 78,606 | |||||||||||||
2.750%, Due 11/2/2022 | 75,000 | 75,386 | |||||||||||||
General Electric Co., | |||||||||||||||
5.625%, Due 5/1/2018 | 181,000 | 184,613 | |||||||||||||
6.000%, Due 8/7/2019 | 169,000 | 181,237 | |||||||||||||
5.500%, Due 1/8/2020 | 120,000 | 128,977 | |||||||||||||
Hexcel Corp., 3.950%, Due 2/15/2027 | 95,000 | 96,980 | |||||||||||||
John Deere Capital Corp., 1.950%, Due 6/22/2020 | 150,000 | 149,687 | |||||||||||||
Norfolk Southern Corp., 5.750%, Due 4/1/2018 | 205,000 | 208,309 | |||||||||||||
Northrop Grumman Corp., | |||||||||||||||
5.050%, Due 8/1/2019 | 72,000 | 76,008 | |||||||||||||
3.850%, Due 4/15/2045 | 155,000 | 153,615 | |||||||||||||
Stanley Black & Decker, Inc., 2.451%, Due 11/17/2018 | 185,000 | 186,296 | |||||||||||||
Union Pacific Corp., 4.100%, Due 9/15/2067 | 90,000 | 91,870 | |||||||||||||
United Technologies Corp., | |||||||||||||||
1.900%, Due 5/4/2020 | 135,000 | 134,613 | |||||||||||||
6.125%, Due 7/15/2038 | 217,000 | 283,188 | |||||||||||||
|
| ||||||||||||||
2,997,888 | |||||||||||||||
|
| ||||||||||||||
Technology - 1.03% | |||||||||||||||
Analog Devices, Inc., 3.900%, Due 12/15/2025 | 95,000 | 99,788 | |||||||||||||
Apple, Inc., | |||||||||||||||
2.400%, Due 5/3/2023 | 220,000 | 219,563 | |||||||||||||
4.650%, Due 2/23/2046 | 549,000 | 625,818 | |||||||||||||
Autodesk, Inc., 3.500%, Due 6/15/2027 | 95,000 | 94,697 | |||||||||||||
Broadcom Corp. / Broadcom Cayman Finance Ltd., 2.375%, Due 1/15/2020C | 41,000 | 41,229 | |||||||||||||
Broadridge Financial Solutions, Inc., 3.400%, Due 6/27/2026 | 90,000 | 88,823 | |||||||||||||
Dell International LLC / EMC Corp., | |||||||||||||||
3.480%, Due 6/1/2019C | 110,000 | 111,973 | |||||||||||||
4.420%, Due 6/15/2021C | 100,000 | 105,151 | |||||||||||||
Hewlett Packard Enterprise Co., 6.350%, Due 10/15/2045 | 1,178,000 | 1,254,148 | |||||||||||||
HP, Inc., 4.050%, Due 9/15/2022 | 145,000 | 153,121 | |||||||||||||
Intel Corp., 3.300%, Due 10/1/2021 | 116,000 | 121,148 | |||||||||||||
Maxim Integrated Products, Inc., 3.450%, Due 6/15/2027 | 95,000 | 96,556 | |||||||||||||
Microsoft Corp., 4.450%, Due 11/3/2045 | 135,000 | 153,744 |
See accompanying notes
21
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.59% (continued) | |||||||||||||||
Technology - 1.03% (continued) | |||||||||||||||
Oracle Corp., | |||||||||||||||
2.500%, Due 5/15/2022 | $ | 115,000 | $ | 115,868 | |||||||||||
4.300%, Due 7/8/2034 | 157,000 | 172,846 | |||||||||||||
QUALCOMM, Inc., 3.000%, Due 5/20/2022 | 65,000 | 66,319 | |||||||||||||
Xilinx, Inc., 2.950%, Due 6/1/2024 | 90,000 | 90,064 | |||||||||||||
|
| ||||||||||||||
3,610,856 | |||||||||||||||
|
| ||||||||||||||
Utilities - 0.81% | |||||||||||||||
Atmos Energy Corp., 3.000%, Due 6/15/2027 | 95,000 | 94,573 | |||||||||||||
Berkshire Hathaway Energy Co., 6.125%, Due 4/1/2036 | 294,000 | 385,000 | |||||||||||||
Consolidated Edison Co. of New York, Inc., | |||||||||||||||
5.500%, Due 12/1/2039, Series 09-C | 169,000 | 211,477 | |||||||||||||
4.625%, Due 12/1/2054 | 55,000 | 62,069 | |||||||||||||
Delmarva Power & Light Co., 3.500%, Due 11/15/2023 | 106,000 | 110,475 | |||||||||||||
Dominion Energy, Inc., 2.579%, Due 7/1/2020 | 90,000 | 90,492 | |||||||||||||
Duke Energy Corp., 3.550%, Due 9/15/2021 | 180,000 | 187,334 | |||||||||||||
Duke Energy Progress LLC, 4.150%, Due 12/1/2044 | 125,000 | 134,087 | |||||||||||||
Edison International, 2.950%, Due 3/15/2023 | 82,000 | 83,002 | |||||||||||||
Georgia Power Co., 1.950%, Due 12/1/2018 | 75,000 | 75,079 | |||||||||||||
MidAmerican Energy Co., 3.100%, Due 5/1/2027 | 125,000 | 125,933 | |||||||||||||
National Fuel Gas Co., 3.950%, Due 9/15/2027 | 125,000 | 123,597 | |||||||||||||
NiSource Finance Corp., | |||||||||||||||
3.490%, Due 5/15/2027 | 70,000 | 70,961 | |||||||||||||
3.950%, Due 3/30/2048 | 95,000 | 94,127 | |||||||||||||
Southern Co., | |||||||||||||||
2.150%, Due 9/1/2019 | 92,000 | 92,128 | |||||||||||||
2.750%, Due 6/15/2020 | 241,000 | 244,566 | |||||||||||||
Southern Power Co., | |||||||||||||||
4.150%, Due 12/1/2025 | 84,000 | 88,758 | |||||||||||||
4.950%, Due 12/15/2046, Series F | 87,000 | 93,341 | |||||||||||||
Southwestern Electric Power Co., 3.550%, Due 2/15/2022 | 289,000 | 299,526 | |||||||||||||
Union Electric Co., 6.700%, Due 2/1/2019 | 96,000 | 101,467 | |||||||||||||
WEC Energy Group, Inc., 3.550%, Due 6/15/2025 | 94,000 | 97,124 | |||||||||||||
|
| ||||||||||||||
2,865,116 | |||||||||||||||
|
| ||||||||||||||
Total Corporate Obligations (Cost $35,608,525) | 37,321,849 | ||||||||||||||
|
| ||||||||||||||
FOREIGN CORPORATE OBLIGATIONS - 1.63% | |||||||||||||||
Basic Materials - 0.09% | |||||||||||||||
LYB International Finance II B.V., 3.500%, Due 3/2/2027 | 145,000 | 144,905 | |||||||||||||
Potash Corp. of Saskatchewan, Inc., 4.000%, Due 12/15/2026 | 94,000 | 98,285 | |||||||||||||
Rio Tinto Finance USA Ltd., 3.750%, Due 6/15/2025 | 65,000 | 68,641 | |||||||||||||
|
| ||||||||||||||
311,831 | |||||||||||||||
|
| ||||||||||||||
Communications - 0.50% | |||||||||||||||
Alibaba Group Holding Ltd., 3.600%, Due 11/28/2024 | 313,000 | 323,953 | |||||||||||||
America Movil S.A.B. de C.V., 6.375%, Due 3/1/2035 | 169,000 | 211,374 | |||||||||||||
Deutsche Telekom International Finance B.V., 4.875%, Due 3/6/2042C | 150,000 | 167,003 | |||||||||||||
Rogers Communications, Inc., 2.900%, Due 11/15/2026 | 125,000 | 121,588 | |||||||||||||
TELUS Corp., 2.800%, Due 2/16/2027 | 99,000 | 94,221 | |||||||||||||
Thomson Reuters Corp., | |||||||||||||||
4.300%, Due 11/23/2023 | 145,000 | 154,168 | |||||||||||||
3.850%, Due 9/29/2024 | 193,000 | 200,513 | |||||||||||||
Vodafone Group PLC, 6.150%, Due 2/27/2037 | 393,000 | 483,506 | |||||||||||||
|
| ||||||||||||||
1,756,326 | |||||||||||||||
|
| ||||||||||||||
Consumer, Non-Cyclical - 0.09% | |||||||||||||||
Sanofi, 4.000%, Due 3/29/2021 | 105,000 | 111,090 | |||||||||||||
Shire Acquisitions Investments Ireland DAC, 2.875%, Due 9/23/2023 | 105,000 | 103,943 | |||||||||||||
Teva Pharmaceutical Finance Netherlands III B.V., 3.150%, Due 10/1/2026 | 115,000 | 101,723 | |||||||||||||
|
| ||||||||||||||
316,756 | |||||||||||||||
|
|
See accompanying notes
22
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
FOREIGN CORPORATE OBLIGATIONS - 1.63% (continued) | |||||||||||||||
Energy - 0.26% | |||||||||||||||
Canadian Natural Resources Ltd., | |||||||||||||||
3.900%, Due 2/1/2025 | $ | 90,000 | $ | 92,913 | |||||||||||
6.250%, Due 3/15/2038 | 176,000 | 217,580 | |||||||||||||
Husky Energy, Inc., 3.950%, Due 4/15/2022 | 135,000 | 140,998 | |||||||||||||
Shell International Finance B.V., 1.625%, Due 11/10/2018 | 185,000 | 184,895 | |||||||||||||
TransCanada PipeLines Ltd., | |||||||||||||||
3.750%, Due 10/16/2023 | 145,000 | 153,319 | |||||||||||||
6.100%, Due 6/1/2040 | 82,000 | 107,924 | |||||||||||||
|
| ||||||||||||||
897,629 | |||||||||||||||
|
| ||||||||||||||
Financial - 0.56% | |||||||||||||||
ABN AMRO Bank N.V., 1.800%, Due 6/4/2018C | 289,000 | 288,723 | |||||||||||||
Bank of Montreal, 1.750%, Due 9/11/2019 | 160,000 | 159,438 | |||||||||||||
HSBC Holdings PLC, 3.262%, Due 3/13/2023, (3 mo. USD LIBOR + 1.055%)D | 123,000 | 125,706 | |||||||||||||
Macquarie Bank Ltd., 1.686%, Due 4/4/2019C E | 355,000 | 355,310 | |||||||||||||
National Australia Bank Ltd., 1.825%, Due 5/22/2020, (3 mo. USD LIBOR + 0.510%)C D | 470,000 | 472,172 | |||||||||||||
Nordea Bank AB, 4.875%, Due 1/27/2020C | 120,000 | 127,198 | |||||||||||||
Royal Bank of Canada, 2.125%, Due 3/2/2020 | 175,000 | 175,405 | |||||||||||||
Toronto-Dominion Bank, 2.625%, Due 9/10/2018 | 185,000 | 186,472 | |||||||||||||
Trinity Acquisition PLC, 4.400%, Due 3/15/2026 | 87,000 | 92,831 | |||||||||||||
|
| ||||||||||||||
1,983,255 | |||||||||||||||
|
| ||||||||||||||
Industrial - 0.13% | |||||||||||||||
Canadian National Railway Co., 5.550%, Due 5/15/2018 | 169,000 | 172,530 | |||||||||||||
Ingersoll-Rand Luxembourg Finance S.A., 2.625%, Due 5/1/2020 | 145,000 | 145,863 | |||||||||||||
Johnson Controls International PLC, 5.000%, Due 3/30/2020 | 145,000 | 154,303 | |||||||||||||
|
| ||||||||||||||
472,696 | |||||||||||||||
|
| ||||||||||||||
Total Foreign Corporate Obligations (Cost $5,450,748) | 5,738,493 | ||||||||||||||
|
| ||||||||||||||
FOREIGN SOVEREIGN OBLIGATIONS - 0.16% | |||||||||||||||
European Investment Bank, 2.375%, Due 6/15/2022 | 140,000 | 141,547 | |||||||||||||
Kreditanstalt fuer Wiederaufbau, 2.125%, Due 6/15/2022 | 140,000 | 139,972 | |||||||||||||
Province of Ontario Canada, 2.500%, Due 4/27/2026 | 170,000 | 167,142 | |||||||||||||
Province of Quebec Canada, 2.375%, Due 1/31/2022 | 125,000 | 125,566 | |||||||||||||
|
| ||||||||||||||
Total Foreign Sovereign Obligations (Cost $573,936) | 574,227 | ||||||||||||||
|
| ||||||||||||||
COMMERCIAL MORTGAGE-BACKED OBLIGATIONS - 0.70% | |||||||||||||||
Ginnie Mae REMIC Trust, | |||||||||||||||
1.147%, Due 12/16/2038, 2013-139 A | 342,306 | 338,652 | |||||||||||||
1.624%, Due 7/16/2039, 2013-78 AB | 658,551 | 644,732 | |||||||||||||
2.586%, Due 9/16/2039, 2014-31 AB | 65,292 | 65,317 | |||||||||||||
1.367%, Due 11/16/2041, 2013-125 AB | 699,423 | 682,597 | |||||||||||||
3.200%, Due 11/16/2044, 2011-92 B | 78,531 | 78,597 | |||||||||||||
GS Mortgage Securities Trust, 3.679%, Due 8/10/2043, 2010-C1 A1C | 27,419 | 27,919 | |||||||||||||
JP Morgan Chase Commercial Mortgage Securities Trust, 4.388%, Due 2/15/2046, 2011-C3 A3C | 87,206 | 88,008 | |||||||||||||
JPMBB Commercial Mortgage Securities Trust, 3.157%, Due 7/15/2045, 2013-C12 ASB | 320,000 | 327,739 | |||||||||||||
WFRBS Commercial Mortgage Trust, 3.660%, Due 3/15/2047, 2014-C19 A3 | 219,000 | 226,710 | |||||||||||||
|
| ||||||||||||||
Total Commercial Mortgage-Backed Obligations (Cost $2,505,748) | 2,480,271 | ||||||||||||||
|
| ||||||||||||||
ASSET-BACKED OBLIGATIONS - 0.70% | |||||||||||||||
Ally Auto Receivables Trust, 1.750%, Due 12/15/2021, 2017 4 A3 | 285,000 | 284,094 | |||||||||||||
Americredit Automobile Receivables Trust, 1.530%, Due 7/8/2021, 2016 4 A3 | 118,000 | 117,479 | |||||||||||||
AmeriCredit Automobile Receivables Trust, 1.900%, Due 3/18/2022, 2017 3 A3 | 185,000 | 184,621 | |||||||||||||
BMW Vehicle Lease Trust, 2.070%, Due 10/20/2020, 2017 2 A3 | 180,000 | 180,015 | |||||||||||||
Capital One Multi-Asset Execution Trust, 1.340%, Due 4/15/2022, 2016 A3 A3 | 318,000 | 315,535 | |||||||||||||
Chase Issuance Trust, 1.370%, Due 6/15/2021, 2016 A2 A | 265,000 | 263,156 | |||||||||||||
Ford Credit Auto Lease Trust, 2.030%, Due 12/15/2020, 2017 B A3 | 170,000 | 170,037 | |||||||||||||
Ford Credit Auto Owner Trust, 2.030%, Due 8/15/2020, 2015 A B | 292,000 | 292,679 | |||||||||||||
GM Financial Automobile Leasing Trust, | |||||||||||||||
1.680%, Due 12/20/2018, 2015 2 A3 | 251,638 | 251,762 | |||||||||||||
2.060%, Due 5/20/2020, 2017 1 A3 | 284,000 | 284,555 | |||||||||||||
World Omni Auto Receivables Trust, 1.950%, Due 2/15/2023, 2017 B A3 | 135,000 | 134,543 | |||||||||||||
|
| ||||||||||||||
Total Asset-Backed Obligations (Cost $2,483,517) | 2,478,476 | ||||||||||||||
|
|
See accompanying notes
23
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 5.15% | |||||||||||||||
Federal Home Loan Mortgage Corp., | |||||||||||||||
4.500%, Due 3/1/2019 | $ | 15,090 | $ | 15,380 | |||||||||||
5.000%, Due 10/1/2020 | 11,107 | 11,365 | |||||||||||||
3.500%, Due 8/1/2026 | 40,854 | 42,770 | |||||||||||||
3.500%, Due 9/1/2028 | 271,736 | 284,238 | |||||||||||||
5.000%, Due 8/1/2033 | 55,521 | 60,483 | |||||||||||||
5.500%, Due 2/1/2034 | 53,616 | 59,786 | |||||||||||||
4.000%, Due 1/1/2041 | 188,775 | 198,874 | |||||||||||||
4.500%, Due 2/1/2041 | 137,545 | 147,725 | |||||||||||||
3.500%, Due 6/1/2042 | 610,461 | 630,669 | |||||||||||||
3.500%, Due 7/1/2042 | 169,412 | 175,019 | |||||||||||||
|
| ||||||||||||||
1,626,309 | |||||||||||||||
|
| ||||||||||||||
Federal National Mortgage Association, | |||||||||||||||
5.000%, Due 12/1/2017 | 417 | 423 | |||||||||||||
4.500%, Due 9/1/2018 | 5,845 | 5,945 | |||||||||||||
4.000%, Due 8/1/2020 | 23,253 | 24,032 | |||||||||||||
4.000%, Due 5/1/2026 | 179,902 | 188,122 | |||||||||||||
4.000%, Due 6/1/2026 | 242,031 | 254,513 | |||||||||||||
3.500%, Due 1/1/2028E | 125,272 | 130,188 | |||||||||||||
3.000%, Due 4/1/2032 | 247,907 | 254,166 | |||||||||||||
5.000%, Due 3/1/2034E | 61,872 | 67,837 | |||||||||||||
4.500%, Due 4/1/2034 | 104,075 | 112,260 | |||||||||||||
3.500%, Due 6/1/2037 | 344,585 | 359,342 | |||||||||||||
5.500%, Due 6/1/2038 | 11,529 | 12,833 | |||||||||||||
4.500%, Due 1/1/2040 | 154,118 | 165,716 | |||||||||||||
5.000%, Due 5/1/2040 | 248,870 | 270,563 | |||||||||||||
5.000%, Due 6/1/2040 | 191,946 | 208,853 | |||||||||||||
4.000%, Due 9/1/2040 | 128,511 | 135,506 | |||||||||||||
4.000%, Due 1/1/2041 | 250,398 | 263,956 | |||||||||||||
4.000%, Due 1/1/2041E | 152,388 | 160,671 | |||||||||||||
4.500%, Due 4/1/2041 | 287,339 | 308,892 | |||||||||||||
4.500%, Due 10/1/2041 | 162,627 | 175,828 | |||||||||||||
3.000%, Due 5/1/2043 | 411,146 | 413,612 | |||||||||||||
3.000%, Due 6/1/2043 | 961,200 | 966,870 | |||||||||||||
3.000%, Due 6/1/2043 | 355,004 | 357,117 | |||||||||||||
3.500%, Due 6/1/2043 | 163,546 | 168,601 | |||||||||||||
3.500%, Due 7/1/2043 | 170,898 | 176,553 | |||||||||||||
3.000%, Due 8/1/2043 | 834,521 | 839,401 | |||||||||||||
4.000%, Due 7/1/2045 | 377,816 | 399,008 | |||||||||||||
4.000%, Due 7/1/2045 | 473,258 | 497,068 | |||||||||||||
3.500%, Due 8/1/2045 | 155,993 | 160,472 | |||||||||||||
3.500%, Due 11/1/2045 | 391,640 | 402,881 | |||||||||||||
3.500%, Due 11/1/2045 | 1,746,350 | 1,796,475 | |||||||||||||
4.000%, Due 3/1/2046 | 235,883 | 249,063 | |||||||||||||
3.000%, Due 4/1/2046 | 201,139 | 201,367 | |||||||||||||
3.500%, Due 5/1/2046 | 233,493 | 240,195 | |||||||||||||
3.500%, Due 5/1/2046 | 359,041 | 369,346 | |||||||||||||
3.000%, Due 6/1/2046 | 300,728 | 301,068 | |||||||||||||
4.000%, Due 7/1/2046 | 385,550 | 405,258 | |||||||||||||
4.000%, Due 7/1/2046 | 351,085 | 368,807 | |||||||||||||
3.000%, Due 11/1/2046 | 386,502 | 387,757 | |||||||||||||
3.500%, Due 11/1/2046 | 609,356 | 628,636 | |||||||||||||
3.500%, Due 3/1/2047 | 121,924 | 125,798 | |||||||||||||
4.500%, Due 6/1/2047 | 161,119 | 172,457 | |||||||||||||
3.500%, Due 9/1/2047 | 376,724 | 387,537 | |||||||||||||
|
| ||||||||||||||
13,114,993 | |||||||||||||||
|
|
See accompanying notes
24
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Principal Amount | Fair Value | ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 5.15% (continued) | |||||||||||||||
Government National Mortgage Association, | |||||||||||||||
6.500%, Due 8/15/2027 | $ | 52,862 | $ | 59,303 | |||||||||||
6.500%, Due 11/15/2027 | 57,163 | 64,127 | |||||||||||||
7.500%, Due 12/15/2028 | 52,830 | 61,186 | |||||||||||||
5.500%, Due 7/15/2033 | 57,392 | 64,364 | |||||||||||||
6.000%, Due 12/15/2033 | 71,459 | 82,837 | |||||||||||||
5.500%, Due 2/20/2034 | 80,740 | 89,992 | |||||||||||||
5.000%, Due 10/15/2039 | 116,325 | 128,801 | |||||||||||||
3.500%, Due 9/15/2041 | 324,300 | 337,197 | |||||||||||||
3.500%, Due 3/15/2043 | 240,187 | 250,610 | |||||||||||||
3.500%, Due 3/20/2045 | 222,817 | 232,181 | |||||||||||||
3.000%, Due 1/20/2046 | 94,205 | 95,407 | |||||||||||||
3.000%, Due 6/20/2046 | 315,965 | 319,995 | |||||||||||||
4.000%, Due 3/20/2047 | 366,360 | 385,409 | |||||||||||||
4.000%, Due 7/20/2047 | 326,644 | 344,210 | |||||||||||||
3.500%, Due 8/20/2047 | 159,253 | 165,392 | |||||||||||||
4.000%, Due 8/20/2047 | 422,710 | 445,783 | |||||||||||||
4.500%, Due 10/20/2047 | 259,235 | 275,615 | |||||||||||||
|
| ||||||||||||||
3,402,409 | |||||||||||||||
|
| ||||||||||||||
Total U.S. Agency Mortgage-Backed Obligations (Cost $18,082,473) | 18,143,711 | ||||||||||||||
|
| ||||||||||||||
U.S. TREASURY OBLIGATIONS - 13.47% | |||||||||||||||
U.S. Treasury Notes/Bonds, | |||||||||||||||
1.307%, Due 7/31/2018, (3 mo. Treasury money market yield + 0.174%)D | 15,910,000 | 15,933,026 | |||||||||||||
1.303%, Due 10/31/2018, (3 mo. Treasury money market yield + 0.170%)D | 1,706,000 | 1,709,327 | |||||||||||||
1.273%, Due 1/31/2019, (3 mo. Treasury money market yield + 0.140%)D | 2,496,000 | 2,500,860 | |||||||||||||
1.203%, Due 4/30/2019, (3 mo. Treasury money market yield + 0.070%)D | 3,355,000 | 3,357,264 | |||||||||||||
1.125%, Due 5/31/2019 | 723,000 | 718,368 | |||||||||||||
0.750%, Due 7/15/2019 | 1,481,000 | 1,460,578 | |||||||||||||
0.875%, Due 7/31/2019 | 482,000 | 476,276 | |||||||||||||
1.193%, Due 7/31/2019, (3 mo. Treasury money market yield + 0.060%)D | 1,525,000 | 1,525,534 | |||||||||||||
0.875%, Due 9/15/2019 | 1,205,000 | 1,189,279 | |||||||||||||
1.250%, Due 2/29/2020 | 964,000 | 955,226 | |||||||||||||
1.750%, Due 10/31/2020 | 964,000 | 964,264 | |||||||||||||
1.250%, Due 3/31/2021 | 964,000 | 946,151 | |||||||||||||
1.375%, Due 4/30/2021 | 964,000 | 949,427 | |||||||||||||
2.000%, Due 5/31/2021 | 1,446,000 | 1,453,964 | |||||||||||||
2.000%, Due 11/15/2021 | 1,584,000 | 1,591,178 | |||||||||||||
2.000%, Due 2/15/2022 | 2,691,000 | 2,699,199 | |||||||||||||
1.750%, Due 9/30/2022 | 500,000 | 493,711 | |||||||||||||
1.625%, Due 11/15/2022 | 964,000 | 945,887 | |||||||||||||
2.500%, Due 8/15/2023 | 964,000 | 984,636 | |||||||||||||
2.375%, Due 8/15/2024 | 1,805,000 | 1,823,120 | |||||||||||||
6.875%, Due 8/15/2025 | 279,000 | 371,539 | |||||||||||||
2.000%, Due 11/15/2026 | 825,000 | 801,217 | |||||||||||||
5.250%, Due 11/15/2028 | 217,000 | �� | 277,251 | ||||||||||||
4.750%, Due 2/15/2037 | 304,000 | 402,016 | |||||||||||||
4.500%, Due 8/15/2039 | 241,000 | 310,655 | |||||||||||||
3.125%, Due 11/15/2041 | 1,346,000 | 1,420,135 | |||||||||||||
2.500%, Due 5/15/2046 | 1,323,000 | 1,225,584 | |||||||||||||
|
| ||||||||||||||
47,485,672 | |||||||||||||||
|
| ||||||||||||||
Total U.S. Treasury Obligations (Cost $47,309,839) | 47,485,672 | ||||||||||||||
|
| ||||||||||||||
MUNICIPAL OBLIGATIONS - 0.30% (Cost $859,287) | |||||||||||||||
Municipal Electric Authority of Georgia, 6.655%, Due 4/1/2057 | 848,000 | 1,053,606 | |||||||||||||
|
|
See accompanying notes
25
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
SHORT-TERM INVESTMENTS - 2.23% (Cost $7,863,253) | |||||||||||||||
Investment Companies - 2.23% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%F G | 7,863,253 | $ | 7,863,253 | ||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 0.88% (Cost $3,085,328) | |||||||||||||||
Investment Companies - 0.88% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%F G | 3,085,328 | 3,085,328 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 100.61% (Cost $298,878,053) | 354,689,988 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (0.61%) | (2,148,460 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 352,541,528 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A All or a portion of this security is on loan at October 31, 2017.
B Non-income producing security.
C Security exempt from registration under the Securities Act of 1933. These securities may be resold to qualified institutional buyers pursuant to Rule 144A. At the period end, the value of these securities amounted to $5,175,213 or 1.47% of net assets. The Fund has no right to demand registration of these securities.
D Variable, floating, or adjustable rate securities with an interest rate that changes periodically. Rates are periodically reset with rates that are based on a predetermined benchmark such as a widely followed interest rate such as T-bills, LIBOR or PRIME plus a fixed spread. The interest rate disclosed reflects the rate in effect on October 31, 2017.
E Coupon rate may change based on changes of the underlying collateral or prepayments of principal. The coupon rate shown represents the rate at period end.
F The Fund is affiliated by having the same investment advisor.
G 7-day yield.
ADR - American Depositary Receipt.
LLC - Limited Liability Company.
LP - Limited Partnership.
MLP - Master Limited Partnership.
NVDR - Non Voting Depositary Receipt.
PLC - Public Limited Company.
Futures Contracts Open on October 31, 2017: | ||||||||||||||
Long Futures | ||||||||||||||
Equity Futures Contracts | ||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||
S&P 500 E-Mini Index Futures | 53 | December 2017 | $ 6,719,976 | $ | 6,817,655 | $ | 97,679 | |||||||
|
|
|
|
| ||||||||||
$ 6,719,976 | $ | 6,817,655 | $ | 97,679 | ||||||||||
|
|
|
|
|
Index Abbreviations: | ||
S&P 500 | Standard & Poor’s U.S. Equity Large-Cap Index |
See accompanying notes
26
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2017
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2017, the investments were classified as described below:
Balanced Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 228,465,102 | $ | - | $ | - | $ | 228,465,102 | ||||||||||||||||||||
Corporate Obligations | - | 37,321,849 | - | 37,321,849 | ||||||||||||||||||||||||
Foreign Corporate Obligations | - | 5,738,493 | - | 5,738,493 | ||||||||||||||||||||||||
Foreign Sovereign Obligations | - | 574,227 | - | 574,227 | ||||||||||||||||||||||||
Commercial Mortgage-Backed Obligations | - | 2,480,271 | - | 2,480,271 | ||||||||||||||||||||||||
Asset-Backed Obligations | - | 2,478,476 | - | 2,478,476 | ||||||||||||||||||||||||
U.S. Agency Mortgage-Backed Obligations | - | 18,143,711 | - | 18,143,711 | ||||||||||||||||||||||||
U.S. Treasury Obligations | - | 47,485,672 | - | 47,485,672 | ||||||||||||||||||||||||
Municipal Obligations | - | 1,053,606 | - | 1,053,606 | ||||||||||||||||||||||||
Short-Term Investments | 7,863,253 | - | - | 7,863,253 | ||||||||||||||||||||||||
Securities Lending Collateral | 3,085,328 | - | - | 3,085,328 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities – Assets | $ | 239,413,683 | $ | 115,276,305 | $ | - | $ | 354,689,988 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Assets | ||||||||||||||||||||||||||||
Futures Contracts | $ | 97,679 | $ | - | $ | - | $ | 97,679 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Assets | $ | 97,679 | $ | - | $ | - | $ | 97,679 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires all transfers between any levels to be disclosed. The end of period timing recognition has been adopted for the transfers between levels of the Fund’s assets and liabilities. During the period ended October 31, 2017, there were no transfers between levels.
See accompanying notes
27
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 94.45% | |||||||||||||||
Consumer Discretionary - 12.49% | |||||||||||||||
Auto Components - 1.84% | |||||||||||||||
Adient PLC | 29,200 | $ | 2,463,312 | ||||||||||||
Dana, Inc. | 170,822 | 5,208,363 | |||||||||||||
Delphi Automotive PLC | 46,881 | 4,659,034 | |||||||||||||
|
| ||||||||||||||
12,330,709 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 3.91% | |||||||||||||||
Hilton Worldwide Holdings, Inc. | 65,836 | 4,758,626 | |||||||||||||
Norwegian Cruise Line Holdings Ltd.A | 99,425 | 5,542,944 | |||||||||||||
Royal Caribbean Cruises Ltd. | 63,141 | 7,814,961 | |||||||||||||
SeaWorld Entertainment, Inc.B | 160,392 | 1,841,300 | |||||||||||||
Wyndham Worldwide Corp. | 58,021 | 6,199,544 | |||||||||||||
|
| ||||||||||||||
26,157,375 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 1.53% | |||||||||||||||
DR Horton, Inc. | 106,829 | 4,722,910 | |||||||||||||
Whirlpool Corp. | 33,432 | 5,480,508 | |||||||||||||
|
| ||||||||||||||
10,203,418 | |||||||||||||||
|
| ||||||||||||||
Leisure Products - 0.31% | |||||||||||||||
Brunswick Corp. | 41,066 | 2,079,993 | |||||||||||||
|
| ||||||||||||||
Media - 2.72% | |||||||||||||||
Interpublic Group of Cos, Inc. | 265,727 | 5,115,245 | |||||||||||||
Meredith Corp. | 48,455 | 2,568,115 | |||||||||||||
News Corp., Class A | 333,122 | 4,550,447 | |||||||||||||
Omnicom Group, Inc. | 88,354 | 5,936,505 | |||||||||||||
|
| ||||||||||||||
18,170,312 | |||||||||||||||
|
| ||||||||||||||
Multiline Retail - 0.79% | |||||||||||||||
Dollar General Corp. | 65,200 | 5,270,768 | |||||||||||||
|
| ||||||||||||||
Specialty Retail - 0.71% | |||||||||||||||
L Brands, Inc. | 111,111 | 4,782,217 | |||||||||||||
|
| ||||||||||||||
Textiles, Apparel & Luxury Goods - 0.68% | |||||||||||||||
Hanesbrands, Inc.B | 203,015 | 4,567,837 | |||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 83,562,629 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 0.65% | |||||||||||||||
Beverages - 0.65% | |||||||||||||||
Coca-Cola European Partners PLC | 106,900 | 4,367,934 | |||||||||||||
|
| ||||||||||||||
Energy - 8.69% | |||||||||||||||
Energy Equipment & Services - 1.56% | |||||||||||||||
Superior Energy Services, Inc.A | 196,868 | 1,736,376 | |||||||||||||
TechnipFMC PLCA | 135,075 | 3,699,704 | |||||||||||||
Weatherford International PLCA B | 1,454,012 | 5,045,422 | |||||||||||||
|
| ||||||||||||||
10,481,502 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 7.13% | |||||||||||||||
Cenovus Energy, Inc. | 568,476 | 5,525,587 | |||||||||||||
Chesapeake Energy Corp.A B | 451,600 | 1,761,240 | |||||||||||||
Devon Energy Corp. | 142,200 | 5,247,180 | |||||||||||||
EQT Corp. | 142,971 | 8,941,406 | |||||||||||||
Golar LNG Ltd. | 184,089 | 3,889,800 |
See accompanying notes
28
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 94.45% (continued) | |||||||||||||||
Energy - 8.69% (continued) | |||||||||||||||
Oil, Gas & Consumable Fuels - 7.13% (continued) | |||||||||||||||
Murphy Oil Corp. | 443,825 | $ | 11,872,319 | ||||||||||||
PBF Energy, Inc., Class A | 155,864 | 4,515,380 | |||||||||||||
Vermilion Energy, Inc.B | 173,800 | 5,931,794 | |||||||||||||
|
| ||||||||||||||
47,684,706 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 58,166,208 | ||||||||||||||
|
| ||||||||||||||
Financials - 24.37% | |||||||||||||||
Banks - 6.92% | |||||||||||||||
CIT Group, Inc. | 71,114 | 3,315,335 | |||||||||||||
Comerica, Inc. | 58,712 | 4,613,002 | |||||||||||||
Cullen/Frost Bankers, Inc. | 33,914 | 3,340,529 | |||||||||||||
Fifth Third Bancorp | 282,620 | 8,167,718 | |||||||||||||
KeyCorp | 611,569 | 11,161,134 | |||||||||||||
Regions Financial Corp. | 408,968 | 6,330,824 | |||||||||||||
Signature BankA | 33,300 | 4,329,333 | |||||||||||||
TCF Financial Corp. | 109,892 | 2,002,232 | |||||||||||||
Valley National Bancorp | 176,652 | 2,031,498 | |||||||||||||
Webster Financial Corp. | 18,633 | 1,024,629 | |||||||||||||
|
| ||||||||||||||
46,316,234 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 3.61% | |||||||||||||||
Apollo Global Management LLC, Class A, MLP | 190,325 | 6,010,464 | |||||||||||||
Franklin Resources, Inc. | 124,088 | 5,227,827 | |||||||||||||
Invesco Ltd. | 160,362 | 5,739,356 | |||||||||||||
KKR & Co. LP | 358,068 | 7,179,263 | |||||||||||||
|
| ||||||||||||||
24,156,910 | |||||||||||||||
|
| ||||||||||||||
Consumer Finance - 3.35% | |||||||||||||||
Ally Financial, Inc. | 334,300 | 8,735,259 | |||||||||||||
Capital One Financial Corp. | 20,842 | 1,921,216 | |||||||||||||
Discover Financial Services | 51,261 | 3,410,394 | |||||||||||||
Navient Corp. | 279,362 | 3,480,851 | |||||||||||||
SLM Corp.A | 459,995 | 4,871,347 | |||||||||||||
|
| ||||||||||||||
22,419,067 | |||||||||||||||
|
| ||||||||||||||
Diversified Financial Services - 1.39% | |||||||||||||||
Voya Financial, Inc. | 230,934 | 9,274,309 | |||||||||||||
|
| ||||||||||||||
Insurance - 7.98% | |||||||||||||||
Allstate Corp. | 55,521 | 5,211,201 | |||||||||||||
Assurant, Inc. | 34,300 | 3,452,295 | |||||||||||||
Axis Capital Holdings Ltd. | 94,167 | 5,121,743 | |||||||||||||
FNF GroupC | 267,292 | 10,002,067 | |||||||||||||
Hanover Insurance Group, Inc. | 57,094 | 5,616,908 | |||||||||||||
Torchmark Corp. | 26,492 | 2,228,772 | |||||||||||||
Validus Holdings Ltd. | 114,973 | 5,987,794 | |||||||||||||
Willis Towers Watson PLC | 80,781 | 13,012,203 | |||||||||||||
XL Group Ltd. | 68,500 | 2,772,195 | |||||||||||||
|
| ||||||||||||||
53,405,178 | |||||||||||||||
|
| ||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) - 0.37% | |||||||||||||||
MFA Financial, Inc. | 298,312 | 2,458,091 | |||||||||||||
|
| ||||||||||||||
Thrifts & Mortgage Finance - 0.75% | |||||||||||||||
New York Community Bancorp, Inc. | 401,675 | 5,045,038 | |||||||||||||
|
| ||||||||||||||
Total Financials | 163,074,827 | ||||||||||||||
|
|
See accompanying notes
29
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 94.45% (continued) | |||||||||||||||
Health Care - 7.46% | |||||||||||||||
Health Care Equipment & Supplies - 1.14% | |||||||||||||||
Zimmer Biomet Holdings, Inc. | 62,655 | $ | 7,620,101 | ||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 5.26% | |||||||||||||||
Cardinal Health, Inc. | 159,275 | 9,859,122 | |||||||||||||
Cigna Corp. | 42,198 | 8,322,290 | |||||||||||||
MEDNAX, Inc.A | 101,500 | 4,444,685 | |||||||||||||
Patterson Cos., Inc. | 135,800 | 5,024,600 | |||||||||||||
Universal Health Services, Inc., Class B | 73,360 | 7,534,072 | |||||||||||||
|
| ||||||||||||||
35,184,769 | |||||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 1.06% | |||||||||||||||
Mylan N.V.A | 199,340 | 7,118,432 | |||||||||||||
|
| ||||||||||||||
Total Health Care | 49,923,302 | ||||||||||||||
|
| ||||||||||||||
Industrials - 14.64% | |||||||||||||||
Aerospace & Defense - 2.41% | |||||||||||||||
Spirit AeroSystems Holdings, Inc., Class A | 89,215 | 7,146,122 | |||||||||||||
TransDigm Group, Inc. | 32,475 | 9,011,812 | |||||||||||||
|
| ||||||||||||||
16,157,934 | |||||||||||||||
|
| ||||||||||||||
Building Products - 3.31% | |||||||||||||||
JELD-WEN Holding, Inc.A | 223,737 | 8,251,421 | |||||||||||||
Johnson Controls International PLC | 115,561 | 4,783,070 | |||||||||||||
Owens Corning | 110,189 | 9,111,528 | |||||||||||||
|
| ||||||||||||||
22,146,019 | |||||||||||||||
|
| ||||||||||||||
Commercial Services & Supplies - 0.80% | |||||||||||||||
Republic Services, Inc. | 82,215 | 5,349,730 | |||||||||||||
|
| ||||||||||||||
Construction & Engineering - 1.35% | |||||||||||||||
AECOMA | 123,562 | 4,332,084 | |||||||||||||
KBR, Inc. | 238,744 | 4,686,544 | |||||||||||||
|
| ||||||||||||||
9,018,628 | |||||||||||||||
|
| ||||||||||||||
Machinery - 4.51% | |||||||||||||||
CNH Industrial N.V. | 116,109 | 1,474,584 | |||||||||||||
Dover Corp. | 154,881 | 14,789,587 | |||||||||||||
Stanley Black & Decker, Inc. | 43,698 | 7,059,412 | |||||||||||||
Terex Corp. | 145,208 | 6,840,749 | |||||||||||||
|
| ||||||||||||||
30,164,332 | |||||||||||||||
|
| ||||||||||||||
Professional Services - 0.38% | |||||||||||||||
Nielsen Holdings PLC | 68,800 | 2,550,416 | |||||||||||||
|
| ||||||||||||||
Road & Rail - 1.11% | |||||||||||||||
Ryder System, Inc. | 91,334 | 7,405,361 | |||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 0.77% | |||||||||||||||
AerCap Holdings N.V.A | 97,800 | 5,148,192 | |||||||||||||
|
| ||||||||||||||
Total Industrials | 97,940,612 | ||||||||||||||
|
|
See accompanying notes
30
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 94.45% (continued) | |||||||||||||||
Information Technology - 11.97% | |||||||||||||||
Electronic Equipment, Instruments & Components - 2.98% | |||||||||||||||
Avnet, Inc. | 269,461 | $ | 10,724,548 | ||||||||||||
Flex Ltd.A | 274,446 | 4,885,139 | |||||||||||||
Keysight Technologies, Inc.A | 97,230 | 4,343,264 | |||||||||||||
|
| ||||||||||||||
19,952,951 | |||||||||||||||
|
| ||||||||||||||
IT Services - 3.23% | |||||||||||||||
Alliance Data Systems Corp. | 18,300 | 4,094,259 | |||||||||||||
Black Knight, Inc.A | 33,576 | 1,522,672 | |||||||||||||
Convergys Corp. | 43,630 | 1,122,600 | |||||||||||||
CSRA, Inc. | 65,368 | 2,091,122 | |||||||||||||
DXC Technology Co. | 48,668 | 4,454,095 | |||||||||||||
Genpact Ltd. | 165,393 | 5,036,217 | |||||||||||||
Total System Services, Inc. | 45,086 | 3,248,446 | |||||||||||||
|
| ||||||||||||||
21,569,411 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 3.31% | |||||||||||||||
Marvell Technology Group Ltd. | 344,424 | 6,361,511 | |||||||||||||
Microchip Technology, Inc. | 106,435 | �� | 10,090,038 | ||||||||||||
Versum Materials, Inc. | 134,900 | 5,676,592 | |||||||||||||
|
| ||||||||||||||
22,128,141 | |||||||||||||||
|
| ||||||||||||||
Software - 0.35% | |||||||||||||||
Micro Focus International PLC, Sponsored ADRA | 67,571 | 2,360,255 | |||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 2.10% | |||||||||||||||
Hewlett Packard Enterprise Co. | 546,453 | 7,606,626 | |||||||||||||
HP, Inc. | 220,858 | 4,759,490 | |||||||||||||
Seagate Technology PLC | 45,625 | 1,686,756 | |||||||||||||
|
| ||||||||||||||
14,052,872 | |||||||||||||||
|
| ||||||||||||||
Total Information Technology | 80,063,630 | ||||||||||||||
|
| ||||||||||||||
Materials - 4.61% | |||||||||||||||
Chemicals - 2.91% | |||||||||||||||
Ashland Global Holdings, Inc. | 82,053 | 5,577,963 | |||||||||||||
Axalta Coating Systems Ltd.A | 185,500 | 6,167,875 | |||||||||||||
Celanese Corp., Series A | 32,400 | 3,379,644 | |||||||||||||
Eastman Chemical Co. | 47,502 | 4,313,657 | |||||||||||||
|
| ||||||||||||||
19,439,139 | |||||||||||||||
|
| ||||||||||||||
Construction Materials - 0.33% | |||||||||||||||
CRH PLC, Sponsored ADRB | 58,998 | 2,213,605 | |||||||||||||
|
| ||||||||||||||
Containers & Packaging - 1.37% | |||||||||||||||
Owens-Illinois, Inc.A | 190,967 | 4,562,201 | |||||||||||||
Packaging Corp. of America | 39,596 | 4,603,827 | |||||||||||||
|
| ||||||||||||||
9,166,028 | |||||||||||||||
|
| ||||||||||||||
Total Materials | 30,818,772 | ||||||||||||||
|
| ||||||||||||||
Real Estate - 4.20% | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 4.20% | |||||||||||||||
AvalonBay Communities, Inc. | 26,748 | 4,850,215 | |||||||||||||
CBL & Associates Properties, Inc.B | 168,203 | 1,318,712 | |||||||||||||
EPR Properties | 68,064 | 4,708,668 | |||||||||||||
GEO Group, Inc. | 97,950 | 2,541,802 |
See accompanying notes
31
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2017
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 94.45% (continued) | |||||||||||||||
Real Estate - 4.20% (continued) | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 4.20% (continued) | |||||||||||||||
Lamar Advertising Co., Class A | 164,780 | $ | 11,607,103 | ||||||||||||
MGM Growth Properties LLC, Class AB | 103,585 | 3,056,793 | |||||||||||||
|
| ||||||||||||||
28,083,293 | |||||||||||||||
|
| ||||||||||||||
Total Real Estate | 28,083,293 | ||||||||||||||
|
| ||||||||||||||
Utilities - 5.37% | |||||||||||||||
Electric Utilities - 4.51% | |||||||||||||||
Edison International | 77,630 | 6,206,518 | |||||||||||||
Great Plains Energy, Inc. | 254,347 | 8,350,212 | |||||||||||||
Pinnacle West Capital Corp. | 126,556 | 11,100,227 | |||||||||||||
Xcel Energy, Inc. | 90,778 | 4,495,327 | |||||||||||||
|
| ||||||||||||||
30,152,284 | |||||||||||||||
|
| ||||||||||||||
Gas Utilities - 0.60% | |||||||||||||||
UGI Corp. | 84,232 | 4,031,344 | |||||||||||||
|
| ||||||||||||||
Multi-Utilities - 0.26% | |||||||||||||||
CenterPoint Energy, Inc. | 57,849 | 1,711,173 | |||||||||||||
|
| ||||||||||||||
Total Utilities | 35,894,801 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $521,392,478) | 631,896,008 | ||||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 4.86% (Cost $32,552,471) | |||||||||||||||
Investment Companies - 4.86% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%D E | 32,552,471 | 32,552,471 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 2.88% (Cost $19,270,065) | |||||||||||||||
Investment Companies - 2.88% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 0.97%D E | 19,270,065 | 19,270,065 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 102.19% (Cost $573,215,014) | 683,718,544 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (2.19%) | (14,667,805 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 669,050,739 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A Non-income producing security.
B All or a portion of this security is on loan at October 31, 2017.
C Tracking Stock - A form of common stock that is issued by a parent company and tracks the performance of a specific division of that parent company. It allows investors the chance to invest in an individual sector of a company while the parent company maintains overall control.
D The Fund is affiliated by having the same investment advisor.
E 7-day yield.
ADR - American Depositary Receipt.
LLC - Limited Liability Company.
LP - Limited Partnership.
MLP - Master Limited Partnership.
PLC - Public Limited Company.
See accompanying notes
32
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2017
Futures Contracts Open on October 31, 2017: | ||||||||||||||
Long Futures | ||||||||||||||
Equity Futures Contracts | ||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||
S&P MidCap 400 E-Mini Index Futures | 167 | December 2017 | $ 29,364,992 | $ | 30,626,130 | $ | 1,261,138 | |||||||
|
|
|
|
| ||||||||||
$ 29,364,992 | $ | 30,626,130 | $ | 1,261,138 | ||||||||||
|
|
|
|
|
Index Abbreviations: | ||
S&P | Standard & Poor’s |
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2017, the investments were classified as described below:
Mid-Cap Value Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 631,896,008 | $ | - | $ | - | $ | 631,896,008 | ||||||||||||||||||||
Short-Term Investments | 32,552,471 | - | - | 32,552,471 | ||||||||||||||||||||||||
Securities Lending Collateral | 19,270,065 | - | - | 19,270,065 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities – Assets | $ | 683,718,544 | $ | - | $ | - | $ | 683,718,544 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Assets | ||||||||||||||||||||||||||||
Futures Contracts | $ | 1,261,138 | $ | - | $ | - | $ | 1,261,138 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Assets | $ | 1,261,138 | $ | - | $ | - | $ | 1,261,138 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires all transfers between any levels to be disclosed. The end of period timing recognition has been adopted for the transfers between levels of the Fund’s assets and liabilities. During the period ended October 31, 2017, there were no transfers between levels.
See accompanying notes
33
Statements of Assets and Liabilities
October 31, 2017
Balanced Fund | Mid-Cap Value Fund | |||||||||||
Assets: | ||||||||||||
Investments in unaffiliated securities, at fair value† | $ | 343,741,407 | $ | 631,896,008 | ||||||||
Investments in affiliated securities, at fair value‡ | 10,948,581 | 51,822,536 | ||||||||||
Cash | 64,936 | - | ||||||||||
Deposit with brokers for futures contracts | 238,500 | 1,002,000 | ||||||||||
Dividends and interest receivable | 739,612 | 266,162 | ||||||||||
Receivable for investments sold | 1,278,859 | 4,760,359 | ||||||||||
Receivable for fund shares sold | 199,231 | 347,754 | ||||||||||
Receivable for variation margin on open futures contracts (Note 5) | 16,486 | 144,784 | ||||||||||
Prepaid expenses | 173,579 | 37,446 | ||||||||||
|
|
|
| |||||||||
Total assets | 357,401,191 | 690,277,049 | ||||||||||
|
|
|
| |||||||||
Liabilities: | ||||||||||||
Payable for investments purchased | 984,125 | 326,126 | ||||||||||
Payable for fund shares redeemed | 469,913 | 745,668 | ||||||||||
Cash due to custodian | - | 233,595 | ||||||||||
Payable upon return of securities loaned§ (Note 9) | 3,085,328 | 19,270,065 | ||||||||||
Management and sub-advisory fees payable (Note 2) | 104,796 | 453,080 | ||||||||||
Service fees payable (Note 2) | 69,203 | 63,676 | ||||||||||
Transfer agent fees payable (Note 2) | 16,470 | 19,969 | ||||||||||
Custody and fund accounting fees payable | 50,149 | 40,848 | ||||||||||
Professional fees payable | 51,778 | 39,621 | ||||||||||
Trustee fees payable (Note 2) | 1,779 | 3,028 | ||||||||||
Payable for prospectus and shareholder reports | 17,428 | 19,438 | ||||||||||
Other liabilities | 8,694 | 11,196 | ||||||||||
|
|
|
| |||||||||
Total liabilities | 4,859,663 | 21,226,310 | ||||||||||
|
|
|
| |||||||||
Net assets | $ | 352,541,528 | $ | 669,050,739 | ||||||||
|
|
|
| |||||||||
Analysis of net assets: | ||||||||||||
Paid-in-capital | $ | 276,480,411 | $ | 541,974,243 | ||||||||
Undistributed net investment income | 4,950,273 | 3,849,149 | ||||||||||
Accumulated net realized gain | 15,201,230 | 11,462,807 | ||||||||||
Unrealized appreciation of investments in unaffiliated securitiesA | 55,811,935 | 110,503,530 | ||||||||||
Unrealized (depreciation) of foreign currency translations | - | (128 | ) | |||||||||
Unrealized appreciation of futures contracts | 97,679 | 1,261,138 | ||||||||||
|
|
|
| |||||||||
Net assets | $ | 352,541,528 | $ | 669,050,739 | ||||||||
|
|
|
|
See accompanying notes
34
American Beacon FundsSM
Statements of Assets and Liabilities
October 31, 2017
Balanced Fund | Mid-Cap Value Fund | |||||||||||
Shares outstanding at no par value (unlimited shares authorized): | ||||||||||||
Institutional Class | 5,091,533 | 15,414,870 | ||||||||||
|
|
|
| |||||||||
Y Class | 3,733,529 | 5,855,418 | ||||||||||
|
|
|
| |||||||||
Investor Class | 8,004,487 | 15,780,223 | ||||||||||
|
|
|
| |||||||||
Advisor Class | 668,139 | 218,770 | ||||||||||
|
|
|
| |||||||||
A Class | 1,416,690 | 1,079,251 | ||||||||||
|
|
|
| |||||||||
C Class | 2,721,677 | 400,735 | ||||||||||
|
|
|
| |||||||||
Net assets: | ||||||||||||
Institutional Class | $ | 88,015,702 | $ | 265,934,589 | ||||||||
|
|
|
| |||||||||
Y Class | $ | 64,926,394 | $ | 100,190,167 | ||||||||
|
|
|
| |||||||||
Investor Class | $ | 124,143,894 | $ | 274,552,551 | ||||||||
|
|
|
| |||||||||
Advisor Class | $ | 10,944,675 | $ | 3,682,231 | ||||||||
|
|
|
| |||||||||
A Class | $ | 21,934,880 | $ | 18,170,218 | ||||||||
|
|
|
| |||||||||
C Class | $ | 42,575,983 | $ | 6,520,983 | ||||||||
|
|
|
| |||||||||
Net asset value, offering and redemption price per share: | ||||||||||||
Institutional ClassB | $ | 17.30 | $ | 17.25 | ||||||||
|
|
|
| |||||||||
Y Class | $ | 17.39 | $ | 17.11 | ||||||||
|
|
|
| |||||||||
Investor Class | $ | 15.51 | $ | 17.40 | ||||||||
|
|
|
| |||||||||
Advisor Class | $ | 16.38 | $ | 16.83 | ||||||||
|
|
|
| |||||||||
A Class | $ | 15.48 | $ | 16.84 | ||||||||
|
|
|
| |||||||||
A Class (offering price) | $ | 16.42 | $ | 17.87 | ||||||||
|
|
|
| |||||||||
C Class | $ | 15.64 | $ | 16.27 | ||||||||
|
|
|
| |||||||||
† Cost of investments in unaffiliated securities | $ | 287,929,472 | $ | 521,392,478 | ||||||||
‡ Cost of investments in affiliated securities | $ | 10,948,581 | $ | 51,822,536 | ||||||||
§ Fair value of securities on loan | $ | 3,023,104 | $ | 18,807,570 | ||||||||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. | ||||||||||||
B Net asset value has been rounded due to inclusion of the AMR Class assets of the Balanced Fund (Note 1). |
See accompanying notes
35
American Beacon FundsSM
Statements of Operations
For the year ended October 31, 2017
Balanced Fund | Mid-Cap Value Fund | |||||||||||
Investment income: | ||||||||||||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 7,867,101 | $ | 11,901,235 | ||||||||
Dividend income from affiliated securities (Note 8) | 120,975 | 219,449 | ||||||||||
Interest income | 4,477,608 | 152 | ||||||||||
Income derived from securities lending (Note 9) | 10,761 | 41,295 | ||||||||||
|
|
|
| |||||||||
Total investment income | 12,476,445 | 12,162,131 | ||||||||||
|
|
|
| |||||||||
Expenses: | ||||||||||||
Management and sub-advisory fees (Note 2) | 2,627,213 | 5,011,833 | ||||||||||
Transfer agent fees: | ||||||||||||
Institutional Class (Note 2) | 24,078 | 53,427 | ||||||||||
Y Class (Note 2) | 40,845 | 56,098 | ||||||||||
Investor Class | 12,136 | 14,921 | ||||||||||
Advisor Class | 644 | 2,581 | ||||||||||
A Class | 2,236 | 2,341 | ||||||||||
C Class | 3,301 | 1,712 | ||||||||||
Custody and fund accounting fees | 100,831 | 81,795 | ||||||||||
Professional fees | 60,443 | 56,062 | ||||||||||
Registration fees and expenses | 92,994 | 89,550 | ||||||||||
Service fees (Note 2): | ||||||||||||
Y Class | 21,650 | 32,652 | ||||||||||
Investor Class | 396,638 | 599,891 | ||||||||||
Advisor Class | 27,339 | 13,920 | ||||||||||
A Class | 37,215 | 30,822 | ||||||||||
C Class | 64,227 | 9,962 | ||||||||||
Distribution fees (Note 2): | ||||||||||||
Advisor Class | 27,339 | 13,920 | ||||||||||
A Class | 62,025 | 51,370 | ||||||||||
C Class | 428,180 | 66,416 | ||||||||||
Prospectus and shareholder report expenses | 49,440 | 58,456 | ||||||||||
Trustee fees (Note 2) | 29,371 | 38,181 | ||||||||||
Other expenses | 71,688 | 50,243 | ||||||||||
|
|
|
| |||||||||
Total expenses | 4,179,833 | 6,336,153 | ||||||||||
|
|
|
| |||||||||
Net investment income | 8,296,612 | 5,825,978 | ||||||||||
|
|
|
| |||||||||
Realized and unrealized gain (loss) from investments: | ||||||||||||
Net realized gain (loss) from: | ||||||||||||
Investments in unaffiliated securitiesA | 29,552,292 | 30,539,008 | ||||||||||
Redemption in kind (Note 7) | 27,820,441 | - | ||||||||||
Commission recapture (Note 1) | 2,524 | 20,932 | ||||||||||
Foreign currency transactions | (431 | ) | 3,977 | |||||||||
Futures contracts | 3,847,111 | 3,703,362 | ||||||||||
Change in net unrealized appreciation of: | ||||||||||||
Investments in unaffiliated securitiesB | 10,771,171 | 90,288,297 | ||||||||||
Foreign currency transactions | - | 67 | ||||||||||
Futures contracts | 368,904 | 1,742,221 | ||||||||||
|
|
|
| |||||||||
Net gain from investments | 72,362,012 | 126,297,864 | ||||||||||
|
|
|
| |||||||||
Net increase in net assets resulting from operations | $ | 80,658,624 | $ | 132,123,842 | ||||||||
|
|
|
| |||||||||
† Foreign taxes | $ | 87,373 | $ | 49,980 | ||||||||
A The Fund did not recognize net realized gains (losses) from the sale of investments in affiliated securities. |
| |||||||||||
B The Fund’s investments in affiliated securities did not have a change in unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
36
American Beacon FundsSM
Statements of Changes in Net Assets
Balanced Fund | Mid-Cap Value Fund | |||||||||||||||||||||||||||
Year Ended October 31, 2017 | Year Ended October 31, 2016 | Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||||||||||||||||
Increase (decrease) in net assets: | ||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||
Net investment income | $ | 8,296,612 | $ | 13,596,214 | $ | 5,825,978 | $ | 9,145,985 | ||||||||||||||||||||
Net realized gain (loss) from investments in unaffiliated securities, redemption in kind, commission recapture, foreign currency transactions, and futures contracts | 61,221,937 | (2,124,832 | ) | 34,267,279 | (20,935,169 | ) | ||||||||||||||||||||||
Change in net unrealized appreciation of investments in unaffiliated securities, foreign currency transactions, and futures contracts | 11,140,075 | 8,639,376 | 92,030,585 | 23,752,522 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in net assets resulting from operations | 80,658,624 | 20,110,758 | 132,123,842 | 11,963,338 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||||||||||
Net investment income: | ||||||||||||||||||||||||||||
Institutional Class | (3,922,895 | ) | (8,111,530 | ) | (3,184,300 | ) | (3,042,980 | ) | ||||||||||||||||||||
Y Class | (1,320,074 | ) | (394,207 | ) | (1,054,082 | ) | (804,213 | ) | ||||||||||||||||||||
Investor Class | (2,791,629 | ) | (1,913,613 | ) | (3,122,003 | ) | (2,883,653 | ) | ||||||||||||||||||||
Advisor Class | (196,602 | ) | (128,760 | ) | (63,730 | ) | (40,603 | ) | ||||||||||||||||||||
A Class | (506,915 | ) | (367,530 | ) | (224,784 | ) | (117,192 | ) | ||||||||||||||||||||
C Class | (535,923 | ) | (318,121 | ) | (30,824 | ) | (11,670 | ) | ||||||||||||||||||||
Net realized gain from investments: | ||||||||||||||||||||||||||||
Institutional Class | - | (21,528,686 | ) | - | (12,422,126 | ) | ||||||||||||||||||||||
Y Class | - | (1,587,112 | ) | - | (3,405,226 | ) | ||||||||||||||||||||||
Investor Class | - | (7,811,741 | ) | - | (14,625,725 | ) | ||||||||||||||||||||||
Advisor Class | - | (610,329 | ) | - | (345,718 | ) | ||||||||||||||||||||||
A Class | - | (1,380,563 | ) | - | (800,587 | ) | ||||||||||||||||||||||
C Class | - | (2,350,891 | ) | - | (322,638 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net distributions to shareholders | (9,274,038 | ) | (46,503,083 | ) | (7,679,723 | ) | (38,822,331 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Capital share transactions (Note 10): | ||||||||||||||||||||||||||||
Proceeds from sales of shares | 125,828,653 | 461,674,934 | 180,157,266 | 152,464,371 | ||||||||||||||||||||||||
Reinvestment of dividends and distributions | 8,901,335 | 45,872,150 | 7,582,763 | 38,345,842 | ||||||||||||||||||||||||
Cost of shares redeemed | (571,205,485 | ) | (481,741,305 | ) | (183,160,251 | ) | (287,829,842 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net assets from capital share transactions | (436,475,497 | ) | 25,805,779 | 4,579,778 | (97,019,629 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net assets | (365,090,911 | ) | (586,546 | ) | 129,023,897 | (123,878,622 | ) | |||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net assets: | ||||||||||||||||||||||||||||
Beginning of period | 717,632,439 | 718,218,985 | 540,026,842 | 663,905,464 | ||||||||||||||||||||||||
|
|
|
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End of period* | $ | 352,541,528 | $ | 717,632,439 | $ | 669,050,739 | $ | 540,026,842 | ||||||||||||||||||||
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*Includes undistributed net investment income | $ | 4,950,273 | $ | 5,642,174 | $ | 3,849,149 | $ | 6,383,795 | ||||||||||||||||||||
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See accompanying notes
37
American Beacon FundsSM
October 31, 2017
1. Organization and Significant Accounting Policies
American Beacon Funds (the “Trust”), is organized as a Massachusetts business trust. The Funds, each a series within the Trust, are registered under the Investment Company Act of 1940 (the “Act”), as amended, as a diversified, open-end management investment companies. As of October 31, 2017, the Trust consists of thirty-four active series, two of which are presented in this filing: American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund (collectively, the “Funds” and each individually a “Fund”). The remaining thirty-two active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a wholly-owned subsidiary of Resolute Investment Managers, Inc., which is indirectly owned by investment funds affiliated with Kelso & Company, L.P. and Estancia Capital Management, LLC, and was organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors.
Class Disclosure
The AMR Class of the Balanced Fund closed on May 31, 2016 and the shares merged into the Institutional Class.
Each Fund has multiple classes of shares designed to meet the needs of different groups of investors; however, not all of the Funds offer all classes. The following table sets forth the differences amongst the classes:
Class | Eligible Investors | Minimum Initial Investments | ||||
Institutional | Large institutional investors - sold directly or through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 | |||
Investor | All investors using intermediary organizations, such as broker-dealers or retirement plan sponsors. | $ | 2,500 | |||
Advisor Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrators. | $ | 2,500 | |||
A Class | All investors who invest through intermediary organizations, such as broker-dealers or third party administrator. Retail investors who invest directly through a financial intermediary such as a broker, bank, or registered investment advisor which may include a front-end sales charge and a contingent deferred sales charge (“CDSC”). | $ | 2,500 | |||
C Class | Retail investors who invest directly through a financial intermediary such as broker or employee directed benefit plans with applicable sales charges which may include CDSC. | $ | 1,000 |
Each class offered by the Trust has equal rights as to assets and voting privileges. Income and non-class specific expenses are allocated daily to each class on the basis of the relative net assets. Realized and unrealized capital gains and losses of each class are allocated daily based on the relative net assets of each class of the respective Fund. Class specific expenses, where applicable, currently include service, distribution, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Recently Adopted Accounting Pronouncements
In October 2016, the SEC adopted amendments to rules under the Investment Company Act of 1940 (“final rules”) intended to modernize the reporting and disclosure of information by registered investment companies. The final rules amend Regulation S-X and require funds to provide standardized, enhanced derivative disclosure in fund financial statements in a format designed for individual investors. The amendments to Regulation S-X also update the disclosures for other investments and investments in and advances to affiliates and amend the rules regarding the general form and content of fund financial statements. The compliance date for the amendments to Regulation S-X is August 1, 2017, and has been adopted accordingly.
38
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
The following is a summary of significant accounting policies, consistently followed by the Funds in preparation of the financial statements. The Funds are considered investment companies and accordingly, follow the investment company accounting and reporting guidance of the Financial Accounting Standards Board Accounting Standard Codification Topic 946, Financial Services – Investment Companies, a part of Generally Accepted Accounting Principles (“U.S. GAAP”).
Security Transactions and Investment Income
Security transactions are recorded on the trade date of the security purchase or sale. The Funds may purchase securities with delivery or payment to occur at a later date. At the time the Funds enter into a commitment to purchase a security, the transaction is recorded, and the value of the security is reflected in the Net Asset Value (“NAV”). The value of the security may vary with market fluctuations.
Dividend income, net of foreign taxes, is recorded on the ex-dividend date, except certain dividends from foreign securities which are recorded as soon as the information is available to the Funds. Interest income is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification.
Distributions to Shareholders
Dividends from net investment income of the Balanced Fund will normally be declared and paid quarterly. Dividends from net investment income of the Mid-Cap Value Fund will normally be declared and be paid at least annually. Distributions, if any, of net realized capital gains are generally paid at least annually and recorded on the ex-dividend date. Dividends to shareholders are determined in accordance with federal income tax regulations, which may differ in amount and character from net investment income and realized gains recognized for purposes of U.S. GAAP. To the extent necessary to fully distribute capital gains, the Funds may also designate earnings and profits distributed to shareholders on the redemption of shares.
Commission Recapture
The Funds have established brokerage commission recapture arrangements with certain brokers or dealers. If a Funds’ investment advisor chooses to execute a transaction through a participating broker, the broker rebates a portion of the commission back to the Funds. Any collateral benefit received through participation in the commission recapture program is directed exclusively to the Funds. This amount is reported with the net realized gain in the Funds’ Statements of Operations, if applicable.
Allocation of Income, Trust Expenses, Gains, and Losses
Investment income, realized and unrealized gains and losses from investments of the Funds are allocated daily to each class of shares based upon the relative proportion of net assets of each class to the total net assets of the Funds. Expenses directly charged or attributable to any Fund will be paid from the assets of the Fund. Generally, expenses of the Trust will be allocated among and charged to the assets of the Funds on a basis that the Trustees deem fair and equitable, which may be based on the relative net assets of the Funds or nature of the services performed and relative applicability to the Funds.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
39
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
Other
Under the Trust’s organizational documents, its officers and trustees are indemnified against certain liabilities 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.
Concentration of Ownership
From time to time, the Funds may have a concentration of one or more accounts constituting a significant percentage of shares outstanding. Investment activities by holders of accounts that represent a controlling ownership of more than 5% of the Funds’ outstanding shares could have a material impact on the Funds. As of October 31, 2017, based on management’s evaluation of the shareholder account base, exclusive of omnibus accounts, two accounts have been identified as representing a non-affiliated controlling ownership of approximately 13% of the Balanced Fund’s outstanding shares and one account has been identified as representing a non-affiliated controlling ownership of approximately 32% of the Mid-Cap Value Fund’s outstanding shares.
2. Transactions with Affiliates
Management and Investment Sub-Advisory Agreements
The Funds and the Manager are parties to a Management Agreement that obligates the Manager to provide the Funds with investment advisory and administrative services. As compensation for performing the duties under the Management Agreement, the Manager will receive an annualized management fee based on a percentage of the Funds’ average daily net assets that is calculated and accrued daily according to the following schedule:
First $15 billion | 0.35 | % | ||
Next $15 billion | 0.325 | % | ||
Over $30 billion | 0.30 | % |
The Trust, on behalf of the Funds, and the Manager have entered into Investment Advisory Agreements with Barrow, Hanley, Mewhinney & Strauss, LLC; Brandywine Global Investment Management, LLC; and Hotchkis and Wiley Capital Management, LLC for the Balanced Fund. In addition, the Manager manages a portion of the Balanced Fund pursuant to the Management Agreement. The Trust, on behalf of the Funds, and the Manager have entered into Investment Advisory Agreements with Barrow, Hanley, Mewhinney & Strauss, LLC; Pzena Investment Management, LLC; and WEDGE Capital Management, L.L.P. for the Mid-Cap Value Fund pursuant to the Investment Advisory Agreements, the Funds have agreed to pay an annualized sub-advisory fee that is calculated and accrued daily based on the Funds’ average daily net assets according to the following schedules:
The Management and Sub-Advisory Fees paid by the Funds for the year ended October 31, 2017 were as follows:
Balanced Fund
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.36 | % | $ | 1,839,408 | ||||||||
Sub-Advisor Fees | 0.14 | % | 787,805 | |||||||||
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Total | 0.50 | % | $ | 2,627,213 | ||||||||
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Mid-Cap Value Fund
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 2,190,546 | ||||||||
Sub-Advisor Fees | 0.45 | % | 2,821,287 | |||||||||
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Total | 0.80 | % | $ | 5,011,833 | ||||||||
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40
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
As compensation for services provided by the Manager in connection with securities lending activities conducted by the Funds, the lending Fund pays to the Manager, with respect to cash collateral posted by borrowers, a fee of 10% of the net monthly interest income (the gross income earned by the investment of cash collateral, less the amount paid to borrowers and related expenses) from such activities and, with respect to loan fees paid by borrowers, a fee up to 10% of such loan fees. These fees are included in “Income derived from securities lending” and “Management and sub-advisory fees” on the Statements of Operations. During the year ended October 31, 2017, the Manager received securities lending fees of $1,403 and $5,376 for the securities lending activities of the Balanced Fund and Mid-Cap Value Fund, respectively.
Distribution Plans
The Funds, except for the Advisor, A, and C Classes of the Funds, have adopted a “defensive” Distribution Plan (the “Plan”) in accordance with Rule 12b-1 under the Act, pursuant to which no separate fees may be charged to the Funds for distribution purposes. However, the Plan authorizes the management fee received by the Manager and the investment advisors hired by the Manager to be used for distribution purposes. Under this Plan, the Funds do not intend to compensate the Manager or any other party, either directly or indirectly, for the distribution of Fund shares.
Separate Distribution Plans (the “Distribution Plans”) have been adopted pursuant to Rule 12b-1 under the Act for the Advisor, A, and C Classes of the Funds. Under the Distribution Plans, as compensation for distribution assistance, the Manager receives an annual fee of 0.25% of the average daily net assets of the Advisor and A Classes, and 1.00% of the average daily net assets of the C 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 Plans
The Manager and the Trust entered into Service Plans that obligate the Manager to oversee additional shareholder servicing of the Y, Investor, Advisor, A, and C Classes of the Funds. As compensation for performing the duties required under the Service Plans, the Manager receives an annualized fee up to 0.10% of the average daily net assets of the Y Class, up to 0.25% of the average daily net assets of the A and C Classes, up to 0.25% of the average daily net assets of the Advisor Class, and up to 0.375% of the average daily net assets of the Investor Class of the Funds. Effective April 1, 2017, the Funds terminated the Service Plan for the Y Class.
Sub-Transfer Agent Fees
The Manager has entered into agreements, which include servicing agreements, with financial intermediaries that provide recordkeeping, processing, shareholder communications, and other services to customers of the intermediaries that hold positions in the Institutional Class of the Funds and has agreed to compensate the intermediaries for providing these services. Effective April 1, 2017, the Funds agreed to compensate the intermediaries for providing services to the Y Class. Intermediaries transact with the Funds primarily through the use of omnibus accounts on behalf of their customers who hold positions in the Funds. Certain services would have been provided by the Funds’ transfer agent and other service providers if the shareholders’ accounts were maintained directly by the Funds’ transfer agent. Accordingly, the Funds, pursuant to the Trust’s Board of Trustees (the “Board”) approval, have agreed to reimburse the Manager for certain non-distribution shareholder services provided by financial intermediaries for the Institutional and Y Classes. The reimbursement amounts (sub-transfer agent fees) paid to the Manager are subject to a fee limit of up to 0.10% of an intermediary’s average net assets in the Institutional and Y Classes on an annual basis. During the year ended October 31, 2017, the sub-transfer agent fees, as reflected in “Transfer agent fees” on the Statements of Operations, were as follows:
Fund | Sub-Transfer Agent Fees | |||
Balanced | $ | 49,809 | ||
Mid-Cap Value | 86,187 |
41
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
As of October 31, 2017, the Funds owed the Manager the following reimbursement of sub-transfer agent fees, as reflected in “Transfer agent fees payable” on the Statements of Assets and Liabilities:
Fund | Reimbursement Sub-Transfer Agent Fees | |||
Balanced | $ | 7,594 | ||
Mid-Cap Value | 9,732 |
Investments in Affiliated Funds
The Funds may invest in the American Beacon U.S. Government Money Market Select Fund (the “USG Select Fund”). Cash collateral received by the Funds in connection with securities lending may also be invested in the USG Select Fund. The Funds and the USG Select Fund have the same investment advisor and therefore, are considered to be affiliated. The Manager serves as investment advisor to the USG Select Fund and receives management fees and administrative fees totaling 0.10% of the average daily net assets of the USG Select Fund. During the year ended October 31, 2017, the Manager earned fees on the Funds’ direct investments and securities lending collateral investments in the USG Select Fund as shown below:
Fund | Direct Investments in USG Select Fund | Securities Lending Collateral in USG Select Fund | Total | |||||||||
Balanced | $ | 22,541 | $ | 1,857 | $ | 24,398 | ||||||
Mid-Cap Value | 31,683 | 13,794 | 45,477 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the Securities and Exchange Commission (“SEC”), the Funds, along with other registered investment companies having management contracts with the Manager, may participate in a credit facility whereby each Fund, under certain conditions, is permitted to lend money directly to and borrow directly from other participating Funds for temporary purposes. The interfund credit facility is advantageous to the Funds because it provides added liquidity, and eliminates the need to maintain higher cash balances to meet redemptions. This situation could arise when shareholder redemptions exceed anticipated volumes and certain funds have insufficient cash on hand to satisfy such redemptions or when sales of securities do not settle as expected, resulting in a cash shortfall for a fund. When a Fund liquidates portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to three days (or longer for certain foreign transactions). Redemption requests normally are satisfied on the next business day. The credit facility provides a source of immediate, short-term liquidity pending settlement of the sale of portfolio securities. The credit facility is administered by a credit facility team consisting of professionals from the Manager’s asset management, compliance, and accounting areas who report the activities of the credit facility to the Board. During the year ended October 31, 2017, the Balanced Fund borrowed on average $5,497,161 for 2 days at an average interest rate of 1.74% with interest charges of $524. This amount is included in “Other expenses” on the Statements of Operations. The Balanced Fund also participated as a lender by loaning an average amount of $1,885,061 for 16 days at an average interest rate of 1.25% with interest charges earned of $1,002. This amount is included in “Interest income” on the Statements of Operations. For the year ended October 31, 2017, the Mid-Cap Value Fund did not utilize the credit facility.
Expense Reimbursement Plan
The Manager contractually agreed to reduce fees and/or reimburse expenses for the classes of the Fund to the extent that total operating expenses exceed the Fund’s expense cap. During the year ended October 31, 2017, there were no waived fees, expenses reimbursed, or recovered expenses.
42
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
Sales Commissions
The Funds’ distributor, Foreside Fund Services, LLC (“Foreside”), may receive a portion of A Class sales charges from broker dealers and it may be used to offset distribution related expenses. During the year ended October 31, 2017, Foreside collected $23,984 and $2,147 in sales commissions for Balanced Fund and Mid-Cap Value Fund, respectively, from the sale of Class A Shares.
A CDSC of 0.50% will be deducted with respect to Class A Shares on certain purchases of $1,000,000 or more that are redeemed in whole or part within 18 months of purchase, unless waived as discussed in the Funds’ Prospectus. Any applicable CDSC will be 0.50% of the lesser of the original purchase price or the value of the redemption of the Class A Shares redeemed. During the year ended October 31, 2017, CDSC fees of $625 were collected for Class A Shares of the Mid-Cap Value Fund and no fees were collected for Class A Shares of the Balanced Fund.
A CDSC of 1.00% will be deducted with respect to Class C Shares redeemed within 12 months of purchase, unless waived as discussed in the Funds’ Prospectus. Any applicable CDSC will be 1.00% of the lesser of the original purchase price or the value of the redemption of the Class C Shares redeemed. During the year ended October 31, 2017, CDSC fees of $9,571 and $90 were collected for Class C Shares of the Balanced Fund and Mid-Cap Value Fund, respectively.
Trustee Fees and Expenses
As compensation for their service to the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust, each Trustee receives an annual retainer of $120,000, plus $5,000 for each Board meeting attended in person or via teleconference, $2,500 for attendance by Committee members at meetings of the Audit Committee and the Investment Committee, and $1,500 for attendance by Committee members at meetings of the Nominating and Governance Committee, plus reimbursement of reasonable expenses incurred in attending Board meetings, Committee meetings, and relevant educational seminars. The Trustees also may be compensated for attendance at special Board and/or Committee meetings from time to time. The Board Chairman receives an additional annual retainer of $50,000 as well as a single $5,000 fee each quarter for his attendance at the committee meetings. The Chairpersons of the Audit Committee and the Investment Committee each receive an additional annual retainer of $25,000 and the Chairman of the Nominating and Governance Committee receives an additional annual retainer of $10,000. These expenses are allocated on a prorated basis to each Fund of the Trust according to its respective net assets.
3. Security Valuation and Fair Value Measurements
Investments are valued at the close of the New York Stock Exchange (the “Exchange”), normally at 4:00 p.m. Eastern Time, each day that the Exchange is open for business. Equity securities, including exchange-traded funds (“ETFs”) for which market quotations are available are valued at the last sale price or official closing price (closing bid price or last evaluated quote if no sale has occurred) on the primary market or exchange on which they trade.
Debt securities normally are valued on the basis of prices provided by an independent pricing service and may take into account appropriate factors such as institution-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics, and other market data. Prices of debt securities may be determined using quotes obtained from brokers.
Investments in open-end mutual funds are valued at the closing NAV per share of the mutual fund on the day of valuation.
43
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
Securities for which the market prices are not readily available or are not reflective of the fair value of the security, as determined by the Manager, will be priced at fair value pursuant to procedures established by the Board.
Futures contracts are valued based upon their quoted daily settlement prices. Upon entering into a futures contract, the Funds are required to deposit with their futures broker, an amount of cash or U.S. Government and Agency Obligations in accordance with the initial margin requirements of the broker or exchange. Futures contracts are marked-to-market daily and an appropriate payable or receivable for the change in value (“variation margin”) is recorded by the Funds. Gains or losses are recognized, but not considered realized until the contracts expire or are closed. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed on the Statements of Assets and Liabilities.
Other investments, including restricted securities and those financial instruments for which the above valuation procedures are inappropriate or are deemed not to reflect fair value, are stated at fair value, as determined in good faith by the Manager’s Valuation Committee, pursuant to procedures established by the Board.
Valuation Inputs
Various inputs may be used to determine the fair value of the Funds’ investments. These inputs are summarized in three broad levels for financial statement purposes. The inputs or methodologies used to value securities are not necessarily an indication of the risk associated with investing in those securities.
Level 1 | - | Quoted prices in active markets for identical securities. | ||
Level 2 | - | Prices determined using other significant observable inputs. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk, and others. | ||
Level 3 | - | Prices determined using other significant unobservable inputs. Unobservable inputs reflect the Fund’s own assumptions about the factors market participants would use in pricing an investment. |
Level 1 and Level 2 trading assets and trading liabilities, at fair value
Common stocks, preferred securities and financial derivative instruments, such as futures contracts that are traded on a national securities exchange, are stated at the last reported sale or settlement price on the day of valuation. To the extent these securities are actively traded and valuation adjustments are not applied, they are categorized as Level 1 of the fair value hierarchy. Preferred securities and other equities traded on inactive markets or valued by reference to similar instruments are generally categorized as Level 2 of the fair value hierarchy.
Fixed-income securities including corporate, convertible and municipal bonds and notes, U.S. government agencies, U.S. Treasury obligations, sovereign issues, bank loans, convertible preferred securities, and non-U.S. bonds are normally valued by pricing service providers that use broker dealer quotations, reported trades or valuation estimates from their internal pricing models. The service providers’ internal models use inputs that are observable such as issuer details, interest rates, yield curves, prepayment speeds, credit risks/spreads, default rates, and quoted prices for similar assets. Securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy. Fixed-income securities purchased on a delayed-delivery basis are marked-to-market daily until settlement at the forward settlement date and are categorized as Level 2 of the fair value hierarchy.
Mortgage-related and asset-backed securities are usually issued as separate tranches, or classes, of securities within each deal. These securities are also normally valued by pricing service providers that use broker dealer quotations or valuation estimates from their internal pricing models. The pricing models for these securities usually consider tranche-level attributes, current market data, estimated cash flows, and market-based yield spreads for each tranche, and incorporates deal collateral performance, as available. Mortgage-related and asset-backed securities that use similar valuation techniques and inputs as described above are categorized as Level 2 of the fair value hierarchy.
44
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
Investments in registered open-end investment management companies will be valued based upon the NAVs of such investments and are categorized as Level 1 of the fair value hierarchy.
4. Securities and Other Investments
Agency Mortgage-Backed Securities
Certain mortgage-backed securities (“MBS”) may be issued or guaranteed by the U.S. government or a government sponsored entity, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage Corporation (“Freddie Mac”). Although these instruments may be guaranteed by the U.S. government or a government sponsored entity, many such MBS are not backed by the full faith and credit of the United States and are still exposed to the risk of non-payment.
American Depositary Receipts (“ADRs”) and Non-Voting Depositary Receipts (“NVDRs”)
ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. NVDRs represent financial interests in an issuer but the holder is not entitled to any voting rights. Depositary receipts may not be denominated in the same currency as the securities into which they may be converted. Investing in depositary receipts entails substantially the same risks as direct investment in foreign securities. There is generally less publicly available information about foreign companies and there may be less governmental regulation and supervision of foreign stock exchanges, brokers, and listed companies. In addition, such companies may use different accounting and financial standards (and certain currencies may become unavailable for transfer from a foreign currency), resulting in the Fund’s possible inability to convert immediately into U.S. currency proceeds realized upon the sale of portfolio securities of the affected foreign companies. In addition, the Funds may invest in unsponsored depositary receipts, the issuers of which are not obligated to disclose material information about the underlying securities to investors in the United States. Ownership of unsponsored depositary receipts may not entitle the Funds to the same benefits and rights as ownership of a sponsored depositary receipt or the underlying security.
Asset-Backed Securities (“ABS”)
ABS may include MBS, loans, receivables or other assets. The value of the Fund’s ABS may be affected by, among other things, actual or perceived changes in interest rates, factors concerning the interests in and structure of the issuer or the originator of the receivables, the market’s assessment of the quality of underlying assets or actual or perceived changes in the credit worthiness of the individual borrowers, the originator, the servicing agent or the financial institution providing the credit support.
Payment of principal and interest may be largely dependent upon the cash flows generated by the assets backing the securities.
Rising or high interest rates tend to extend the duration of ABS, making them more volatile and more sensitive to changes in interest rates. The underlying assets are sometimes subject to prepayments which can shorten the security’s weighted average life and may lower its return. Defaults on loans underlying ABS have become an increasing risk for ABS that are secured by home equity loans related to sub-prime, Alt-A or non-conforming mortgage loans, especially in a declining residential real estate market.
ABS (other than MBS) present certain risks that are not presented by MBS. Primarily, these securities may not have the benefit of any security interest in the related assets. Credit card receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts owed on the credit cards, thereby reducing the balance due. There is the possibility that recoveries on repossessed collateral may not, in some cases, be available to support payments on these securities. ABS are often backed by a pool of assets representing the obligations of a
45
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
number of different parties. To lessen the effect of failures by obligors on underlying assets to make payments, the securities may contain elements of credit support which fall into two categories: (i) liquidity protection, and (ii) protection against losses resulting from ultimate default by an obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that the receipt of payments on the underlying pool occurs in a timely fashion. Protection against losses results from payment of the insurance obligations on at least a portion of the assets in the pool. This protection may be provided through guarantees, policies or letters of credit obtained by the issuer or sponsor from third parties, through various means of structuring the transaction or through a combination of such approaches. The Fund will not pay any additional or separate fees for credit support. The degree of credit support provided for each issue is generally based on historical information respecting the level of credit risk associated with the underlying assets.
Delinquency or loss in excess of that anticipated or failure of the credit support could adversely affect the return on an investment in such a security. The availability of ABS may be affected by legislative or regulatory developments. It is possible that such developments may require the Fund to dispose of any then existing holdings of such securities.
Common Stock
Common stock generally takes the form of shares in a corporation which represent an ownership interest. It ranks below preferred stock and debt securities in claims for dividends and for assets of the company in a liquidation or bankruptcy. The value of a company’s common stock may fall as a result of factors directly relating to that company, such as decisions made by its management or decreased demand for the company’s products or services. A stock’s value may also decline because of factors affecting not just the company, but also companies in the same industry or sector. The price of a company’s stock may also be affected by changes in financial markets that are relatively unrelated to the company, such as changes in interest rates, currency exchange rates or industry regulation. Companies that elect to pay dividends on their common stock generally only do so after they invest in their own business and make required payments to bondholders and on other debt and preferred stock. Therefore, the value of a company’s common stock will usually be more volatile than its bonds, other debt and preferred stock. Common stock may be exchange-traded or over-the-counter (“OTC”). OTC stock may be less liquid than exchange-traded stock.
Fixed-Income Investments
The Funds may hold debt, including government and corporate debt, and other fixed-income securities. Typically, the values of fixed-income securities change inversely with prevailing interest rates. Therefore, a fundamental risk of fixed-income securities is interest rate risk, which is the risk that their value will generally decline as prevailing interest rates rise, which may cause the Funds’ net asset value to likewise decrease, and vice versa. How specific fixed-income securities may react to changes in interest rates will depend on the specific characteristics of each security. For example, while securities with longer maturities tend to produce higher yields, they also tend to be more sensitive to changes in prevailing interest rates and are, therefore, more volatile than shorter-term securities and are subject to greater market fluctuations as a result of changes in interest rates. Fixed-income securities are also subject to credit risk, which is the risk that the credit strength of an issuer of a fixed-income security will weaken and/or that the issuer will be unable to make timely principal and interest payments and that the security may go into default. In addition, there is prepayment risk, which is the risk that during periods of falling interest rates, certain fixed-income securities with higher interest rates, such as mortgage- and asset-backed securities, may be prepaid by their issuers thereby reducing the amount of interest payments. This may result in a Fund having to reinvest its proceeds in lower yielding securities. Securities underlying mortgage- and asset-backed securities, which may include subprime mortgages, also may be subject to a higher degree of credit risk, valuation risk, and liquidity risk.
46
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
Foreign Debt Securities
The Funds may invest in foreign fixed and floating rate income securities (including emerging market securities) all or a portion of which may be non-U.S. dollar denominated and which include: (a) debt obligations issued or guaranteed by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities, including Brady Bonds; (b) debt obligations of supranational entities; (c) debt obligations of the U.S. Government issued in non-dollar securities; (d) debt obligations and other fixed income securities of foreign corporate issuers (both dollar and non-dollar denominated); and (e) U.S. corporate issuers (both Eurodollar and non-dollar denominated). There is no minimum rating criteria for the Funds’ investments in such securities. Investing in the securities of foreign issuers involves special considerations that are not typically associated with investing in the securities of U.S. issuers. In addition, emerging markets are markets that have risks that are different and higher than those in more developed markets.
Foreign Securities
The Funds may invest in U.S. dollar-denominated and non-U.S. dollar denominated equity and debt securities of foreign issuers and foreign branches of U.S. banks, including negotiable CDs, bankers’ acceptances, and commercial paper. Foreign issuers are issuers organized and doing business principally outside the United States and include corporations, banks, non-U.S. governments, and quasi-governmental organizations. While investments in foreign securities may be intended to reduce risk by providing further diversification, such investments involve sovereign and other risks, in addition to the credit and market risks normally associated with domestic securities. These additional risks include the possibility of adverse political and economic developments (including political or social instability, nationalization, expropriation, or confiscatory taxation); the potentially adverse effects of unavailability of public information regarding issuers, different governmental supervision and regulation of financial markets, reduced liquidity of certain financial markets, and the lack of uniform accounting, auditing, and financial reporting standards or the application of standards that are different or less stringent than those applied in the United States; different laws and customs governing securities tracking; and possibly limited access to the courts to enforce the Funds’ rights as an investor.
Illiquid and Restricted Securities
The Funds may invest in securities that are subject to legal or contractual restrictions on resale. These securities may be sold privately, but are required to be registered or exempted from such registration before being sold to the public. Private placement securities are generally considered to be restricted except for those securities traded between qualified institutional investors under the provisions of Rule 144A of the Securities Act of 1933 (the “Securities Act”). Illiquid securities have included securities that have not been registered under the Securities Act, securities that are otherwise not readily marketable, and repurchase agreements having a remaining maturity of longer than seven calendar days. Disposal of both illiquid and restricted securities may involve time-consuming negotiations and expenses, and prompt sale at an acceptable price may be difficult to achieve. Restricted securities outstanding during the year ended October 31, 2017 are disclosed in the Funds’ Notes to the Schedules of Investments. The Funds did not hold any illiquid securities as of the year ended October 31, 2017.
Regulation S under the Securities Act permits the sale abroad of securities that are not registered for sale in the United States and includes a provision for U.S. investors, such as the Funds, to purchase such unregistered securities if certain conditions are met.
Mortgage-Backed Securities (“MBS”)
MBS often have stated maturities of up to thirty years when they are issued, depending upon the length of the mortgages underlying the securities. In practice however, unscheduled or early payments of principal and interest on the underlying mortgages may make the securities’ effective maturity shorter than this, and the prevailing interest rates may be higher or lower than the current yield of the Funds’ portfolio at the time resulting in reinvestment risk.
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October 31, 2017
Rising or high interest rates may result in slower than expected principal payments which may tend to extend the duration of MBS, making them more volatile and more sensitive to changes in interest rates. This is known as extension risk.
MBS may have less potential for capital appreciation than comparable fixed-income securities due to the likelihood of increased prepayments of mortgages resulting from foreclosures or declining interest rates. These foreclosed or refinanced mortgages are paid off at face value (par) or less, causing a loss, particularly for any investor who may have purchased the security at a premium or a price above par. In such an environment, this risk limits the potential price appreciation of these securities.
Mortgage-Related and Other Asset-Backed Securities
The Balanced Fund may invest in mortgage or other asset-backed securities (“ABS”). These securities may include mortgage instruments issued by U.S. government agencies (“agency mortgages”) or those issued by private entities (“non-agency mortgages”). Specific types of instruments may include mortgage pass-through securities, collateralized mortgage obligations (“CMOs”), commercial mortgage-backed securities, mortgage dollar rolls, CMO residuals, stripped mortgage-backed securities and other securities that directly or indirectly represent a participation in, or are secured by a payable from, mortgage loans on real property. The value of the Fund’s MBS may be affected by, among other things, changes or perceived changes in interest rates, factors concerning the interests in and structure of the issuer or the originator of the mortgage, or the quality of the underlying assets. The mortgages underlying the securities may default or decline in quality or value. Through its investments in MBS, a Fund has exposure to subprime loans, Alt-A loans and non-conforming loans as well as to the mortgage and credit markets generally. Underlying collateral related to subprime, Alt-A and non-conforming mortgage loans has become increasingly susceptible to defaults and declines in quality or value, especially in a declining residential real estate market. In addition, regulatory or tax changes may adversely affect the mortgage securities markets as a whole.
Municipal Securities
Municipal securities may include general obligation bonds, municipal lease obligations, resource recovery obligations, revenue obligations, anticipation notes, private activity bonds and municipal warrants. The Funds may invest in municipal securities that pay taxable or tax exempt interest. Municipal securities are subject to credit risk where a municipal issuer of a security might not make interest or principal payments on a security as they become due. Municipal securities are also subject to interest rate risk. A downgrade in the issuer’s or security’s credit rating can reduce the market value of the security. A number of municipalities may face severe financial hardship making the possibility of their defaulting on obligations, and/or declaring bankruptcy where allowable, a risk to the value of municipal securities held by the Funds.
Other Investment Company Securities and Other Exchange-Traded Products
The Funds may invest in shares of other investment companies, including open-end funds, closed-end funds, business development companies, ETFs, unit investment trusts, and other investment companies of the Trust. The Funds may invest in investment company securities advised by the Manager or a sub-advisor. Investments in the securities of other investment companies may involve duplication of advisory fees and certain other expenses. By investing in another investment company, the Funds become a shareholder of that investment company. As a result, the Funds’ shareholders indirectly will bear the Funds’ proportionate share of the fees and expenses paid by shareholders of the other investment company, in addition to the fees and expenses the Funds’ shareholders directly bear in connection with the Funds’ own operations. These other fees and expenses are reflected as Acquired Fund Fees and Expenses and are included in the Fees and Expenses Table for the Funds in their Prospectus, if applicable. Investments in other investment companies may involve the payment of substantial premiums above the value of such issuer’s portfolio securities.
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Notes to Financial Statements
October 31, 2017
Privately Issued Mortgage-Backed Securities
MBS held by a Fund may be issued by private issuers including commercial banks, savings associations, mortgage companies, investment banking firms, finance companies and special purpose finance entities (called special purpose vehicles (“SPV”)) and other entities that acquire and package mortgage loans for resale as MBS. These privately issued non-agency MBS may offer higher yields than those issued by government agencies, but also may be subject to greater price changes than governmental issues. Subprime loans refer to loans made to borrowers with weakened credit histories or with a lower capacity to make timely payments on their loans. Alt-A loans refer to loans extended to borrowers who have incomplete documentation of income, assets, or other variables that are important to the credit underwriting processes. Non-conforming mortgages are loans that do not meet the standards that allow purchase by government-sponsored enterprises. MBS with exposure to subprime loans, Alt-A loans or non-conforming loans have had in many cases higher default rates than those loans that meet government underwriting requirements. The risk of non-payment is greater for MBS that are backed by mortgage pools that contain subprime, Alt-A and non-conforming loans, but a level of risk exists for all loans.
Unlike agency MBS issued or guaranteed by the U.S. government or a government-sponsored entity (e.g., Fannie Mae and Freddie Mac), MBS issued by private issuers do not have a government or government-sponsored entity guarantee, but may have credit enhancements provided by external entities such as banks or financial institutions or achieved through the structuring of the transaction itself. Examples of such credit support arising out of the structure of the transaction include the issue of senior and subordinated securities (e.g., the issuance of securities by an SPV in multiple classes or “tranches,” with one or more classes being senior to other subordinated classes as to the payment of principal and interest, with the result that defaults on the underlying mortgage loans are borne first by the holders of the subordinated class); creation of “reserve funds” (in which case cash or investments, sometimes funded from a portion of the payments on the underlying mortgage loans, are held in reserve against future losses); and “overcollateralization” (in which case the scheduled payments on, or the principal amount of, the underlying mortgage loans exceeds that required to make payment on the securities and pay any servicing or other fees). However, there can be no guarantee that credit enhancements, if any, will be sufficient to prevent losses in the event of defaults on the underlying mortgage loans. In addition, MBS that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that are applicable to those MBS that have a government or government-sponsored entity guarantee. As a result, the mortgage loans underlying private MBS may, and frequently do, have less favorable collateral, credit risk or other underwriting characteristics than government or government-sponsored MBS and have wider variances in a number of terms including interest rate, term, size, purpose, and borrower characteristics. Privately issued pools more frequently include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying mortgage loans in a private-label MBS pool may vary to a greater extent than those included in a government guaranteed pool, and the pool may include subprime mortgage loans.
Privately issued MBS are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived weakness in the mortgage and real estate market sectors. Without an active trading market, MBS held in the Fund’s portfolio may be particularly difficult to value because of the complexities involved in assessing the value of the underlying mortgage loans.
Publicly Traded Partnerships; Master Limited Partnerships
The Funds may invest in publicly traded partnerships such as master limited partnerships (“MLPs”). MLPs issue units that are registered with the SEC and are freely tradable on a securities exchange or in the over-the-counter (“OTC”) market. An MLP may have one or more general partners, who conduct the business, and one or more limited partners, who contribute capital. An MLP also may be an entity similar to a limited partnership, such as a limited liability company, which has a manager or managing member and non-managing members (who are like limited partners). The general partner or partners are jointly and severally responsible for the liabilities of the MLP. A Fund invests as a limited partner and normally would not be liable for the debts of an MLP beyond the amount the Fund has invested therein but it would not be shielded to the same extent that a
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October 31, 2017
shareholder of a corporation would be. In certain instances, creditors of an MLP would have the right to seek a return of capital that had been distributed to a limited partner. The right of an MLP’s creditors would continue even after a Fund had sold its investment in the partnership. MLPs typically invest in real estate and oil and gas equipment leasing assets, but they also finance entertainment, research and development, and other projects.
Real Estate Investment Trusts
The Funds may own shares of real estate investment trusts (“REITs”) which report information on the source of their distributions annually. The Funds re-characterize distributions received from REIT investments based on information provided by the REITs into the following categories: ordinary income, long-term capital gains, and return of capital. If information is not available on a timely basis from the REITs, the re-characterization will be estimated based on available information, which may include the previous year allocation. If new or additional information becomes available from the REITs at a later date, a re-characterization will be made the following year.
U.S. Government Agency Securities
U.S. Government agency securities are issued or guaranteed by the U.S. Government or its agencies or instrumentalities. Some obligations issued by U.S. Government agencies and instrumentalities are supported by the full faith and credit of the U.S. Treasury; others by the right of the issuer to borrow from the U.S. Treasury; others by discretionary authority of the U.S. Government to purchase certain obligations of the agency or instrumentality; and others only by the credit of the agency or instrumentality. U.S. Government securities bear fixed, floating or variable rates of interest. While the U.S. Government currently provides financial support to certain U.S. Government-sponsored agencies or instrumentalities, no assurance can be given that it will always do so, since it is not so obligated by law. U.S. Government securities include U.S. Treasury bills, notes and bonds, Federal Home Loan Bank (“FHLB”) obligations, Federal Farm Credit Bank (“FFCB”) obligations, U.S. Government agency obligations and repurchase agreements secured thereby. U.S. Government agency securities are subject to credit risk and interest rate risk.
U.S. Treasury Obligations
U.S. Treasury obligations include bills (initial maturities of one year or less), notes (initial maturities between two and ten years), and bonds (initial maturities over ten years) issued by the U.S. Treasury, Separately Traded Registered Interest and Principal component parts of such obligations (known as “STRIPS”) and inflation-indexed securities. The prices of these securities (like all debt securities) change between issuance and maturity in response to fluctuating market interest rates. U.S. Treasury obligations are subject to credit risk and interest rate risk.
Variable or Floating Rate Obligations
The interest rates payable on certain fixed-income securities in which the Funds may invest are not fixed and may fluctuate based upon changes in market rates. A variable rate obligation has an interest rate which is adjusted at predesignated periods in response to changes in the market rate of interest on which the interest rate is based. Variable and floating rate obligations are less effective than fixed rate instruments at locking in a particular yield. Nevertheless, such obligations may fluctuate in value in response to interest rate changes if there is a delay between changes in market interest rates and the interest reset date for the obligation, or for other reasons.
5. Financial Derivative Instruments
The Funds may utilize derivative instruments to market exposure on cash balances or reduce market exposure in anticipation of liquidity needs. When considering the Funds’ use of derivatives, it is important to note that the Funds do not use derivatives for the purpose of creating financial leverage.
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October 31, 2017
Futures Contracts
Futures contracts are contracts to buy or sell a standard quantity of securities at a specified price on a future date. The Funds may enter into financial futures contracts as a method for keeping assets readily convertible to cash if needed to meet shareholder redemptions or for other needs while maintaining exposure to the stock or bond market, as applicable. The primary risks associated with the use of futures contracts are the possibility of illiquid markets or imperfect correlation between the values of the contracts and the underlying securities or that the counterparty will fail to perform its obligations.
Upon entering into a futures contract, the Funds are required to set aside or deposit with a broker an amount, termed the initial margin, which typically represents a portion of the face value of the futures contract. The Funds usually reflects this amount on the Schedules of Investments as a U.S. Treasury Bill held as collateral for futures contracts or as cash deposited with broker on the Statements of Assets and Liabilities. Payments to and from the broker, known as variation margin, are required to be made on a daily basis as the price of the futures contract fluctuates. Changes in initial settlement values are accounted for as unrealized appreciation (depreciation) until the contracts are terminated, at which time realized gains and losses are recognized. Futures contracts are valued at the most recent settlement price established each day by the exchange on which they are traded.
During the year ended October 31, 2017, the Funds entered into future contracts primarily for exposing cash to markets.
The Funds’ average futures contracts outstanding fluctuate throughout the operating year as required to meet strategic requirements. The following table illustrates the average quarterly volume of futures contracts. For purpose of this disclosure, volume is measured by contracts outstanding at each quarter end.
Average Futures Contracts Outstanding | ||||
Fund | Year Ended October 31, 2017 | |||
Balanced | 122 | |||
Mid-Cap Value | 173 |
The following is a summary of the fair valuations of the Funds’ derivative instruments categorized by risk exposure(1):
Balanced Fund
Fair values of financial instruments on the Statements of Assets and Liabilities as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||
Assets: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Receivable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | 97,679 | $ | 97,679 | ||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statements of Operations as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) of | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 3,847,111 | $ | 3,847,111 | ||||||||||||||||||||||||||||||||
Net change in unrealized | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 368,904 | $ | 368,904 |
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October 31, 2017
Mid-Cap Value Fund
Fair values of financial instruments on the Statements of Assets and Liabilities as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||
Assets: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Receivable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | 1,261,138 | $ | 1,261,138 | ||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statements of Operations as of October 31, 2017: | ||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments | ||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) of | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 3,703,362 | $ | 3,703,362 | ||||||||||||||||||||||||||||||||
Net change in unrealized | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | ||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 1,742,221 | $ | 1,742,221 |
(1) See Note 3 in the Notes to Financial Statements for additional information.
(2) Includes cumulative appreciation (depreciation) of futures contracts as reported in the Fund’s Schedule of Investments footnotes. Only current day’s variation margin is reported within the Statements of Assets and Liabilities.
6. Principal Risks
Investing in the Funds may involve certain risks including, but not limited to, those described below.
Asset-Backed and Mortgage Related Securities Risk
Investments in asset-backed and mortgage related securities are subject to market risks for fixed-income securities which include, but are not limited to, credit risk, extension risk, interest rate risk and prepayment risk. A decline in the credit quality of the issuers of asset-backed and mortgage related securities or instability in the markets for such securities may affect the value and liquidity of such securities, which could result in losses to the Funds.
Credit Risk
The Funds are subject to the risk that the issuer or guarantor of a debt security, or the counterparty to a derivatives contract or a loan, will fail to make timely payment of interest or principal or otherwise honor its obligations or default completely.
Equity Investment Risk
Equity securities are subject to market risk. The Funds’ investments in equity securities may include common stocks, preferred stocks, securities convertible into or exchangeable for common stocks, REITs, depositary receipts, and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. Such investments may expose the Funds to additional risk. The value of a company’s common stock may fall as a result of factors affecting the company, companies in the same industry or sector, or the financial markets overall. Common stock generally is subordinate to preferred stock upon the liquidation or bankruptcy of the issuing company. Preferred stocks and convertible securities are sensitive to movements in interest rates. Preferred stocks may be less liquid than
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October 31, 2017
common stocks and, unlike common stocks, participation in the growth of an issuer may be limited. Distributions on preferred stocks generally are payable at the discretion of an issuer and after required payments to bond holders. Convertible securities are subject to the risk that the credit standing of the issuer may have an effect on the convertible securities’ investment value. Investments in REITs are subject to the risks associated with investing in the real estate industry such as adverse developments affecting the real estate industry and real property values. Depositary receipts and U.S. dollar-denominated foreign stocks traded on U.S. exchanges are subject to certain of the risks associated with investing directly in foreign securities, including, but not limited to, currency fluctuations and political and financial instability in the home country of a particular depositary receipt or foreign stock.
Foreign Investing Risk
The Funds may invest in securities issued by foreign companies through ADRs and U.S. dollar-denominated foreign stocks traded on U.S. exchanges. The Funds may also invest in local currency investments. ADRs are subject to many of the risks inherent in currency fluctuations and political and financial instability in the home country of a particular ADR or foreign stock. Non-U.S. investments carry potential risks not associated with U.S. investments. Such risks include, but are not limited to: (1) currency exchange rate fluctuations, (2) political and financial instability, (3) less liquidity and greater volatility, (4) lack of uniform accounting, auditing and financial reporting standards, (5) increased price volatility, (6) less government regulation and supervision of foreign stock exchanges, brokers and listed companies, and (7) delays in transaction settlement in some foreign markets.
Futures Contracts Risk
Futures contracts are derivative instruments where one party pays a fixed price for an agreed amount of securities or other underlying assets at an agreed date. The use of such derivative instruments may expose the Funds to additional risks that they would not be subject to if they invested directly in the securities underlying those derivatives. Futures contracts may experience potentially dramatic price changes (losses) and imperfect correlation between the price of the contract and the underlying security or index, which will increase the volatility of the Funds and may involve a small investment of cash (the amount of initial and variation margin) relative to the magnitude of the risk assumed (the potential increase or decrease in the price of the futures contract).
Illiquid and Restricted Securities Risk
Securities not registered in the U.S. under the Securities Act of 1933, as amended (the “Securities Act”), including Rule 144A securities, are restricted as to their resale. Such securities may not be listed on an exchange and may have no active trading market. They may be more difficult to purchase or sell at an advantageous time or price because such securities may not be readily marketable in broad public markets. The Fund may not be able to sell a restricted security when the sub-advisor considers it desirable to do so and/or may have to sell the security at a lower price than the Fund believe is its fair market value. In addition, transaction costs may be higher for restricted securities and the Fund may receive only limited information regarding the issuer of a restricted security. The Fund may have to bear the expense of registering restricted securities for resale and the risk of substantial delays in effecting the registration.
Interest Rate Risk
The Balanced Fund is subject to the risk that the market value of fixed-income securities it holds, particularly mortgage backed and other asset backed securities, will decline due to rising interest rates. Generally, the value of investments with interest rate risk, such as fixed-income securities, will move in the opposite direction to movements in interest rates. The Federal Reserve raised the federal funds rate in December 2016, March 2017 and June 2017 and has signaled one more hike in 2017. Interest rates may rise, perhaps significantly and/or rapidly, potentially resulting in substantial losses to the Fund. The prices of fixed-income securities are also affected by their duration. Fixed-income securities with longer duration generally have greater sensitivity to changes in interest rates. An increase in interest rates can impact markets broadly as well.
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October 31, 2017
Liquidity Risk
The Funds are susceptible to the risk that certain fixed-income investments, may have limited marketability or be subject to restrictions on sale, and may be difficult or impossible to purchase or sell at favorable times or prices. The Funds could lose money if they are unable to dispose of an investment at a time that is most beneficial to the Funds. The Funds may be required to dispose of investments at unfavorable times or prices to satisfy obligations, which may result in losses or may be costly to the Funds. For example, the Funds may be forced to sell certain investments at unfavorable prices to meet redemption requests or other cash needs. Judgment plays a greater role in pricing illiquid investments than in investments with more active markets.
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects, which have resulted, and may continue to result, in fixed-income instruments experiencing unusual liquidity issues, increased price volatility and, in some cases, credit downgrades and increased likelihood of default. These events have reduced the willingness and ability of some lenders to extend credit, and have made it more difficult for some borrowers to obtain financing on attractive terms, if at all. In addition, global economies and financial markets are becoming increasingly interconnected, which increases the possibilities that conditions in one country or region might adversely impact issuers in a different country or region. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations.
In addition, political events within the U.S. and abroad may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. High public debt in the U.S. and other countries creates ongoing systemic and market risks and policymaking uncertainty. Because the impact on the markets has been widespread, it may be difficult to identify both risks and opportunities using past models of the interplay of market forces, or to predict the duration of these market conditions. Interest rates have been unusually low in recent years in the U.S. and abroad. Because there is little precedent for this situation, it is difficult to predict the impact on various markets of a significant rate increase, whether brought about by U.S. policy makers or by dislocations in world markets. In addition, there is a risk that the prices of goods and services in the U.S. and many foreign economies may decline over time, known as deflation (the opposite of inflation). Deflation may have an adverse effect on stock prices and creditworthiness and may make defaults on debt more likely.
Mortgage-Backed and Mortgage Related Securities Risk
Certain mortgage-backed and mortgage related securities may include securities backed by pools of loans made to “subprime” borrowers or borrowers with blemished credit histories; the risk of defaults is generally higher in the case of mortgage pools that include such subprime mortgages. A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed by the applicable entity only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. Additionally, circumstances could arise that would prevent the payment of interest or principal. This could result in losses to the Fund. Securities held by the Fund that are issued by government-sponsored enterprises, such as the Federal National Mortgage Association (“Fannie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”), and FHLB are not guaranteed by the U.S. Treasury, are not backed by the full faith and credit of the U.S. Government and no assurance can be given that the U.S. Government will provide financial support. U.S. Government securities and securities of government sponsored enterprises are also subject to credit risk, interest rate risk and market risk. The Fund’s investment in CMOs may offer a higher yield than U.S. government securities, but they may also be subject to greater price fluctuation and credit risk. The cash flows and yields on interest only (“IO”) and principal only (“PO”) are extremely sensitive to the rate of principal payments (including prepayments) on the underlying mortgage loans or mortgage-backed securities. A rapid rate of principal payments may adversely affect the yield to maturity of IOs. A slow rate of principal payments may adversely affect the yield to maturity of
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October 31, 2017
POs. Inverse IOs and POs, which are fixed-income securities with a floating or variable rate of interest, may exhibit substantially greater price volatility than fixed rate obligations having similar credit quality, redemption provisions and maturity.
Multiple Sub-Advisor Risk
The Manager may allocate the Fund’s assets among multiple sub-advisors, each of which is responsible for investing its allocated portion of the Fund’s assets. To a significant extent, the Fund’s performance will depend on the success of the Manager in allocating the Fund’s assets to sub-advisors and its selection and oversight of the sub-advisors.
Other Investment Companies Risk
The Funds may invest in shares of other registered investment companies, including ETFs and money market funds. To the extent that the Funds invest in shares of other registered investment companies, the Funds will indirectly bear the fees and expenses charged by the underlying funds in addition to the Funds’ direct fees and expenses and will be subject to the risks associated with investments in those funds.
Prepayment and Extension Risk
Prepayment risk is the risk that the principal amount of a bond may be repaid prior to the bond’s maturity date. Due to a decline in interest rates or excess cash flow, a debt security may be called or otherwise prepaid before maturity. If this occurs, no additional interest will be paid on the investment and the Funds may have to invest at a lower rate, may not benefit from an increase in value that may result from declining interest rates, and may lose any premium it paid to acquire the security. Variable and floating rate securities may be less sensitive to prepayment risk. Extension risk is the risk that a decrease in prepayments may, as a result of higher interest rates or other factors, result in the extension of a security’s effective maturity, heighten interest rate risk and increase the potential for a decline in price.
Redemption Risk
Due to a rise in interest rates or other market developments that may cause investors to move out of fixed income securities on a large scale, the Fund may experience periods of heavy redemptions that could cause the Fund to sell assets at inopportune times or at a loss or depressed value. Redemption risk is heightened during periods of declining or illiquid markets. Heavy redemptions could hurt the Fund’s performance.
Securities Lending Risk
To the extent the Funds lend its securities, it may be subject to the following risks; i) borrowers of the Funds’ securities typically provide collateral in the form of cash that is reinvested in securities, ii) the securities in which the collateral is invested may not perform sufficiently to cover the return collateral payments owed to borrowers, iii) delays may occur in the recovery of securities from borrowers, which could interfere with the Funds’ ability to vote proxies or to settle transactions, and iv) there is the risk of possible loss of rights in the collateral should the borrower fail financially.
U.S. Government Securities and Government-Sponsored Enterprises Risk
A security backed by the U.S. Treasury or the full faith and credit of the United States is guaranteed by the applicable entity only as to the timely payment of interest and principal when held to maturity. The market prices for such securities are not guaranteed and will fluctuate. Securities held by the Fund that are issued by government-sponsored enterprises, such as the Fannie Mae, Freddie Mac, FHLB, FFCB, and the Tennessee Valley Authority are not guaranteed by the U.S. Treasury and are not backed by the full faith and credit of the U.S.
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October 31, 2017
Government and no assurance can be given that the U.S. Government will provide financial support if these organizations do not have the funds to meet future payment obligations. U.S. Government securities and securities of government sponsored entities are also subject to credit risk, interest rate risk and market risk.
Variable and Floating Rate Securities Risk
The interest rates payable on variable and floating-rate securities are not fixed and may fluctuate based upon changes in market rates. The interest rate on a floating rate security is a variable rate which is tied to another interest rate, such as a money-market index or Treasury bill rate. Variable and floating rate securities are subject to interest rate risk and credit risk.
As short-term interest rates decline, interest payable on floating-rate securities typically decreases. Alternatively, during periods of rising interest rates, interest payable on floating-rate securities typically increases. Changes in the interest rates of floating-rate securities may lag behind changes in market rates or may have limits on the maximum rate change for a given period of time. The value of floating-rate securities may decline if their interest rates do not rise as much, or as quickly, as interest rates in general. Conversely, floating rate securities will not generally increase in value if interest rates decline.
Offsetting Assets and Liabilities
The Funds are parties to enforceable master netting agreements between brokers and counterparties which provide for the right to offset under certain circumstances. The Funds employ multiple money managers and counterparties and have elected not to offset qualifying financial and derivative instruments on the Statements of Assets and Liabilities, as such all financial and derivative instruments are presented on a gross basis. The impacts of netting arrangements that provide the right to offset are detailed below. The net amount represents the net receivable or payable that would be due from or to the counterparty in the event of default. Exposure from borrowings and other financing agreements such as repurchase agreements can only be netted across transactions governed by the same Master Agreement with the same legal entity. All amounts reported below represent the balance as of the report date, October 31, 2017.
Balanced Fund
Offsetting of Financial and Derivative Assets as of October 31, 2017: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | 97,679 | $ | - | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 97,679 | $ | - | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | (97,679 | ) | $ | - | |||||||
|
|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2017 | ||||||||||||||||||||||||||||||||||||
| Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | |||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 19,270,065 | $ | - | $ | - | $ | - | $ | 19,270,065 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 19,270,065 | $ | - | $ | - | $ | - | $ | 19,270,065 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions | $ | 19,270,065 | ||||||||||||||||||||||||||||||||||
|
|
Mid-Cap Value Fund
Offsetting of Financial and Derivative Assets as of October 31, 2017: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | 1,261,138 | $ | - | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 1,261,138 | $ | - | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | (1,261,138 | ) | $ | - | |||||||
|
|
|
|
56
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
Remaining Contractual Maturity of the Agreements As of October 31, 2017 | ||||||||||||||||||||||||||||||||||||
| Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | |||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 3,085,328 | $ | - | $ | - | $ | - | $ | 3,085,328 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 3,085,328 | $ | - | $ | - | $ | - | $ | 3,085,328 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions and sale buy-back transactions | $ | 3,085,328 | ||||||||||||||||||||||||||||||||||
|
|
7. Federal Income and Excise Taxes
It is the policy of each Fund to qualify as a regulated investment company (“RIC”), by complying with all applicable provisions of Subchapter M of the Internal Revenue Code, as amended, and to make distributions of taxable income sufficient to relieve it from substantially all federal income and excise taxes. For federal income tax purposes, each Fund is treated as a single entity for the purpose of determining such qualification.
The Funds do not have any unrecorded tax liabilities in the accompanying financial statements. Each of the tax years in the four year period ended October 31, 2017 remain subject to examination by the Internal Revenue Service. If applicable, the Funds recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in “Other expenses” on the Statements of Operations.
The Funds may be subject to taxes imposed by countries in which it invests. Such taxes are generally based on returns of income earned or gains realized or repatriated. Taxes are accrued and applied to net investment income, net realized capital gains and net unrealized appreciation (depreciation), as applicable, as the income is earned or capital gains are recorded.
Dividends are categorized in accordance with income tax regulations which may treat certain transactions differently than U.S. GAAP. Accordingly, the character of distributions and composition of net assets for tax purposes may differ from those reflected in the accompanying financial statements. The Balanced Fund utilized earnings and profits distributed to shareholders from redemption of shares as part of the dividends paid deduction.
The tax character of distributions paid were as follows:
Balanced Fund | Mid-Cap Value Fund | |||||||||||||||||||||||||||
Year Ended October 31, 2017 | Year Ended October 31, 2016 | Year Ended October 31, 2017 | Year Ended October 31, 2016 | |||||||||||||||||||||||||
Distributions paid from: | ||||||||||||||||||||||||||||
Ordinary income* | ||||||||||||||||||||||||||||
Institutional ClassA | $ | 3,922,895 | $ | 8,264,594 | $ | 3,184,300 | $ | 5,546,242 | ||||||||||||||||||||
Y Class | 1,320,074 | 405,490 | 1,054,082 | 1,490,422 | ||||||||||||||||||||||||
Investors Class | 2,791,629 | 1,969,152 | 3,122,003 | 5,830,974 | ||||||||||||||||||||||||
Advisor Class | 196,602 | 133,099 | 63,730 | 110,271 | ||||||||||||||||||||||||
A Class | 506,915 | 377,279 | 224,784 | 278,524 | ||||||||||||||||||||||||
C Class | 535,923 | 334,834 | 30,824 | 76,687 | ||||||||||||||||||||||||
Long-term capital gains | ||||||||||||||||||||||||||||
Institutional ClassA | - | 21,375,622 | - | 9,918,865 | ||||||||||||||||||||||||
Y Class | - | 1,575,829 | - | 2,719,017 | ||||||||||||||||||||||||
Investors Class | - | 7,756,202 | - | 11,678,403 | ||||||||||||||||||||||||
Advisor Class | - | 605,990 | - | 276,050 | ||||||||||||||||||||||||
A Class | - | 1,370,814 | - | 639,255 | ||||||||||||||||||||||||
C Class | - | 2,334,178 | - | 257,621 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total distributions paid | $ | 9,274,038 | $ | 46,503,083 | $ | 7,679,723 | $ | 38,822,331 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
*For tax purposes, short-term gains are considered ordinary income distributions.
A Includes AMR Class distribution due to merger with the Institutional Class on May 31, 2016.
57
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
As of October 31, 2017 the components of distributable earnings (deficits) on a tax basis were as follows:
Fund | Tax Cost | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Balanced | $ | 300,628,066 | $ | 62,838,788 | $ | (8,776,868 | ) | $ | 54,061,920 | |||||||||||||||||||
Mid-Cap Value | 577,831,603 | 132,835,661 | (26,948,847 | ) | 105,886,814 |
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other (Losses) | Other Temporary Differences | Distributable Earnings | ||||||||||||||||||||||||||||||||||||||
Balanced | $ | 54,061,920 | $ | 10,713,137 | $ | 11,286,059 | $ | - | $ | 1 | $ | 76,061,117 | ||||||||||||||||||||||||||||||||
Mid-Cap Value | 105,886,814 | 3,849,149 | 17,340,533 | - | - | 127,076,496 |
Financial reporting records are adjusted for permanent book/tax differences to reflect tax character. Financial records are not adjusted for temporary differences. The temporary differences between financial reporting and tax-basis reporting of unrealized appreciation (depreciation) are attributable primarily to the tax deferral of losses from wash sales, the realization for tax purposes of unrealized gains (losses) on certain derivative instruments, reclassifications of income from real estate investment securities and publicly traded partnerships, and book amortization of premiums.
Shareholders of the Balanced Fund elected to receive securities rather than cash for their redemption proceeds. The Fund realized gains of $27,820,441 as a result of the in kind distribution, as disclosed on the Statements of Operations for the year ended October 31, 2017. These gains were not recognized for federal income tax purposes.
Due to inherent differences in the recognition of income, expenses, and realized gains (losses) under U.S. GAAP and federal income tax regulations, permanent differences between book and tax reporting have been identified and appropriately reclassified on the Statements of Assets and Liabilities.
Accordingly, the following amounts represent current year permanent differences derived from book amortization of premium, foreign currency reclasses, paydown reclasses, Section 732 basis adjustments, reclassifications of income from real estate investment securities, publicly traded partnerships, reclassifications of dividends, utilization of earnings and profits distributed to shareholders from redemption of shares, and net realized gains from redemption in kind as of October 31, 2017:
Fund | Paid-In-Capital | Undistributed (Overdistribution of) Net Investment Income | Accumulated Net Realized Gain (Loss) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||||
Balanced | $ | 33,333,840 | $ | 285,525 | $ | (33,619,365 | ) | $ | - | |||||||||||||||||||
Mid-Cap Value | (28 | ) | (680,901 | ) | 680,929 | - |
Under the Regulated Investment Company Modernization Act of 2010 (“RIC MOD”), net capital losses recognized by the Funds in taxable years beginning after December 22, 2010 are carried forward indefinitely and retain their character as short-term and/or long-term losses.
As of October 31, 2017, the Funds did not any have capital loss carryforwards.
58
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
8. Investment Transactions
The aggregate cost of purchases and proceeds from sales and maturities of investments, other than short-term obligations, for the year ended October 31, 2017 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Purchases of U.S. Government Securities | Sales (non-U.S. Government Securities) | Sales of U.S. Government Securities | ||||||||||||||||||||||||
Balanced | $ | 120,975,229 | $ | 23,072,873 | $ | 148,343,289 | $ | 21,408,125 | ||||||||||||||||||||
Mid-Cap Value | 166,706,144 | - | 162,380,314 | - |
A summary of the Funds’ transactions in the USG Select Fund for the year ended October 31, 2017 are as follows:
Fund | Type of Transaction | October 31, 2016 Shares/Fair Value | Purchases | Sales | October 31, 2017 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
Balanced | Direct | $ | 32,057,781 | $ | 186,700,032 | $ | 210,894,560 | $ | 7,863,253 | $ | 120,975 | |||||||||||||||||||||||||||||||
Balanced | Securities Lending | - | 45,703,175 | 42,617,847 | 3,085,328 | N/A | ||||||||||||||||||||||||||||||||||||
Mid-Cap Value | Direct | 25,957,274 | 232,854,373 | 226,259,176 | 32,552,471 | 219,449 | ||||||||||||||||||||||||||||||||||||
Mid-Cap Value | Securities Lending | 4,103,281 | 219,794,705 | 204,627,921 | 19,270,065 | N/A |
9. Securities Lending
The Funds may lend its securities to qualified financial institutions, such as certain broker-dealers, to earn additional income. The borrowers are required to secure their loans continuously with collateral in an amount at least equal to the fair value of the securities loaned, initially in an amount at least equal to 102% of the fair value of domestic securities loaned and 105% of the fair value of international securities loaned. Collateral is monitored and marked to market daily. Daily mark to market amounts are required to be paid to the borrower or received from the borrower by the end of the following business day. This one day settlement for mark-to-market amounts may result in the collateral being temporarily less than the value of the securities on loan or temporarily more than the required minimum collateral.
To the extent that a loan is collateralized by cash, such cash collateral shall be invested by the securities lending agent (the “Agent”) in money market mutual funds and other short-term investments, provided the investments meet certain quality and diversification requirements. Securities purchased with cash collateral proceeds are listed in the Funds’ Schedule of Investments and the collateral is shown on the Statement of Assets and Liabilities as a payable.
Securities lending income is generated from the demand premium (if any) paid by the borrower to borrow a specific security and from the return on investment of cash collateral, reduced by negotiated rebate fees paid to the borrower and transaction costs. To the extent that a loan is secured by non-cash collateral, securities lending income is generated as a demand premium reduced by transaction costs. The Funds, the Agent, and the Manager retained 80%, 10%, and 10%, respectively, of the income generated from securities lending.
While securities are on loan, the Funds continue to receive certain income associated with that security and any gain or loss in the market price that may occur during the term of the loan. In the case of domestic equities, the value of any dividend is received in the form of a substitute payment approximately equal to the dividend. In the case of foreign securities, a negotiated amount is received that is less than the actual dividend, but higher than the dividend amount minus the foreign tax that the Funds would be subject to on the dividend.
Securities lending transactions pose certain risks to the Funds, including that the borrower may not provide additional collateral when required or return the securities when due, that the value of the short-term investments will be less than the amount of cash collateral required to be returned to the borrower, that non-cash collateral
59
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
may be subject to legal constraints in the event of a borrower bankruptcy, and that the cash collateral investments could become illiquid and unable to be used to return collateral to the borrower. The Funds could also experience delays and costs in gaining access to the collateral. The Funds bear the risk of any deficiency in the amount of the cash collateral available for return to the borrower and any action which impairs its ability to liquidate non-cash collateral to satisfy a borrower default.
As of October 31, 2017, the value of outstanding securities on loan and the value of collateral were as follows:
Fund | Market Value of Securities on Loan | Cash Collateral Received | Non-Cash Collateral Received | Total Collateral Received | ||||||||||||||||||||||||
Balanced | $ | 3,023,104 | $ | 3,085,328 | $ | - | $ | 3,085,328 | ||||||||||||||||||||
Mid-Cap Value | 18,807,570 | 19,270,065 | - | 19,270,065 |
Cash collateral is listed on the Funds’ Schedules of Investments and is shown on the Statements of Assets and Liabilities. Income earned on these investments is included in “Income derived from securities lending” on the Statements of Operations.
Non-cash collateral received by the Funds may not be sold or re-pledged except to satisfy a borrower default. Therefore, non-cash collateral is not included on the Funds’ Schedules of Investments or Statements of Assets and Liabilities.
10. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Funds:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016A | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,092,787 | $ | 18,080,161 | 27,615,173 | $ | 413,275,370 | ||||||||||||||||||||||
Reinvestment of dividends | 238,615 | 3,910,236 | 2,110,281 | 29,609,682 | ||||||||||||||||||||||||
Shares redeemed | (28,034,177 | ) | (458,858,477 | ) | (26,882,903 | ) | (378,720,594 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (26,702,775 | ) | $ | (436,868,080 | ) | 2,842,551 | $ | 64,164,458 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 3,930,687 | $ | 64,515,384 | 1,011,636 | $ | 15,071,547 | ||||||||||||||||||||||
Reinvestment of dividends | 65,834 | 1,098,461 | 126,508 | 1,861,848 | ||||||||||||||||||||||||
Shares redeemed | (2,147,617 | ) | (35,745,768 | ) | (1,725,794 | ) | (25,396,659 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 1,848,904 | $ | 29,868,077 | (587,650 | ) | $ | (8,463,264 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,891,239 | $ | 27,893,209 | 1,350,859 | $ | 18,123,424 | ||||||||||||||||||||||
Reinvestment of dividends | 183,821 | 2,729,041 | 720,937 | 9,524,234 | ||||||||||||||||||||||||
Shares redeemed | (3,351,461 | ) | (49,631,206 | ) | (3,685,502 | ) | (49,146,541 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,276,401 | ) | $ | (19,008,956 | ) | (1,613,706 | ) | $ | (21,498,883 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 105,859 | $ | 1,651,482 | 133,774 | $ | 1,850,033 | ||||||||||||||||||||||
Reinvestment of dividends | 12,537 | 196,603 | 53,093 | 739,089 | ||||||||||||||||||||||||
Shares redeemed | (183,384 | ) | (2,863,636 | ) | (352,921 | ) | (4,929,490 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (64,988 | ) | $ | (1,015,551 | ) | (166,054 | ) | $ | (2,340,368 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
60
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 410,539 | $ | 6,059,817 | 482,815 | $ | 6,411,237 | ||||||||||||||||||||||
Reinvestment of dividends | 31,357 | 464,996 | 125,899 | 1,660,888 | ||||||||||||||||||||||||
Shares redeemed | (843,857 | ) | (12,512,241 | ) | (826,982 | ) | (11,295,620 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (401,961 | ) | $ | (5,987,428 | ) | (218,268 | ) | $ | (3,223,495 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 511,750 | $ | 7,628,600 | 513,284 | $ | 6,943,323 | ||||||||||||||||||||||
Reinvestment of dividends | 33,550 | 501,998 | 186,044 | 2,476,409 | ||||||||||||||||||||||||
Shares redeemed | (776,384 | ) | (11,594,157 | ) | (909,921 | ) | (12,252,401 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (231,084 | ) | $ | (3,463,559 | ) | (210,593 | ) | $ | (2,832,669 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 5,954,710 | $ | 95,148,198 | 4,825,944 | $ | 64,259,175 | ||||||||||||||||||||||
Reinvestment of dividends | 200,907 | 3,102,004 | 1,149,977 | 15,064,696 | ||||||||||||||||||||||||
Shares redeemed | (4,676,013 | ) | (74,643,061 | ) | (9,719,197 | ) | (132,906,070 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 1,479,604 | $ | 23,607,141 | (3,743,276 | ) | $ | (53,582,199 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,882,597 | $ | 30,182,084 | 1,694,856 | $ | 21,909,728 | ||||||||||||||||||||||
Reinvestment of dividends | 68,733 | 1,052,987 | 323,352 | 4,203,575 | ||||||||||||||||||||||||
Shares redeemed | (1,053,861 | ) | (16,770,607 | ) | (1,882,894 | ) | (24,911,078 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 897,469 | $ | 14,464,464 | 135,314 | $ | 1,202,225 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 2,951,825 | $ | 47,658,072 | 3,990,292 | $ | 53,655,559 | ||||||||||||||||||||||
Reinvestment of dividends | 199,673 | 3,114,890 | 1,320,670 | 17,472,464 | ||||||||||||||||||||||||
Shares redeemed | (4,583,694 | ) | (73,830,629 | ) | (8,788,846 | ) | (117,484,842 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,432,196 | ) | $ | (23,057,667 | ) | (3,477,884 | ) | $ | (46,356,819 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 81,445 | $ | 1,272,473 | 152,769 | $ | 1,990,312 | ||||||||||||||||||||||
Reinvestment of dividends | 4,212 | 63,730 | 30,087 | 386,321 | ||||||||||||||||||||||||
Shares redeemed | (350,490 | ) | (5,453,538 | ) | (167,622 | ) | (2,196,069 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (264,833 | ) | $ | (4,117,335 | ) | 15,234 | $ | 180,564 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 318,235 | $ | 4,979,042 | 798,185 | $ | 9,613,064 | ||||||||||||||||||||||
Reinvestment of dividends | 14,503 | 219,286 | 69,638 | 893,451 | ||||||||||||||||||||||||
Shares redeemed | (676,186 | ) | (10,691,000 | ) | (595,507 | ) | (7,792,695 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (343,448 | ) | $ | (5,492,672 | ) | 272,316 | $ | 2,713,820 | ||||||||||||||||||||
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|
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|
|
61
American Beacon FundsSM
Notes to Financial Statements
October 31, 2017
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 60,211 | $ | 917,397 | 78,375 | $ | 1,022,759 | ||||||||||||||||||||||
Reinvestment of dividends | 2,030 | 29,866 | 26,027 | 325,334 | ||||||||||||||||||||||||
Shares redeemed | (116,353 | ) | (1,771,416 | ) | (99,482 | ) | (1,268,556 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (54,112 | ) | $ | (824,153 | ) | 4,920 | $ | 79,537 | ||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||
AMR Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2017 | 2016B | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | - | $ | - | 936 | $ | 13,774 | ||||||||||||||||||||||
Shares redeemed | - | - | (85,963 | ) | (1,270,532 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | - | $ | - | (85,027 | ) | $ | (1,256,758 | ) | ||||||||||||||||||||
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|
|
A Includes AMR Class transactions prior to merger with the Institutional Class on May 31,2016.
B The AMR Class closed on December 11, 2015.
11. Subsequent Events
Management has evaluated subsequent events for possible recognition or disclosure in the financial statements through the date the financial statements are issued. Management has determined that there are no material events that would require disclosure in the Fund’s financial statements through this date.
62
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.26 | $ | 15.79 | $ | 16.79 | $ | 16.31 | $ | 14.27 | ||||||||||||||||||||||||||
|
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|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.36 | 0.27 | 0.32 | 0.38 | 0.30 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 2.04 | 0.20 | (0.32 | ) | 1.35 | 2.35 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 2.40 | 0.47 | - | 1.73 | 2.65 | |||||||||||||||||||||||||||||||
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|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.36 | ) | (0.25 | ) | (0.22 | ) | (0.42 | ) | (0.30 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | (0.31 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.36 | ) | (1.00 | ) | (1.00 | ) | (1.25 | ) | (0.61 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 17.30 | $ | 15.26 | $ | 15.79 | $ | 16.79 | $ | 16.31 | ||||||||||||||||||||||||||
|
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 15.82 | % | 3.30 | % | (0.07 | )% | 11.15 | % | 19.04 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 88,015,702 | $ | 485,231,068 | $ | 99,173,943 | $ | 74,422,347 | $ | 60,916,035 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.59 | % | 0.62 | % | 0.58 | % | 0.58 | % | 0.60 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.59 | % | 0.62 | % | 0.58 | % | 0.58 | % | 0.60 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.80 | % | 1.90 | % | 1.83 | % | 2.24 | % | 1.86 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.80 | % | 1.90 | % | 1.83 | % | 2.24 | % | 1.86 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 16 | % | 62 | % | 34 | % | 56 | % | ||||||||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.30 | $ | 15.84 | $ | 16.83 | $ | 16.37 | $ | 14.32 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.24 | 0.30 | 0.30 | 0.40 | 0.39 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 2.20 | 0.13 | (0.30 | ) | 1.31 | 2.26 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 2.44 | 0.43 | - | 1.71 | 2.65 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.35 | ) | (0.22 | ) | (0.21 | ) | (0.42 | ) | (0.29 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | (0.31 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.35 | ) | (0.97 | ) | (0.99 | ) | (1.25 | ) | (0.60 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 17.39 | $ | 15.30 | $ | 15.84 | $ | 16.83 | $ | 16.37 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 16.05 | % | 3.06 | % | (0.07 | )% | 10.98 | % | 18.97 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 64,926,394 | $ | 28,843,268 | $ | 39,151,318 | $ | 36,113,608 | $ | 7,262,894 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.68 | % | 0.72 | % | 0.66 | % | 0.67 | % | 0.68 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.68 | % | 0.72 | % | 0.66 | % | 0.68 | % | 0.70 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.67 | % | 1.95 | % | 1.75 | % | 2.01 | % | 1.71 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.67 | % | 1.95 | % | 1.75 | % | 2.01 | % | 1.69 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 16 | % | 62 | % | 34 | % | 56 | % |
A | On May 31, 2016, the AMR Class closed and the assets were merged into the Institutional Class. |
B | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
63
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.71 | $ | 14.30 | $ | 15.31 | $ | 14.98 | $ | 13.16 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.15 | 0.18 | 0.22 | 0.42 | 0.26 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 1.96 | 0.18 | (0.26 | ) | 1.11 | 2.13 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 2.11 | 0.36 | (0.04 | ) | 1.53 | 2.39 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.31 | ) | (0.20 | ) | (0.19 | ) | (0.37 | ) | (0.26 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | (0.31 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.31 | ) | (0.95 | ) | (0.97 | ) | (1.20 | ) | (0.57 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.51 | $ | 13.71 | $ | 14.30 | $ | 15.31 | $ | 14.98 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 15.52 | % | 2.85 | % | (0.35 | )% | 10.75 | % | 18.65 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 124,143,894 | $ | 127,235,433 | $ | 155,757,561 | $ | 165,808,020 | $ | 109,336,889 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.89 | % | 0.95 | % | 0.91 | % | 0.92 | % | 0.92 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.89 | % | 0.95 | % | 0.91 | % | 0.92 | % | 0.92 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.48 | % | 1.72 | % | 1.51 | % | 1.84 | % | 1.62 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.48 | % | 1.72 | % | 1.51 | % | 1.84 | % | 1.62 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 16 | % | 62 | % | 34 | % | 56 | % | ||||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.46 | $ | 15.02 | $ | 16.04 | $ | 15.65 | $ | 13.73 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income (loss) | 0.21 | 0.24 | 0.22 | 0.18 | (0.12 | ) | ||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 1.99 | 0.12 | (0.29 | ) | 1.39 | 2.60 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 2.20 | 0.36 | (0.07 | ) | 1.57 | 2.48 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.28 | ) | (0.17 | ) | (0.17 | ) | (0.35 | ) | (0.25 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | (0.31 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.28 | ) | (0.92 | ) | (0.95 | ) | (1.18 | ) | (0.56 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.38 | $ | 14.46 | $ | 15.02 | $ | 16.04 | $ | 15.65 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 15.31 | % | 2.71 | % | (0.58 | )% | 10.58 | % | 18.52 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 10,944,675 | $ | 10,603,004 | $ | 13,510,138 | $ | 14,705,747 | $ | 6,352,890 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.08 | % | 1.12 | % | 1.06 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.08 | % | 1.12 | % | 1.06 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.29 | % | 1.55 | % | 1.35 | % | 1.75 | % | 1.32 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.29 | % | 1.55 | % | 1.35 | % | 1.75 | % | 1.32 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 16 | % | 62 | % | 34 | % | 56 | % |
A | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
64
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.69 | $ | 14.27 | $ | 15.29 | $ | 14.97 | $ | 13.16 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.16 | 0.21 | 0.23 | 0.33 | 0.22 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 1.93 | 0.15 | (0.29 | ) | 1.18 | 2.14 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 2.09 | 0.36 | (0.06 | ) | 1.51 | 2.36 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.30 | ) | (0.19 | ) | (0.18 | ) | (0.36 | ) | (0.24 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | (0.31 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.30 | ) | (0.94 | ) | (0.96 | ) | (1.19 | ) | (0.55 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.48 | $ | 13.69 | $ | 14.27 | $ | 15.29 | $ | 14.97 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 15.36 | % | 2.84 | % | (0.48 | )% | 10.67 | % | 18.45 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 21,934,880 | $ | 24,892,096 | $ | 29,074,120 | $ | 25,578,944 | $ | 6,284,539 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.99 | % | 1.02 | % | 0.97 | % | 1.02 | % | 1.10 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.99 | % | 1.02 | % | 0.97 | % | 1.04 | % | 1.10 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.39 | % | 1.64 | % | 1.44 | % | 1.68 | % | 1.31 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.39 | % | 1.64 | % | 1.44 | % | 1.67 | % | 1.30 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 16 | % | 62 | % | 34 | % | 56 | % | ||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015 | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.83 | $ | 14.43 | $ | 15.47 | $ | 15.13 | $ | 13.33 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.08 | 0.12 | 0.14 | 0.21 | 0.17 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 1.92 | 0.13 | (0.29 | ) | 1.20 | 2.11 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 2.00 | 0.25 | (0.15 | ) | 1.41 | 2.28 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.19 | ) | (0.10 | ) | (0.11 | ) | (0.24 | ) | (0.17 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | (0.31 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.19 | ) | (0.85 | ) | (0.89 | ) | (1.07 | ) | (0.48 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.64 | $ | 13.83 | $ | 14.43 | $ | 15.47 | $ | 15.13 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 14.50 | % | 2.03 | % | (1.14 | )% | 9.80 | % | 17.50 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 42,575,983 | $ | 40,827,570 | $ | 45,641,648 | $ | 32,045,404 | $ | 11,573,900 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.73 | % | 1.77 | % | 1.72 | % | 1.78 | % | 1.84 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.73 | % | 1.77 | % | 1.72 | % | 1.79 | % | 1.85 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.63 | % | 0.89 | % | 0.69 | % | 0.94 | % | 0.51 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.63 | % | 0.89 | % | 0.69 | % | 0.93 | % | 0.50 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 32 | % | 16 | % | 62 | % | 34 | % | 56 | % |
A | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
65
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015A | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.03 | $ | 14.62 | $ | 14.76 | $ | 14.33 | $ | 10.95 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.16 | 0.26 | 0.16 | 0.12 | 0.13 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 3.28 | 0.03 | 0.25 | 1.27 | 3.93 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 3.44 | 0.29 | 0.41 | 1.39 | 4.06 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.22 | ) | (0.17 | ) | (0.10 | ) | (0.11 | ) | (0.20 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | (0.48 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.22 | ) | (0.88 | ) | (0.55 | ) | (0.96 | ) | (0.68 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0.00 | B | 0.00 | B | 0.00 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 17.25 | $ | 14.03 | $ | 14.62 | $ | 14.76 | $ | 14.33 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.71 | % | 2.39 | % | 2.73 | % | 10.20 | % | 39.18 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 265,934,589 | $ | 195,472,135 | $ | 258,503,278 | $ | 193,634,639 | $ | 72,206,907 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.89 | % | 0.89 | % | 0.85 | % | 0.89 | % | 0.99 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.89 | % | 0.89 | % | 0.85 | % | 0.93 | % | 0.98 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.06 | % | 1.65 | % | 1.10 | % | 0.92 | % | 1.05 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.06 | % | 1.65 | % | 1.10 | % | 0.88 | % | 1.06 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 27 | % | 79 | % | 24 | % | 48 | % | ||||||||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015A | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.92 | $ | 14.52 | $ | 14.66 | $ | 14.25 | $ | 10.92 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.15 | 0.23 | 0.15 | 0.18 | 0.17 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 3.25 | 0.05 | 0.26 | 1.19 | 3.86 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 3.40 | 0.28 | 0.41 | 1.37 | 4.03 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.21 | ) | (0.17 | ) | (0.10 | ) | (0.11 | ) | (0.22 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | (0.48 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.21 | ) | (0.88 | ) | (0.55 | ) | (0.96 | ) | (0.70 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0.00 | B | 0.00 | B | 0.00 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 17.11 | $ | 13.92 | $ | 14.52 | $ | 14.66 | $ | 14.25 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.60 | % | 2.29 | % | 2.76 | % | 10.15 | % | 38.99 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 100,190,167 | $ | 68,994,531 | $ | 70,009,288 | $ | 31,074,584 | $ | 2,813,712 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.97 | % | 0.96 | % | 0.94 | % | 0.98 | % | 1.11 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.97 | % | 0.96 | % | 0.94 | % | 0.98 | % | 1.08 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.98 | % | 1.59 | % | 1.02 | % | 0.80 | % | 0.79 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.98 | % | 1.59 | % | 1.02 | % | 0.80 | % | 0.82 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 27 | % | 79 | % | 24 | % | 48 | % |
A | WEDGE Capital Management was added as an investment manager to the Mid-Cap Value Fund on May 11, 2015. |
B | Amount represents less than $0.01 per share. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
66
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015A | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 14.14 | $ | 14.73 | $ | 14.89 | $ | 14.47 | $ | 10.98 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.14 | 0.21 | 0.13 | 0.16 | 0.23 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 3.31 | 0.05 | 0.25 | 1.21 | 3.83 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 3.45 | 0.26 | 0.38 | 1.37 | 4.06 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.19 | ) | (0.14 | ) | (0.09 | ) | (0.10 | ) | (0.09 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | (0.48 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.19 | ) | (0.85 | ) | (0.54 | ) | (0.95 | ) | (0.57 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0.00 | B | 0.00 | B | 0.00 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 17.40 | $ | 14.14 | $ | 14.73 | $ | 14.89 | $ | 14.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.52 | % | 2.12 | % | 2.52 | % | 9.99 | % | 38.69 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 274,552,551 | $ | 243,421,035 | $ | 304,799,582 | $ | 246,404,670 | $ | 17,871,568 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.09 | % | 1.12 | % | 1.09 | % | 1.13 | % | 1.25 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.09 | % | 1.12 | % | 1.09 | % | 1.14 | % | 1.23 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.86 | % | 1.44 | % | 0.87 | % | 0.61 | % | 0.68 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.86 | % | 1.44 | % | 0.87 | % | 0.60 | % | 0.70 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 27 | % | 79 | % | 24 | % | 48 | % | ||||||||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015A | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.69 | $ | 14.27 | $ | 14.46 | $ | 14.07 | $ | 10.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.10 | 0.16 | 0.08 | 0.11 | 0.11 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 3.18 | 0.05 | 0.25 | 1.17 | 3.83 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 3.28 | 0.21 | 0.33 | 1.28 | 3.94 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.14 | ) | (0.08 | ) | (0.07 | ) | (0.04 | ) | (0.20 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | (0.48 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.14 | ) | (0.79 | ) | (0.52 | ) | (0.89 | ) | (0.68 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0.00 | B | 0.00 | B | 0.00 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.83 | $ | 13.69 | $ | 14.27 | $ | 14.46 | $ | 14.07 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.10 | % | 1.82 | % | 2.25 | % | 9.58 | % | 38.43 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 3,682,231 | $ | 6,622,356 | $ | 6,684,131 | $ | 7,149,083 | $ | 727,587 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.55 | % | 1.40 | % | 1.37 | % | 1.40 | % | 1.61 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.55 | % | 1.40 | % | 1.37 | % | 1.46 | % | 1.49 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.67 | % | 1.16 | % | 0.58 | % | 0.35 | % | 0.46 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.67 | % | 1.16 | % | 0.58 | % | 0.30 | % | 0.58 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 27 | % | 79 | % | 24 | % | 48 | % |
A | WEDGE Capital Management was added as an investment manager to the Mid-Cap Value Fund on May 11, 2015. |
B | Amount represents less than $0.01 per share. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
67
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015A | 2014 | 2013 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.70 | $ | 14.28 | $ | 14.43 | $ | 14.09 | $ | 10.82 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.13 | 0.18 | 0.11 | 0.13 | 0.14 | |||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 3.18 | 0.05 | 0.25 | 1.16 | 3.80 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income from investment operations | 3.31 | 0.23 | 0.36 | 1.29 | 3.94 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.17 | ) | (0.10 | ) | (0.06 | ) | (0.10 | ) | (0.19 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | (0.48 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.17 | ) | (0.81 | ) | (0.51 | ) | (0.95 | ) | (0.67 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0.00 | B | 0.00 | B | 0.00 | B | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.84 | $ | 13.70 | $ | 14.28 | $ | 14.43 | $ | 14.09 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 24.26 | % | 1.98 | % | 2.35 | % | 9.68 | % | 38.39 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 18,170,218 | $ | 19,486,655 | $ | 16,422,504 | $ | 18,345,497 | $ | 1,666,696 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.27 | % | 1.26 | % | 1.25 | % | 1.33 | % | 1.48 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.27 | % | 1.26 | % | 1.25 | % | 1.33 | % | 1.49 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.69 | 1.30 | % | 0.71 | % | 0.42 | % | 0.44 | % | |||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.69 | 1.30 | % | 0.71 | % | 0.42 | % | 0.43 | % | |||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 27 | % | 79 | % | 24 | % | 48 | % | ||||||||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2017 | 2016 | 2015A | 2014 | 2013 | ||||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 13.26 | $ | 13.87 | $ | 14.08 | $ | 13.81 | $ | 10.70 | ||||||||||||||||||||||||||
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Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income (loss) | (0.03 | ) | 0.07 | 0.01 | 0.08 | 0.11 | ||||||||||||||||||||||||||||||
Net gains on investments (both realized and unrealized) | 3.11 | 0.06 | 0.23 | 1.09 | 3.67 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total income from investment operations | 3.08 | 0.13 | 0.24 | 1.17 | 3.78 | |||||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.07 | ) | (0.03 | ) | - | (0.05 | ) | (0.19 | ) | |||||||||||||||||||||||||||
Distributions from net realized gains | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | (0.48 | ) | |||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.07 | ) | (0.74 | ) | (0.45 | ) | (0.90 | ) | (0.67 | ) | ||||||||||||||||||||||||||
|
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|
|
|
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|
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| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | 0.00 | B | 0.00 | B | 0.00 | B | ||||||||||||||||||||||||||||
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|
|
|
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|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.27 | $ | 13.26 | $ | 13.87 | $ | 14.08 | $ | 13.81 | ||||||||||||||||||||||||||
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|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | 23.27 | % | 1.19 | % | 1.57 | % | 8.88 | % | 37.32 | % | ||||||||||||||||||||||||||
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|
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|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 6,520,983 | $ | 6,030,130 | $ | 6,238,827 | $ | 5,104,394 | $ | 904,692 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 2.04 | % | 2.04 | % | 2.01 | % | 2.12 | % | 2.25 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 2.04 | % | 2.04 | % | 2.01 | % | 2.13 | % | 2.24 | % | ||||||||||||||||||||||||||
Net investment income (loss), before expense reimbursements | (0.09 | )% | 0.53 | % | (0.05 | )% | (0.33 | )% | (0.27 | )% | ||||||||||||||||||||||||||
Net investment income (loss), net of reimbursements | (0.09 | )% | 0.53 | % | (0.05 | )% | (0.34 | )% | (0.26 | )% | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 27 | % | 79 | % | 24 | % | 48 | % |
A | WEDGE Capital Management was added as an investment manager to the Mid-Cap Value Fund on May 11, 2015. |
B | Amount represents less than $0.01 per share. |
C | Based on net asset value, which does not reflect the sales charge, redemption fee, or contingent deferred sales charge, if applicable. May include adjustments in accordance with U.S. GAAP and as such, the net asset value for reporting purposes and the returns based upon those net asset values may differ from the net asset value and returns for shareholder transactions. |
See accompanying notes
68
American Beacon FundsSM
October 31, 2017 (Unaudited)
Certain tax information regarding the Funds is required to be provided to shareholders based upon the Funds’ income and distributions for the taxable year ended October 31, 2017. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2017.
The Funds designated the following items with regard to distributions paid during the fiscal year ended October 31, 2017. All designations are based on financial information available as of this annual report and, accordingly, are subject to change. For each item, it is the intention of the Funds to designate the maximum amount permitted under the Internal Revenue Code of 1986, as amended, and the regulations there under.
Corporate Dividends-Received Deduction:
Balanced | 40.87 | % | ||
Mid-Cap Value | 60.79 | % |
Qualified Dividend Income:
Balanced | 78.08 | % | ||
Mid-Cap Value | 100.00 | % |
Long-Term Capital Gain Distributions:
Balanced | $ | 9,275,294 | ||
Mid-Cap Value | - |
Short-Term Capital Gain Distributions:
Balanced | $ | - | ||
Mid-Cap Value | - |
Shareholders will receive notification in January 2018 of the applicable tax information necessary to prepare their 2017 income tax returns.
69
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Renewal and Approval of Management Agreements and Investment Advisory Agreements
At in-person meetings held on May 16, 2017 and June 7, 2017 (collectively, the “Meetings”), the Board of Trustees (“Board”) considered and then, at its June 7 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (the “Trust”), on behalf of American Beacon Balanced Fund (“Balanced Fund”) and American Beacon Mid-Cap Value Fund (“Mid Cap Fund”) (collectively, the “Funds”);
(2) the Investment Advisory Agreements among the Manager, the Trust, on behalf of the Balanced Fund, and each of Barrow, Hanley, Mewhinney & Strauss, LLC (“Barrow”), Brandywine Global Investment Management, LLC (“Brandywine”) and Hotchkis and Wiley Capital Management, LLC (“Hotchkis”); and
(3) the Investment Advisory Agreements among the Manager, the Trust, on behalf of the Mid Cap Fund, and each of Barrow, Pzena Investment Management, LLC (“Pzena”) and WEDGE Capital Management, L.L.P. (“WEDGE”).
Each of the Investment Advisory Agreements is referred to herein as the “Investment Advisory Agreement,” and Barrow, Brandywine, Hotchkis, Pzena and WEDGE are hereinafter each referred to as a “subadvisor” and collectively as the “subadvisors.” The Management Agreement and the Investment Advisory Agreements are collectively referred to herein as the “Agreements.” In preparation for its consideration of the renewal of the Agreements, the Board undertook steps to gather and consider information furnished by the Manager, the subadvisors, Broadridge, Inc. (“Broadridge”) and Morningstar, Inc. (“Morningstar”). The Board, with the assistance of independent legal counsel, requested and received certain relevant information from the Manager and each subadvisor.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge and Morningstar regarding the performance, fees and expenses of the Funds as well as information from the Manager and the subadvisors. At the Meetings, the Board considered the information provided. Further, the Board took into consideration information furnished for the Board’s review and consideration throughout the year at regular meetings of the Board and its committees, as well as information specifically prepared in connection with the renewal process.
In connection with the Board’s consideration of the Agreements, the Trustees received and evaluated such information as they deemed necessary. The information requested on behalf of the Board included, among other information, the following materials. References herein to the “firm” refer to the Manager and/or each applicable subadvisor.
• | comparisons of the performance of an appropriate share class of each Fund to comparable investment companies and appropriate benchmark indices, including peer group averages and performance analyses provided by Broadridge and Morningstar, and to the performance of certain similar accounts or a composite of similar accounts, as applicable, managed by the firm; |
• | comparisons of each Fund’s management and subadvisory fee rates and expense ratio with the management fee rates paid by comparable mutual funds and their expense ratios, including peer group averages and fee and expense analyses provided by Broadridge and Morningstar, and the advisory fee rates charged to other clients for which similar services are provided by a firm; |
• | the Manager’s profitability with respect to the services that it provided to each Fund; |
• | any actual or anticipated economies of scale in relation to the services the firm provides or will provide to each Fund and whether the current fee rates charged or to be charged to each Fund reflect these economies of scale for the benefit of the Fund’s investors; |
70
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
• | an evaluation of other benefits to a firm or Funds as a result of their relationship, if any; |
• | information regarding the administrative, accounting-related, cash management and securities lending services that the Manager provides to the Funds and the fees that the Manager receives for such services; and |
• | information regarding a firm’s financial condition, the personnel of the Manager who are assigned primary responsibility for managing the Funds, staffing levels, portfolio managers’ compensation, insurance coverage, material pending litigation, code of ethics, compliance matters, actual or potential conflicts of interest that the firm experiences, or anticipates that it will experience, in providing services to the Funds, and the Manager’s disaster recovery plans. |
The Board noted that the Manager provides management and administrative services to the Funds pursuant to the Management Agreement. The Board considered that many mutual funds have separate contracts governing both types of services, and observed that the actual management fee rates provided by Broadridge for peer group funds reflect the combined advisory and administrative expenses, reduced by any fee waivers and/or reimbursements.
A firm may not have been able to, or opted not to, provide information in response to certain information requests, in which case the Board conducted its evaluation of the firms based on information that was provided. In such cases, the Board determined that the omission of any such information was not material to its considerations. The class of shares used for comparative performance purposes was the share class with the lowest expenses available for purchase by the general public, which was the Institutional Class. The Board also considered that the use of Institutional Class performance generally facilitates a meaningful comparison for expense and performance purposes.
Provided below is an overview of certain factors the Board considered in connection with its renewal and approval of the Agreements. The Board did not identify any particular information that was most relevant to its consideration to renew or approve each Agreement, and each Trustee may have afforded different weight to the various factors. Legal counsel to the Independent Trustees provided the Board with a memorandum regarding its responsibilities pertaining to the renewal and approval of each Agreement. The memorandum explained the regulatory requirements surrounding the Trustees’ process for evaluating investment advisors and the terms of investment advisory contracts. Based on its evaluation, the Board unanimously concluded that the terms of each Agreement were reasonable and fair and that the renewal and approval of each Agreement was in the best interests of the Funds and their shareholders.
Considerations With Respect to the Renewal of the Management Agreement and the Investment Advisory Agreements
In determining whether to renew the Agreements, the Trustees considered the best interests of each Fund separately. While the Management Agreement and the Investment Advisory Agreements for both of the Funds were considered at the Meetings, the Board considered each Fund’s investment management and subadvisory relationships separately.
In each instance, the Board considered, among other things, the following factors: (1) the nature, extent and quality of the services provided; (2) the investment performance of a Fund; (3) the costs incurred by the Manager in rendering services to the Funds and its resulting profits or losses; (4) comparisons of services and fee rates with contracts entered into by the Manager or a subadvisor or their affiliates with other clients (such as pension funds and other institutional clients); (5) the extent to which economies of scale, if any, have been taken into account in setting each fee rate schedule; (6) whether fee rate levels reflect economies of scale, if any, for the benefit of Fund investors; and (7) any other benefits derived or anticipated to be derived by the Manager or a subadvisor from their relationship with a Fund.
71
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Nature, Extent and Quality of Services. With respect to the renewal of the Management Agreement, the Board considered, among other factors: each Fund’s long-term performance; the length of service of key investment personnel at the Manager; the cost structure of the Funds; the Manager’s culture of compliance and support for compliance operations that reduce risks to the Funds; the Manager’s quality of services; the Manager’s active role in monitoring and, as appropriate, recommending additional or replacement subadvisors; and the Manager’s efforts to retain key employees and maintain staffing levels.
With respect to the renewal of each Investment Advisory Agreement, the Trustees considered the level of staffing and the size of the subadvisor. The Board also considered the adequacy of the resources committed to the Funds by each subadvisor, and whether those resources were commensurate with the needs of the Funds and are sufficient to sustain appropriate levels of performance and compliance needs. In this regard, the Board considered the financial stability of each subadvisor. The Board also considered each subadvisor’s representations regarding its compliance program and code of ethics. Based on the foregoing information, the Board concluded that the nature, extent and quality of the management and advisory services provided by the Manager and each subadvisor were appropriate for each Fund.
Investment Performance. The Board evaluated the comparative information provided by Broadridge and the Manager regarding the performance of each Fund relative to its Broadridge performance universe, Morningstar Category, and benchmark index, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding its independent peer selection methodology to select all Broadridge performance universes. The Board also considered that the performance universes selected by Broadridge may not provide appropriate comparisons for a Fund. In addition, the Board considered the performance reports and discussions with management at Board and Committee meetings throughout the year. The Board also evaluated the comparative information provided by each subadvisor regarding the performance of its portion of the applicable Fund relative to the performance of other comparable investment accounts managed by the subadvisor and the Fund’s benchmark index and, with respect to certain subadvisors, an additional market. In addition, the Board considered the Manager’s recommendation to continue to retain each subadvisor. A discussion regarding the Board’s considerations with respect to each Fund’s performance appears below under “Additional Considerations and Conclusions with Respect to Each Fund.”
Costs of the Services Provided to the Funds and the Profits Realized by the Manager from its Relationship with the Funds. In analyzing the cost of services and profitability of the Manager, the Board considered the revenues earned and the expenses incurred by the Manager, before and after the payment of distribution-related expenses by the Manager. The profits or losses were noted at both an aggregate level for all funds within the group of mutual funds sponsored by the Manager (the “Fund Complex”) and at an individual Fund level, with each Fund being profitable for the Manager before and after the payment of distribution-related expenses. The Board also considered comparative information provided by the Manager regarding the Manager’s overall profitability with respect to the Fund Complex relative to the overall profitability of other firms in the mutual fund industry, as disclosed in publicly available sources. Although the Board noted that, in certain cases, the fee rates paid by other clients of the Manager are lower than the fee rates paid by the Funds the Manager represented that, among other matters, the difference is attributable to the fact that the Manager does not perform administrative services for non-investment company clients and reflects the greater level of responsibility and regulatory requirements associated with managing the Funds.
The Board considered that, with respect to each Fund, the Management Agreement provides for the Manager to receive a management fee comprised of an annualized fee that is retained by the Manager. In addition, the Board considered that the Manager receives fees for managing the portion of the Balanced Fund with respect to which the Manager has not delegated day-to-day management to a subadviser and for overseeing the securities lending program on behalf of each Fund. The Board also noted that certain share classes of the Funds maintain higher expense ratios in order to compensate third-party financial intermediaries.
In analyzing the fee rates charged by each subadvisor in connection with its investment advisory services to a Fund, the Board considered each subadvisor’s representation that, with respect to each subadviser, except for
72
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
WEDGE, the Manager has negotiated the lowest fee rate the subadvisor charges for any comparable client accounts and, with respect to WEDGE, the Fund’s subadvisory fee rate schedule was generally favorable compared to other comparable client accounts. The Board did not request profitability data from the subadvisors because the Board did not view this data as imperative to its deliberations given the arm’s-length nature of the relationship between the Manager and the subadvisors with respect to the negotiation of subadvisory fee rates. In addition, the Board noted that subadvisors may not account for their profits on an account-by-account basis and, those that do, likely employ different methodologies in connection with these calculations.
Based on the foregoing information, the Board concluded that the profitability levels of the Manager were reasonable in light of the services performed by the Manager. A discussion regarding the Board’s considerations with respect to each Fund’s fee rates is set forth below under “Additional Considerations and Conclusions with Respect to Each Fund.”
Economies of Scale. In considering the reasonableness of the management and investment advisory fees rates, the Board considered whether economies of scale will be realized as each Fund grows and whether fee rate levels reflect these economies of scale for the benefit of Fund shareholders. In this regard, the Board considered that, with respect to each subadviser, the Manager has negotiated breakpoints in the subadvisory fee schedule for each Fund. In addition, the Board noted the Manager’s representation that the Management Agreement contains fee schedule breakpoints at higher asset levels with respect to each Fund, except for the portion of the Balanced Fund with respect to which the Manager has not delegated day-to-day management to a subadviser. Based on the foregoing information, the Board concluded that the Manager and subadvisor fee rate schedules for each Fund provide for a reasonable sharing of benefits from any economies of scale with each Fund.
Benefits Derived from the Relationship with the Funds. The Board considered the “fall-out” or ancillary benefits that accrue to the Manager and/or the subadvisors as a result of the advisory relationships with the Funds, including greater exposure in the marketplace with respect to the Manager’s or subadvisors’ investment process and expanding the level of assets under management by the Manager and the subadvisors. In addition, the Board noted that each subadvisor benefits from soft dollar arrangements for proprietary and/or third-party research. Based on the foregoing information, the Board concluded that the potential benefits accruing to the Manager and the subadvisors by virtue of their relationships with the Funds appear to be fair and reasonable.
Additional Considerations and Conclusions with Respect to Each Fund
The performance comparisons below were made versus each Fund’s Broadridge performance universe and Morningstar Category. With respect to the Broadridge performance universe, the 1st Quintile represents the top twenty percent of the universe based on performance and the 5th Quintile representing the bottom twenty percent of the universe based on performance. References below to each Fund’s Broadridge performance universe are to the universe of mutual funds with a comparable investment classification/objective included in the analysis provided by Broadridge. In reviewing the performance of each Fund, the Trustees viewed longer-term performance over a full market cycle, typically five years or longer, as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events.
The expense comparisons below were made versus each Fund’s Broadridge expense universe and Broadridge expense group, with the 1st Quintile representing the top twenty percent of the universe or group based on lowest total expense and the 5th Quintile representing the bottom twenty percent of the universe or group based on highest total expense. References below to each Fund’s expense group and expense universe are to the respective group or universe of comparable mutual funds included in the analysis by Broadridge. A Broadridge expense group consists of the Fund and a representative sample of funds with similar operating structures and asset sizes, as selected by Broadridge. A Broadridge expense universe includes all funds in the investment classification/objective with a similar operating structure as the share class of the Fund included in the Broadridge comparative information and provides a broader view of expenses across the Fund’s investment classification/objective. For each Fund, the Trustees also considered a Fund’s Morningstar fee level category. In reviewing expenses, the
73
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Trustees considered the positive impact of fee waivers where applicable and the Manager’s agreement to continue the fee waivers. In addition, information regarding the subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
Additional Considerations and Conclusions with Respect to the American Beacon Balanced Fund
In considering the renewal of the Management Agreement for the Balanced Fund, the Trustees considered the following additional factors:
Broadridge Total Expenses Excluding 12b-1 Fees and Morningstar Fee Level Ranking
Compared to Broadridge Expense Group | 1st Quintile | |
Compared to Broadridge Expense Universe | 2nd Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Low Expense Ratio |
Broadridge and Morningstar Performance Analysis (five-year period ended February 28, 2017)
Compared to Broadridge Performance Universe | 1st Quintile | |
Compared to Morningstar Category | 1st Quintile |
The Trustees also considered: (1) the Manager’s representation that a comparison of its performance relative to the Manager’s benchmark index rather than its Broadridge performance universe may be more appropriate because the Manager only manages an investment-grade fixed-income portion of the Fund; and (2) that the Manager outperformed its applicable benchmark index for the 5-year period ended February 28, 2017.
In considering the renewal of the Investment Advisory Agreements with Barrow, Brandywine and Hotchkis, the Trustees considered that the diversification of investment strategies facilitated by the Fund’s multi-manager structure permits the Fund to mitigate the risks associated with a single subadvisor. The Trustees also considered the following additional factors:
Subadvisor Performance (compared to Broadridge Performance Universe for period indicated, ending February 28, 2017)
Barrow | 5 years | 2 | nd Quintile | |||||
Brandywine | 5 years | 1 | st Quintile | |||||
Hotchkis* | 5 years | 1 | st Quintile |
* Hotchkis equity only return compared to the Broadridge large cap value performance universe
The Trustees also considered: (1) the Manager’s representation that the Funds included in the Broadridge performance universe are managed pursuant to a variety of investment styles and the Fund may underperform when its value style is out of favor; (2) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor’s allocation of the Fund; and (3) the Manager’s recommendation to continue to retain each subadvisor, based upon, among other factors, the relative performance impact of the investment restrictions the Manager places on the subadvisors.
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable; and (2) determined that the Fund and its shareholders would benefit from the Manager’s and subadvisors’ continued management of the Fund.
74
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Additional Considerations and Conclusions with Respect to the American Beacon Mid-Cap Value Fund
In considering the renewal of the Management Agreement for the Mid Cap Fund, the Trustees considered the following additional factors:
Broadridge Total Expense Analysis Excluding 12b-1 Fees and Morningstar Fee Level Ranking
Compared to Broadridge Expense Group | 3rd Quintile | |
Compared to Broadridge Expense Universe | 4th Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Average Expense Ratio |
Broadridge and Morningstar Performance Analysis (five-year period ended February 28, 2017)
Compared to Broadridge Performance Universe | 2nd Quintile | |
Compared to Morningstar Category | 1st Quintile |
In considering the renewal of the Investment Advisory Agreements with Barrow, Pzena and WEDGE, the Trustees considered that the diversification of investment strategies facilitated by the Fund’s multi-manager structure permits the Fund to mitigate the risks associated with a single subadvisor. The Trustees also considered the following additional factors:
Subadvisor Performance (compared to Broadridge Performance Universe for period indicated, ending February 28, 2017)
Barrow | 5 years | 2 | nd Quintile | |||
Pzena | 5 years | 1 | st Quintile | |||
WEDGE | 1 Year | 2 | nd Quintile |
The Trustees also considered: (1) that the Fund’s Broadridge expense group and expense universe are comprised principally of single-manager funds, which typically reach breakpoints in their subadvisory fee schedules sooner than multi-manager funds; (2) the Manager’s representation that one of the Fund’s subadvisors had committed to reducing the subadvisor’s fee rate schedule with respect to its allocation of the Fund; (3) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor’s allocation of the Fund; and (4) the Manager’s recommendation to continue to retain each subadvisor.
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and the subadvisors under the Agreements are fair and reasonable; and (2) determined that the Mid Cap Fund and its shareholders would benefit from the Manager’s and subadvisors’ continued management of the Fund.
75
Trustees and Officers of the American Beacon FundsSM (Unaudited)
The Trustees and officers of the American Beacon Funds (the “Trust”) are listed below, together with their principal occupations during the past five years. The address of each person listed below is 220 Las Colinas Boulevard East, Suite 1200, Irving, Texas 75039. Each Trustee oversees thirty-six funds in the fund complex that includes the Trust, the American Beacon Select Funds and the American Beacon Institutional Funds Trust. The Trust’s Statement of Additional Information contains additional information about the Trustees and is available without charge by calling 1-800-658-5811.
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Alan D. Feld** (80) | Trustee since 1996 | Sole Shareholder of a professional corporation which is a Partner in the law firm of Akin, Gump, Strauss, Hauer & Feld, LLP (law firm) (1960-Present); Trustee, American Beacon Mileage Funds (1996-2012); Trustee, American Beacon Select Funds (1999-Present); Trustee, American Beacon Master Trust (1996-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (47) | Trustee since 2015 | Director, Kura MD, Inc. (local telehealth organization) (2015-present); Vice President & CFO, Sierra Health Foundation (health conversion private foundation) (2006-Present); Vice President & CFO, Sierra Health Foundation: Center for Health Program Management (California public benefit corporation) (2012-Present); Director, Innovative North State (2012-2015); Director, Sacramento Regional Technology Alliance (2011-2016); Director, Women’s Empowerment (2009-2014); Director, Valley Healthcare Staffing (2017–present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Joseph B. Armes (55) | Trustee since 2015 | Chairman & CEO, CSW Industrials f/k/a Capital Southwest Corporation (investment company) (2015-Present); Chairman of the Board of Capital Southwest Corporation, predecessor to CSW Industrials, Inc. (2014-present) (investment company); CEO, Capital Southwest Corporation (2013-2015); President & CEO, JBA Investment Partners (family investment vehicle) (2010-Present); Director and Chair of Audit Committee, RSP Permian (oil and gas producer) (2013-Present); Trustee, American Beacon Select Funds (2015-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Gerard J. Arpey (59) | Trustee since 2012 | Director, The Home Depot, Inc. (2015-Present); Partner, Emerald Creek Group (private equity firm) (2011-Present); Director, S.C. Johnson & Son, Inc. (privately held company) (2008-present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Brenda A. Cline (56) | Trustee since 2004 | Executive Vice President, Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). |
76
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Eugene J. Duffy (63) | Trustee since 2008 | Managing Director, Institutional Services, Intercontinental Real Estate Corporation (2014-Present); Principal and Executive Vice President, Paradigm Asset Management (1994-2014); Director, Sunrise Bank of Atlanta (2008-2013); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Thomas M. Dunning (75) | Trustee since 2008 | Chairman Emeritus, Lockton Dunning Benefits (consulting firm in employee benefits) (2008–Present); Board Director, Oncor Electric Delivery Company LLC (2007-Present); Trustee, American Beacon Mileage Funds (2008-2012); Trustee, American Beacon Select Funds (2008-Present); Trustee, American Beacon Master Trust (2008-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Richard A. Massman (74) | Trustee since 2004 Chairman since 2008 | Consultant and General Counsel Emeritus, Hunt Consolidated, Inc. (holding company engaged in oil and gas exploration and production, refining, real estate, farming, ranching and venture capital activities) (2009-Present); Trustee, American Beacon Mileage Funds (2004-2012); Trustee, American Beacon Select Funds (2004-Present); Trustee, American Beacon Master Trust (2004-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
Barbara J. McKenna, CFA (54) | Trustee since 2012 | Managing Principal, Longfellow Investment Management Company (2005-Present); Trustee, American Beacon Select Funds (2012-Present); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
R. Gerald Turner (71) | Trustee since 2001 | President, Southern Methodist University (1995-Present); Director, J.C. Penney Company, Inc. (1996-Present); Director, Kronus Worldwide Inc. (chemical manufacturing) (2003-Present); Trustee, American Beacon Mileage Funds (2001-2012); Trustee, American Beacon Select Funds (2001-Present); Trustee, American Beacon Master Trust (2001-2012); Trustee, American Beacon Institutional Funds Trust (2017-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (62) | President since 2009 | President, CEO and Director, American Beacon Advisors, Inc. (2009-Present); President, CEO and Director, Resolute Investment Managers, Inc. (2015-Present); President, CEO and Director, Resolute Acquisition, Inc. (2015-Present); President, CEO and Director, Resolute Topco, Inc. (2015-Present), President & CEO, Resolute Investment Holdings, LLC (2015-Present); President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President and CEO, American Private Equity Management, LLC (2012-Present); President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Director, Chairman, President and CEO, Alpha Quant Advisors, LLC (2016-Present); Director, ARK Investment Management LLC (2016-Present); Director, Shapiro Capital Management LLC (2017-Present); Member, Investment Advisory Committee, Employees Retirement System of Texas (2017—Present); Trustee, American Beacon NextShares Trust (2015-Present); President, American Beacon Select Funds (2009-Present); President, American Beacon Mileage Funds (2009-2012); President, American Beacon Master Trust (2009–2012); President, American Beacon Institutional Funds Trust (2017-Present). |
77
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Rosemary K. Behan (58) | VP, Secretary and Chief Legal Officer since 2006 | Vice President and Secretary, American Beacon Advisors, Inc. (2006-Present); Secretary, Resolute Investment Holdings, LLC (2015-Present) Secretary, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015–Present); Secretary, Lighthouse Holdings, Inc. (2008-2015); Secretary, Lighthouse Holdings Parent, Inc. (2008-2015); Secretary, American Private Equity Management, LLC (2008-Present); Secretary, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Secretary, Alpha Quant Advisors, LLC (2016-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Select Funds (2006-Present); Chief Legal Officer, Vice President and Secretary, American Beacon Mileage Funds (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Master Trust (2006-2012); Chief Legal Officer, Vice President and Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Brian E. Brett (57) | VP since 2004 | Senior Vice President (2012-Present) and Vice President (2004-2012), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2004-Present); Vice President, American Beacon Mileage Funds (2004-2012); Vice President, American Beacon Master Trust (2004-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Paul B. Cavazos (48) | VP since 2016 | Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer and Assistant Treasurer, DTE Energy (2007-2016); Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Erica Duncan (47) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). | ||
Melinda G. Heika (56) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present); Resolute Investment Managers, Inc. (2015-Present); Treasurer, Resolute Acquisition, Inc. (2015-Present); Treasurer, Resolute Topco, Inc. (2015-Present); Treasurer, Resolute Investment Holdings, LLC. (2015-Present); Treasurer, Lighthouse Holdings, Inc. (2010-2015); Treasurer, Lighthouse Holdings Parent Inc., (2010-2015); Treasurer, American Private Equity Management, LLC (2012-Present); Director and Treasurer, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Treasurer, American Beacon Select Funds (2010-Present); Treasurer, American Beacon Mileage Funds (2010-2012); Treasurer, American Beacon Master Trust (2010-2012); Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Terri L. McKinney (53) | VP since 2010 | Vice President (2009-Present) and Managing Director (2003-2009), American Beacon Advisors, Inc.; Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Vice President, American Beacon Institutional Funds Trust (2017-Present). |
78
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Jeffrey K. Ringdahl (42) | VP since 2010 | Senior Vice President (2013-Present), Vice President (2010-2013), and Director (2015-Present), American Beacon Advisors, Inc.; Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Mileage Funds (2010-2012); Vice President, American Beacon Master Trust (2010-2012); Senior Vice President (2012-Present) and Manager (2015-Present), American Private Equity Management, LLC; Senior Vice President, Lighthouse Holdings, Inc. (2013-2015); Senior Vice President, Lighthouse Holdings Parent, Inc. (2013-2015); Director and Vice President, American Beacon Cayman Managed Futures Strategy Fund, Ltd. (2014-Present); Trustee, American Beacon NextShares Trust (2015-Present); Director and Senior Vice Present, Resolute Investment Holdings, LLC (2015-Present); Director and Senior Vice President, Resolute Topco, Inc. (2015-Present); Director and Senior Vice President, Resolute Acquisition, Inc. (2015-Present); Director and Senior Vice President, Resolute Investment Managers, Inc. (2015-Present); Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-President); Director, Shapiro Capital Management, LLC (2017-Present). | ||
Samuel J. Silver (54) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, American Beacon Select Funds (2011-Present); Vice President, American Beacon Mileage Funds (2011-2012); Vice President, American Beacon Master Trust (2011-2012); American Beacon Institutional Funds Trust (2011-Present). | ||
Christina E. Sears (46) | Chief Compliance Officer since 2004 and Asst. Secretary since 1999 | Chief Compliance Officer, American Beacon Advisors, Inc. (2004-Present); Chief Compliance Officer, American Private Equity Management, LLC (2012-Present); Chief Compliance Officer and Vice President, Alpha Quant Advisors, LLC (2016-Present); Chief Compliance Officer (2004-Present) and Assistant Secretary (1999-Present), American Beacon Select Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Mileage Funds; Chief Compliance Officer (2004-2012) and Assistant Secretary (1999-2012), American Beacon Master Trust; Chief Compliance Officer and Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Sonia L. Bates (60) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-Present); Assistant Treasurer, Resolute Investment Managers, Inc. (2015-Present); Assistant Treasurer, Resolute Acquisition, Inc. (2015-Present); Assistant. Treasurer, Resolute Topco, Inc. (2015-Present); Assistant Treasurer, Resolute Investment Holdings, LLC.; Assistant Treasurer, Lighthouse Holdings, Inc. (2011-2015); Assistant Treasurer, Lighthouse Holdings Parent Inc. (2011-2015); Assistant Treasurer, American Private Equity Management, LLC (2012-Present); Assistant Treasurer, American Beacon Select Funds (2011-Present); Assistant Treasurer American Beacon Mileage Funds (2011-2012); Assistant Treasurer, American Beacon Master Trust (2011-2012); Assistant Treasurer, American Beacon Institutional Funds Trust (2017-Present). | ||
Shelley D. Abrahams (42) | Assistant Secretary since 2008 | Assistant Secretary, American Beacon Advisors, Inc. (2008-Present); Assistant Secretary, American Beacon Select Funds (2008-Present); Assistant Secretary, American Beacon Mileage Funds (2008-2012); Assistant Secretary, American Beacon Master Trust (2008-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
79
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years and Current Directorships | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Rebecca L. Harris (50) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2010-Present); Assistant Secretary, American Beacon Mileage Funds (2010-2012); Assistant Secretary, American Beacon Master Trust (2010-2012); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Diana N. Lai (41) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Advisors, Inc. (2012-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). | ||
Teresa A. Oxford (59) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Alpha Quant Advisors, LLC (2016-Present); Assistant Secretary, American Beacon Select Funds (2015-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present). |
* As of 11/12/2014, the Board 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 75.
** Mr. Feld is deemed to be an “interested person” of the Trusts, as defined by the 1940 Act. Mr. Feld’s law firm of Akin, Gump, Strauss, Hauer & Feld LLP has provided legal services within the past two fiscal years to one or more of the Trust’s sub-advisors.
80
American Beacon FundsSM
October 31, 2017 (Unaudited)
The American Beacon Funds recognize and respect 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:
• | information we receive from you on applications or other forms; |
• | information about your transactions with us or our service providers; and |
• | information we receive from third parties. |
We do not disclose any nonpublic personal information about our customers or former customers 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 personal information, we maintain safeguards that comply with federal standards.
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Delivery of Documents
eDelivery is NOW AVAILABLE – Stop traditional mail delivery and receive your
shareholder reports and summary prospectus on-line. Sign up at
www.americanbeaconfunds.com
If you invest in the Fund through a financial institution, you may be able to receive the Fund’s 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 Fund:
By E-mail: | On the Internet: | |
american_beacon.funds@ambeacon.com | Visit our website at www.americanbeaconfunds.com | |
By Telephone: Call (800) 658-5811 | By Mail: American Beacon Funds P.O. Box 219643 Kansas City, MO 64121-9643 | |
Availability of Quarterly Portfolio Schedules | Availability of Proxy Voting Policy and Records | |
In addition to the Schedule of Investments provided in each semi-annual and annual report, the 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 Fund’s 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 Section, 100 F Street, NE, Washington, D.C. 20549-2736. Information regarding the operation of the SEC’s Public Reference Room may be obtained by calling (800)-SEC-0330. A complete schedule of the Fund’s portfolio holdings is also available at www.americanbeaconfunds.com approximately twenty days after the end of each month. | A description of the policies and procedures the Fund uses to determine how to vote proxies relating to portfolio securities is available in the Fund’s Statement of Additional Information, is available free of charge on the Fund’s website www.americanbeaconfunds.com and by calling 1-800-967-9009 or by accessing the SEC’s website at www.sec.gov. The Fund’s proxy voting record for the most recent year ended June 30 is filed annually with the SEC on Form N-PX. The Fund’s Forms N-PX are available on the SEC’s website at www.sec.gov. The Fund’s proxy voting record may also be obtained by calling 1-800-967-9009. |
Fund Service Providers:
CUSTODIAN State Street Bank and Trust Boston, Massachusetts | TRANSFER AGENT Boston Financial Data Services Kansas City, Missouri | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Foreside Fund Services, LLC Portland, Maine |
This report is prepared for shareholders of the American Beacon Funds and may be distributed to others only if preceded or accompanied by a current Prospectus or Summary Prospectus.
American Beacon Funds, American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund are service marks of American Beacon Advisors, Inc.
AR 10/17
ITEM 2. | CODE OF ETHICS. |
The Trust adopted a code of ethics that applies to its principal executive and financial officers (the “Code”). The Trust amended its code March 24, 2017 to disclose the addition of the Institutional Funds Trust, disclose a change in the Principal Financial Officer and disclosure of conflicts due to Principal Officers serving in positions with affiliates, which also serve as sub-advisors. The Trust did not grant any waivers to the provisions of the Code during the period covered by the shareholder reports 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 Ms. Brenda A. Cline, a member of the Trust’s Audit and Compliance Committee, is an “audit committee financial expert” as defined in Form N-CSR. Ms. Brenda Cline is “independent” as defined in Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a)
Audit Fees | Fiscal Year Ended | |||
$231,054 | 10/31/2016 | |||
$231,167 | 10/31/2017 |
(b)
Audit-Related Fees | Fiscal Year Ended | |||
$0 | 10/31/2016 | |||
$0 | 10/31/2017 |
(c)
Tax Fees | Fiscal Year Ended | |||
$34,161 | 10/31/2016 | |||
$41,259 | 10/31/2017 |
(d)
All Other Fees | Fiscal Year Ended | |||
$0 | 10/31/2016 | |||
$0 | 10/31/2017 |
e)(1) Pursuant to its charter, the Trust’s Audit and Compliance 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 Trusts’ financial statements, and, in connection therewith, reviewing and evaluating 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 Trusts, an investment adviser to any series of the Trusts or any entity controlling, controlled by, or under common control with an investment adviser (“adviser affiliate”) that provides ongoing services to the Trusts, if the engagement relates directly to the operations and financial reporting of the Trusts; |
• | to consider whether the non-audit services provided by a Trust’s auditor to an investment adviser or any adviser affiliate that provides ongoing services to a series of the Trusts, which services were not pre-approved by the Committee, are compatible with maintaining the auditor’s independence; |
• | to review the arrangements for and scope of the annual audit and any special audits; and |
• | to review and approving the fees proposed to be charged to the Trusts by the auditors for each audit and non-audit service. |
The Audit and Compliance 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)
Aggregate Non-Audit Fees for Services Rendered to the:
Registrant | Adviser | Adviser’s Affiliates Providing Ongoing Services to Registrant | Fiscal Year Ended | |||||||
$34,161 | $ | 215,882 | N/A | 10/31/2016 | ||||||
$41,259 | $ | 54,542 | N/A | 10/31/2017 |
(h) Not applicable.
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS. |
Not applicable.
ITEM 6. | SCHEDULE OF INVESTMENTS. |
The schedules of investments for each series of the Trust are included in the shareholder reports 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 Funds
By /s/ Gene L. Needles, Jr. | ||
Gene L. Needles, Jr. | ||
President | ||
American Beacon Funds | ||
Date: January 8, 2018 |
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/ Gene L. Needles, Jr. | ||
Gene L. Needles, Jr. | ||
President | ||
American Beacon Funds | ||
Date: January 8, 2018 |
By /s/ Melinda G. Heika | ||
Melinda G. Heika | ||
Treasurer | ||
American Beacon Funds | ||
Date: January 8, 2018 |