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, 2018
Date of reporting period: October 31, 2018
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. 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, 2018 |
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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 | 49 | |||
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Back Cover |
![]() | Dear Shareholders,
Long-term investing isn’t about identifying and anticipating the next big market move. It’s about identifying the right investment products for riding out those moves. As a long-term investor, you should strive to accomplish the three Ds: direction, discipline and diversification.
u Direction: Achieving your long-term financial goals requires an individualized plan of action. You may want your plan to provide some measure of protection against periods of geopolitical turmoil, economic uncertainty, market volatility and job insecurity. Your plan should be reviewed annually and be adjusted in the event your long-range needs change. |
u | Discipline: Long-term, systematic participation in an investment portfolio requires your resolution to stay the course. Spending time in the market – rather than trying to time the market – may place you in a better position to reach your long-term financial goals. |
u | Diversification: By investing in different types of investment categories and asset classes, you may be able to help mitigate financial risks across your investment portfolio. By allocating your investment portfolio according to your risk-tolerance level, you may be better positioned to weather storms and achieve your long-term financial goals. |
Since 1986, American Beacon has endeavored to provide investors with a disciplined approach to realizing long-term financial goals. As a manager of managers, we strive to provide investment products that may enable investors to participate during market upswings while potentially insulating against market downswings. Our approach is more than a concept. It’s the cornerstone of our culture. And we strive to apply it at every turn as we seek to provide a well-diversified line of investment products for your investment portfolio.
Many of the sub-advisors to our mutual funds pursue upside capture and/or downside protection using proprietary strategies. The investment teams behind our mutual funds seek to produce consistent, long-term results rather than focus only on short-term movements in the markets. In managing our investment products, we emphasize identifying opportunities that offer the potential for long-term rewards.
Thank you for your continued interest in American Beacon. For additional information about our investment products 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, 2018 (Unaudited)
For the year ended October 31, 2018, the broad market S&P 500® Index (the “Index”) and the Dow Jones Industrial Average gained 7.35% and 9.87%, respectively. From a style perspective, Growth significantly outperformed Value across all market caps, according to the Russell® Indexes. In terms of size, it went from largest to smallest with large caps as the best performers, followed by mid-caps and small caps.
The following table illustrates various Russell Index returns according to size and style.
12-Month Period Ended October 31, 2018
Large Caps | 1 Year | |||
Russell 1000 Index | 6.98 | % | ||
Russell 1000 Growth Index | 10.71 | % | ||
Russell 1000 Value Index | 3.04 | % | ||
Mid-Caps | 1 Year | |||
Russell Midcap Index | 2.80 | % | ||
Russell Midcap Growth Index | 6.14 | % | ||
Russell Midcap Value Index | 0.16 | % | ||
Small Caps | 1 Year | |||
Russell 2000 Index | 1.85 | % | ||
Russell 2000 Growth Index | 4.13 | % | ||
Russell 2000 Value Index | (0.59 | )% |
Although these returns may appear to be run of the mill, they are not. The 2017 calendar year ended on a strong note, riding on the wave of the Trump administration’s pro-growth policies and the Federal Reserve’s cautious navigation of the path to normalized interest rates. Short-volatility traders and cryptocurrencies were still all the rage. Unfortunately, 2018 came with a vengeance. By March of 2018, the short-volatility trade was literally wiped out and many cryptocurrencies lost value from previous-year highs. As market participants wondered how bad things would get, a shot of strong gross domestic product (“GDP”) growth in the second quarter of 2018 pushed markets higher through August. The last few months of the period under review witnessed the return of volatility as the rhetoric of a trade war heightened, economic growth forecasts declined, Capitol Hill gridlock following the mid-term elections dampened the potential for pro-growth policy, and the likelihood of continued rate hikes made investors nervous.
Looking more closely at the markets’ returns, a small subset of sectors accounted for most of the gains. For example, the Index derived more than 80% of its return from the Technology sector (315 basis points, or 3.15%), the Consumer Discretionary sector (146 basis points, or 1.46%) and the Health Care sector (144 basis points, or 1.44%), which comprise about 44% of the Index. The remaining eight sectors underperformed the Index. Similar trends also occurred in mid-caps and small caps; however, not to this degree. A narrow market is not uncommon as bull markets move into their later stages. For example, on August 22, 2018, the current bull market became the longest one in history, eclipsing the bull run in the 1990s.
The present bull market has been powered by slow and steady growth. In the last 12 months, the economy continued to be a bright spot. Third-quarter real GDP was up 3.5% (seasonally adjusted annual rate) on top of the strong 4.2% gain in the second quarter. In addition, the unemployment rate is near 50-year lows. Inflation, while rising, is still in an acceptable range, and the U.S. dollar is strong. All these factors contributed to the strong market returns and allowed the Federal Reserve to implement three rate hikes in 2018, with another expected in December.
Despite the favorable factors, the U.S. equity markets ended the 12-month period in a slump. Fear overwhelmed investors as the markets corrected. The markets sit at the crossroads of correction and a bear market – with risks of trade wars, slower growth and interest-rate hikes balanced by low unemployment, subdued inflation, and equity valuations near long-term averages.
2
American Beacon Large Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
The Investor Class of the American Beacon Large Cap Value Fund (the “Fund”) returned 1.18% for the twelve months ended October 31, 2018, underperforming the Russell 1000® Value Index (the “Index”) return of 3.03% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/2008 through 10/31/2018
Total Returns for the Period ended October 31, 2018 |
| |||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 | |||||||||||||||||||||||||||
Institutional Class (1,5,7) | AADEX | 1.51 | % | 8.46 | % | 7.79 | % | 11.56 | % | $ | 29,862 | |||||||||||||||||||||
Y Class (1,2,7) | ABLYX | 1.42 | % | 8.38 | % | 7.70 | % | 11.47 | % | $ | 29,631 | |||||||||||||||||||||
Investor Class (1,7) | AAGPX | 1.18 | % | 8.10 | % | 7.43 | % | 11.17 | % | $ | 28,842 | |||||||||||||||||||||
Advisor Class (1,7) | AVASX | 1.04 | % | 7.95 | % | 7.28 | % | 11.02 | % | $ | 28,444 | |||||||||||||||||||||
A Class without sales charge (1,3,7) | ALVAX | 1.22 | % | 8.08 | % | 7.38 | % | 11.09 | % | $ | 28,638 | |||||||||||||||||||||
A Class with sales charge (1,3,7) | ALVAX | (4.58 | )% | 5.96 | % | 6.11 | % | 10.44 | % | $ | 26,994 | |||||||||||||||||||||
C Class without sales charge (1,4,7) | ALVCX | 0.57 | % | 7.31 | % | 6.61 | % | 10.42 | % | $ | 26,936 | |||||||||||||||||||||
C Class with sales charge (1,4,7) | ALVCX | (0.43 | )% | 7.31 | % | 6.61 | % | 10.42 | % | $ | 26,936 | |||||||||||||||||||||
R6 Class (1,5,7) | AALRX | 1.54 | % | 8.47 | % | 7.79 | % | 11.56 | % | $ | 29,873 | |||||||||||||||||||||
Russell 1000® Value Index (6) | 3.03 | % | 8.88 | % | 8.61 | % | 11.30 | % | $ | 29,170 |
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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only; and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. |
2. | Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 10/31/08 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 10/31/08. |
3
American Beacon Large Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
3. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/08 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 10/31/08. 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 10/31/08 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 10/31/08. 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 three-year, five-year and ten-year periods represent the returns achieved by the Institutional Class from 10/31/08 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 10/31/08. A portion of the fees charged to the R6 Class of the Fund was waived in 2017 and fully recovered in 2018. Performance prior to waiving fees was lower than actual returns shown in 2017. |
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%, 0.92%, 1.07%, 0.98%, 1.72%, and 0.60%, 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 as both stock selection and sector allocation detracted value relative to the Index for the twelve-month period.
The Fund’s investments in the Financials, Consumer Staples and Industrials sectors hurt the most in terms of stock selection. In the Financials sector, American International Group (down 34.73%) and Citigroup, Inc. (down 8.88%) were the largest detractors. Positions in Imperial Brands Plc, Sponsored ADR (down 13.14%) and Molson Coors Brewing Co., B (down 15.57%) hurt the Fund’s returns in the Consumer Staples sector. Lastly, in the Industrials sector, the Fund’s positions in Johnson Controls International (down 20.14%) and Macquarie Infrastructure Corp., (down 37.63%) hurt the Fund’s performance the most for the period.
Sector allocation weighed on relative performance as an overweight to Industrials (down 8.04%) and an underweight in Health Care (up 13.32%) hurt relative performance compared to the Index. The Fund’s overweight position in the Information Technology sector (up 8.27%) somewhat muted relative underperformance during the period.
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) |
| |||||||
JPMorgan Chase & Co. | 2.9 | |||||||
Citigroup, Inc. | 2.8 | |||||||
Wells Fargo & Co. | 2.5 | |||||||
Comcast Corp., Class A | 2.4 | |||||||
General Motors Co. | 2.2 | |||||||
BP PLC, Sponsored ADR | 2.1 | |||||||
Bank of America Corp. | 1.9 | |||||||
American International Group, Inc. | 1.9 | |||||||
ConocoPhillips | 1.8 | |||||||
Oracle Corp. | 1.8 | |||||||
Total Fund Holdings | 193 | |||||||
4
American Beacon Large Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
Sector Allocation (% Equities) |
| |||||||
Financials | 25.8 | |||||||
Energy | 14.4 | |||||||
Health Care | 12.4 | |||||||
Information Technology | 10.3 | |||||||
Industrials | 9.8 | |||||||
Consumer Discretionary | 7.8 | |||||||
Communication Services | 7.5 | |||||||
Consumer Staples | 6.5 | |||||||
Materials | 3.8 | |||||||
Utilities | 1.6 | |||||||
Real Estate | 0.1 |
5
American Beacon Large Cap Value FundSM
October 31, 2018 (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, 2018 through October 31, 2018.
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, 2018 (Unaudited)
American Beacon Large Cap Value Fund |
| ||||||||||||||
Beginning Account Value 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period 5/1/2018-10/31/2018* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $992.30 | $3.26 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.90 | $3.31 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $991.60 | $3.61 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.60 | $3.67 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $990.60 | $4.92 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.30 | $4.99 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $990.10 | $5.57 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.60 | $5.65 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $990.90 | $5.02 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.20 | $5.09 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $987.30 | $8.26 | ||||||||||||
Hypothetical** | $1,000.00 | $1,016.90 | $8.39 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $992.30 | $2.96 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.23 | $3.01 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.65%, 0.72%, 0.98%, 1.11%, 1.00%, 1.65%, and 0.59% 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
To the Shareholders and the Board of Trustees of American Beacon Large Cap Value Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of American Beacon Large Cap Value Fund (the “Fund”) (one of the funds constituting American Beacon Funds (the “Trust”)), including the schedule of investments, as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at October 31, 2018, 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 its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more American Beacon investment companies since 1987.
Dallas, Texas
December 28, 2018
8
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% | |||||||||||||||
Communication Services - 7.19% | |||||||||||||||
Diversified Telecommunication Services - 1.53% | |||||||||||||||
AT&T, Inc. | 2,010,410 | $ | 61,679,379 | ||||||||||||
Verizon Communications, Inc. | 578,680 | 33,036,841 | |||||||||||||
|
| ||||||||||||||
94,716,220 | |||||||||||||||
|
| ||||||||||||||
Entertainment - 0.12% | |||||||||||||||
Walt Disney Co. | 66,900 | 7,682,127 | |||||||||||||
|
| ||||||||||||||
Interactive Media & Services - 0.65% | |||||||||||||||
Facebook, Inc., Class AA | 266,200 | 40,406,498 | |||||||||||||
|
| ||||||||||||||
Media - 4.33% | |||||||||||||||
CBS Corp., Class B, NVDR | 340,403 | 19,522,112 | |||||||||||||
Comcast Corp., Class A | 3,849,107 | 146,804,941 | |||||||||||||
Discovery, Inc., Class AA B | 122,981 | 3,983,354 | |||||||||||||
Discovery, Inc., Class CA | 1,491,400 | 43,712,934 | |||||||||||||
Interpublic Group of Cos, Inc. | 811,182 | 18,786,975 | |||||||||||||
News Corp., Class A | 923,600 | 12,182,284 | |||||||||||||
Omnicom Group, Inc. | 304,477 | 22,628,731 | |||||||||||||
|
| ||||||||||||||
267,621,331 | |||||||||||||||
|
| ||||||||||||||
Wireless Telecommunication Services - 0.56% | |||||||||||||||
Vodafone Group PLC, Sponsored ADR | 1,821,450 | 34,480,049 | |||||||||||||
| �� | ||||||||||||||
Total Communication Services | 444,906,225 | ||||||||||||||
|
| ||||||||||||||
Consumer Discretionary - 7.39% | |||||||||||||||
Auto Components - 1.58% | |||||||||||||||
Adient PLCB | 450,698 | 13,710,233 | |||||||||||||
Aptiv PLC | 144,138 | 11,069,799 | |||||||||||||
Garrett Motion, Inc.A | 21,914 | 332,435 | |||||||||||||
Goodyear Tire & Rubber Co. | 715,400 | 15,066,324 | |||||||||||||
Lear Corp. | 19,901 | 2,644,843 | |||||||||||||
Magna International, Inc. | 1,118,541 | 55,076,959 | |||||||||||||
|
| ||||||||||||||
97,900,593 | |||||||||||||||
|
| ||||||||||||||
Automobiles - 2.38% | |||||||||||||||
General Motors Co. | 3,670,138 | 134,290,349 | |||||||||||||
Harley-Davidson, Inc. | 331,852 | 12,683,384 | |||||||||||||
|
| ||||||||||||||
146,973,733 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 0.62% | |||||||||||||||
Carnival Corp. | 300,500 | 16,840,020 | |||||||||||||
Norwegian Cruise Line Holdings Ltd.A | 487,300 | 21,475,311 | |||||||||||||
|
| ||||||||||||||
38,315,331 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 1.02% | |||||||||||||||
DR Horton, Inc. | 616,200 | 22,158,552 | |||||||||||||
Mohawk Industries, Inc.A | 195,200 | 24,347,296 | |||||||||||||
Tupperware Brands Corp. | 479,800 | 16,840,980 | |||||||||||||
|
| ||||||||||||||
63,346,828 | |||||||||||||||
|
| ||||||||||||||
Multiline Retail - 1.01% | |||||||||||||||
Dollar General Corp. | 561,512 | 62,541,207 | |||||||||||||
|
| ||||||||||||||
Specialty Retail - 0.70% | |||||||||||||||
Bed Bath & Beyond, Inc.B | 296,106 | 4,068,496 | |||||||||||||
Lowe’s Cos, Inc. | 413,255 | 39,350,141 | |||||||||||||
|
| ||||||||||||||
43,418,637 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
9
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% (continued) | |||||||||||||||
Consumer Discretionary - 7.39% (continued) | |||||||||||||||
Textiles, Apparel & Luxury Goods - 0.08% | |||||||||||||||
Hanesbrands, Inc. | 292,177 | $ | 5,013,757 | ||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 457,510,086 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 6.20% | |||||||||||||||
Beverages - 1.31% | |||||||||||||||
Diageo PLC, Sponsored ADR | 111,624 | 15,421,972 | |||||||||||||
Molson Coors Brewing Co., Class B | 534,800 | 34,227,200 | |||||||||||||
PepsiCo, Inc. | 281,436 | 31,627,777 | |||||||||||||
|
| ||||||||||||||
81,276,949 | |||||||||||||||
|
| ||||||||||||||
Food Products - 1.85% | |||||||||||||||
Archer-Daniels-Midland Co. | 150,670 | 7,119,157 | |||||||||||||
Danone S.A., Sponsored ADR | 403,250 | 5,705,987 | |||||||||||||
General Mills, Inc. | 322,550 | 14,127,690 | |||||||||||||
Ingredion, Inc. | 125,900 | 12,738,562 | |||||||||||||
JM Smucker Co. | 48,208 | 5,221,891 | |||||||||||||
Kellogg Co. | 117,395 | 7,687,025 | |||||||||||||
Mondelez International, Inc., Class A | 536,000 | 22,501,280 | |||||||||||||
Nestle S.A., Sponsored ADR | 257,722 | 21,720,810 | |||||||||||||
Tyson Foods, Inc., Class A | 297,700 | 17,838,184 | |||||||||||||
|
| ||||||||||||||
114,660,586 | |||||||||||||||
|
| ||||||||||||||
Household Products - 0.26% | |||||||||||||||
Colgate-Palmolive Co. | 41,118 | 2,448,577 | |||||||||||||
Kimberly-Clark Corp. | 37,193 | 3,879,230 | |||||||||||||
Procter & Gamble Co. | 37,924 | 3,363,100 | |||||||||||||
Reckitt Benckiser Group PLC, Sponsored ADR | 391,988 | 6,352,166 | |||||||||||||
|
| ||||||||||||||
16,043,073 | |||||||||||||||
|
| ||||||||||||||
Personal Products - 0.26% | |||||||||||||||
Unilever PLC, Sponsored ADR | 306,100 | 16,217,178 | |||||||||||||
|
| ||||||||||||||
Tobacco - 2.52% | |||||||||||||||
Altria Group, Inc. | 798,535 | 51,936,717 | |||||||||||||
Imperial Brands PLC, Sponsored ADR | 807,292 | 27,326,834 | |||||||||||||
Philip Morris International, Inc. | 868,904 | 76,524,375 | |||||||||||||
|
| ||||||||||||||
155,787,926 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 383,985,712 | ||||||||||||||
|
| ||||||||||||||
Energy - 13.72% | |||||||||||||||
Energy Equipment & Services - 2.64% | |||||||||||||||
Halliburton Co. | 826,000 | 28,645,680 | |||||||||||||
Helmerich & Payne, Inc. | 252,800 | 15,746,912 | |||||||||||||
National Oilwell Varco, Inc. | 315,300 | 11,603,040 | |||||||||||||
Oceaneering International, Inc.A | 639,700 | 12,115,918 | |||||||||||||
Schlumberger Ltd. | 1,858,003 | 95,334,134 | |||||||||||||
|
| ||||||||||||||
163,445,684 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 11.08% | |||||||||||||||
Apache Corp. | 1,191,100 | 45,059,313 | |||||||||||||
BP PLC, Sponsored ADR | 3,034,094 | 131,588,657 | |||||||||||||
Canadian Natural Resources Ltd. | 2,115,703 | 57,801,006 | |||||||||||||
Chevron Corp. | 501,621 | 56,005,985 | |||||||||||||
ConocoPhillips | 1,576,743 | 110,214,336 | |||||||||||||
Devon Energy Corp. | 1,021,366 | 33,092,258 |
See accompanying notes
10
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% (continued) | |||||||||||||||
Energy - 13.72% (continued) | |||||||||||||||
Oil, Gas & Consumable Fuels - 11.08% (continued) | |||||||||||||||
EOG Resources, Inc. | 121,163 | $ | 12,763,310 | ||||||||||||
Exxon Mobil Corp. | 136,069 | 10,841,978 | |||||||||||||
Hess Corp. | 695,292 | 39,909,761 | |||||||||||||
Kinder Morgan, Inc. | 914,600 | 15,566,492 | |||||||||||||
Kosmos Energy Ltd.A | 820,845 | 5,327,284 | |||||||||||||
Marathon Oil Corp. | 2,271,286 | 43,131,721 | |||||||||||||
Marathon Petroleum Corp. | 136,980 | 9,650,241 | |||||||||||||
Murphy Oil Corp. | 662,260 | 21,099,604 | |||||||||||||
Occidental Petroleum Corp. | 124,748 | 8,366,848 | |||||||||||||
Phillips 66 | 591,699 | 60,838,491 | |||||||||||||
Royal Dutch Shell PLC, Class A, Sponsored ADR | 382,822 | 24,190,522 | |||||||||||||
|
| ||||||||||||||
685,447,807 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 848,893,491 | ||||||||||||||
|
| ||||||||||||||
Financials - 24.65% | |||||||||||||||
Banks - 12.19% | |||||||||||||||
Banco Santander S.A., ADRB | 4,849,900 | 23,182,522 | |||||||||||||
Bank of America Corp. | 4,350,242 | 119,631,655 | |||||||||||||
BNP Paribas S.A., ADR | 509,500 | 13,241,905 | |||||||||||||
CIT Group, Inc. | 157,400 | 7,457,612 | |||||||||||||
Citigroup, Inc. | 2,619,396 | 171,465,662 | |||||||||||||
Citizens Financial Group, Inc. | 558,153 | 20,847,015 | |||||||||||||
JPMorgan Chase & Co. | 1,661,103 | 181,093,449 | |||||||||||||
PNC Financial Services Group, Inc. | 259,715 | 33,370,780 | |||||||||||||
US Bancorp | 563,513 | 29,454,825 | |||||||||||||
Wells Fargo & Co. | 2,901,554 | 154,449,719 | |||||||||||||
|
| ||||||||||||||
754,195,144 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 4.90% | |||||||||||||||
Bank of New York Mellon Corp. | 548,812 | 25,975,272 | |||||||||||||
BlackRock, Inc. | 28,886 | 11,884,278 | |||||||||||||
Blackstone Group LP, MLP | 1,412,448 | 45,706,817 | |||||||||||||
Goldman Sachs Group, Inc. | 291,863 | 65,777,164 | |||||||||||||
Invesco Ltd. | 1,021,600 | 22,178,936 | |||||||||||||
KKR & Co., Inc., Class A | 2,539,808 | 60,066,459 | |||||||||||||
Moody’s Corp. | 57,872 | 8,419,219 | |||||||||||||
Morgan Stanley | 176,278 | 8,048,853 | |||||||||||||
Nasdaq, Inc. | 167,252 | 14,502,421 | |||||||||||||
State Street Corp. | 509,364 | 35,018,775 | |||||||||||||
T Rowe Price Group, Inc. | 61,544 | 5,969,153 | |||||||||||||
|
| ||||||||||||||
303,547,347 | |||||||||||||||
|
| ||||||||||||||
Consumer Finance - 2.78% | |||||||||||||||
Ally Financial, Inc. | 469,500 | 11,929,995 | |||||||||||||
American Express Co. | 146,275 | 15,026,831 | |||||||||||||
Capital One Financial Corp. | 340,291 | 30,387,986 | |||||||||||||
Discover Financial Services | 323,700 | 22,552,179 | |||||||||||||
Navient Corp. | 1,070,306 | 12,394,144 | |||||||||||||
OneMain Holdings, Inc.A | 470,400 | 13,415,808 | |||||||||||||
Santander Consumer USA Holdings, Inc. | 1,233,347 | 23,125,256 | |||||||||||||
SLM Corp.A | 3,255,295 | 33,008,691 | |||||||||||||
Synchrony Financial | 344,200 | 9,940,496 | |||||||||||||
|
| ||||||||||||||
171,781,386 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
11
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% (continued) | |||||||||||||||
Financials - 24.65% (continued) | |||||||||||||||
Diversified Financial Services - 1.01% | |||||||||||||||
AXA Equitable Holdings, Inc. | 777,800 | $ | 15,781,562 | ||||||||||||
Berkshire Hathaway, Inc., Class BA | 226,891 | 46,576,185 | |||||||||||||
|
| ||||||||||||||
62,357,747 | |||||||||||||||
|
| ||||||||||||||
Insurance - 3.77% | |||||||||||||||
American International Group, Inc. | 2,837,410 | 117,156,659 | |||||||||||||
Aon PLC | 172,546 | 26,948,234 | |||||||||||||
Chubb Ltd. | 189,866 | 23,716,162 | |||||||||||||
MetLife, Inc. | 316,299 | 13,028,356 | |||||||||||||
Prudential Financial, Inc. | 40,456 | 3,793,964 | |||||||||||||
Travelers Cos, Inc. | 389,562 | 48,745,893 | |||||||||||||
|
| ||||||||||||||
233,389,268 | |||||||||||||||
|
| ||||||||||||||
Total Financials | 1,525,270,892 | ||||||||||||||
|
| ||||||||||||||
Health Care - 11.85% | |||||||||||||||
Biotechnology - 0.71% | |||||||||||||||
Biogen, Inc.A | 36,200 | 11,014,574 | |||||||||||||
Celgene Corp.A | 153,700 | 11,004,920 | |||||||||||||
Gilead Sciences, Inc. | 246,900 | 16,833,642 | |||||||||||||
Portola Pharmaceuticals, Inc.A B | 251,200 | 4,946,128 | |||||||||||||
|
| ||||||||||||||
43,799,264 | |||||||||||||||
|
| ||||||||||||||
Health Care Equipment & Supplies - 2.53% | |||||||||||||||
Abbott Laboratories | 271,368 | 18,708,110 | |||||||||||||
Danaher Corp. | 180,565 | 17,948,161 | |||||||||||||
Medtronic PLC | 1,143,931 | 102,747,882 | |||||||||||||
Zimmer Biomet Holdings, Inc. | 151,767 | 17,239,214 | |||||||||||||
|
| ||||||||||||||
156,643,367 | |||||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 2.98% | |||||||||||||||
Anthem, Inc. | 257,284 | 70,899,752 | |||||||||||||
Cigna Corp. | 70,056 | 14,978,673 | |||||||||||||
CVS Health Corp. | 1,125,715 | 81,490,509 | |||||||||||||
Express Scripts Holding Co.A | 93,068 | 9,024,804 | |||||||||||||
McKesson Corp. | 64,294 | 8,021,319 | |||||||||||||
|
| ||||||||||||||
184,415,057 | |||||||||||||||
|
| ||||||||||||||
Life Sciences Tools & Services - 0.30% | |||||||||||||||
Thermo Fisher Scientific, Inc. | 79,055 | 18,471,201 | |||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 5.33% | |||||||||||||||
GlaxoSmithKline PLC, Sponsored ADR | 584,834 | 22,843,616 | |||||||||||||
Horizon Pharma PLCA | 642,692 | 11,703,421 | |||||||||||||
Jazz Pharmaceuticals PLCA | 73,968 | 11,747,598 | |||||||||||||
Johnson & Johnson | 575,835 | 80,611,142 | |||||||||||||
Merck & Co., Inc. | 596,128 | 43,880,982 | |||||||||||||
Mylan N.V.A | 501,085 | 15,658,906 | |||||||||||||
Novartis AG, Sponsored ADR | 36,016 | 3,149,960 | |||||||||||||
Pfizer, Inc. | 2,166,545 | 93,291,428 | |||||||||||||
Roche Holding AG, Sponsored ADR | 82,348 | 2,500,085 | |||||||||||||
Sanofi, ADR | 995,874 | 44,535,485 | |||||||||||||
|
| ||||||||||||||
329,922,623 | |||||||||||||||
|
| ||||||||||||||
Total Health Care | 733,251,512 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
12
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% (continued) | |||||||||||||||
Industrials - 9.39% | |||||||||||||||
Aerospace & Defense - 1.80% | |||||||||||||||
Embraer S.A., Sponsored ADR | 273,900 | $ | 6,099,753 | ||||||||||||
General Dynamics Corp. | 83,189 | 14,356,758 | |||||||||||||
Lockheed Martin Corp. | 27,149 | 7,977,734 | |||||||||||||
Northrop Grumman Corp. | 82,444 | 21,596,206 | |||||||||||||
Raytheon Co. | 160,148 | 28,032,306 | |||||||||||||
United Technologies Corp. | 266,122 | 33,055,013 | |||||||||||||
|
| ||||||||||||||
111,117,770 | |||||||||||||||
|
| ||||||||||||||
Air Freight & Logistics - 0.12% | |||||||||||||||
United Parcel Service, Inc., Class B | 68,429 | 7,290,426 | |||||||||||||
|
| ||||||||||||||
Airlines - 1.10% | |||||||||||||||
American Airlines Group, Inc. | 1,044,340 | 36,635,447 | |||||||||||||
Delta Air Lines, Inc. | 566,800 | 31,020,964 | |||||||||||||
|
| ||||||||||||||
67,656,411 | |||||||||||||||
|
| ||||||||||||||
Building Products - 1.41% | |||||||||||||||
Johnson Controls International PLC | 2,684,640 | 85,827,941 | |||||||||||||
Resideo Technologies, Inc.A | 65,079 | 1,369,916 | |||||||||||||
|
| ||||||||||||||
87,197,857 | |||||||||||||||
|
| ||||||||||||||
Construction & Engineering - 0.02% | |||||||||||||||
AECOMA | 47,523 | 1,384,820 | |||||||||||||
|
| ||||||||||||||
Electrical Equipment - 0.37% | |||||||||||||||
Eaton Corp. PLC | 318,823 | 22,850,044 | |||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 1.91% | |||||||||||||||
3M Co. | 75,733 | 14,408,961 | |||||||||||||
General Electric Co. | 4,682,992 | 47,298,219 | |||||||||||||
Honeywell International, Inc. | 390,475 | 56,548,589 | |||||||||||||
|
| ||||||||||||||
118,255,769 | |||||||||||||||
|
| ||||||||||||||
Machinery - 1.69% | |||||||||||||||
CNH Industrial N.V.B | 2,989,139 | 31,057,154 | |||||||||||||
Cummins, Inc. | 232,297 | 31,752,677 | |||||||||||||
Illinois Tool Works, Inc. | 110,613 | 14,110,900 | |||||||||||||
Ingersoll-Rand PLC | 119,794 | 11,493,036 | |||||||||||||
PACCAR, Inc. | 121,851 | 6,971,096 | |||||||||||||
Stanley Black & Decker, Inc. | 79,934 | 9,313,910 | |||||||||||||
|
| ||||||||||||||
104,698,773 | |||||||||||||||
|
| ||||||||||||||
Professional Services - 0.11% | |||||||||||||||
Equifax, Inc. | 68,415 | 6,940,018 | |||||||||||||
|
| ||||||||||||||
Road & Rail - 0.37% | |||||||||||||||
Canadian National Railway Co. | 93,166 | 7,963,830 | |||||||||||||
Union Pacific Corp. | 102,309 | 14,959,622 | |||||||||||||
|
| ||||||||||||||
22,923,452 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 0.49% | |||||||||||||||
AerCap Holdings N.V.A | 560,100 | 28,049,808 | |||||||||||||
HD Supply Holdings, Inc.A | 65,638 | 2,466,020 | |||||||||||||
|
| ||||||||||||||
30,515,828 | |||||||||||||||
|
| ||||||||||||||
Total Industrials | 580,831,168 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
13
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% (continued) | |||||||||||||||
Information Technology - 9.83% | |||||||||||||||
Communications Equipment - 0.74% | |||||||||||||||
Cisco Systems, Inc. | 662,070 | $ | 30,289,703 | ||||||||||||
Telefonaktiebolaget LM Ericsson, Sponsored ADR | 1,777,120 | 15,389,859 | |||||||||||||
|
| ||||||||||||||
45,679,562 | |||||||||||||||
|
| ||||||||||||||
Electronic Equipment, Instruments & Components - 0.93% | |||||||||||||||
Corning, Inc. | 866,140 | 27,673,173 | |||||||||||||
IPG Photonics Corp.A | 133,300 | 17,802,215 | |||||||||||||
TE Connectivity Ltd. | 158,000 | 11,916,360 | |||||||||||||
|
| ||||||||||||||
57,391,748 | |||||||||||||||
|
| ||||||||||||||
IT Services - 1.83% | |||||||||||||||
Accenture PLC, Class A | 245,141 | 38,639,124 | |||||||||||||
Amdocs Ltd. | 49,544 | 3,134,649 | |||||||||||||
Cognizant Technology Solutions Corp., Class A | 70,786 | 4,886,358 | |||||||||||||
DXC Technology Co. | 83,742 | 6,098,930 | |||||||||||||
Fidelity National Information Services, Inc. | 143,444 | 14,932,520 | |||||||||||||
First Data Corp., Class AA | 1,301,300 | 24,386,362 | |||||||||||||
Fiserv, Inc.A | 174,087 | 13,805,099 | |||||||||||||
Teradata Corp.A | 207,294 | 7,545,502 | |||||||||||||
|
| ||||||||||||||
113,428,544 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 2.04% | |||||||||||||||
Analog Devices, Inc. | 80,134 | 6,708,017 | |||||||||||||
Micron Technology, Inc.A | 1,309,679 | 49,401,092 | |||||||||||||
QUALCOMM, Inc. | 808,231 | 50,829,647 | |||||||||||||
Texas Instruments, Inc. | 209,919 | 19,486,781 | |||||||||||||
|
| ||||||||||||||
126,425,537 | |||||||||||||||
|
| ||||||||||||||
Software - 3.25% | |||||||||||||||
Microsoft Corp. | 864,260 | 92,311,611 | |||||||||||||
Oracle Corp. | 2,226,293 | 108,732,150 | |||||||||||||
|
| ||||||||||||||
201,043,761 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 1.04% | |||||||||||||||
Hewlett Packard Enterprise Co. | 4,214,144 | 64,265,696 | |||||||||||||
|
| ||||||||||||||
Total Information Technology | 608,234,848 | ||||||||||||||
|
| ||||||||||||||
Materials - 3.60% | |||||||||||||||
Chemicals - 2.85% | |||||||||||||||
Air Products & Chemicals, Inc. | 329,894 | 50,919,139 | |||||||||||||
DowDuPont, Inc. | 1,243,871 | 67,069,524 | |||||||||||||
Eastman Chemical Co. | 297,126 | 23,279,822 | |||||||||||||
PPG Industries, Inc. | 225,245 | 23,670,997 | |||||||||||||
Sherwin-Williams Co. | 29,061 | 11,434,632 | |||||||||||||
|
| ||||||||||||||
176,374,114 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 0.75% | |||||||||||||||
Crown Holdings, Inc.A | 541,570 | 22,902,995 | |||||||||||||
International Paper Co. | 512,786 | 23,259,973 | |||||||||||||
|
| ||||||||||||||
46,162,968 | |||||||||||||||
|
| ||||||||||||||
Total Materials | 222,537,082 | ||||||||||||||
|
| ||||||||||||||
Real Estate - 0.08% | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 0.08% | |||||||||||||||
Public Storage | 23,916 | 4,914,021 | |||||||||||||
|
| ||||||||||||||
See accompanying notes
14
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 95.41% (continued) | |||||||||||||||
Utilities - 1.51% | |||||||||||||||
Electric Utilities - 1.51% | |||||||||||||||
Duke Energy Corp. | 271,201 | $ | 22,409,339 | ||||||||||||
Entergy Corp. | 223,979 | 18,803,037 | |||||||||||||
PPL Corp. | 582,654 | 17,712,681 | |||||||||||||
Southern Co. | 639,063 | 28,777,007 | |||||||||||||
Xcel Energy, Inc. | 115,534 | 5,662,321 | |||||||||||||
|
| ||||||||||||||
93,364,385 | |||||||||||||||
|
| ||||||||||||||
Total Utilities | 93,364,385 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $4,733,519,354) | 5,903,699,422 | ||||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 4.30% (Cost $266,324,811) | |||||||||||||||
Investment Companies - 4.30% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%C D | 266,324,811 | 266,324,811 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 0.28% (Cost $17,240,346) | |||||||||||||||
Investment Companies - 0.28% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%C D | 17,240,346 | 17,240,346 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 99.99% (Cost $5,017,084,511) | 6,187,264,579 | ||||||||||||||
OTHER ASSETS, NET OF LIABILITIES - 0.01% | 430,506 | ||||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 6,187,695,085 | |||||||||||||
|
| ||||||||||||||
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, 2018.
C The Fund is affiliated by having the same investment advisor.
D 7-day yield.
ADR - American Depositary Receipt.
LP - Limited Partnership.
MLP – Master Limited Partnership.
NVDR - Non Voting Depositary Receipt.
PLC - Public Limited Company.
Long Futures Contracts Open on October 31, 2018: |
| |||||||||||||||
Equity Futures Contracts | ||||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||||
S&P 500 E-Mini Index Futures | 2,010 | December 2018 | $ | 284,082,936 | $ | 272,465,550 | $ | (11,617,386 | ) | |||||||
|
|
|
|
|
| |||||||||||
$ | 284,082,936 | $ | 272,465,550 | $ | (11,617,386 | ) | ||||||||||
|
|
|
|
|
|
Index Abbreviations: | ||
S&P 500 | Standard & Poor’s U.S. Equity Large Cap Index. |
See accompanying notes
15
American Beacon Large Cap Value FundSM
Schedule of Investments
October 31, 2018
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2018, the investments were classified as described below:
Large Cap Value Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 5,903,699,422 | $ | - | $ | - | $ | 5,903,699,422 | ||||||||||||||||||||
Short-Term Investments | 266,324,811 | - | - | 266,324,811 | ||||||||||||||||||||||||
Securities Lending Collateral | 17,240,346 | - | - | 17,240,346 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 6,187,264,579 | $ | - | $ | - | $ | 6,187,264,579 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Liabilities | ||||||||||||||||||||||||||||
Futures Contracts | $ | (11,617,386 | ) | $ | - | $ | - | $ | (11,617,386 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Liabilities | $ | (11,617,386 | ) | $ | - | $ | - | $ | (11,617,386 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires transfers between all levels to level 3 to be disclosed. During the year ended October 31, 2018, there were no transfers into or out of Level 3.
See accompanying notes
16
American Beacon Large Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2018
Assets: |
| |||
Investments in unaffiliated securities, at fair value†§ | $ | 5,903,699,422 | ||
Investments in affiliated securities, at fair value‡ | 283,565,157 | |||
Deposit with brokers for futures contracts | 25,204,696 | |||
Dividends and interest receivable | 6,429,759 | |||
Receivable for investments sold | 114,049,429 | |||
Receivable for fund shares sold | 11,529,007 | |||
Receivable for tax reclaims | 208,666 | |||
Prepaid expenses | 119,529 | |||
|
| |||
Total assets | 6,344,805,665 | |||
|
| |||
Liabilities: |
| |||
Payable for investments purchased | 107,870,017 | |||
Payable for fund shares redeemed | 13,533,360 | |||
Payable for expense reimbursement (Note 2) | 14,953 | |||
Management and sub-advisory fees payable (Note 2) | 6,091,543 | |||
Service fees payable (Note 2) | 323,464 | |||
Transfer agent fees payable (Note 2) | 96,139 | |||
Payable upon return of securities loaned (Note 9)§ | 17,240,346 | |||
Custody and fund accounting fees payable | 51,751 | |||
Professional fees payable | 77,974 | |||
Trustee fees payable (Note 2) | 43,213 | |||
Payable for prospectus and shareholder reports | 118,549 | |||
Payable for variation margin from open futures contracts (Note 5) | 11,612,946 | |||
Other liabilities | 36,325 | |||
|
| |||
Total liabilities | 157,110,580 | |||
|
| |||
Net assets | $ | 6,187,695,085 | ||
|
| |||
Analysis of net assets: |
| |||
Paid-in-capital | $ | 4,597,696,015 | ||
Total distributable earnings (deficits)A | 1,589,999,070 | |||
|
| |||
Net assets | $ | 6,187,695,085 | ||
|
|
See accompanying notes
17
American Beacon Large Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2018
Shares outstanding at no par value (unlimited shares authorized): |
| |||
Institutional Class | 130,254,856 | |||
|
| |||
Y Class | 10,566,752 | |||
|
| |||
Investor Class | 57,175,213 | |||
|
| |||
Advisor Class | 2,420,080 | |||
|
| |||
A Class | 1,642,911 | |||
|
| |||
C Class | 266,518 | |||
|
| |||
R6 Class | 20,106,349 | |||
|
| |||
Net assets: |
| |||
Institutional Class | $ | 3,700,700,522 | ||
|
| |||
Y Class | $ | 298,017,629 | ||
|
| |||
Investor Class | $ | 1,505,354,807 | ||
|
| |||
Advisor Class | $ | 62,811,940 | ||
|
| |||
A Class | $ | 42,722,617 | ||
|
| |||
C Class | $ | 6,851,003 | ||
|
| |||
R6 Class | $ | 571,236,567 | ||
|
| |||
Net asset value, offering and redemption price per share: |
| |||
Institutional Class | $ | 28.41 | ||
|
| |||
Y Class | $ | 28.20 | ||
|
| |||
Investor Class | $ | 26.33 | ||
|
| |||
Advisor Class | $ | 25.95 | ||
|
| |||
A Class | $ | 26.00 | ||
|
| |||
A Class (offering price) | $ | 27.59 | ||
|
| |||
C Class | $ | 25.71 | ||
|
| |||
R6 Class | $ | 28.41 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 4,733,519,354 | ||
‡ Cost of investments in affiliated securities | $ | 283,565,157 | ||
§ Fair value of securities on loan | $ | 16,815,291 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
See accompanying notes
18
American Beacon Large Cap Value FundSM
Statement of Operations
For the year ended October 31, 2018
Investment income: | ||||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 165,467,131 | ||
Dividend income from affiliated securities (Note 8) | 3,291,443 | |||
Interest income (net of foreign taxes) | 57,219 | |||
Income derived from securities lending (Note 9) | 465,419 | |||
|
| |||
Total investment income | 169,281,212 | |||
|
| |||
Expenses: |
| |||
Management and sub-advisory fees (Note 2) | 38,383,357 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 1,331,445 | |||
Y Class (Note 2) | 335,097 | |||
Investor Class | 62,097 | |||
Advisor Class | 3,666 | |||
A Class | 2,183 | |||
R6 Class | 8,940 | |||
Custody and fund accounting fees | 696,285 | |||
Professional fees | 290,784 | |||
Registration fees and expenses | 166,796 | |||
Service fees (Note 2): | ||||
Investor Class | 6,210,119 | |||
Advisor Class | 195,573 | |||
A Class | 38,791 | |||
C Class | 4,500 | |||
Distribution fees (Note 2): | ||||
Advisor Class | 195,573 | |||
A Class | 106,228 | |||
C Class | 78,228 | |||
Prospectus and shareholder report expenses | 332,760 | |||
Trustee fees (Note 2) | 489,420 | |||
Other expenses | 366,436 | |||
|
| |||
Total expenses | 49,298,278 | |||
|
| |||
Net fees waived and expenses (reimbursed) (Note 2)A | (37,769 | ) | ||
|
| |||
Net expenses | 49,260,509 | |||
|
| |||
Net investment income | 120,020,703 | |||
|
| |||
Realized and unrealized gain (loss) from investments: |
| |||
Net realized gain from: | ||||
Investments in unaffiliated securitiesB | 473,465,679 | |||
Commission recapture (Note 1) | 99,901 | |||
Foreign currency transactions | 23,323 | |||
Futures contracts | 23,069,589 | |||
Change in net unrealized (depreciation) of: | ||||
Investments in unaffiliated securitiesC | (464,683,447 | ) | ||
Futures contracts | (15,177,704 | ) | ||
|
| |||
Net gain from investments | 16,797,341 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 136,818,044 | ||
|
| |||
† Foreign taxes | $ | 1,756,347 | ||
A The Manager voluntarily reimbursed service fees in the amount of $8,462. | ||||
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 net 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, 2018 | Year Ended October 31, 2017 | |||||||||||
Increase (decrease) in net assets: |
| |||||||||||
Operations: |
| |||||||||||
Net investment income | $ | 120,020,703 | $ | 128,855,668 | ||||||||
Net realized gain from investments in unaffiliated securities, commission recapture, foreign currency transactions, and futures contracts | 496,658,492 | 694,063,205 | ||||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities and futures contracts | (479,861,151 | ) | 828,241,553 | |||||||||
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 136,818,044 | 1,651,160,426 | ||||||||||
|
|
|
| |||||||||
Distributions to shareholders: |
| |||||||||||
Net investment income: | ||||||||||||
Institutional Class | – | (112,815,102 | ) | |||||||||
Y Class | – | (7,905,543 | ) | |||||||||
Investor Class | – | (44,594,218 | ) | |||||||||
Advisor Class | – | (2,058,628 | ) | |||||||||
A Class | – | (879,050 | ) | |||||||||
C Class | – | (99,793 | ) | |||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | – | (40,827,429 | ) | |||||||||
Y Class | – | (2,953,376 | ) | |||||||||
Investor Class | – | (18,906,905 | ) | |||||||||
Advisor Class | – | (953,678 | ) | |||||||||
A Class | – | (366,411 | ) | |||||||||
C Class | – | (77,352 | ) | |||||||||
Total retained earnings:* | ||||||||||||
Institutional Class | (459,420,239 | ) | – | |||||||||
Y Class | (38,692,156 | ) | – | |||||||||
Investor Class | (196,784,505 | ) | – | |||||||||
Advisor Class | (8,664,880 | ) | – | |||||||||
A Class | (4,240,901 | ) | – | |||||||||
C Class | (808,195 | ) | – | |||||||||
R6 Class | (17,634,896 | ) | – | |||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (726,245,772 | ) | (232,437,485 | ) | ||||||||
|
|
|
| |||||||||
Capital share transactions (Note 11): |
| |||||||||||
Proceeds from sales of shares | 1,360,517,349 | 1,070,944,813 | ||||||||||
Reinvestment of dividends and distributions | 686,933,740 | 220,594,801 | ||||||||||
Cost of shares redeemed | (2,588,058,224 | ) | (3,282,487,770 | ) | ||||||||
|
|
|
| |||||||||
Net (decrease) in net assets from capital share transactions | (540,607,135 | ) | (1,990,948,156 | ) | ||||||||
|
|
|
| |||||||||
Net (decrease) in net assets | (1,130,034,863 | ) | (572,225,215 | ) | ||||||||
|
|
|
| |||||||||
Net assets: |
| |||||||||||
Beginning of period | 7,317,729,948 | 7,889,955,163 | ||||||||||
|
|
|
| |||||||||
End of period | $ | 6,187,695,085 | $ | 7,317,729,948 | ||||||||
|
|
|
| |||||||||
* Distributions from net investment income and net realized capital gains are combined for the year ended October 31, 2018. See Note 1 in the Notes to Financial Statements for more information regarding new accounting pronouncements. |
|
See accompanying notes
20
American Beacon Large Cap Value FundSM
October 31, 2018
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, as amended (the “Act”), as a diversified, open-end management investment company. As of October 31, 2018, the Trust consists of thirty-three active series, one of which is presented in this filing: American Beacon Large Cap Value Fund (the “Fund”). The remaining thirty-two active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a Delaware corporation and a wholly-owned subsidiary of Resolute Investment Managers, Inc. (“RIM”) organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors. The Manager is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). RIM is, in turn, a wholly-owned subsidiary of Resolute Acquisition, Inc., which is a wholly-owned subsidiary of Resolute Topco, Inc., a wholly-owned subsidiary of Resolute Investment Holdings, LLC (“RIH”). RIH is owned primarily by Kelso Investment Associates VIII, L.P., KEP VI, LLC and Estancia Capital Partners L.P., investment funds affiliated with Kelso & Company, L.P. (“Kelso”) or Estancia Capital Management, LLC (“Estancia”), which are private equity firms.
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Premium Amortization of Purchased Callable Debt Securities. The amendments in the ASU shorten the premium amortization period on a purchased callable debt security from the security’s contractual life to the earliest call date. It is anticipated that this change will enhance disclosures by reducing losses recognized when a security is called on an earlier date. This ASU is effective for fiscal years beginning after December 15, 2018. The Manager continues to evaluate the impact this ASU will have on the financial statements and other disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The amendments in the ASU impact disclosure requirements for fair value measurement. It is anticipated that this change will enhance the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and can include the entire standard or certain provisions that exclude or amend disclosures. For the year ended October 31, 2018, the Fund has chosen to adopt the standard. The adoption of this ASU guidance did not have a material impact on the financial statements and other disclosures.
In August 2018, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Effective with the current reporting period, the Fund adopted the amendments with the impacts being that the Fund is no longer required to present components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributable earnings and the amount of undistributed net investment income on the Statement of Changes in Net Assets.
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 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 |
21
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Class | Eligible Investors | Minimum Initial Investments | ||||
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 a broker or through 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 respective Fund. Class specific expenses, where applicable, currently include service, distribution, transfer agent fees, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Significant Accounting Policies
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 FASB Accounting Standards 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 as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled beyond a standard settlement period for the security after the trade date.
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, net of foreign taxes, is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. Realized gains (losses) from securities sold 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 the 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.
22
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 Trust’s Board of Trustees (the “Board”) deems 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 $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, 2018 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 24,346,299 | ||||||||
Sub-Advisor Fees | 0.20 | % | 14,037,058 | |||||||||
|
|
|
| |||||||||
Total | 0.55 | % | $ | 38,383,357 | ||||||||
|
|
|
|
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
23
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, the Manager received securities lending fees of $47,013 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 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 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 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.
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 and Y Classes of the Fund and has agreed to compensate the intermediaries for providing these services. 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 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, 2018, 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 | $ | 1,526,830 |
As of October 31, 2018, 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 | $ | 54,726 |
24
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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 | $ | 214,336 | $ | 105,485 | $ | 319,821 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the 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 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 two 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, 2018, the Fund participated as a lender by loaning an average amount of $2,128,732 for 96 days at an average interest rate of 2.28% with interest charges earned of $12,820. 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, 2018, the Manager waived and/or reimbursed expenses as follows:
Expense Cap | Expiration of Reimbursed Expenses | |||||||||||||||||
Fund | Class | 11/1/2017 - 10/31/2018 | Reimbursed Expenses | (Recouped) Expenses | ||||||||||||||
Large Cap Value | R6 | 0.58 | % | $ | 29,307 | $ | - | 2021 |
Of these amounts, $14,953 was disclosed as a payable to the Manager on the Statement of Assets and Liabilities at October 31, 2018.
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 be reimbursed by the Fund for any contractual or voluntary fee reductions or expense reimbursements if reimbursement to 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
25
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
waiver/reimbursement or time of recoupment. The reimbursed expenses listed above will expire in 2021. The carryover of excess expenses potentially reimbursable to the Manager are as follows:
Fund | Recouped Expenses | Excess Expense Carryover | Expired Expense Carryover | Expiration of Reimbursed Expenses | ||||||||||||
Large Cap Value | $ | – | $ | 1,950 | $ | – | 2020 |
The Distributor
Effective March 1, 2018, Resolute Investment Distributors, Inc. (“RID” or “Distributor”) replaced Foreside Fund Services, LLC (“Foreside”) as the Fund’s distributor and principal underwriter of the Fund’s shares.
RID is a registered broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor is affiliated with the Manager through common ownership. Under a Distribution Agreement with the Trust, the Distributor acts as the distributor and principal underwriter of the Trust in connection with the continuous offering of shares of the Fund. The Distributor continually distributes shares of the Fund on a best efforts basis. The Distributor has no obligation to sell any specific quantity of the Fund’s shares. Pursuant to the Distribution Agreement, to the extent applicable, the Distributor receives, and may re-allocate to broker-dealers, all or a portion of the sales charge paid by the purchasers of A Class and C Class shares. For A Class and C Class shares, the Distributor receives commission revenue consisting of the portion of A Class and C Class sales charge remaining after the allowances by the Distributor to the broker-dealers. The Distributor retains any portion of the commission fees that are not paid to the broker-dealers for use solely to pay distribution related expenses.
Prior to March 1, 2018, Foreside served as the distributor and principal underwriter of the Fund’s shares. Pursuant to a Sub-Administration Agreement between Foreside and the Manager in effect through February 28, 2018, Foreside received a fee from the Manager for providing administrative services in connection with the marketing and distribution of shares of the Trust, including the registration of Manager employees as registered representatives of Foreside to facilitate distribution of Fund shares. Foreside also received a fee from the Manager under a Marketing Agreement pursuant to which Foreside provided services in connection with the marketing of a Fund to institutional investors. Pursuant to the Distribution Agreement with the Trust in effect through February 28, 2018, Foreside received, and may have re-allocated to broker-dealers, all or a portion of the sales charge paid by the purchasers of A and C Class shares. For A and C Class shares, Foreside received commission revenues consisting of the portion of A and C Class sales charge remaining after the allowances by Foreside to the broker dealers. Foreside retained any portion of the commission fees that were not paid to the broker-dealers for use solely to pay distribution related expenses.
Sales Commissions
The Fund’s Distributor, formerly 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 period November 1, 2017 through February 28, 2018, Foreside collected $1,070 for the Fund from the sale of Class A Shares. During the period March 1, 2018 through October 31, 2018, RID collected $968 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, 2018, there were no CDSC fees collected for 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
26
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
purchase price or the value of the redemption of the Class C Shares redeemed. During the period November 1, 2017 through February 28, 2018, Foreside collected CDSC fees of $32 for Class C Shares of the Fund. During the period March 1, 2018 through October 31, 2018, RID collected $164 for Class C Shares of the Fund.
Trustee Fees and Expenses
As compensation for their service to the Trust, American Beacon Select Funds, American Beacon Institutional Funds Trust, American Beacon Sound Point Enhanced Income Fund, and American Beacon Apollo Total Return Fund, each Trustee receives an annual retainer of $120,000, plus $10,000 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 $2,500 fee each quarter for his attendance at the committee meetings. Effective January 1, 2018, the Board Vice Chair receives an additional annual retainer of $10,000. 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 Trusts according to its respective net assets.
3. Security Valuation and Fair Value Measurements
The price of the Fund’s shares is based on its net asset value (“NAV”) per share. The Fund’s NAV is computed by adding total assets, subtracting all the Fund’s liabilities, and dividing the result by the total number of shares outstanding.
The NAV of each class of the Fund’s shares is determined based on a pro rata allocation of the Fund’s investment income, expenses and total capital gains and losses. The Fund’s NAV per share is determined each business day as of the regular close of trading on the New York Stock Exchange (“NYSE” or “Exchange”), which is typically 4:00 p.m. Eastern Time (“ET”). However, if trading on the NYSE closes at a time other than 4:00 p.m. ET, the Fund’s NAV per share typically would still be determined as of the regular close of trading on the NYSE. The Fund does not price its shares on days that the NYSE is closed. Foreign exchanges may permit trading in foreign securities on days when the Fund is not open for business, which may result in the value of the Fund’s portfolio investments being affected at a time when you are unable to buy or sell shares.
Equity securities, including shares of closed-end funds and exchange-traded funds (“ETFs”), are valued at the last sale price or official closing price taken from the primary exchange in which each security trades. Investments in other mutual funds are valued at the closing NAV per share on the day of valuation. Debt securities are valued at bid quotes from broker/dealers or evaluated bid prices from pricing services, who may consider a number of inputs and factors, such as prices of comparable securities, yield curves, spreads, credit ratings, coupon rates, maturity, default rates, and underlying collateral. Futures are valued based on their daily settlement prices. Exchange-traded and over-the-counter (“OTC”) options are valued at the last sale price. Options with no last sale for the day are priced at mid quote. Swaps are valued at evaluated mid prices from pricing services.
The valuation of securities traded on foreign markets and certain fixed income securities will generally be based on prices determined as of the earlier closing time of the markets on which they primarily trade unless a significant event has occurred. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. ET.
Securities may be valued at fair value, as determined in good faith and pursuant to procedures approved by the Board, under certain limited circumstances. For example, fair value pricing will be used when market quotations are not readily available or reliable, as determined by the Manager, such as when (i) trading for a
27
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
security is restricted or stopped; (ii) a security’s trading market is closed (other than customary closings); or (iii) a security has been de-listed from a national exchange. A security with limited market liquidity may require fair value pricing if the Manager determines that the available price does not reflect the security’s true market value. In addition, if a significant event that the Manager determines to affect the value of one or more securities held by the Fund occurs after the close of a related exchange but before the determination of the Fund’s NAV, fair value pricing may be used on the affected security or securities. Securities of small-capitalization companies are also more likely to require a fair value determination using these procedures because they are more thinly traded and less liquid than the securities of larger-capitalization companies. The Fund may fair value securities as a result of significant events occurring after the close of the foreign markets in which the Fund invests as described below. In addition, the Fund may invest in illiquid securities requiring these procedures.
The Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund’s pricing time of 4:00 p.m. ET. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. If the Manager determines that the last quoted prices of non-U.S. securities will, in its judgment, materially affect the value of some or all its portfolio securities, the Manager can adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the Exchange. In deciding whether it is necessary to adjust closing prices to reflect fair value, the Manager reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. These securities are fair valued using a pricing service, using methods approved by the Board, that considers the correlation of the trading patterns of the foreign security to intraday trading in the U.S. markets, based on indices of domestic securities and other appropriate indicators such as prices of relevant American Depository Receipts (“ADRs”) and futures contracts. The Valuation Committee, established by the Board, may also fair value securities in other situations, such as when a particular foreign market is closed but the Fund is open. The Fund uses outside pricing services to provide closing prices and information to evaluate and/or adjust those prices. As a means of evaluating its security valuation process, the Valuation Committee routinely compares closing prices, the next day’s opening prices in the same markets and adjusted prices.
Attempts to determine the fair value of securities introduce an element of subjectivity to the pricing of securities. As a result, the price of a security determined through fair valuation techniques may differ from the price quoted or published by other sources and may not accurately reflect the market value of the security when trading resumes. If a reliable market quotation becomes available for a security formerly valued through fair valuation techniques, the Manager compares the new market quotation to the fair value price to evaluate the effectiveness of the Fund’s fair valuation procedures. If any significant discrepancies are found, the Manager may adjust the Fund’s fair valuation procedures.
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 following procedures approved 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.
28
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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.
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 and Non-Voting Depositary Receipts
ADRs are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. Non-Voting Depositary Receipts (“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 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
29
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 OTC. OTC stock may be less liquid than exchange-traded stock.
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 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 to 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.
30
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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, 2018 | |||
Large Cap Value | 1,605 |
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, 2018: |
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Derivatives not accounted for as hedging instruments |
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Liabilities: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Payable for variation margin from open futures contracts(2) | $ | – | $ | – | $ | – | $ | – | $ | (11,617,386 | ) | $ | (11,617,386 | ) | |||||||||||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statement of Operations as of October 31, 2018: |
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Derivatives not accounted for as hedging instruments |
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Realized gain (loss) from derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | – | $ | – | $ | – | $ | – | $ | 23,069,589 | $ | 23,069,589 | |||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized appreciation | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | – | $ | – | $ | – | $ | – | $ | (15,177,704 | ) | $ | (15,177,704 | ) |
(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.
31
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 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, 2018.
Offsetting of Financial and Derivative Assets as of October 31, 2018: |
| |||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | – | $ | 11,617,386 | ||||||||
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Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | – | $ | 11,617,386 | ||||||||
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Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | – | $ | (11,617,386 | ) | |||||||
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Remaining Contractual Maturity of the Agreements As of October 31, 2018 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 17,240,346 | $ | – | $ | – | $ | – | $ | 17,240,346 | ||||||||||||||||||||||||||
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Total Borrowings | $ | 17,240,346 | $ | – | $ | – | $ | – | $ | 17,240,346 | ||||||||||||||||||||||||||
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Gross amount of recognized liabilities for securities lending transactions |
| $ | 17,240,346 | |||||||||||||||||||||||||||||||||
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6. Principal Risks
Investing in the Fund may involve certain risks including, but not limited to, those described below.
Equity Investments 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 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 are subject to certain of the risks associated with investing directly in foreign securities, including, but not limited to, currency exchange rate fluctuations, political and financial instability in the home country of a particular depositary receipt, less liquidity and more volatility, less government regulation and supervision and delays in transaction settlement.
32
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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.
The risk of investing in Europe may be heightened due to the 2016 referendum in which the United Kingdom voted to exit the European Union (EU). There is a significant degree of uncertainty about how negotiations relating to the United Kingdom’s withdrawal will be conducted, as well as the potential consequences and precise time frame for “Brexit.” It is expected that the United Kingdom’s exit from the EU will take place within two years of the United Kingdom notifying the European Council that it intends to withdraw from the EU. While it is not possible to determine the precise impact these events may have on a Fund, during this period and beyond, the impact on the United Kingdom and European economies and the broader global economy could be significant, resulting in negative impacts, such as increased volatility and illiquidity, and potentially lower economic growth, on markets in the United Kingdom, Europe and globally, which may adversely affect the value of a Fund’s investments. In addition, if one or more other countries were to exit the EU or abandon the use of the euro as a currency, the value of investments tied to those countries or the euro could decline significantly and unpredictably.
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. Conditions in the U.S. and many foreign economies have resulted, and may continue to result, in certain 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 some cases, traditional market participants have been less willing to make a market in some types of debt instruments, which has affected the liquidity of those instruments. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise and the yields to decline. Reduced liquidity in fixed income and credit markets may negatively affect many issuers worldwide. 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. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time.
33
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
In response to the financial crisis, the U.S. and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. In some countries where economic conditions are recovering, they are nevertheless perceived as still fragile. Withdrawal of government support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations, including changes in tax laws. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for some time. Regulatory changes are causing some financial services companies to exit long-standing lines of business, resulting in dislocations for other market participants. In addition, political and diplomatic events within the U.S. and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, the threat of a federal government shutdown and threats not to increase the federal government’s debt limit, may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. The U.S. government has recently reduced federal corporate income tax rates, and future legislative, regulatory and policy changes may result in more restrictions on international trade, less stringent prudential regulation of certain players in the financial markets, and significant new investments in infrastructure and national defense. Markets may react strongly to expectations about the changes in these policies, which could increase volatility, especially if the markets’ expectations for changes in government policies are not borne out.
Changes in market conditions will not have the same impact on all types of securities. 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 significant rate increase on various markets. For example, because investors may buy securities or other investments with borrowed money, a significant increase in interest rates may cause a decline in the markets for those investments. Because of the sharp decline in the worldwide price of oil, there is a concern that oil producing nations may withdraw significant assets now held in U.S. Treasuries, which could force a substantial increase in interest rates. Regulators have expressed concern that rate increases may cause investors to sell fixed income securities faster than the market can absorb them, contributing to price volatility. 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. If a country’s economy slips into a deflationary pattern, it could last for a prolonged period and may be difficult to reverse. The precise details and the resulting impact of the United Kingdom’s vote to leave the European Union (the “EU”), commonly referred to as “Brexit,” are not yet known. The effect on the United Kingdom’s economy will likely depend on the nature of trade relations with the EU and other major economies following its exit, which are matters to be negotiated. The outcomes may cause increased volatility and have a significant adverse impact on world financial markets, other international trade agreements, and the United Kingdom and European economies, as well as the broader global economy for some time, which could significantly adversely affect the value of the Fund’s investments in the United Kingdom and Europe.
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-advisor manages its allocated portion of the Fund independently from another sub-advisor, 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-advisor 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-advisor may believe that temporary, defensive investments in short-term instruments or cash are appropriate when another sub-advisor believes continued exposure to the equity or debt markets is appropriate for its allocated portion of the Fund. Because each sub-advisor 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
34
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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.
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 companies. For example, money market funds are subject to interest rate risk, credit risk, and market risk.
Sector Risk
Sector risk is the risk associated with a Fund holding a significant amount of investments in similar businesses, which would be similarly affected by particular economic or market events, which may, in certain circumstances, cause the value of the equity and debt securities of companies in a particular sector of the market to change. To the extent a Fund has substantial holdings within a particular sector, the risks to a Fund associated with that sector increase.
To the extent a Fund invests in the financial services sector, the value of the Fund’s shares may be particularly vulnerable to factors affecting that sector, such as the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, extensive government regulation and price competition. The value of a Fund’s shares could experience significantly greater volatility than investment companies investing more broadly.
Securities Lending Risk
A Fund may lend its portfolio securities to brokers, dealers and financial institutions to seek income. There is a risk that a borrower may default on its obligations to return loaned securities; however, a Fund’s securities lending agent may indemnify the Fund against that risk. There is a risk that the assets of a Fund’s securities lending agent may be insufficient to satisfy any contractual indemnification requirements to the Fund. Borrowers of a Fund’s securities typically provide collateral in the form of cash that is reinvested in securities. A Fund will be responsible for the risks associated with the investment of cash collateral, including any collateral invested in an affiliated money market fund. A Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its investment to meet obligations to the borrower. In addition, delays may occur in the recovery of securities from borrowers, which could interfere with a Fund’s ability to vote proxies or to settle transactions and there is the risk of possible loss of rights in the collateral should the borrower fail financially.
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, 2018 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.
35
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 tax character of distributions paid were as follows:
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Distributions paid from: | ||||||||||||
Ordinary income* | ||||||||||||
Institutional Class | $ | 165,506,978 | $ | 112,815,101 | ||||||||
Y Class | 13,806,107 | 7,905,543 | ||||||||||
Investor Class | 66,628,592 | 44,594,219 | ||||||||||
Advisor Class | 2,835,000 | 2,058,628 | ||||||||||
A Class | 1,445,057 | 879,050 | ||||||||||
C Class | 235,964 | 99,793 | ||||||||||
R6 Class | 6,390,376 | – | ||||||||||
Long-term capital gains | ||||||||||||
Institutional Class | 293,913,261 | 40,827,429 | ||||||||||
Y Class | 24,886,049 | 2,953,376 | ||||||||||
Investor Class | 130,155,913 | 18,906,905 | ||||||||||
Advisor Class | 5,829,879 | 953,678 | ||||||||||
A Class | 2,795,844 | 366,411 | ||||||||||
C Class | 572,231 | 77,352 | ||||||||||
R6 Class | 11,244,521 | – | ||||||||||
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| |||||||||
Total distributions paid | $ | 726,245,772 | $ | 232,437,485 | ||||||||
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|
|
* For tax purposes, short-term gains are considered ordinary income distributions.
As of October 31, 2018 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 | $ | 5,099,700,298 | $ | 1,402,287,492 | $ | (314,723,209 | ) | $ | 1,087,564,283 |
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 | $ | 1,087,564,283 | $ | 117,445,376 | $ | 384,989,411 | $ | – | $ | – | $ | 1,589,999,070 |
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 investments in 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.
36
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Accordingly, the following amounts represent current year permanent differences derived from tax-exempt interest and nondeductible expenses from investments in publicly traded partnerships as of October 31, 2018:
Fund | Paid-In-Capital | Distributable Earnings/(Loss) | ||||||
Large Cap Value | $ | (106,120 | ) | $ | 106,120 |
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.
During the year ended October 31, 2018, 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, 2018 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Sales (non-U.S. Government Securities) | ||||||
Large Cap Value | $ | 1,508,012,268 | $ | 2,660,455,529 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2018 were as follows:
Fund | Type of Transaction | October 31, 2017 Shares/Fair Value | Purchases | Sales | October 31, 2018 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
Large Cap Value | Direct | $ | 288,452,185 | $ | 2,444,604,189 | $ | 2,466,731,563 | $ | 266,324,811 | $ | 3,291,443 | |||||||||||||||||||||||||||||||
Large Cap Value | Securities Lending | 97,150,617 | 665,976,587 | 745,886,858 | 17,240,346 | 1,877 |
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
37
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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.
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, 2018, 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 | $ | 16,815,291 | $ | 17,240,346 | $ | – | $ | 17,240,346 |
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. Borrowing Arrangements
Effective November 16, 2017, the Fund, along with certain other funds managed by the Manager (“Participating Funds”), entered into a committed revolving line of credit (the “Committed Line”) agreement with State Street Bank and Trust Company (the “Bank”) to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Committed Line is $50 million with interest at a rate equal to the higher of (a) one-month London Inter-Bank Offered Rate (“LIBOR”) plus 1.25% per annum or (b) the Federal Funds rate plus 1.25% per annum on amounts borrowed. Each of the Participating Funds will pay a commitment fee at a rate of 0.25% per annum on the unused portion of the Committed Line amount. The Committed Line expires November 15, 2018, unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
Effective November 16, 2017, the Fund, along with certain other Participating Funds managed by the Manager, entered into an uncommitted discretionary demand revolving line of credit (the “Uncommitted Line”) agreement with the Bank to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Uncommitted Line is $50 million with interest at a rate equal to the higher of (a) one-month LIBOR plus 1.25% per annum or (b) the Federal Funds rate. The Uncommitted Line expires November 15, 2018 unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
38
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
The Participating Funds paid administration, legal and arrangement fees, which are recognized as a component of “Other expenses” on the Statement of Operations, along with commitment fees, that have been allocated among the Participating Funds based on average daily net assets.
During the year ended October 31, 2018, the Fund did not utilize this facility.
11. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 15,590,380 | $ | 461,010,040 | 22,769,063 | $ | 656,233,956 | ||||||||||||||||||||||
Reinvestment of dividends | 14,507,737 | 424,641,445 | 5,164,960 | 144,102,372 | ||||||||||||||||||||||||
Shares redeemed | (53,655,757 | ) | (1,600,135,398 | ) | (73,234,805 | ) | (2,103,146,975 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||
Net (decrease) in shares outstanding | (23,557,640 | ) | $ | (714,483,913 | ) | (45,300,782 | ) | $ | (1,302,810,647 | ) | ||||||||||||||||||
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| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 3,099,705 | $ | 91,175,749 | 3,126,566 | $ | 89,594,420 | ||||||||||||||||||||||
Reinvestment of dividends | 1,294,567 | 37,646,020 | 382,065 | 10,598,482 | ||||||||||||||||||||||||
Shares redeemed | (6,308,043 | ) | (182,284,089 | ) | (4,661,125 | ) | (131,631,686 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,913,771 | ) | $ | (53,462,320 | ) | (1,152,494 | ) | $ | (31,438,784 | ) | ||||||||||||||||||
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Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 6,511,604 | $ | 180,144,427 | 9,354,201 | $ | 251,586,213 | ||||||||||||||||||||||
Reinvestment of dividends | 7,135,711 | 194,091,350 | 2,362,886 | 61,718,592 | ||||||||||||||||||||||||
Shares redeemed | (25,281,746 | ) | (699,918,301 | ) | (35,958,339 | ) | (961,374,863 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||
Net (decrease) in shares outstanding | (11,634,431 | ) | $ | (325,682,524 | ) | (24,241,252 | ) | $ | (648,070,058 | ) | ||||||||||||||||||
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Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 327,661 | $ | 8,945,251 | 472,811 | $ | 12,521,928 | ||||||||||||||||||||||
Reinvestment of dividends | 297,468 | 7,987,006 | 108,296 | 2,795,115 | ||||||||||||||||||||||||
Shares redeemed | (1,295,285 | ) | (35,519,351 | ) | (2,242,361 | ) | (58,812,119 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||
Net (decrease) in shares outstanding | (670,156 | ) | $ | (18,587,094 | ) | (1,661,254 | ) | $ | (43,495,076 | ) | ||||||||||||||||||
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A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 652,905 | $ | 17,333,416 | 740,832 | $ | 19,929,459 | ||||||||||||||||||||||
Reinvestment of dividends | 156,140 | 4,195,476 | 47,258 | 1,221,618 | ||||||||||||||||||||||||
Shares redeemed | (567,054 | ) | (15,500,596 | ) | (854,841 | ) | (22,876,376 | ) | ||||||||||||||||||||
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Net increase (decrease) in shares outstanding | 241,991 | $ | 6,028,296 | (66,751 | ) | $ | (1,725,299 | ) | ||||||||||||||||||||
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39
American Beacon Large Cap Value FundSM
Notes to Financial Statements
October 31, 2018
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 28,678 | $ | 766,750 | 38,862 | $ | 1,023,344 | ||||||||||||||||||||||
Reinvestment of dividends | 27,603 | 737,547 | 6,172 | 158,622 | ||||||||||||||||||||||||
Shares redeemed | (85,211 | ) | (2,307,165 | ) | (129,249 | ) | (3,392,547 | ) | ||||||||||||||||||||
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Net (decrease) in shares outstanding | (28,930 | ) | $ | (802,868 | ) | (84,215 | ) | $ | (2,210,581 | ) | ||||||||||||||||||
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R6 Class | ||||||||||||||||||||||||||||
Year Ended October 31, 2018 | February 28, 2017A to October 31, 2017 | |||||||||||||||||||||||||||
Large Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 19,947,926 | $ | 601,141,716 | 1,364,784 | $ | 40,055,493 | ||||||||||||||||||||||
Reinvestment of dividends | 602,696 | 17,634,896 | – | – | ||||||||||||||||||||||||
Shares redeemed | (1,767,061 | ) | (52,393,324 | ) | (41,996 | ) | (1,253,204 | ) | ||||||||||||||||||||
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Net increase in shares outstanding | 18,783,561 | $ | 566,383,288 | 1,322,788 | $ | 38,802,289 | ||||||||||||||||||||||
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A Commencement of operations.
12. Subsequent Events
Effective November 15, 2018, the Fund, along with certain other funds managed by the Manager, entered into a committed revolving line of credit with a max borrowing amount of $250 million.
Management has evaluated additional 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.
40
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
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Net asset value, beginning of period | $ | 30.98 | $ | 25.80 | $ | 28.38 | $ | 31.21 | $ | 27.59 | ||||||||||||||||||||||||||
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Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.63 | 0.59 | 0.61 | 0.55 | 0.73 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.07 | ) | 5.41 | (0.29 | ) | (0.70 | ) | 3.33 | ||||||||||||||||||||||||||||
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Total income (loss) from investment operations | 0.56 | 6.00 | 0.32 | (0.15 | ) | 4.06 | ||||||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.55 | ) | (0.60 | ) | (0.52 | ) | (0.67 | ) | (0.44 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.58 | ) | (0.22 | ) | (2.38 | ) | (2.01 | ) | - | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (3.13 | ) | (0.82 | ) | (2.90 | ) | (2.68 | ) | (0.44 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.41 | $ | 30.98 | $ | 25.80 | $ | 28.38 | $ | 31.21 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 1.51 | % | 23.60 | % | 1.69 | % | (0.76 | )% | 14.89 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 3,700,700,522 | $ | 4,765,771,483 | $ | 5,137,688,375 | $ | 6,198,883,300 | $ | 5,816,013,064 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.62 | % | 0.60 | % | 0.60 | % | 0.58 | % | 0.58 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.62 | % | 0.60 | % | 0.60 | % | 0.58 | % | 0.58 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.83 | % | 1.78 | % | 2.16 | % | 1.88 | % | 2.35 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.83 | % | 1.78 | % | 2.16 | % | 1.88 | % | 2.35 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 25 | % | 32 | % | 29 | % |
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
41
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 30.78 | $ | 25.64 | $ | 28.21 | $ | 31.04 | $ | 27.46 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.57 | 0.48 | 0.59 | 0.56 | 0.64 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.04 | ) | 5.46 | (0.29 | ) | (0.72 | ) | 3.37 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.53 | 5.94 | 0.30 | (0.16 | ) | 4.01 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.53 | ) | (0.58 | ) | (0.49 | ) | (0.66 | ) | (0.43 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.58 | ) | (0.22 | ) | (2.38 | ) | (2.01 | ) | - | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (3.11 | ) | (0.80 | ) | (2.87 | ) | (2.67 | ) | (0.43 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 28.20 | $ | 30.78 | $ | 25.64 | $ | 28.21 | $ | 31.04 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 1.42 | % | 23.51 | % | 1.61 | % | (0.80 | )% | 14.78 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 298,017,629 | $ | 384,155,569 | $ | 349,542,346 | $ | 419,096,844 | $ | 434,880,702 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.68 | % | 0.67 | % | 0.67 | % | 0.67 | % | 0.67 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.68 | % | 0.67 | % | 0.67 | % | 0.67 | % | 0.67 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.77 | % | 1.69 | % | 2.08 | % | 1.80 | % | 2.24 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.77 | % | 1.69 | % | 2.08 | % | 1.80 | % | 2.24 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 25 | % | 32 | % | 29 | % |
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
42
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 28.92 | $ | 24.13 | $ | 26.70 | $ | 29.51 | $ | 26.11 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.41 | 0.40 | 0.46 | 0.45 | 0.57 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 0.02 | 5.12 | (0.25 | ) | (0.68 | ) | 3.18 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.43 | 5.52 | 0.21 | (0.23 | ) | 3.75 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.44 | ) | (0.51 | ) | (0.40 | ) | (0.57 | ) | (0.35 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.58 | ) | (0.22 | ) | (2.38 | ) | (2.01 | ) | - | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (3.02 | ) | (0.73 | ) | (2.78 | ) | (2.58 | ) | (0.35 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 26.33 | $ | 28.92 | $ | 24.13 | $ | 26.70 | $ | 29.51 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 1.18 | % | 23.20 | % | 1.33 | % | (1.07 | )% | 14.50 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 1,505,354,807 | $ | 1,990,199,621 | $ | 2,245,534,741 | $ | 3,167,585,961 | $ | 4,158,361,296 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.95 | % | 0.92 | % | 0.93 | % | 0.93 | % | 0.93 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.95 | % | 0.92 | % | 0.93 | % | 0.93 | % | 0.93 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.50 | % | 1.46 | % | 1.84 | % | 1.54 | % | 2.01 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.50 | % | 1.46 | % | 1.84 | % | 1.54 | % | 2.01 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 25 | % | 32 | % | 29 | % |
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
43
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Advisor ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 28.54 | $ | 23.82 | $ | 26.40 | $ | 29.24 | $ | 25.89 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.28 | 0.21 | 0.40 | 0.40 | 0.47 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 0.10 | 5.20 | (0.22 | ) | (0.66 | ) | 3.20 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.38 | 5.41 | 0.18 | (0.26 | ) | 3.67 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.39 | ) | (0.47 | ) | (0.38 | ) | (0.57 | ) | (0.32 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.58 | ) | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.97 | ) | (0.69 | ) | (2.76 | ) | (2.58 | ) | (0.32 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 25.95 | $ | 28.54 | $ | 23.82 | $ | 26.40 | $ | 29.24 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 1.00 | % | 23.00 | % | 1.21 | % | (1.19 | )% | 14.31 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 62,811,940 | $ | 88,196,090 | $ | 113,168,437 | $ | 140,975,319 | $ | 149,422,940 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.09 | % | 1.07 | % | 1.08 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.09 | % | 1.07 | % | 1.08 | % | 1.07 | % | 1.07 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.36 | % | 1.31 | % | 1.69 | % | 1.40 | % | 1.83 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.36 | % | 1.31 | % | 1.69 | % | 1.40 | % | 1.83 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 25 | % | 32 | % | 29 | % |
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
44
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 28.61 | $ | 23.90 | $ | 26.51 | $ | 29.38 | $ | 26.03 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.48 | 0.28 | 0.42 | 0.47 | 0.54 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.06 | ) | 5.17 | (0.21 | ) | (0.71 | ) | 3.16 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.42 | 5.45 | 0.21 | (0.24 | ) | 3.70 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.45 | ) | (0.52 | ) | (0.44 | ) | (0.62 | ) | (0.35 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.58 | ) | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (3.03 | ) | (0.74 | ) | (2.82 | ) | (2.63 | ) | (0.35 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 26.00 | $ | 28.61 | $ | 23.90 | $ | 26.51 | $ | 29.38 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 1.15 | % | 23.13 | % | 1.33 | % | (1.14 | )% | 14.37 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 42,722,617 | $ | 40,073,435 | $ | 35,071,001 | $ | 39,401,153 | $ | 22,781,918 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.93 | % | 0.98 | % | 0.98 | % | 0.97 | % | 1.04 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.93 | % | 0.98 | % | 0.98 | % | 0.97 | % | 1.04 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.49 | % | 1.38 | % | 1.78 | % | 1.48 | % | 1.83 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.49 | % | 1.38 | % | 1.78 | % | 1.48 | % | 1.83 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 25 | % | 32 | % | 29 | % |
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
45
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 28.27 | $ | 23.57 | $ | 26.17 | $ | 29.03 | $ | 25.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.21 | 0.09 | 0.20 | 0.27 | 0.35 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | 0.05 | 5.11 | (0.19 | ) | (0.70 | ) | 3.11 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.26 | 5.20 | 0.01 | (0.43 | ) | 3.46 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.24 | ) | (0.28 | ) | (0.23 | ) | (0.42 | ) | (0.24 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.58 | ) | (0.22 | ) | (2.38 | ) | (2.01 | ) | – | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.82 | ) | (0.50 | ) | (2.61 | ) | (2.43 | ) | (0.24 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 25.71 | $ | 28.27 | $ | 23.57 | $ | 26.17 | $ | 29.03 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 0.57 | % | 22.27 | % | 0.51 | % | (1.83 | )% | 13.48 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 6,851,003 | $ | 8,351,349 | $ | 8,950,263 | $ | 12,389,141 | $ | 9,964,292 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupments | 1.64 | % | 1.72 | % | 1.74 | % | 1.73 | % | 1.79 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupments | 1.54 | % | 1.72 | % | 1.74 | % | 1.73 | % | 1.81 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupments | 0.79 | % | 0.66 | % | 1.02 | % | 0.73 | % | 1.09 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupments | 0.90 | % | 0.66 | % | 1.02 | % | 0.73 | % | 1.07 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 23 | % | 25 | % | 25 | % | 32 | % | 29 | % |
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
46
American Beacon Large Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||||||||||
Year Ended October 31, 2018 | February 28, 2017A to October 31, 2017 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ | 30.98 | $ | 28.64 | ||||||||
|
|
|
| |||||||||
Income from investment operations: | ||||||||||||
Net investment income | 0.59 | 0.12 | ||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.02 | ) | 2.22 | |||||||||
|
|
|
| |||||||||
Total income from investment operations | 0.57 | 2.34 | ||||||||||
|
|
|
| |||||||||
Less distributions: | ||||||||||||
Dividends from net investment income | (0.56 | ) | - | |||||||||
Distributions from net realized gains | (2.58 | ) | - | |||||||||
|
|
|
| |||||||||
Total distributions | (3.14 | ) | - | |||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 28.41 | $ | 30.98 | ||||||||
|
|
|
| |||||||||
Total returnB | 1.54 | % | 8.17 | %C | ||||||||
|
|
|
| |||||||||
Ratios and supplemental data: | ||||||||||||
Net assets, end of period | $ | 571,236,567 | $ | 40,982,401 | ||||||||
Ratios to average net assets: | ||||||||||||
Expenses, before reimbursements | 0.59 | % | 0.60 | %D | ||||||||
Expenses, net of reimbursements | 0.58 | % | 0.58 | %D | ||||||||
Net investment income, before expense reimbursements | 1.75 | % | 1.38 | %D | ||||||||
Net investment income, net of reimbursements | 1.76 | % | 1.40 | %D | ||||||||
Portfolio turnover rate | 23 | % | 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 rate is for the period from February 28, 2017 through October 31, 2017 and is not annualized. |
See accompanying notes
47
American Beacon FundsSM
October 31, 2018 (Unaudited)
Certain tax information regarding the Funds are required to be provided to shareholders based upon the Fund’s income and distributions for the taxable year ended October 31, 2018. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2018.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2018. 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: | ||||
Large Cap Value | 100.00 | % | ||
Qualified Dividend Income: | ||||
Large Cap Value | 100.00 | % | ||
Long-Term Capital Gain Distributions: | ||||
Large Cap Value | $ | 469,397,698 | ||
Short-Term Capital Gain Distributions: | ||||
Large Cap Value | $ | 136,511,984 |
Shareholders will receive notification in January 2019 of the applicable tax information necessary to prepare their 2018 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 18, 2018 and June 5-6, 2018 (collectively, the “Meetings”), the Board of Trustees (“Board” or “Trustees”) considered and then, at its June 6, 2018 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (“Trust”), on behalf of the American Beacon Large Cap Value Fund (“Fund”); and
(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”), Hotchkis and Wiley Capital Management, LLC (“Hotchkis”) and Massachusetts Financial Services Company (“MFS”) (each, a “subadvisor” and collectively, 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, or derived from, 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 the subadvisors.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge 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 to the Board 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 from Broadridge, and to the performance of any 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 from Broadridge, 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 the expense limitation 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 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 each type of service and observed that, with respect to such mutual funds, 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 investment advisory contracts, such as the Agreements. 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 relationships 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; 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 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 Board 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 indices, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding Broadridge’s independent methodology for selecting the Fund’s Broadridge performance universe. The Board also considered that the performance universes 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 a composite of similar 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 Manager earning a profit before and after the payment of distribution-related expenses by the Manager. 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 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 expense waivers and reimbursements for the Fund’s R6 Class shares that were in place during the last fiscal year. The Board further considered that, with respect to the Fund, the applicable 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 representations made by each subadvisor that the Fund’s subadvisory fee rate schedule for each such firm is favorable compared to other comparable client accounts of that firm. 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 the subadvisors may not account for their profits on an account-by-account basis and that different firms likely employ 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, 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.
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 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 Fund appear to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made in comparison to 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. In reviewing the performance, the Trustees viewed longer-term performance over a full market cycle as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events and not necessarily reflective of manager skill.
The expense comparisons below were made in comparison to 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. 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. 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 subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
52
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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 | Below Average Expense Ratio |
Broadridge and Morningstar Performance Analysis (five-year period ended December 31, 2017)
Compared to Broadridge Performance Universe | 2nd Quintile | |
Compared to Morningstar Category | 3rd 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 ended December 31, 2017)
Barrow | 5 Years | 4 | th Quintile | |||||
Brandywine | 5 Years | 4 | th Quintile | |||||
Hotchkis | 5 Years | 1 | st Quintile | |||||
MFS | 5 Years | 1 | st Quintile |
The Trustees also considered: (1) Barrow and Brandywine’s consistent process and consistent team; (2) the Manager’s explanation that Barrow and Brandywine’s deeper value equity investment style (in companies with more significant discounts to price-to-earnings and price-to book ratios relative to other investment managers) has been out of favor; (3) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor manages its 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 Management and Investment Advisory 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.
53
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-seven funds in the fund complex that includes the Trust, the American Beacon Select Funds, the American Beacon Institutional Funds Trust, the American Beacon Sound Point Enhanced Income Fund, and the American Beacon Apollo Total Return Fund. 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** (81) | Trustee since 1996 | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (48) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Joseph B. Armes (56) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Gerard J. Arpey (60) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
54
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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Brenda A. Cline (57) | Trustee since 2004 Vice Chair since 2018 | Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Trustee, Cushing Closed-End Funds (2017-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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Eugene J. Duffy (64) | Trustee since 2008 | Managing Director, Global Investment Management Distribution, Mesirow Financial (2016-Present); 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Claudia A. Holz*** (61) | Trustee since 2018 | Partner, KPMG LLP (1990-2017); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Douglas A. Lindgren**** (56) | Trustee since 2018 | CEO North America, Carne Global Financial Services (2016-2017); Managing Director, IPS Investment Management and Global Head, Content Management, UBS Wealth Management (2010-2016); Managing Director, P&S Hedge Funds, UBS Wealth Management (2008-2010); Managing Director, Head of Alternative Investments, UBS Financial Services, Inc. (2005-2008); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Richard A. Massman (75) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Barbara J. McKenna, CFA (55) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
R. Gerald Turner (72) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (63) | President since 2009 | CEO and Director (2009-Present), and Chairman (2018-Present), American Beacon Advisors, Inc.; President, American Beacon Advisors (2009-2018); Chairman and CEO, Resolute Investment Managers, Inc. (2015-Present); Director, Chairman, President and CEO, Resolute Investment Distributors (2017-Present); Director, Chairman and CEO; Resolute Investment Services, Inc. (2015-Present); Director, Resolute Acquisition, Inc. (2015-Present); President (2015-2018), Director, Resolute Topco, Inc. (2015-Present), President (2015-2018), CEO (2015-Present), and Chairman (2018-Present), Resolute Investment Holdings, LLC; President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President, 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); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-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); President, American Beacon Sound Point Enhanced Income Fund (2018-Present); President, American Beacon Apollo Total Return Fund (2018-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 | |||
One Year | ||||
Rosemary K. Behan (59) | 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); Vice President, Secretary and General Counsel, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015-Present); Vice President, Secretary and General Counsel, Resolute Investment Services, 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); Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Secretary, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Secretary, Resolute Investment Distributors, Inc. (2017-Present); Vice President and Secretary, Continuous Capital, LLC (2018-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); Vice Chief Legal Officer, Vice President and Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Legal Officer, Vice President and Secretary American Beacon Apollo Total Return Fund (2018-Present). | ||
Brian E. Brett (58) | VP since 2004 | Senior Vice President, Head of Distribution (2012-Present) and Vice President, Director of Sales (2004-2012), American Beacon Advisors, Inc.; Senior Vice President, Resolute Investment Distributors, Inc. (2017-Present) and Vice President (2017-2018); 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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Paul B. Cavazos (49) | VP since 2016 | Chief Investment Officer and Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer, DTE Energy (2007-2016); Vice President, American Private Equity Management, L.L.C. (2017-Present) Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Erica Duncan (48) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, Resolute Investment Managers (2015-Present); Vice President, Resolute Investment Services, Inc. (2015-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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-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 | |||
One Year | ||||
Melinda G. Heika (57) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present) and Chief Financial Officer (2010-Present); Treasurer and Chief Financial Officer, 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 and Chief Financial Officer, Resolute Investment Services, Inc. (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 and Chief Financial Officer, Alpha Quant Advisors, LLC (2016-Present); Treasurer, American Beacon Cayman Transformational Innovation, Ltd. (2017-Present); Treasurer, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Treasurer, Resolute Investment Distributors, Inc. (2017-2017); Treasurer and Chief Financial Officer, Continuous Capital, LLC (2018-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); Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Terri L. McKinney (54) | 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, Resolute Investment Services, Inc (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-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 | |||
One Year | ||||
Jeffrey K. Ringdahl (43) | VP since 2010 | Chief Operating Officer (2010-Present), Vice President (2010-2013), Senior Vice President (2013-Present), Director (2015-Present), and President (2018-Present), American Beacon Advisors, Inc.; Senior Vice President (2018-Present), Vice President (2012-2018) and Manager (2015-2018), 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 (2015-Present), Senior Vice Present (2015-2018), and President (2018-Present), Resolute Investment Holdings, LLC; Director (2015-Present), Senior Vice President (2015-2018) and President (2018-Present), Resolute Topco, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Acquisition, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Investment Managers, Inc.; Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Director (2017-Present), Executive Vice President (2017-2018), and President and Chief Operating Officer (2018-Present), Resolute Investment Services, Inc.; Director and Executive Vice President, Resolute Investment Distributors, Inc. (2017-Present); Director, Shapiro Capital Management, LLC (2017-Present); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Director, Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present) | ||
Samuel J. Silver (55) | 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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). | ||
Christina E. Sears (47) | 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); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Distributors (2017-Present); Vice President, Continuous Capital, LLC (2018-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); Chief Compliance Officer and Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Compliance Officer and Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
59
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 | |||
One Year | ||||
Sonia L. Bates (61) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-2018); Assistant Treasurer, Resolute Acquisition, Inc. (2015-2018); Assistant. Treasurer, Resolute Topco, Inc. (2015-2018); Assistant Treasurer, Resolute Investment Holdings, LLC. (2015-2018); 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 Cayman Transformational Innovation Company, Ltd. (2017-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); Assistant Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Shelley D. Abrahams (43) | Assistant Secretary since 2008 | 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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Rebecca L. Harris (51) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Services (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Diana N. Lai (42) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Teresa A. Oxford (60) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Resolute Investment Distributors (2018-Present); Assistant Secretary, Resolute Investment Services (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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
* As of 11/12/2014, the Board adopted a retirement plan that requires Trustees, other than Messrs. Feld and Massman 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.
*** Claudia A. Holz became a new Trustee to each of the Trusts on 4/1/2018.
**** Douglas A. Lindren became a new Trustee to each of the Trusts on 1/1/2018.
60
American Beacon FundsSM
October 31, 2018 (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. 20549-1520. 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 DST Asset Manager Solutions, Inc. Quincy, Massachusetts | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Resolute Investment Distributors, Inc. Irving, Texas |
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 10/18
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, 2018 |
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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 | 32 | |||
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Additional Fund Information | Back Cover |
![]() | Dear Shareholders,
Long-term investing isn’t about identifying and anticipating the next big market move. It’s about identifying the right investment products for riding out those moves. As a long-term investor, you should strive to accomplish the three Ds: direction, discipline and diversification.
u Direction: Achieving your long-term financial goals requires an individualized plan of action. You may want your plan to provide some measure of protection against periods of geopolitical turmoil, economic uncertainty, market volatility and job insecurity. Your plan should be reviewed annually and be adjusted in the event your long-range needs change. |
u | Discipline: Long-term, systematic participation in an investment portfolio requires your resolution to stay the course. Spending time in the market – rather than trying to time the market – may place you in a better position to reach your long-term financial goals. |
u | Diversification: By investing in different types of investment categories and asset classes, you may be able to help mitigate financial risks across your investment portfolio. By allocating your investment portfolio according to your risk-tolerance level, you may be better positioned to weather storms and achieve your long-term financial goals. |
Since 1986, American Beacon has endeavored to provide investors with a disciplined approach to realizing long-term financial goals. As a manager of managers, we strive to provide investment products that may enable investors to participate during market upswings while potentially insulating against market downswings. Our approach is more than a concept. It’s the cornerstone of our culture. And we strive to apply it at every turn as we seek to provide a well-diversified line of investment products for your investment portfolio.
Many of the sub-advisors to our mutual funds pursue upside capture and/or downside protection using proprietary strategies. The investment teams behind our mutual funds seek to produce consistent, long-term results rather than focus only on short-term movements in the markets. In managing our investment products, we emphasize identifying opportunities that offer the potential for long-term rewards.
Thank you for your continued interest in American Beacon. For additional information about our investment products 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, 2018 (Unaudited)
Over the past 12 months, the Federal Reserve (the “Fed”) continued on the path of removing monetary stimulus from the economic system by raising the target federal funds rate four times, a quarter percentage point each, taking the rate from a range of 1.00% to 1.25% to a range of 2.00% to 2.25%. The Fed also increased its balance-sheet reduction program as planned. Given these moves, monetary policy was no longer characterized as “accommodative” by the Federal Open Market Committee in its official September release. However, during the press conference, Chairman Jerome H. Powell stated the change in language did not indicate “any change in the likely path of policy.” In the U.S. economy, despite the ongoing trade war with China, consumer confidence surged to its highest level since the year 2000, and small-business optimism reached an all-time high. Additionally, the third-quarter gross domestic product was 3.50%, and inflation remained around the Fed’s target of 2.00%.
Given the reduction in monetary stimulus and strong economic data, interest rates rose, and the yield curve flattened during the past 12 months. The 10-year Treasury yield rose 77 basis points (+0.77%) to 3.15% at period end. The two-year Treasury yield increased 127 basis points (+1.27%) to 2.87%, and the 30-year Treasury yield increased 51 basis points (+0.51%) to 3.39%. These moves caused the two- to 30-year Treasury yield spread to flatten by 76 basis points (-0.76%) to 0.52%.
As interest rates rose, bond prices declined, leading to a total return of -2.05% for the Bloomberg Barclays U.S. Aggregate Bond Index (the “Index”) over the past 12 months. Credit risk was generally out of favor over the period as three of the four credit sectors posted a negative excess return. The Corporate sector was the worst performer with -47 basis points (-0.47%) of excess return relative to similar-duration Treasury securities. The Mortgage-Backed Securities and Agency sectors followed with -23 basis points (-0.23%) and -9 basis points (-0.09%), respectively. The lone bright spot was the Asset-Backed Securities sector with 34 basis points (0.34%) of excess return relative to similar-duration Treasuries. Thus, the Index had a negative return of -17 basis points (-0.17%) for the period.
2
American Beacon Garcia Hamilton Quality Bond FundSM
Performance Overview
October 31, 2018 (Unaudited)
The Investor Class of the American Beacon Garcia Hamilton Quality Bond Fund (the “Fund”) returned 0.36% for the twelve months ended October 31, 2018. The Bloomberg Barclays U.S. Aggregate Bond Index (the “Index”) returned -2.05% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 4/4/16 through 10/31/18
Total Returns for the Period ended October 31, 2018 |
| |||||||||||||||||||||
Ticker | 1 Year | Since Inception | Value of $10,000 04/04/2016- 10/31/2018 | |||||||||||||||||||
Institutional Class (1,3) | GHQIX | 0.74 | % | 0.77 | % | $ | 10,201 | |||||||||||||||
Y Class (1,3) | GHQYX | 0.74 | % | 0.67 | % | $ | 10,175 | |||||||||||||||
Investor Class (1,3) | GHQPX | 0.36 | % | 0.40 | % | $ | 10,103 | |||||||||||||||
Bloomberg Barclays US Aggregate Bond Index (2) | (2.05 | )% | 0.26 | % | $ | 10,066 |
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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only; and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. 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 Bond 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 were 0.70%, 0.77%, and 0.94%, 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, 2018 (Unaudited)
Duration management was the primary contributor to the Fund’s out performance during the year as the Fund maintained a shorter duration than the Index as interest rates rose. Market participants underestimated the strength of the economy and the number of Fed rate hikes which caused rates to rise as investors realigned their positioning and outlook.
In addition to active duration management, the Fund maintained a barbell yield-curve position as the yield curve flattened. The Fund was overweight the shortest and longest durations along the curve and was underweight in the middle. Floating-rate corporate bonds were used on the front end of the barbell to generate yield and protect from rising rates, and long-duration treasury bonds were used to manage overall duration.
While the barbell position helped as the yield curve flattened, it also contributed to a lower yield-to-maturity for the Fund. Barbell positions generally result in lower yield; therefore, the curve must flatten quickly for the position to benefit. This defensive positioning served as a slight detractor to relative performance.
Sector positioning also benefited the Fund as it maintained an underweight position in credit risk during a period of widening spreads. The Fund’s allocation to corporate bonds was in line with the Index, but its holdings had a much shorter maturity; therefore, it had lower credit risk.
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, 2.375%, Due 5/15/2027 | 12.3 | |||||||
U.S. Treasury Notes/Bonds, 2.500%, Due 5/15/2046 | 11.9 | |||||||
U.S. Treasury Notes/Bonds, 6.250%, Due 5/15/2030 | 5.9 | |||||||
Federal Home Loan Mortgage Corp., 2.243%, Due 7/5/2019, (3-mo. USD LIBOR - 0.165%) | 4.7 | |||||||
Federal Farm Credit Banks, 2.207%, Due 5/11/2020, (1-mo. USD LIBOR - 0.080%) | 2.9 | |||||||
American Express Credit Corp., 3.021%, Due 3/3/2022, (3-mo. USD LIBOR + 0.700%) | 2.8 | |||||||
EI du Pont de Nemours & Co., 3.071%, Due 5/1/2020, (3-mo. USD LIBOR + 0.530%) | 2.8 | |||||||
Walt Disney Co., 2.711%, Due 3/4/2022, (3-mo. USD LIBOR + 0.390%) | 2.8 | |||||||
Wells Fargo & Co., 3.597%, Due 1/24/2023, (3-mo. USD LIBOR + 1.110%) | 2.8 | |||||||
Manufacturers & Traders Trust Co., 2.932%, Due 5/18/2022, (3-mo. USD LIBOR + 0.610%) | 2.7 | |||||||
Total Fund Holdings | 35 | |||||||
Sector Allocation (% Investments) | ||||||||
U.S. Treasury Obligations | 36.0 | |||||||
Financial | 27.9 | |||||||
U.S. Agency Mortgage-Backed Obligations | 8.0 | |||||||
U.S. Government Agency Obligations | 7.7 | |||||||
Technology | 7.6 | |||||||
Basic Materials | 3.2 | |||||||
Communications | 3.2 | |||||||
Consumer, Non-Cyclical | 3.1 | |||||||
Energy | 1.9 | |||||||
Utilities | 1.4 |
4
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2018 (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, 2018 through October 31, 2018.
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.
5
American Beacon Garcia Hamilton Quality Bond FundSM
Expense Example
October 31, 2018 (Unaudited)
American Beacon Garcia Hamilton Quality Bond Fund |
| ||||||||||||||
Beginning Account Value 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period 5/1/2018-10/31/2018* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $1,004.90 | $2.27 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.90 | $2.29 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $1,004.40 | $2.78 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.40 | $2.80 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $1,002.00 | $4.19 | ||||||||||||
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. |
6
American Beacon Garcia Hamilton Quality Bond FundSM
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of American Beacon Garcia Hamilton Quality Bond Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of American Beacon Garcia Hamilton Quality Bond Fund (the “Fund”) (one of the funds constituting American Beacon Funds (the “Trust”)), including the schedule of investments, as of October 31, 2018, 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, the financial highlights for each of the two years in the period ended October 31, 2018 and the period from April 4, 2016 (commencement of operations) to October 31, 2016 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at October 31, 2018, 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 its financial highlights for each of the two years in the period ended October 31, 2018 and the period from April 4, 2016 (commencement of operations) to October 31, 2016, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more American Beacon investment companies since 1987.
Dallas, Texas
December 28, 2018
7
American Beacon Garcia Hamilton Quality Bond FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 42.75% | |||||||||||||||
Basic Materials - 2.84% | |||||||||||||||
EI du Pont de Nemours & Co., 3.071%, Due 5/1/2020, (3-mo. USD LIBOR + 0.530%)A | $ | 7,065,000 | $ | 7,097,207 | |||||||||||
|
| ||||||||||||||
Communications - 2.84% | |||||||||||||||
Walt Disney Co., 2.711%, Due 3/4/2022, (3-mo. USD LIBOR + 0.390%)A | 7,036,000 | 7,088,199 | |||||||||||||
|
| ||||||||||||||
Consumer, Non-Cyclical - 2.68% | |||||||||||||||
Merck & Co., Inc., 2.716%, Due 2/10/2020, (3-mo. USD LIBOR + 0.375%)A | 4,860,000 | 4,872,709 | |||||||||||||
PepsiCo, Inc., 2.924%, Due 5/2/2022, (3-mo. USD LIBOR + 0.365%)A | 1,800,000 | 1,812,499 | |||||||||||||
|
| ||||||||||||||
6,685,208 | |||||||||||||||
|
| ||||||||||||||
Energy - 1.68% | |||||||||||||||
Chevron Corp., 2.844%, Due 11/15/2021, (3-mo. USD LIBOR + 0.530%)A | 4,140,000 | 4,188,912 | |||||||||||||
|
| ||||||||||||||
Financial - 24.71% | |||||||||||||||
American Express Credit Corp., 3.021%, Due 3/3/2022, (3-mo. USD LIBOR + 0.700%)A | 7,068,000 | 7,105,251 | |||||||||||||
Bank of America Corp., | |||||||||||||||
3.129%, Due 7/21/2021, (3-mo. USD LIBOR + 0.660%)A | 3,730,000 | 3,746,159 | |||||||||||||
3.023%, Due 6/25/2022, (3-mo. USD LIBOR + 0.650%)A | 3,820,000 | 3,820,683 | |||||||||||||
Citibank NA, | |||||||||||||||
2.769%, Due 10/20/2020, (3-mo. USD LIBOR + 0.300%)A | 4,000,000 | 3,999,486 | |||||||||||||
2.688%, Due 2/12/2021, (3-mo. USD LIBOR + 0.350%)A | 3,581,000 | 3,580,064 | |||||||||||||
Goldman Sachs Group, Inc., | |||||||||||||||
3.307%, Due 10/31/2022, (3-mo. USD LIBOR + 0.780%)A | 2,395,000 | 2,403,320 | |||||||||||||
3.917%, Due 11/29/2023, (3-mo. USD LIBOR + 1.600%)A | 4,080,000 | 4,218,471 | |||||||||||||
JPMorgan Chase & Co., | |||||||||||||||
3.801%, Due 3/1/2021, (3-mo. USD LIBOR + 1.480%)A | 2,300,000 | 2,355,063 | |||||||||||||
3.717%, Due 10/24/2023, (3-mo. USD LIBOR + 1.230%)A | 4,700,000 | 4,782,758 | |||||||||||||
Manufacturers & Traders Trust Co., 2.932%, Due 5/18/2022, (3-mo. USD LIBOR + 0.610%)A | 6,700,000 | 6,716,630 | |||||||||||||
Morgan Stanley, 3.887%, Due 10/24/2023, (3-mo. USD LIBOR + 1.400%)A | 4,935,000 | 5,025,133 | |||||||||||||
US Bank NA, | |||||||||||||||
2.989%, Due 10/28/2019, (3-mo. USD LIBOR + 0.480%)A | 4,240,000 | 4,255,162 | |||||||||||||
2.828%, Due 4/26/2021, (3-mo. USD LIBOR + 0.320%)A | 2,800,000 | 2,804,211 | |||||||||||||
Wells Fargo & Co., 3.597%, Due 1/24/2023, (3-mo. USD LIBOR + 1.110%)A | 6,795,000 | 6,872,307 | |||||||||||||
|
| ||||||||||||||
61,684,698 | |||||||||||||||
|
| ||||||||||||||
Technology - 6.75% | |||||||||||||||
Apple, Inc., 2.641%, Due 5/6/2019, (3-mo. USD LIBOR + 0.300%)A | 5,504,000 | 5,512,614 | |||||||||||||
IBM Credit LLC, 2.729%, Due 1/20/2021, (3-mo. USD LIBOR + 0.260%)A | 2,475,000 | 2,480,753 | |||||||||||||
Intel Corp., 2.688%, Due 5/11/2022, (3-mo. USD LIBOR + 0.350%)A | 4,540,000 | 4,563,423 | |||||||||||||
Oracle Corp., 3.016%, Due 1/15/2019, (3-mo. USD LIBOR + 0.580%)A | 4,280,000 | 4,284,515 | |||||||||||||
|
| ||||||||||||||
16,841,305 | |||||||||||||||
|
| ||||||||||||||
Utilities - 1.25% | |||||||||||||||
Consolidated Edison Co. of New York, Inc., 2.773%, Due 6/25/2021, Series C, (3-mo. USD LIBOR + 0.400%)A | 3,110,000 | 3,122,016 | |||||||||||||
|
| ||||||||||||||
Total Corporate Obligations (Cost $106,616,830) | 106,707,545 | ||||||||||||||
|
| ||||||||||||||
U.S. GOVERNMENT AGENCY OBLIGATIONS - 6.84% | |||||||||||||||
Federal Farm Credit Banks, | |||||||||||||||
2.121%, Due 7/2/2019, (1-mo. USD LIBOR - 0.140%)A | 4,000,000 | 3,997,494 | |||||||||||||
2.207%, Due 5/11/2020, (1-mo. USD LIBOR - 0.080%)A | 7,160,000 | 7,153,652 | |||||||||||||
2.334%, Due 2/10/2020, (1-mo. USD LIBOR + 0.050%)A | 5,910,000 | 5,919,129 | |||||||||||||
|
| ||||||||||||||
Total U.S. Government Agency Obligations (Cost $17,079,467) | 17,070,275 | ||||||||||||||
|
| ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 7.10% | |||||||||||||||
Federal Home Loan Mortgage Corp., | |||||||||||||||
2.243%, Due 7/5/2019, (3-mo. USD LIBOR - 0.165%)A | 11,635,000 | 11,632,350 | |||||||||||||
4.500%, Due 12/1/2034 | 2,826,062 | 2,908,101 |
See accompanying notes
8
American Beacon Garcia Hamilton Quality Bond FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 7.10% (continued) | |||||||||||||||
Federal National Mortgage Association, | |||||||||||||||
5.500%, Due 1/1/2024 | $ | 1,811,575 | $ | 1,873,410 | |||||||||||
5.000%, Due 7/1/2026 | 1,261,485 | 1,299,641 | |||||||||||||
|
| ||||||||||||||
Total U.S. Agency Mortgage-Backed Obligations (Cost $17,919,906) | 17,713,502 | ||||||||||||||
|
| ||||||||||||||
U.S. TREASURY OBLIGATIONS - 31.92% | |||||||||||||||
U.S. Treasury Notes/Bonds, | |||||||||||||||
2.375%, Due 5/15/2027 | 32,410,000 | 30,590,736 | |||||||||||||
6.250%, Due 5/15/2030 | 11,300,000 | 14,629,527 | |||||||||||||
2.875%, Due 8/15/2045 | 5,345,000 | 4,847,456 | |||||||||||||
2.500%, Due 5/15/2046 | 35,320,000 | 29,597,056 | |||||||||||||
|
| ||||||||||||||
Total U.S. Treasury Obligations (Cost $81,168,997) | 79,664,775 | ||||||||||||||
|
| ||||||||||||||
Shares | |||||||||||||||
SHORT-TERM INVESTMENTS - 10.90% (Cost $27,218,440) | |||||||||||||||
Investment Companies - 10.90% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%B C | 27,218,440 | 27,218,440 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 99.51% (Cost $250,003,640) | 248,374,537 | ||||||||||||||
OTHER ASSETS, NET OF LIABILITIES - 0.49% | 1,226,537 | ||||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 249,601,074 | |||||||||||||
|
| ||||||||||||||
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, 2018.
B The Fund is affiliated by having the same investment advisor.
C 7-day yield.
LLC - Limited Liability Company.
LIBOR - London Interbank Offered Rate.
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2018, the investments were classified as described below:
Garcia Hamilton Quality Bond Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Corporate Obligations | $ | - | $ | 106,707,545 | $ | - | $ | 106,707,545 | ||||||||||||||||||||
U.S. Government Agency Obligations | - | 17,070,275 | - | 17,070,275 | ||||||||||||||||||||||||
U.S. Agency Mortgage-Backed Obligations | - | 17,713,502 | - | 17,713,502 | ||||||||||||||||||||||||
U.S. Treasury Obligations | - | 79,664,775 | - | 79,664,775 | ||||||||||||||||||||||||
Short-Term Investments | 27,218,440 | - | - | 27,218,440 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 27,218,440 | $ | 221,156,097 | $ | - | $ | 248,374,537 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires transfers between all levels to level 3 to be disclosed. During the year ended October 31, 2018, there were no transfers into or out of Level 3.
See accompanying notes
9
American Beacon Garcia Hamilton Quality Bond FundSM
Statement of Assets and Liabilities
October 31, 2018
Assets: |
| |||
Investments in unaffiliated securities, at fair value† | $ | 221,156,097 | ||
Investments in affiliated securities, at fair value‡ | 27,218,440 | |||
Interest receivable | 1,616,486 | |||
Receivable for fund shares sold | 111,338 | |||
Receivable for expense reimbursement (Note 2) | 57,088 | |||
Prepaid expenses | 16,176 | |||
|
| |||
Total assets | 250,175,625 | |||
|
| |||
Liabilities: |
| |||
Payable for fund shares redeemed | 259,515 | |||
Dividends payable | 115,869 | |||
Management and sub-advisory fees payable (Note 2) | 116,810 | |||
Service fees payable (Note 2) | 2,331 | |||
Transfer agent fees payable (Note 2) | 9,181 | |||
Custody and fund accounting fees payable | 1,912 | |||
Professional fees payable | 59,388 | |||
Trustee fees payable (Note 2) | 968 | |||
Payable for prospectus and shareholder reports | 7,486 | |||
Other liabilities | 1,091 | |||
|
| |||
Total liabilities | 574,551 | |||
|
| |||
Net assets | $ | 249,601,074 | ||
|
| |||
Analysis of net assets: |
| |||
Paid-in-capital | $ | 254,621,543 | ||
Total distributable earnings (deficits)A | (5,020,469 | ) | ||
|
| |||
Net assets | $ | 249,601,074 | ||
|
| |||
Shares outstanding at no par value (unlimited shares authorized): |
| |||
Institutional Class | 23,990,390 | |||
|
| |||
Y Class | 376,632 | |||
|
| |||
Investor Class | 1,122,774 | |||
|
| |||
Net assets: |
| |||
Institutional Class | $ | 234,919,975 | ||
|
| |||
Y Class | $ | 3,685,857 | ||
|
| |||
Investor Class | $ | 10,995,242 | ||
|
| |||
Net asset value, offering and redemption price per share: |
| |||
Institutional Class | $ | 9.79 | ||
|
| |||
Y Class | $ | 9.79 | ||
|
| |||
Investor Class | $ | 9.79 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 222,785,200 | ||
‡ Cost of investments in affiliated securities | $ | 27,218,440 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
10
American Beacon Garcia Hamilton Quality Bond FundSM
Statement of Operations
For the year ended October 31, 2018
Investment income: |
| |||
Dividend income from affiliated securities (Note 7) | $ | 145,360 | ||
Interest income | 4,078,623 | |||
|
| |||
Total investment income | 4,223,983 | |||
|
| |||
Expenses: |
| |||
Management and sub-advisory fees (Note 2) | 983,927 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 69,120 | |||
Y Class (Note 2) | 3,062 | |||
Investor Class | 1,607 | |||
Custody and fund accounting fees | 30,150 | |||
Professional fees | 44,090 | |||
Registration fees and expenses | 47,292 | |||
Service fees (Note 2): | ||||
Investor Class | 26,091 | |||
Prospectus and shareholder report expenses | 25,331 | |||
Trustee fees (Note 2) | 11,315 | |||
Other expenses | 15,998 | |||
|
| |||
Total expenses | 1,257,983 | |||
|
| |||
Net fees waived and expenses (reimbursed) (Note 2) | (410,947 | ) | ||
|
| |||
Net expenses | 847,036 | |||
|
| |||
Net investment income | 3,376,947 | |||
|
| |||
Realized and unrealized (loss) from investments: |
| |||
Net realized (loss) from: | ||||
Investments in unaffiliated securitiesA | (780,123 | ) | ||
Change in net unrealized (depreciation) of: | ||||
Investments in unaffiliated securitiesB | (1,810,001 | ) | ||
|
| |||
Net (loss) from investments | (2,590,124 | ) | ||
|
| |||
Net increase in net assets resulting from operations | $ | 786,823 | ||
|
| |||
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 net unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
11
American Beacon Garcia Hamilton Quality Bond FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Increase (decrease) in net assets: |
| |||||||||||
Operations: |
| |||||||||||
Net investment income | $ | 3,376,947 | $ | 1,879,017 | ||||||||
Net realized (loss) from investments in unaffiliated securities | (780,123 | ) | (2,226,277 | ) | ||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities | (1,810,001 | ) | 1,566,653 | |||||||||
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 786,823 | 1,219,393 | ||||||||||
|
|
|
| |||||||||
Distributions to shareholders: |
| |||||||||||
Net investment income: | ||||||||||||
Institutional Class | – | (1,962,423 | ) | |||||||||
Y Class | – | (43,416 | ) | |||||||||
Investor Class | – | (104,914 | ) | |||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | – | (90,251 | ) | |||||||||
Y Class | – | (2,127 | ) | |||||||||
Investor Class | – | (6,000 | ) | |||||||||
Total retained earnings:* | ||||||||||||
Institutional Class | (3,305,504 | ) | – | |||||||||
Y Class | (59,124 | ) | – | |||||||||
Investor Class | (165,821 | ) | – | |||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (3,530,449 | ) | (2,209,131 | ) | ||||||||
|
|
|
| |||||||||
Capital share transactions (Note 9): |
| |||||||||||
Proceeds from sales of shares | 128,042,724 | 30,683,516 | ||||||||||
Reinvestment of dividends and distributions | 3,065,757 | 2,206,616 | ||||||||||
Cost of shares redeemed | (24,196,699 | ) | (22,360,012 | ) | ||||||||
|
|
|
| |||||||||
Net increase in net assets from capital share transactions | 106,911,782 | 10,530,120 | ||||||||||
|
|
|
| |||||||||
Net increase in net assets | 104,168,156 | 9,540,382 | ||||||||||
|
|
|
| |||||||||
Net assets: |
| |||||||||||
Beginning of period | 145,432,918 | 135,892,536 | ||||||||||
|
|
|
| |||||||||
End of period | $ | 249,601,074 | $ | 145,432,918 | ||||||||
|
|
|
| |||||||||
* Distributions from net investment income and net realized capital gains are combined for the year ended October 31, 2018. See Note 1 in the Notes to Financial Statements for more information regarding new accounting pronouncements. |
|
See accompanying notes
12
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2018
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, as amended (the “Act”), as a diversified, open-end management investment company. As of October 31, 2018, the Trust consists of thirty-three active series, one of which is presented in this filing: American Beacon Garcia Hamilton Quality Bond Fund (the “Fund”). The remaining thirty-two active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a Delaware corporation and a wholly-owned subsidiary of Resolute Investment Managers, Inc. (“RIM”) organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors. The Manager is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). RIM is, in turn, a wholly-owned subsidiary of Resolute Acquisition, Inc., which is a wholly-owned subsidiary of Resolute Topco, Inc., a wholly-owned subsidiary of Resolute Investment Holdings, LLC (“RIH”). RIH is owned primarily by Kelso Investment Associates VIII, L.P., KEP VI, LLC and Estancia Capital Partners L.P., investment funds affiliated with Kelso & Company, L.P. (“Kelso”) or Estancia Capital Management, LLC (“Estancia”), which are private equity firms.
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Premium Amortization of Purchased Callable Debt Securities. The amendments in the ASU shorten the premium amortization period on a purchased callable debt security from the security’s contractual life to the earliest call date. It is anticipated that this change will enhance disclosures by reducing losses recognized when a security is called on an earlier date. This ASU is effective for fiscal years beginning after December 15, 2018. The Manager continues to evaluate the impact this ASU will have on the financial statements and other disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The amendments in the ASU impact disclosure requirements for fair value measurement. It is anticipated that this change will enhance the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and can include the entire standard or certain provisions that exclude or amend disclosures. For the year ended October 31, 2018, the Fund has chosen to adopt the standard. The adoption of this ASU guidance did not have a material impact on the financial statements and other disclosures.
In August 2018, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Effective with the current reporting period, the Fund adopted the amendments with the impacts being that the Fund is no longer required to present components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributable earnings and the amount of undistributed net investment income on the Statement of Changes in Net Assets.
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 |
13
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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, transfer agent fees, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Significant Accounting Policies
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 FASB Accounting Standards 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 as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled beyond a standard settlement period for the security after the trade date.
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, net of foreign taxes, is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. Realized gains (losses) from securities sold 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 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 Trust’s Board of Trustees (the “Board”) deems 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.
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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 | % |
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 according to the following schedule:
First $1 billion | 0.20 | % | ||
Over $1 billion | 0.15 | % |
The Management and Sub-Advisory Fees paid by the Fund for the year ended October 31, 2018 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 625,499 | ||||||||
Sub-Advisor Fees | 0.20 | % | 358,428 | |||||||||
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|
|
| |||||||||
Total | 0.55 | % | $ | 983,927 | ||||||||
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|
|
|
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 a Service Plan that obligates the Manager to oversee additional shareholder servicing of the Investor Class of the Fund. As compensation for performing the duties required under the Service Plan, the Manager receives an annualized fee up to 0.375% of the average daily net assets of the Investor Class of the Fund.
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 and Y Classes of the Fund and has agreed to compensate the intermediaries for providing these services. 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
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
were maintained directly by the Fund’s transfer agent. Accordingly, the Fund, pursuant to 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, 2018, 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 | $ | 67,531 |
As of October 31, 2018, 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 | $ | 8,127 |
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, 2018, 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 | $ | 8,335 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the 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 two 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, 2018, the Fund did not utilize the credit facility.
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, the Manager waived and/or reimbursed expenses as follows:
Expense Cap | Expiration of Reimbursed Expenses | |||||||||||||||||
Fund | Class | 11/1/2017 - 10/31/2018 | Reimbursed Expenses | (Recouped) Expenses | ||||||||||||||
Garcia Hamilton Quality Bond | Institutional | 0.45 | % | $ | 395,844 | $ | – | 2021 | ||||||||||
Garcia Hamilton Quality Bond | Y | 0.55 | % | 6,229 | – | 2021 | ||||||||||||
Garcia Hamilton Quality Bond | Investor | 0.83 | % | 8,874 | – | 2021 |
Of these amounts, $57,088 was disclosed as a receivable from the Manager on the Statement of Assets and Liabilities at October 31, 2018.
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 be reimbursed by the Fund for any contractual or voluntary fee reductions or expense reimbursements if reimbursement to 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 2021. 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 | ||||||||||||
Garcia Hamilton Quality Bond | $ | – | $ | 248,391 | $ | – | 2019 | |||||||||
Garcia Hamilton Quality Bond | – | 334,782 | – | 2020 |
The Distributor
Effective March 1, 2018, Resolute Investment Distributors, Inc. (“RID” or “Distributor”) replaced Foreside Fund Services, LLC (“Foreside”) as the Fund’s distributor and principal underwriter of the Fund’s shares.
RID is a registered broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor is affiliated with the Manager through common ownership. Under a Distribution Agreement with the Trust, the Distributor acts as the distributor and principal underwriter of the Trust in connection with the continuous offering of shares of the Fund. The Distributor continually distributes shares of the Fund on a best efforts basis. The Distributor has no obligation to sell any specific quantity of the Fund’s shares.
Prior to March 1, 2018, Foreside served as the distributor and principal underwriter of the Fund’s shares. Pursuant to a Sub-Administration Agreement between Foreside and the Manager in effect through February 28, 2018, Foreside received a fee from the Manager for providing administrative services in connection with the marketing and distribution of shares of the Trust, including the registration of Manager employees as registered representatives of Foreside to facilitate distribution of Fund shares. Foreside also received a fee from the Manager under a Marketing Agreement pursuant to which Foreside provided services in connection with the marketing of a Fund to institutional investors.
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
Trustee Fees and Expenses
As compensation for their service to the Trust, American Beacon Select Funds, American Beacon Institutional Funds Trust, American Beacon Sound Point Enhanced Income Fund, and American Beacon Apollo Total Return Fund, each Trustee receives an annual retainer of $120,000, plus $10,000 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 $2,500 fee each quarter for his attendance at the committee meetings. Effective January 1, 2018, the Board Vice Chair receives an additional annual retainer of $10,000. 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 Trusts according to its respective net assets.
3. Security Valuation and Fair Value Measurements
The price of the Fund’s shares is based on the Fund’s Net Asset Value (“NAV”). The NAV of the Fund, or each of its share classes, as applicable, is determined by dividing the total value of portfolio investments and other assets, less any liabilities attributable to the Fund or class, by the total number of shares outstanding of the Fund or class.
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 following procedures approved by the Board.
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.
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. |
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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 (“ABS”) 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.
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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 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.
Mortgage-Related and Other Asset-Backed Securities
The Fund may invest in mortgage or other 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.
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.
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
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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.
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. A decline in the credit rating of an individual security held by a Fund may have an adverse impact on its price and make it difficult for a Fund to sell it. Ratings represent a rating agency’s opinion regarding the quality of the security and are not a guarantee of quality. Rating agencies might not always change their credit rating on an issuer or security in a timely manner to reflect events that could affect the issuer’s ability to make timely payments on its obligations. Credit risk is typically greater for securities with ratings that are below investment grade.
Floating Rate Securities Risk
The coupons on certain fixed income securities in which the Fund may invest are not fixed and may fluctuate based upon changes in market rates. The coupon on a floating rate security is generally based on an interest rate such as a money-market index, London Interbank Offered Rate (“LIBOR”) or a Treasury bill rate. Such securities are subject to interest rate risk and 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. As short-term interest rates decline, the coupons on floating rate securities typically decrease. Alternatively, during periods of rising interest rates, changes in the coupons of floating rate securities may lag behind changes in market rates or may have limits on the maximum increases in the coupon rates. The value of floating rate securities may decline if their coupons 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. Floating rate obligations are less effective than fixed rate obligations at locking in a particular yield and are subject to credit risk.
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
Interest Rate Risk
Investments in investment-grade and non-investment grade fixed-income securities are subject to interest rate risk. The value of the Fund’s fixed-income investments typically will fall when interest rates rise. The Fund may be particularly sensitive to changes in interest rates if it invests in debt securities with intermediate and long terms to maturity. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. For example, if a bond has a duration of seven years, a 1% increase in interest rates could be expected to result in a 7% decrease in the value of the bond. Yields of debt securities will fluctuate over time. Following the financial crisis that started in 2008, the Federal Reserve attempted to stabilize the economy and support the economic recovery by keeping the federal funds rate (the interest rate at which depository institutions lend reserve balances to each other overnight) at or near zero percent. The Federal Reserve has raised the federal funds rate several times since December 2015 and has signaled additional increases in the near future. Interest rates may rise significantly and/or rapidly, potentially resulting insubstantial losses to the Fund. During periods of very low or negative interest rates, the Fund may be unable to maintain positive returns. Certain European countries and Japan have recently experienced negative interest rates on deposits and debt securities have traded at negative yields. Negative interest rates may become more prevalent among non-U.S. issuers, and potentially within the United States. Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets, may result in heightened market volatility and may detract from Fund performance to the extent the Fund is exposed to such interest rates.
Investment Risk
An investment in the Fund is not a deposit with a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. When you sell your shares of the Fund, they could be worth less than what you paid for them. Therefore, you may lose money by investing in the Fund.
Liquidity Risk
When there is little or no active trading market for a specific security it can become more difficult to purchase or sell the securities at or near their perceived value. During such periods, certain investments held by the Fund may be difficult to sell or other investments may be difficult to purchase at favorable times or prices. As a result, the Fund may have to lower the price on certain securities that it is trying to sell, sell other securities instead or forgo an investment opportunity, any of which could have a negative effect on Fund management or performance. Redemptions by a few large investors in the Fund at such times may have a significant adverse effect on the Fund’s NAV and remaining Fund shareholders. In addition, the market-making capacity of dealers in certain types of securities has been reduced in recent years, in part as a result of structural and regulatory changes, such as fewer proprietary trading desks and increased regulatory capital requirements for broker-dealers. Further, many broker-dealers have reduced their inventory of certain debt securities. This could negatively affect the Fund’s ability to buy or sell debt securities and increase the related volatility and trading costs. The Fund may lose money if it is forced to sell certain investments at unfavorable prices to meet redemption requests or other cash needs.
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects. Conditions in the U.S. and many foreign economies have resulted, and may continue to result, in certain 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 some cases, traditional market participants have been less willing to make a market in some types of debt instruments, which has affected the liquidity of those instruments. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise and the yields to decline. Reduced liquidity in fixed-income and credit markets may negatively
22
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
affect many issuers worldwide. 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. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time.
In response to the financial crisis, the U.S. and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. In some countries where economic conditions are recovering, they are nevertheless perceived as still fragile. Withdrawal of government support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations, including changes in tax laws. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for some time. Regulatory changes are causing some financial services companies to exit long-standing lines of business, resulting in dislocations for other market participants. In addition, political and diplomatic events within the U.S. and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, the threat of a federal government shutdown and threats not to increase the federal government’s debt limit, may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. The U.S. government has recently reduced federal corporate income tax rates, and future legislative, regulatory and policy changes may result in more restrictions on international trade, less stringent prudential regulation of certain players in the financial markets, and significant new investments in infrastructure and national defense. Markets may react strongly to expectations about the changes in these policies, which could increase volatility, especially if the markets’ expectations for changes in government policies are not borne out.
Changes in market conditions will not have the same impact on all types of securities. 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 significant rate increase on various markets. For example, because investors may buy securities or other investments with borrowed money, a significant increase in interest rates may cause a decline in the markets for those investments. Because of the sharp decline in the worldwide price of oil, there is a concern that oil producing nations may withdraw significant assets now held in U.S. Treasuries, which could force a substantial increase in interest rates. Regulators have expressed concern that rate increases may cause investors to sell fixed income securities faster than the market can absorb them, contributing to price volatility. 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. If a country’s economy slips into a deflationary pattern, it could last for a prolonged period and may be difficult to reverse. The precise details and the resulting impact of the United Kingdom’s vote to leave the European Union (the “EU”), commonly referred to as “Brexit,” are not yet known. The effect on the United Kingdom’s economy will likely depend on the nature of trade relations with the EU and other major economies following its exit, which are matters to be negotiated. The outcomes may cause increased volatility and have a significant adverse impact on world financial markets, other international trade agreements, and the United Kingdom and European economies, as well as the broader global economy for some time, which could significantly adversely affect the value of the Fund’s investments in the United Kingdom and Europe.
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. When mortgages and other obligations are prepaid and when securities are called, a Fund may have to reinvest in securities with a lower yield or fail to recover additional amounts (i.e., premiums) paid for securities with higher interest rates, resulting in an unexpected capital loss and/or a decrease in the amount of dividends and yield.
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American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
Other Investment Companies Risk
The Fund may invest in shares of other registered investment companies, including ETFs and money market funds that are advised by the Manager. 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 those investment companies in addition to the Fund’s direct fees and expenses and will be subject to the risks associated with investments in those companies.
Prepayment Risk
When interest rates fall, borrowers will generally repay the loans that underlie certain debt securities, especially mortgage-related and other types of asset-backed securities, more quickly than expected, causing the issuer of the security to repay the principal prior to the security’s expected maturity date. The Fund may need to reinvest the proceeds at a lower interest rate, reducing its income. Securities subject to prepayment risk generally offer less potential for gains when prevailing interest rates fall. If the Fund buys those securities at a premium, accelerated prepayments on those securities could cause the Fund to lose a portion of its principal investment. The impact of prepayments on the price of a security may be difficult to predict and may increase the security’s price volatility. Interest-only and principal-only securities are especially sensitive to interest rate changes, which can affect not only the prices but can also change the income flows and repayment assumptions about those investments.
Redemption Risk
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 greater to the extent that one or more investors or intermediaries control a large percentage of investments in the Fund, have short investment horizons, or have unpredictable cash flow needs. A general rise in interest rates has the potential to cause investors to move out of fixed-income securities on a large scale, which may increase redemptions from mutual funds that hold large amounts of fixed-income securities. This, coupled with a reduction in the ability or willingness of dealers and other institutional investors to buy or hold fixed-income securities, may result in decreased liquidity and increased volatility in the fixed-income markets, and heightened redemption risk. Heavy redemptions, whether by a few large investors or many smaller investors, could hurt the Fund’s performance. The sale of assets to meet redemption requests may create net capital gains or losses, which could cause the Fund to have to distribute substantial capital gains.
Sector Risk
Sector risk is the risk associated with the Fund holding a significant amount of investments in similar businesses, which would be similarly affected by particular economic or market events, which may, in certain circumstances, cause the value of the equity and debt securities of companies in a particular sector of the market to change. To the extent the Fund has substantial holdings within a particular sector, the risks to the Fund associated with that sector increase.
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. 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.
24
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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 three year period ended October 31, 2018 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 tax character of distributions paid were as follows:
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Distributions paid from: |
| |||||||||||
Ordinary income* |
| |||||||||||
Institutional Class | $ | 3,305,504 | $ | 2,052,674 | ||||||||
Y Class | 59,124 | 45,543 | ||||||||||
Investor Class | 165,821 | 110,914 | ||||||||||
|
|
|
| |||||||||
Total distributions paid | $ | 3,530,449 | $ | 2,209,131 | ||||||||
|
|
|
|
* For tax purposes, short-term capital gains are considered ordinary income distributions.
As of October 31, 2018 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 | $ | 250,302,965 | $ | 234,693 | $ | (2,163,121 | ) | $ | (1,928,428 | ) |
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other (Losses) | Other Temporary Differences | Distributable Earnings | ||||||||||||||||||||||||||||||||||||||
Garcia Hamilton Quality Bond | $ | (1,928,428 | ) | $ | 115,877 | $ | – | $ | (3,092,049 | ) | $ | (115,869 | ) | $ | (5,020,469 | ) |
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 dividends payable.
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.
As of October 31, 2018, the Fund had no permanent differences.
25
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, the Fund had the following capital loss carryforwards:
Fund | Short-Term Capital Loss Carryforwards | Long-Term Capital Loss Carryforwards | ||||||||||
Garcia Hamilton Quality Bond | $ | 1,967,308 | $ | 1,124,741 |
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, 2018 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 | $ | 147,555,712 | $ | 178,054,593 | $ | 159,320,428 | $ | 83,259,535 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2018 were as follows:
Fund | Type of Transaction | October 31, 2017 Shares/Fair Value | Purchases | Sales | October 31, 2018 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||||
Garcia Hamilton Quality Bond | Direct | $ | 1,557,790 | $ | 265,623,687 | $ | 239,963,037 | $ | 27,218,440 | $ | 145,360 |
8. Borrowing Arrangements
Effective November 16, 2017, the Fund, along with certain other funds managed by the Manager (“Participating Funds”), entered into a committed revolving line of credit (the “Committed Line”) agreement with State Street Bank and Trust Company (the “Bank”) to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Committed Line is $50 million with interest at a rate equal to the higher of (a) one-month London Inter-Bank Offered Rate (“LIBOR”) plus 1.25% per annum or (b) the Federal Funds rate plus 1.25% per annum on amounts borrowed. Each of the Participating Funds will pay a commitment fee at a rate of 0.25% per annum on the unused portion of the Committed Line amount. The Committed Line expires November 15, 2018, unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
Effective November 16, 2017, the Fund, along with certain other Participating Funds managed by the Manager, entered into an uncommitted discretionary demand revolving line of credit (the “Uncommitted Line”) agreement with the Bank to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Uncommitted Line is $50 million with interest at a rate equal to the higher of (a) one-month LIBOR plus 1.25% per annum or (b) the Federal Funds rate. The Uncommitted Line expires November 15, 2018 unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
The Participating Funds paid administration, legal and arrangement fees, which are recognized as a component of “Other expenses” on the Statement of Operations, along with commitment fees, that have been allocated among the Participating Funds based on average daily net assets.
During the year ended October 31, 2018, the Fund did not utilize this facility.
26
American Beacon Garcia Hamilton Quality Bond FundSM
Notes to Financial Statements
October 31, 2018
9. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Garcia Hamilton Quality Bond Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 12,598,631 | $ | 124,573,816 | 2,836,854 | $ | 27,939,755 | ||||||||||||||||||||||
Reinvestment of dividends | 287,808 | 2,842,265 | 207,980 | 2,050,230 | ||||||||||||||||||||||||
Shares redeemed | (2,278,673 | ) | (22,493,423 | ) | (2,086,333 | ) | (20,542,888 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 10,607,766 | $ | 104,922,658 | 958,501 | $ | 9,447,097 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Garcia Hamilton Quality Bond Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 77,645 | $ | 766,204 | 28,621 | $ | 283,135 | ||||||||||||||||||||||
Reinvestment of dividends | 5,845 | 57,695 | 4,616 | 45,481 | ||||||||||||||||||||||||
Shares redeemed | (23,305 | ) | (230,768 | ) | (44,015 | ) | (430,968 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 60,185 | $ | 593,131 | (10,778 | ) | $ | (102,352 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Garcia Hamilton Quality Bond Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 273,789 | $ | 2,702,704 | 249,891 | $ | 2,460,626 | ||||||||||||||||||||||
Reinvestment of dividends | 16,784 | 165,797 | 11,248 | 110,905 | ||||||||||||||||||||||||
Shares redeemed | (149,158 | ) | (1,472,508 | ) | (140,498 | ) | (1,386,156 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 141,415 | $ | 1,395,993 | 120,641 | $ | 1,185,375 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
10. Subsequent Events
Effective November 15, 2018, the Fund, along with certain other funds managed by the Manager, entered into a committed revolving line of credit with a max borrowing amount of $250 million.
Management has evaluated additional 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.
27
American Beacon Garcia Hamilton Quality Bond FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional Class | ||||||||||||||||||||
Year Ended October 31, | April 4, 2016A to October 31, 2016 | |||||||||||||||||||
2018 | 2017 | |||||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ | 9.91 | $ | 9.98 | $ | 10.00 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.20 | 0.14 | 0.05 | |||||||||||||||||
Net (losses) on investments (both realized and unrealized) | (0.13 | ) | (0.05 | ) | (0.02 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total income from investment operations | 0.07 | 0.09 | 0.03 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from net investment income | (0.19 | ) | (0.15 | ) | (0.05 | ) | ||||||||||||||
Distributions from net realized gains | – | (0.01 | ) | – | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total distributions | (0.19 | ) | (0.16 | ) | (0.05 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Net asset value, end of period | $ | 9.79 | $ | 9.91 | $ | 9.98 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total returnB | 0.74 | % | 0.91 | % | 0.34 | %C | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets, end of period | $ | 234,919,975 | $ | 132,575,412 | $ | 124,032,604 | ||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Expenses, before reimbursements | 0.69 | % | 0.70 | % | 1.06 | %D | ||||||||||||||
Expenses, net of reimbursements | 0.45 | % | 0.45 | % | 0.45 | %D | ||||||||||||||
Net investment income, before expense reimbursements | 1.68 | % | 1.12 | % | 0.29 | %D | ||||||||||||||
Net investment income, net of reimbursements | 1.92 | % | 1.37 | % | 0.91 | %D | ||||||||||||||
Portfolio turnover rate | 143 | % | 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
28
American Beacon Garcia Hamilton Quality Bond FundSM
Financial Highlights
(For a share outstanding throughout the period)
Y Class | ||||||||||||||||||||
Year Ended October 31, | April 4, 2016A to October 31, 2016 | |||||||||||||||||||
2018 | 2017 | |||||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ | 9.90 | $ | 9.98 | $ | 10.00 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.18 | 0.13 | 0.05 | |||||||||||||||||
Net (losses) on investments (both realized and unrealized) | (0.11 | ) | (0.06 | ) | (0.02 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total income from investment operations | 0.07 | 0.07 | 0.03 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from net investment income | (0.18 | ) | (0.14 | ) | (0.05 | ) | ||||||||||||||
Distributions from net realized gains | – | (0.01 | ) | – | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total distributions | (0.18 | ) | (0.15 | ) | (0.05 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Net asset value, end of period | $ | 9.79 | $ | 9.90 | $ | 9.98 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total returnB | 0.74 | % | 0.71 | % | 0.29 | %C | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets, end of period | $ | 3,685,857 | $ | 3,133,476 | $ | 3,265,315 | ||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Expenses, before reimbursements | 0.75 | % | 0.77 | % | 1.29 | %D | ||||||||||||||
Expenses, net of reimbursements | 0.55 | % | 0.55 | % | 0.55 | %D | ||||||||||||||
Net investment income, before expense reimbursements | 1.58 | % | 1.05 | % | 0.11 | %D | ||||||||||||||
Net investment income, net of reimbursements | 1.78 | % | 1.27 | % | 0.85 | %D | ||||||||||||||
Portfolio turnover rate | 143 | % | 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
29
American Beacon Garcia Hamilton Quality Bond FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||
Year Ended October 31, | April 4, 2016A to October 31, 2016 | |||||||||||||||||||
2018 | 2017 | |||||||||||||||||||
|
| |||||||||||||||||||
Net asset value, beginning of period | $ | 9.91 | $ | 9.99 | $ | 10.00 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||
Net investment income | 0.15 | 0.10 | 0.03 | |||||||||||||||||
Net (losses) on investments (both realized and unrealized) | (0.11 | ) | (0.06 | ) | (0.01 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total income from investment operations | 0.04 | 0.04 | 0.02 | |||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Less distributions: | ||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.11 | ) | (0.03 | ) | ||||||||||||||
Distributions from net realized gains | – | (0.01 | ) | – | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total distributions | (0.16 | ) | (0.12 | ) | (0.03 | ) | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Net asset value, end of period | $ | 9.79 | $ | 9.91 | $ | 9.99 | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Total returnB | 0.36 | % | 0.43 | % | 0.24 | %C | ||||||||||||||
|
|
|
|
|
| |||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||
Net assets, end of period | $ | 10,995,242 | $ | 9,724,030 | $ | 8,594,617 | ||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||
Expenses, before reimbursements | 0.92 | % | 0.94 | % | 1.19 | %D | ||||||||||||||
Expenses, net of reimbursements | 0.83 | % | 0.83 | % | 0.83 | %D | ||||||||||||||
Net investment income, before expense reimbursements | 1.41 | % | 0.89 | % | 0.21 | %D | ||||||||||||||
Net investment income, net of reimbursements | 1.50 | % | 0.99 | % | 0.57 | %D | ||||||||||||||
Portfolio turnover rate | 143 | % | 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
30
American Beacon FundsSM
October 31, 2018 (Unaudited)
Certain tax information regarding the Funds are required to be provided to shareholders based upon the Fund’s income and distributions for the taxable year ended October 31, 2018. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2018.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2018. 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:
Garcia Hamilton Quality Bond | - | % |
Qualified Dividend Income:
Garcia Hamilton Quality Bond | - | % |
Long-Term Capital Gain Distributions:
Garcia Hamilton Quality Bond | $ | - |
Short-Term Capital Gain Distributions:
Garcia Hamilton Quality Bond | $ | - |
Shareholders will receive notification in January 2019 of the applicable tax information necessary to prepare their 2018 income tax returns.
31
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 18, 2018 and June 5-6, 2018 (collectively, the “Meetings”), the Board of Trustees (“Board” or “Trustees”) considered and then, at its June 6, 2018 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (“Trust”), on behalf of the American Beacon Garcia Hamilton Quality Bond Fund (“Fund”); and
(2) the Investment Advisory Agreement among the Manager, the Trust, on behalf of the Fund, and Garcia Hamilton & Associates, LP (the “subadvisor”).
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, or derived from, 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 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 to the Board 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 from Broadridge, and to the performance of any 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 from Broadridge, 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 the expense limitation 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 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. |
32
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 each type of service and observed that, with respect to such mutual funds, 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 investment advisory contracts, such as the Agreements. 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 Agreement 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 relationships 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 since its inception on April 4, 2016; 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 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 subadvisor; and the Manager’s efforts to retain key employees and maintain staffing levels.
With respect to the renewal of the Investment Advisory Agreement, the Board 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 their
33
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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.
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 indices, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding Broadridge’s independent methodology for selecting the Fund’s Broadridge performance universe. The Board also considered that the performance universes 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 its portion of the Fund relative to the performance of 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 earning a profit before and after the payment of distribution-related expenses by the Manager. 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 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 expense waivers and reimbursements for the Fund that were in place during the last fiscal year. The Board further considered that, with respect to the Fund, the applicable 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 representations made by the subadvisor that the Fund’s subadvisory fee rate schedule is favorable compared to other 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 rates. In addition, the Board noted that the subadvisor may not account for its profits on an account-by-account basis and that different firms 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 the Fund’s fee rates is set forth below under “Additional Considerations and Conclusions with Respect to the Fund.”
34
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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.
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 appear to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made in comparison to 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.
The expense comparisons below were made in comparison to 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. 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. 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 and the Investment Advisory 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 | 1st Quintile | |
Compared to Broadridge Expense Universe | 3rd Quintile | |
Morningstar Fee Level Ranking – Institutional Class | Below Average Expense Ratio |
35
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
Broadridge and Morningstar Performance Analysis (one-year period ended December 31, 2017)
Compared to Broadridge Performance Universe | 3rd Quintile | |
Compared to Morningstar Category | 4th Quintile |
The Trustees also considered: (1) information provided by the subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor manages 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 relative performance declined when a material increase in assets shortly after the Fund commenced operations required subadvisor 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.
Based on these and other considerations, the Trustees: (1) concluded that the fees paid to the Manager and the subadvisor under the Management and Investment Advisory 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.
36
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-seven funds in the fund complex that includes the Trust, the American Beacon Select Funds, the American Beacon Institutional Funds Trust, the American Beacon Sound Point Enhanced Income Fund, and the American Beacon Apollo Total Return Fund. 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** (81) | Trustee since 1996 | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (48) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Joseph B. Armes (56) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Gerard J. Arpey (60) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
37
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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Brenda A. Cline (57) | Trustee since 2004 Vice Chair since 2018 | Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Trustee, Cushing Closed-End Funds (2017-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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Eugene J. Duffy (64) | Trustee since 2008 | Managing Director, Global Investment Management Distribution, Mesirow Financial (2016-Present); 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Claudia A. Holz*** (61) | Trustee since 2018 | Partner, KPMG LLP (1990-2017); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Douglas A. Lindgren**** (56) | Trustee since 2018 | CEO North America, Carne Global Financial Services (2016-2017); Managing Director, IPS Investment Management and Global Head, Content Management, UBS Wealth Management (2010-2016); Managing Director, P&S Hedge Funds, UBS Wealth Management (2008-2010); Managing Director, Head of Alternative Investments, UBS Financial Services, Inc. (2005-2008); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Richard A. Massman (75) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Barbara J. McKenna, CFA (55) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
38
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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
R. Gerald Turner (72) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (63) | President since 2009 | CEO and Director (2009-Present), and Chairman (2018-Present), American Beacon Advisors, Inc.; President, American Beacon Advisors (2009-2018); Chairman and CEO, Resolute Investment Managers, Inc. (2015-Present); Director, Chairman, President and CEO, Resolute Investment Distributors (2017-Present); Director, Chairman and CEO; Resolute Investment Services, Inc. (2015-Present); Director, Resolute Acquisition, Inc. (2015-Present); President (2015-2018), Director, Resolute Topco, Inc. (2015-Present), President (2015-2018), CEO (2015-Present), and Chairman (2018-Present), Resolute Investment Holdings, LLC; President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President, 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); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-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); President, American Beacon Sound Point Enhanced Income Fund (2018-Present); President, American Beacon Apollo Total Return Fund (2018-Present). |
39
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 | |||
One Year | ||||
Rosemary K. Behan (59) | 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); Vice President, Secretary and General Counsel, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015-Present); Vice President, Secretary and General Counsel, Resolute Investment Services, 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); Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Secretary, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Secretary, Resolute Investment Distributors, Inc. (2017-Present); Vice President and Secretary, Continuous Capital, LLC (2018-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); Vice Chief Legal Officer, Vice President and Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Legal Officer, Vice President and Secretary American Beacon Apollo Total Return Fund (2018-Present). | ||
Brian E. Brett (58) | VP since 2004 | Senior Vice President, Head of Distribution (2012-Present) and Vice President, Director of Sales (2004-2012), American Beacon Advisors, Inc.; Senior Vice President, Resolute Investment Distributors, Inc. (2017-Present) and Vice President (2017-2018); 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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Paul B. Cavazos (49) | VP since 2016 | Chief Investment Officer and Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer, DTE Energy (2007-2016); Vice President, American Private Equity Management, L.L.C. (2017-Present) Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Erica Duncan (48) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, Resolute Investment Managers (2015-Present); Vice President, Resolute Investment Services, Inc. (2015-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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). |
40
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 | |||
One Year | �� | |||
Melinda G. Heika (57) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present) and Chief Financial Officer (2010-Present); Treasurer and Chief Financial Officer, 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 and Chief Financial Officer, Resolute Investment Services, Inc. (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 and Chief Financial Officer, Alpha Quant Advisors, LLC (2016-Present); Treasurer, American Beacon Cayman Transformational Innovation, Ltd. (2017-Present); Treasurer, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Treasurer, Resolute Investment Distributors, Inc. (2017-2017); Treasurer and Chief Financial Officer, Continuous Capital, LLC (2018-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); Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Terri L. McKinney (54) | 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, Resolute Investment Services, Inc (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). |
41
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 | |||
One Year | ||||
Jeffrey K. Ringdahl (43) | VP since 2010 | Chief Operating Officer (2010-Present), Vice President (2010-2013), Senior Vice President (2013-Present), Director (2015-Present), and President (2018-Present), American Beacon Advisors, Inc.; Senior Vice President (2018-Present), Vice President (2012-2018) and Manager (2015-2018), 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 (2015-Present), Senior Vice Present (2015-2018), and President (2018-Present), Resolute Investment Holdings, LLC; Director (2015-Present), Senior Vice President (2015-2018) and President (2018-Present), Resolute Topco, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Acquisition, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Investment Managers, Inc.; Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Director (2017-Present), Executive Vice President (2017-2018), and President and Chief Operating Officer (2018-Present), Resolute Investment Services, Inc.; Director and Executive Vice President, Resolute Investment Distributors, Inc. (2017-Present); Director, Shapiro Capital Management, LLC (2017-Present); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Director, Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present) | ||
Samuel J. Silver (55) | 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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). | ||
Christina E. Sears (47) | 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); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Distributors (2017-Present); Vice President, Continuous Capital, LLC (2018-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); Chief Compliance Officer and Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Compliance Officer and Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
42
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 | |||
One Year | ||||
Sonia L. Bates (61) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-2018); Assistant Treasurer, Resolute Acquisition, Inc. (2015-2018); Assistant. Treasurer, Resolute Topco, Inc. (2015-2018); Assistant Treasurer, Resolute Investment Holdings, LLC. (2015-2018); 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 Cayman Transformational Innovation Company, Ltd. (2017-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); Assistant Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Shelley D. Abrahams (43) | Assistant Secretary since 2008 | 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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Rebecca L. Harris (51) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Services (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Diana N. Lai (42) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Teresa A. Oxford (60) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Resolute Investment Distributors (2018-Present); Assistant Secretary, Resolute Investment Services (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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
* As of 11/12/2014, the Board adopted a retirement plan that requires Trustees, other than Messrs. Feld and Massman 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.
*** Claudia A. Holz became a new Trustee to each of the Trusts on 4/1/2018.
**** Douglas A. Lindren became a new Trustee to each of the Trusts on 1/1/2018.
43
American Beacon Garcia Hamilton Quality Bond FundSM
October 31, 2018 (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.
44
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 DST Asset Managers Solutions, Inc. Quincy, Massachusetts | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Resolute Investment Distributors, Inc. Irving, Texas |
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 10/18
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, 2018 |
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements | 54 | |||
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Back Cover |
![]() | Dear Shareholders,
Long-term investing isn’t about identifying and anticipating the next big market move. It’s about identifying the right investment products for riding out those moves. As a long-term investor, you should strive to accomplish the three Ds: direction, discipline and diversification.
u Direction: Achieving your long-term financial goals requires an individualized plan of action. You may want your plan to provide some measure of protection against periods of geopolitical turmoil, economic uncertainty, market volatility and job insecurity. Your plan should be reviewed annually and be adjusted in the event your long-range needs change.
|
u | Discipline: Long-term, systematic participation in an investment portfolio requires your resolution to stay the course. Spending time in the market – rather than trying to time the market – may place you in a better position to reach your long-term financial goals. |
u | Diversification: By investing in different types of investment categories and asset classes, you may be able to help mitigate financial risks across your investment portfolio. By allocating your investment portfolio according to your risk-tolerance level, you may be better positioned to weather storms and achieve your long-term financial goals. |
Since 1986, American Beacon has endeavored to provide investors with a disciplined approach to realizing long-term financial goals. As a manager of managers, we strive to provide investment products that may enable investors to participate during market upswings while potentially insulating against market downswings. Our approach is more than a concept. It’s the cornerstone of our culture. And we strive to apply it at every turn as we seek to provide a well-diversified line of investment products for your investment portfolio.
Many of the sub-advisors to our mutual funds pursue upside capture and/or downside protection using proprietary strategies. The investment teams behind our mutual funds seek to produce consistent, long-term results rather than focus only on short-term movements in the markets. In managing our investment products, we emphasize identifying opportunities that offer the potential for long-term rewards.
Thank you for your continued interest in American Beacon. For additional information about our investment products 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, 2018 (Unaudited)
For much of the past 12 months, developed equity markets appreciated following signs of continuing global growth, albeit less synchronized than in calendar year 2017, as the U.S. outpaced other developed markets. However, the month of October 2018 brought international equity returns into negative territory, as global monetary liquidity continued to decrease, and stock volatility spiked. The best-performing markets in our investable universe included Israel, Norway, Finland, New Zealand and Switzerland. The worst-performing markets were Belgium, South Korea, China, Italy and Spain. Traditionally defensive sectors generally outperformed cyclical sectors over the year. The best-performing sectors in the MSCI EAFE Index (the “Index”) were Energy, Health Care and Consumer Staples. The worst-performing sectors were Financials, Telecommunication Services and Industrials. Every major currency except the Japanese yen depreciated compared to the U.S. dollar during the trailing 12 months, thus diminishing overall returns on overseas assets for U.S.-dollar-based investors.
Responding to fiscal and monetary stimulus, the U.S. economy appears healthy with an unemployment rate of 3.7% at the end of October – the lowest in nearly 50 years – supporting booming consumer confidence. The U.S. economy appears on track to deliver real gross domestic product (“GDP”) growth of 3% in 2018, despite the upward trajectory of the 10-year Treasury note yield, which reached 3.2% in October. Trade tensions, however, still reflect a large risk to U.S. economic growth. Companies are beginning to highlight potential cost increases resulting from tariffs and guidance on future earnings was weaker than expected, contributing to increased volatility.
In Europe, weakening global trade weighed on manufacturing growth, with the IHS Markit Eurozone Manufacturing Purchasing Managers’ Index for October reading well below the record highs seen near the turn of the calendar year, although still indicating an expansion. European Central Bank (“ECB”) President Mario Draghi said economic data indicated “an ongoing, broad-based expansion of the euro-area economy and gradually rising inflation pressures.”
Political risk remains in Europe:
The European Commission rejected the Italian government’s fiscally stimulative budget plan, requesting revisions that meet the fiscal targets set by European authorities; and
A Brexit negotiation breakthrough did not occur in the U.K. during the fiscal year, but the March 2019 deadline is fast approaching.
In China, continuing trade friction and a shift to slow the pace of credit growth in the shadow-banking sector has likely triggered a broader slowdown. GDP growth decelerated to an annualized rate of 6.5% in the third quarter of 2018, missing consensus expectations. Further escalation in tariffs would likely weigh on growth, however, the depreciation of the Chinese yuan against the U.S. dollar has partially offset the impact of tariffs.
2
American Beacon International Equity FundSM
Performance Overview
October 31, 2018 (Unaudited)
The Investor Class of the American Beacon International Equity Fund (the “Fund”) returned -7.86% for the twelve months ended October 31, 2018. The Fund underperformed the MSCI EAFE Index Net (the “Index”) return of -6.85%.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/2008 through 10/31/2018
Total Returns for the Period ended October 31, 2018 |
| |||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2008- 10/31/2018 | |||||||||||||||||||||||||||
Institutional Class (1,8) | AAIEX | (7.55 | )% | 2.56 | % | 1.09 | % | 6.98 | % | $ | 19,640 | |||||||||||||||||||||
Y Class (1,2,8) | ABEYX | (7.58 | )% | 2.51 | % | 1.01 | % | 6.90 | % | $ | 19,491 | |||||||||||||||||||||
Investor Class (1,8) | AAIPX | (7.86 | )% | 2.22 | % | 0.74 | % | 6.61 | % | $ | 18,973 | |||||||||||||||||||||
Advisor Class (1,3,8) | AAISX | (7.99 | )% | 2.13 | % | 0.63 | % | 6.43 | % | $ | 18,654 | |||||||||||||||||||||
A Class without sales charge (1,4,8) | AIEAX | (7.89 | )% | 2.20 | % | 0.69 | % | 6.53 | % | $ | 18,823 | |||||||||||||||||||||
A Class with sales Charge (1,4,8) | AIEAX | (13.19 | )% | 0.21 | % | (0.50 | )% | 5.90 | % | $ | 17,741 | |||||||||||||||||||||
C Class without sales charge (1,5,8) | AILCX | (8.52 | )% | 1.43 | % | (0.05 | )% | 5.87 | % | $ | 17,691 | |||||||||||||||||||||
C Class with sales charge (1,5,8) | AILCX | (9.52 | )% | 1.43 | % | (0.05 | )% | 5.87 | % | $ | 17,691 | |||||||||||||||||||||
R6 Class (1,6,8) | AAERX | (7.47 | )% | 2.61 | % | 1.12 | % | 7.00 | % | $ | 19,667 | |||||||||||||||||||||
MSCI EAFE Index Net (7) | (6.85 | )% | 3.62 | % | 2.02 | % | 6.89 | % | $ | 19,473 |
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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only; and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. 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 10/31/08 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 10/31/08. |
3
American Beacon International Equity FundSM
Performance Overview
October 31, 2018 (Unaudited)
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 2009. |
4. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/08 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 10/31/08. 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 10/31/08 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 10/31/08. 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 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 three-year, five-year and ten-year periods represent the returns achieved by the Institutional Class from 10/31/08 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 10/31/08. 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 were 0.73%, 0.80%, 1.07%, 1.20%, 1.12%, 1.88% and 0.89%, 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 while country allocation slightly offset the underperformance.
Stock selections within the United Kingdom and France primarily contributed to the Fund’s relative underperformance, while stock selections in Japan added value. Detracting securities included British American Tobacco PLC (down 29.32%) within the United Kingdom, and Compagnie de Saint Gobain (down 35.12%) within France. The Fund’s investments in Japan, including Don Quijote Holdings Co., Ltd. (up 47.10%) helped relative performance during the prior twelve months.
From a country allocation perspective, overweighting out-of-index Canada (down 5.84%) and underweighting Spain (down 15.05%) contributed the most to the Fund’s performance relative to the Index. However, underweighting Japan (down 3.29%) and overweighting out-of-index Korea (down 19.90%) detracted during the period.
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) | ||||||||
Novartis AG | 2.7 | |||||||
Prudential PLC | 2.2 | |||||||
British American Tobacco PLC | 1.9 | |||||||
BP PLC | 1.8 | |||||||
Royal Dutch Shell PLC, Class B | 1.8 | |||||||
Volkswagen AG | 1.8 | |||||||
SAP SE | 1.6 | |||||||
Samsung Electronics Co., Ltd. | 1.4 | |||||||
BNP Paribas S.A. | 1.4 | |||||||
UniCredit SpA | 1.4 | |||||||
Total Fund Holdings | 161 |
4
American Beacon International Equity FundSM
Performance Overview
October 31, 2018 (Unaudited)
Sector Allocation (% Equities) | ||||||||
Financials | 20.4 | |||||||
Industrials | 15.2 | |||||||
Health Care | 12.7 | |||||||
Communication Services | 9.4 | |||||||
Materials | 9.1 | |||||||
Energy | 8.8 | |||||||
Consumer Discretionary | 8.1 | |||||||
Consumer Staples | 6.7 | |||||||
Information Technology | 5.3 | |||||||
Utilities | 2.5 | |||||||
Real Estate | 1.8 | |||||||
Country Allocation (% Equities) | ||||||||
United Kingdom | 22.8 | |||||||
Japan | 14.6 | |||||||
Germany | 9.7 | |||||||
France | 8.7 | |||||||
Switzerland | 8.2 | |||||||
Netherlands | 7.9 | |||||||
Canada | 5.5 | |||||||
Republic of Korea | 3.5 | |||||||
Ireland | 3.0 | |||||||
Italy | 2.2 | |||||||
Denmark | 1.9 | |||||||
Norway | 1.5 | |||||||
Singapore | 1.3 | |||||||
Sweden | 1.2 | |||||||
China | 1.2 | |||||||
Luxembourg | 1.2 | |||||||
Hong Kong | 1.0 | |||||||
Israel | 1.0 | |||||||
Belgium | 0.9 | |||||||
Finland | 0.9 | |||||||
Spain | 0.9 | |||||||
Australia | 0.9 |
5
American Beacon International Equity FundSM
October 31, 2018 (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, 2018 through October 31, 2018.
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, 2018 (Unaudited)
American Beacon International Equity Fund |
| ||||||||||||||
Beginning Account Value 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period 5/1/2018-10/31/2018* | |||||||||||||
Institutional Class |
| ||||||||||||||
Actual | $1,000.00 | $897.40 | $3.59 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.40 | $3.82 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $897.40 | $3.97 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.00 | $4.23 | ||||||||||||
Investor Class |
| ||||||||||||||
Actual | $1,000.00 | $896.00 | $5.21 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.70 | $5.55 | ||||||||||||
Advisor Class |
| ||||||||||||||
Actual | $1,000.00 | $895.50 | $5.83 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.10 | $6.21 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $895.90 | $5.26 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.70 | $5.60 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $892.90 | $8.78 | ||||||||||||
Hypothetical** | $1,000.00 | $1,015.90 | $9.35 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $897.90 | $3.16 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.88 | $3.36 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.75%, 0.83%, 1.09%, 1.22%, 1.10%, 1.84%, and 0.66% 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
To the Shareholders and the Board of Trustees of American Beacon International Equity Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of American Beacon International Equity Fund (the “Fund”) (one of the funds constituting American Beacon Funds (the “Trust”)), including the schedule of investments, as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at October 31, 2018, 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 its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more American Beacon investment companies since 1987.
Dallas, Texas
December 28, 2018
8
American Beacon International Equity FundSM
October 31, 2018
Shares | Fair Value | ||||||||||||||
Australia - 0.85% (Cost $20,236,755) | |||||||||||||||
Common Stocks - 0.85% | |||||||||||||||
BHP Billiton PLCA | 1,228,611 | $ | 24,544,196 | ||||||||||||
|
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Belgium - 0.91% | |||||||||||||||
Common Stocks - 0.91% | |||||||||||||||
Anheuser-Busch InBev S.A.A | 165,798 | 12,217,144 | |||||||||||||
UCB S.A.A | 166,830 | 14,003,404 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 26,220,548 | ||||||||||||||
|
| ||||||||||||||
Total Belgium (Cost $30,884,495) | 26,220,548 | ||||||||||||||
|
| ||||||||||||||
Canada - 5.30% | |||||||||||||||
Common Stocks - 5.30% | |||||||||||||||
Canadian Imperial Bank of Commerce | 28,559 | 2,466,168 | |||||||||||||
Canadian National Railway Co. | 177,500 | 15,174,029 | |||||||||||||
Canadian Pacific Railway Ltd. | 62,268 | 12,769,564 | |||||||||||||
Encana Corp. | 1,789,151 | 18,265,934 | |||||||||||||
Gildan Activewear, Inc. | 488,463 | 14,600,645 | |||||||||||||
Goldcorp, Inc. | 993,800 | 8,975,868 | |||||||||||||
Husky Energy, Inc. | 990,800 | 14,006,448 | |||||||||||||
Manulife Financial Corp. | 1,595,439 | 25,123,210 | |||||||||||||
National Bank of Canada | 322,002 | 14,617,220 | |||||||||||||
Rogers Communications, Inc., Class B | 353,200 | 18,187,875 | |||||||||||||
Wheaton Precious Metals Corp. | 539,500 | 8,868,381 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 153,055,342 | ||||||||||||||
|
| ||||||||||||||
Total Canada (Cost $150,346,776) | 153,055,342 | ||||||||||||||
|
| ||||||||||||||
China - 1.17% | |||||||||||||||
Common Stocks - 1.17% | |||||||||||||||
China Merchants Port Holdings Co., Ltd.A | 2,777,068 | 4,729,538 | |||||||||||||
China Mobile Ltd.A | 3,094,276 | 28,915,391 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 33,644,929 | ||||||||||||||
|
| ||||||||||||||
Total China (Cost $39,451,028) | 33,644,929 | ||||||||||||||
|
| ||||||||||||||
Denmark - 1.81% | |||||||||||||||
Common Stocks - 1.81% | |||||||||||||||
AP Moller - Maersk A/S, Class BA | 8,706 | 11,053,061 | |||||||||||||
Carlsberg A/S, Class BA | 154,391 | 17,029,504 | |||||||||||||
Novozymes A/S, Class BA | 209,264 | 10,336,381 | |||||||||||||
Vestas Wind Systems A/SA | 221,082 | 13,846,124 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 52,265,070 | ||||||||||||||
|
| ||||||||||||||
Total Denmark (Cost $53,676,739) | 52,265,070 | ||||||||||||||
|
| ||||||||||||||
Finland - 0.91% | |||||||||||||||
Common Stocks - 0.91% | |||||||||||||||
Nordea Bank Abp | 1,451,559 | 12,624,597 | |||||||||||||
Sampo OYJ, Class AA | 294,039 | 13,537,603 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 26,162,200 | ||||||||||||||
|
| ||||||||||||||
Total Finland (Cost $30,792,377) | 26,162,200 | ||||||||||||||
|
| ||||||||||||||
France - 8.48% | |||||||||||||||
Common Stocks - 8.48% | |||||||||||||||
Air Liquide S.A.A | 83,452 | 10,108,821 | |||||||||||||
AXA S.A.A | 675,047 | 16,898,786 | |||||||||||||
BNP Paribas S.A.A | 779,956 | 40,670,215 |
See accompanying notes
9
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
France - 8.48% (continued) | |||||||||||||||
Common Stocks - 8.48% (continued) | |||||||||||||||
Capgemini SEA | 143,153 | $ | 17,502,174 | ||||||||||||
Cie de Saint-GobainA | 574,925 | 21,633,855 | |||||||||||||
Cie Generale des Etablissements Michelin SCAA | 166,981 | 17,107,815 | |||||||||||||
Credit Agricole S.A.A | 638,409 | 8,177,416 | |||||||||||||
Engie S.A.A | 543,293 | 7,243,528 | |||||||||||||
Safran S.A.A | 163,858 | 21,106,818 | |||||||||||||
SanofiA | 273,080 | 24,408,096 | |||||||||||||
Societe Generale S.A.A | 242,989 | 8,925,672 | |||||||||||||
Total S.A.A | 121,663 | 7,140,304 | |||||||||||||
Veolia Environnement S.A.A | 585,879 | 11,688,704 | |||||||||||||
Vinci S.A.A B | 176,276 | 15,740,209 | |||||||||||||
Vivendi S.A.A | 688,220 | 16,628,345 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 244,980,758 | ||||||||||||||
|
| ||||||||||||||
Total France (Cost $243,202,509) | 244,980,758 | ||||||||||||||
|
| ||||||||||||||
Germany - 9.41% | |||||||||||||||
Common Stocks - 7.49% | |||||||||||||||
BASF SEA | 393,024 | 30,275,641 | |||||||||||||
Bayer AGA | 202,695 | 15,562,149 | |||||||||||||
Deutsche Post AGA | 451,164 | 14,284,144 | |||||||||||||
E.ON SEA | 1,464,646 | 14,190,370 | |||||||||||||
Fresenius Medical Care AG & Co. KGaAA | 106,087 | 8,350,428 | |||||||||||||
Fresenius SE & Co. KGaAA | 138,936 | 8,854,410 | |||||||||||||
HeidelbergCement AGA | 170,782 | 11,603,218 | |||||||||||||
Infineon Technologies AGA | 583,261 | 11,692,727 | |||||||||||||
LANXESS AGA | 212,851 | 13,209,500 | |||||||||||||
Merck KGaAA | 142,635 | 15,284,555 | |||||||||||||
SAP SEA | 419,883 | 44,998,924 | |||||||||||||
Siemens AGA | 138,739 | 15,987,105 | |||||||||||||
Telefonica Deutschland Holding AGA | 3,058,649 | 11,896,812 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 216,189,983 | ||||||||||||||
|
| ||||||||||||||
Preferred Stocks - 1.92% | |||||||||||||||
Draegerwerk AG & Co. KGaAA C | 71,725 | 3,855,164 | |||||||||||||
Volkswagen AGA C | 306,957 | 51,697,990 | |||||||||||||
|
| ||||||||||||||
Total Preferred Stocks | 55,553,154 | ||||||||||||||
|
| ||||||||||||||
Total Germany (Cost $271,625,295) | 271,743,137 | ||||||||||||||
|
| ||||||||||||||
Hong Kong - 0.97% | |||||||||||||||
Common Stocks - 0.97% | |||||||||||||||
CK Asset Holdings Ltd.A | 1,419,082 | 9,188,149 | |||||||||||||
CK Hutchison Holdings Ltd.A | 1,460,082 | 14,669,518 | |||||||||||||
Techtronic Industries Co., Ltd.A | 874,000 | 4,103,147 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 27,960,814 | ||||||||||||||
|
| ||||||||||||||
Total Hong Kong (Cost $31,351,983) | 27,960,814 | ||||||||||||||
|
| ||||||||||||||
Ireland - 2.89% | |||||||||||||||
Common Stocks - 2.89% | |||||||||||||||
Bank of Ireland Group PLCA | 2,288,131 | 16,226,390 | |||||||||||||
CRH PLCA | 435,632 | 13,066,320 | |||||||||||||
Linde PLCD | 240,568 | 39,468,645 | |||||||||||||
Ryanair Holdings PLC, Sponsored ADRD | 175,683 | 14,546,552 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 83,307,907 | ||||||||||||||
|
| ||||||||||||||
Total Ireland (Cost $76,694,102) | 83,307,907 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
10
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
Israel - 0.96% | |||||||||||||||
Common Stocks - 0.96% | |||||||||||||||
Bank Leumi Le-Israel BMA | 1,184,312 | $ | 7,381,371 | ||||||||||||
Teva Pharmaceutical Industries Ltd., Sponsored ADR | 1,018,399 | 20,347,612 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 27,728,983 | ||||||||||||||
|
| ||||||||||||||
Total Israel (Cost $35,489,691) | 27,728,983 | ||||||||||||||
|
| ||||||||||||||
Italy - 2.11% | |||||||||||||||
Common Stocks - 2.11% | |||||||||||||||
Eni SpAA | 1,180,461 | 20,995,415 | |||||||||||||
UniCredit SpAA | 3,133,667 | 40,058,116 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 61,053,531 | ||||||||||||||
|
| ||||||||||||||
Total Italy (Cost $69,229,880) | 61,053,531 | ||||||||||||||
|
| ||||||||||||||
Japan - 14.14% | |||||||||||||||
Common Stocks - 14.14% | |||||||||||||||
Astellas Pharma, Inc.A | 1,070,800 | 16,518,187 | |||||||||||||
Daiwa House Industry Co., Ltd.A | 882,654 | 26,559,422 | |||||||||||||
Digital Garage, Inc.A | 208,800 | 5,742,842 | |||||||||||||
Don Quijote Holdings Co., Ltd.A B | 559,700 | 33,487,571 | |||||||||||||
East Japan Railway Co.A | 229,300 | 20,022,033 | |||||||||||||
Ezaki Glico Co., Ltd.A | 219,000 | 10,886,646 | |||||||||||||
FANUC Corp.A | 74,200 | 12,895,120 | |||||||||||||
IHI Corp.A | 212,400 | 7,749,342 | |||||||||||||
Inpex Corp.A | 448,400 | 5,172,434 | |||||||||||||
Japan Airlines Co., Ltd.A | 451,300 | 16,040,034 | |||||||||||||
Kao Corp.A | 225,260 | 14,979,233 | |||||||||||||
KDDI Corp.A | 1,585,000 | 39,441,118 | |||||||||||||
Kirin Holdings Co., Ltd.A | 453,000 | 10,802,022 | |||||||||||||
Mitsui Fudosan Co., Ltd.A | 614,300 | 13,802,941 | |||||||||||||
Nexon Co., Ltd.A D | 975,900 | 11,060,793 | |||||||||||||
Omron Corp.A | 145,300 | 5,869,713 | |||||||||||||
Panasonic Corp.A | 1,005,100 | 11,081,985 | |||||||||||||
Ryohin Keikaku Co., Ltd.A | 31,800 | 8,397,941 | |||||||||||||
Seven & i Holdings Co., Ltd.A | 266,900 | 11,549,833 | |||||||||||||
SoftBank Group Corp.A | 157,300 | 12,753,641 | |||||||||||||
Sompo Holdings, Inc.A | 372,800 | 15,417,054 | |||||||||||||
Sumitomo Metal Mining Co., Ltd.A | 253,500 | 7,957,540 | |||||||||||||
Sumitomo Mitsui Financial Group, Inc.A | 735,100 | 28,558,036 | |||||||||||||
Sumitomo Rubber Industries Ltd.A | 285,700 | 4,097,664 | |||||||||||||
Suntory Beverage & Food Ltd.A | 215,300 | 8,761,924 | |||||||||||||
Taiheiyo Cement Corp.A | 126,700 | 3,731,214 | |||||||||||||
Takeda Pharmaceutical Co., Ltd.A B | 708,200 | 28,617,446 | |||||||||||||
Yamaha Corp.A | 369,100 | 16,207,385 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 408,161,114 | ||||||||||||||
|
| ||||||||||||||
Total Japan (Cost $382,180,696) | 408,161,114 | ||||||||||||||
|
| ||||||||||||||
Luxembourg - 1.13% | |||||||||||||||
Common Stocks - 1.13% | |||||||||||||||
SES S.A.A | 999,383 | 21,472,936 | |||||||||||||
Tenaris S.A.A | 762,916 | 11,259,444 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 32,732,380 | ||||||||||||||
|
| ||||||||||||||
Total Luxembourg (Cost $32,109,359) | 32,732,380 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
11
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
Netherlands - 7.67% | |||||||||||||||
Common Stocks - 7.67% | |||||||||||||||
ABN AMRO Group N.V.A E | 447,463 | $ | 10,992,949 | ||||||||||||
Aegon N.V.A | 809,646 | 4,974,180 | |||||||||||||
Akzo Nobel N.V.A | 431,734 | 36,310,806 | |||||||||||||
ING Groep N.V.A | 1,986,683 | 23,504,335 | |||||||||||||
NXP Semiconductors N.V. | 153,100 | 11,480,969 | |||||||||||||
QIAGEN N.V.A D | 274,583 | 9,972,264 | |||||||||||||
Royal Dutch Shell PLC, Class AA | 1,168,770 | 37,338,750 | |||||||||||||
Royal Dutch Shell PLC, Class BA | 1,590,971 | 51,801,507 | |||||||||||||
SBM Offshore N.V.A | 668,578 | 11,566,926 | |||||||||||||
Wolters Kluwer N.V.A | 412,455 | 23,419,028 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 221,361,714 | ||||||||||||||
|
| ||||||||||||||
Total Netherlands (Cost $200,603,645) | 221,361,714 | ||||||||||||||
|
| ||||||||||||||
Norway - 1.50% | |||||||||||||||
Common Stocks - 1.50% | |||||||||||||||
Equinor ASAA | 609,057 | 15,692,800 | |||||||||||||
Telenor ASAA | 845,519 | 15,485,691 | |||||||||||||
Yara International ASAA | 280,558 | 12,043,385 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 43,221,876 | ||||||||||||||
|
| ||||||||||||||
Total Norway (Cost $37,811,150) | 43,221,876 | ||||||||||||||
|
| ||||||||||||||
Republic of Korea - 3.43% | |||||||||||||||
Common Stocks - 3.43% | |||||||||||||||
Hana Financial Group, Inc.A | 472,142 | 15,921,421 | |||||||||||||
KB Financial Group, Inc., ADR | 366,217 | 15,216,316 | |||||||||||||
Samsung Electronics Co., Ltd.A | 1,094,293 | 40,926,147 | |||||||||||||
SK Innovation Co., Ltd.A | 17,062 | 3,208,553 | |||||||||||||
SK Telecom Co., Ltd.A | 100,538 | 23,631,720 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 98,904,157 | ||||||||||||||
|
| ||||||||||||||
Total Republic of Korea (Cost $78,778,351) | 98,904,157 | ||||||||||||||
|
| ||||||||||||||
Singapore - 1.30% | |||||||||||||||
Common Stocks - 1.30% | |||||||||||||||
DBS Group Holdings Ltd.A | 982,910 | 16,677,908 | |||||||||||||
Singapore Telecommunications Ltd.A | 9,172,595 | 20,930,919 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 37,608,827 | ||||||||||||||
|
| ||||||||||||||
Total Singapore (Cost $36,502,512) | 37,608,827 | ||||||||||||||
|
| ||||||||||||||
Spain - 0.86% | |||||||||||||||
Common Stocks - 0.86% | |||||||||||||||
CaixaBank S.A.A | 2,368,254 | 9,586,476 | |||||||||||||
Red Electrica Corp. S.A.A | 729,346 | 15,105,562 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 24,692,038 | ||||||||||||||
|
| ||||||||||||||
Total Spain (Cost $23,382,936) | 24,692,038 | ||||||||||||||
|
| ||||||||||||||
Sweden - 1.21% | |||||||||||||||
Common Stocks - 1.21% | |||||||||||||||
Assa Abloy AB, Class BA | 1,047,521 | 20,882,008 | |||||||||||||
Epiroc AB, Class AA D | 1,065,022 | 9,341,266 | |||||||||||||
Getinge AB, Class BA | 483,082 | 4,739,856 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 34,963,130 | ||||||||||||||
|
| ||||||||||||||
Total Sweden (Cost $40,068,135) | 34,963,130 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
12
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
Switzerland - 7.94% | |||||||||||||||
Common Stocks - 7.94% | |||||||||||||||
ABB Ltd.A | 1,429,264 | $ | 28,732,488 | ||||||||||||
Aryzta AGA B D | 332,801 | 3,098,998 | |||||||||||||
Cie Financiere Richemont S.A.A | 249,106 | 18,166,015 | |||||||||||||
Ferguson PLCA | 376,920 | 25,432,163 | |||||||||||||
Givaudan S.A.A | 4,942 | 11,963,899 | |||||||||||||
Julius Baer Group Ltd.A D | 225,980 | 10,304,329 | |||||||||||||
Novartis AGA | 900,362 | 78,625,183 | |||||||||||||
Roche Holding AGA | 135,011 | 32,760,169 | |||||||||||||
UBS Group AGA D | 1,451,884 | 20,258,802 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 229,342,046 | ||||||||||||||
|
| ||||||||||||||
Total Switzerland (Cost $240,969,751) | 229,342,046 | ||||||||||||||
|
| ||||||||||||||
United Kingdom - 22.09% | |||||||||||||||
Common Stocks - 22.09% | |||||||||||||||
Aon PLC | 171,599 | 26,800,332 | |||||||||||||
AstraZeneca PLCA | 298,934 | 22,834,359 | |||||||||||||
Aviva PLCA | 3,324,826 | 18,190,277 | |||||||||||||
BAE Systems PLCA | 939,462 | 6,310,669 | |||||||||||||
Balfour Beatty PLCA | 2,812,579 | 9,451,017 | |||||||||||||
Barclays PLCA | 12,826,499 | 28,213,183 | |||||||||||||
BP PLCA | 7,172,547 | 51,954,498 | |||||||||||||
British American Tobacco PLCA | 1,289,809 | 55,969,731 | |||||||||||||
Carnival PLCA | 275,353 | 15,033,439 | |||||||||||||
Cobham PLCA D | 9,280,316 | 12,764,405 | |||||||||||||
Compass Group PLCA | 1,029,449 | 20,255,760 | |||||||||||||
Diageo PLCA | 643,659 | 22,262,340 | |||||||||||||
GlaxoSmithKline PLCA | 627,490 | 12,133,728 | |||||||||||||
Howden Joinery Group PLCA | 1,798,435 | 10,780,367 | |||||||||||||
HSBC Holdings PLCA | 1,634,824 | 13,408,816 | |||||||||||||
Informa PLCA | 1,667,353 | 15,195,060 | |||||||||||||
Johnson Matthey PLCA | 319,633 | 12,130,610 | |||||||||||||
Kingfisher PLCA | 3,776,078 | 12,285,133 | |||||||||||||
Lloyds Banking Group PLCA | 15,765,031 | 11,525,631 | |||||||||||||
Melrose Industries PLCA | 4,237,886 | 9,119,458 | |||||||||||||
Micro Focus International PLCA | 625,988 | 9,701,343 | |||||||||||||
Prudential PLCA | 3,192,847 | 64,048,519 | |||||||||||||
RELX PLCA | 876,041 | 17,341,619 | |||||||||||||
Rolls Royce Holdings PLC, C Shares EntitlementA F | 70,684,290 | 90,350 | |||||||||||||
Rolls-Royce Holdings PLCA D | 1,650,314 | 17,677,707 | |||||||||||||
RSA Insurance Group PLCA | 1,409,391 | 10,162,501 | |||||||||||||
Shire PLCA | 654,650 | 39,156,895 | |||||||||||||
SSE PLCA | 1,447,032 | 21,081,602 | |||||||||||||
Standard Chartered PLCA | 3,204,200 | 22,491,825 | |||||||||||||
Travis Perkins PLCA | 179,943 | 2,545,703 | |||||||||||||
Unilever PLCA | 378,110 | 20,022,272 | |||||||||||||
Vodafone Group PLCA | 14,261,593 | 26,936,975 | |||||||||||||
|
| ||||||||||||||
Total Common Stocks | 637,876,124 | ||||||||||||||
|
| ||||||||||||||
Total United Kingdom (Cost $710,499,019) | 637,876,124 | ||||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 2.72% (Cost $78,615,200) | |||||||||||||||
Investment Companies - 2.72% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%G H | 78,615,200 | 78,615,200 | |||||||||||||
|
| ||||||||||||||
See accompanying notes
13
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
SECURITIES LENDING COLLATERAL - 1.49% (Cost $43,093,443) | |||||||||||||||
Investment Companies - 1.49% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%G H | 43,093,443 | $ | 43,093,443 | ||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 101.25% (Cost $2,957,595,827) | 2,923,239,464 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (1.25%) | (36,061,447 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 2,887,178,017 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A Fair valued pursuant to procedures approved by the Board of Trustees. At period end, the value of these securities amounted to $2,507,990,456 or 86.87% of net assets.
B All or a portion of this security is on loan at October 31, 2018.
C A type of Preferred Stock that has no maturity date.
D Non-income producing security.
E 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 $10,992,949 or 0.38% of net assets. The Fund has no right to demand registration of these securities.
F Value was determined using significant unobservable inputs.
G The Fund is affiliated by having the same investment advisor.
H 7-day yield.
ADR - American Depositary Receipt.
PLC - Public Limited Company.
Long Futures Contracts Open on October 31, 2018: |
| |||||||||||||||||||||
Equity Futures Contracts | ||||||||||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||||||||||
Amsterdam Index Futures | 25 | November 2018 | $ | 2,918,660 | $ | 2,926,768 | $ | 8,108 | ||||||||||||||
CAC40 Index Futures | 165 | November 2018 | 9,516,379 | 9,512,564 | (3,815 | ) | ||||||||||||||||
DAX Index Futures | 24 | December 2018 | 8,169,833 | 7,786,405 | (383,428 | ) | ||||||||||||||||
FTSE 100 Index Futures | 166 | December 2018 | 15,413,255 | 15,088,209 | (325,046 | ) | ||||||||||||||||
FTSE/MIB Index Futures | 17 | December 2018 | 1,967,412 | 1,827,786 | (139,626 | ) | ||||||||||||||||
Hang Seng Index Futures | 19 | November 2018 | 2,999,607 | 3,017,802 | 18,195 | |||||||||||||||||
IBEX 35 Index Futures | 26 | November 2018 | 2,609,559 | 2,616,948 | 7,389 | |||||||||||||||||
OMXS30 Index Futures | 136 | November 2018 | 2,269,725 | 2,276,785 | 7,060 | |||||||||||||||||
S&P/TSX 60 Index Futures | 56 | December 2018 | 7,992,650 | 7,607,611 | (385,039 | ) | ||||||||||||||||
SPI 200 Futures | 57 | December 2018 | 6,146,891 | 5,850,842 | (296,049 | ) | ||||||||||||||||
TOPIX Index Futures | 144 | December 2018 | 22,179,115 | 20,942,438 | (1,236,677 | ) | ||||||||||||||||
|
|
|
|
|
| |||||||||||||||||
$ | 82,183,086 | $ | 79,454,158 | $ | (2,728,928 | ) | ||||||||||||||||
|
|
|
|
|
|
Forward Foreign Currency Contracts Open on October 31, 2018: |
| |||||||||||||||||||||||||||
Currency Purchased* | Currency Sold* | Settlement Date | Counterparty | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
CAD | 2,204,496 | USD | 2,242,820 | 12/10/2018 | BNP | $ | - | $ | (38,324 | ) | $ | (38,324 | ) | |||||||||||||||
USD | 4,615,683 | CHF | 4,606,695 | 12/10/2018 | BNP | 8,988 | - | 8,988 | ||||||||||||||||||||
CHF | 1,446,879 | USD | 1,462,096 | 12/10/2018 | BOM | - | (15,217 | ) | (15,217 | ) | ||||||||||||||||||
SEK | 2,878,105 | USD | 2,913,131 | 12/10/2018 | BOM | - | (35,026 | ) | (35,026 | ) | ||||||||||||||||||
CAD | 11,075,667 | USD | 11,083,573 | 12/10/2018 | BOM | - | (7,906 | ) | (7,906 | ) | ||||||||||||||||||
GBP | 20,322,877 | USD | 20,616,628 | 12/10/2018 | BOM | - | (293,751 | ) | (293,751 | ) | ||||||||||||||||||
USD | 4,326,750 | EUR | 4,228,045 | 12/10/2018 | BOM | 98,705 | - | 98,705 | ||||||||||||||||||||
USD | 1,436,125 | SEK | 1,440,059 | 12/10/2018 | BOM | - | (3,934 | ) | (3,934 | ) | ||||||||||||||||||
EUR | 6,164,241 | USD | 6,283,018 | 12/10/2018 | BRC | - | (118,777 | ) | (118,777 | ) | ||||||||||||||||||
USD | 16,073,700 | EUR | 16,048,616 | 12/10/2018 | BRC | 25,084 | - | 25,084 | ||||||||||||||||||||
USD | 2,805,527 | GBP | 2,724,907 | 12/10/2018 | BRC | 80,620 | - | 80,620 | ||||||||||||||||||||
EUR | 4,777,997 | USD | 4,810,227 | 12/10/2018 | CBK | - | (32,230 | ) | (32,230 | ) |
See accompanying notes
14
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
Currency Purchased* | Currency Sold* | Settlement Date | Counterparty | Unrealized Appreciation | Unrealized (Depreciation) | Net Unrealized Appreciation (Depreciation) | ||||||||||||||||||||||
JPY | 5,220,610 | USD | 5,187,799 | 12/10/2018 | CBK | $ | 32,811 | $ | - | $ | 32,811 | |||||||||||||||||
USD | 3,659,972 | JPY | 3,623,256 | 12/10/2018 | CBK | 36,716 | - | 36,716 | ||||||||||||||||||||
JPY | 4,218,974 | USD | 4,246,861 | 12/10/2018 | DUB | - | (27,887 | ) | (27,887 | ) | ||||||||||||||||||
USD | 12,986,186 | JPY | 13,006,877 | 12/10/2018 | DUB | - | (20,691 | ) | (20,691 | ) | ||||||||||||||||||
AUD | 1,482,762 | USD | 1,476,624 | 12/10/2018 | GSC | 6,138 | - | 6,138 | ||||||||||||||||||||
CAD | 1,549,229 | USD | 1,564,147 | 12/10/2018 | GSC | - | (14,918 | ) | (14,918 | ) | ||||||||||||||||||
USD | 9,492,113 | GBP | 9,548,699 | 12/10/2018 | GSC | - | (56,586 | ) | (56,586 | ) | ||||||||||||||||||
USD | 5,222,609 | CAD | 5,205,652 | 12/10/2018 | GSC | 16,957 | - | 16,957 | ||||||||||||||||||||
USD | 929,321 | AUD | 922,387 | 12/10/2018 | GSC | 6,934 | - | 6,934 | ||||||||||||||||||||
HKD | 962,672 | USD | 962,192 | 12/10/2018 | JPM | 480 | - | 480 | ||||||||||||||||||||
GBP | 2,718,504 | USD | 2,741,160 | 12/10/2018 | JPM | - | (22,656 | ) | (22,656 | ) | ||||||||||||||||||
AUD | 7,433,180 | USD | 7,491,398 | 12/10/2018 | JPM | - | (58,218 | ) | (58,218 | ) | ||||||||||||||||||
USD | 1,868,682 | CHF | 1,829,525 | 12/10/2018 | JPM | 39,157 | - | 39,157 | ||||||||||||||||||||
USD | 3,654,747 | AUD | 3,640,665 | 12/10/2018 | MYC | 14,082 | - | 14,082 | ||||||||||||||||||||
SEK | 412,150 | USD | 413,794 | 12/10/2018 | RBC | - | (1,644 | ) | (1,644 | ) | ||||||||||||||||||
USD | 1,505,519 | CAD | 1,485,374 | 12/10/2018 | RBC | 20,145 | - | 20,145 | ||||||||||||||||||||
CHF | 9,234,794 | USD | 9,643,218 | 12/10/2018 | SCB | - | (408,424 | ) | (408,424 | ) | ||||||||||||||||||
JPY | 30,481,360 | USD | 31,042,160 | 12/10/2018 | SOG | - | (560,800 | ) | (560,800 | ) | ||||||||||||||||||
EUR | 33,905,753 | USD | 34,788,987 | 12/10/2018 | SOG | - | (883,234 | ) | (883,234 | ) | ||||||||||||||||||
SEK | 573,326 | USD | 579,809 | 12/10/2018 | SOG | - | (6,483 | ) | (6,483 | ) | ||||||||||||||||||
CHF | 2,347,691 | USD | 2,389,252 | 12/10/2018 | UAG | - | (41,561 | ) | (41,561 | ) | ||||||||||||||||||
USD | 394,601 | SEK | 385,397 | 12/10/2018 | UAG | 9,204 | - | 9,204 | ||||||||||||||||||||
AUD | 1,079,660 | USD | 1,077,087 | 12/10/2018 | WBC | 2,573 | - | 2,573 | ||||||||||||||||||||
GBP | 3,858,151 | USD | 3,962,698 | 12/10/2018 | WBC | - | (104,547 | ) | (104,547 | ) | ||||||||||||||||||
|
|
|
|
|
| |||||||||||||||||||||||
$ | 398,594 | $ | (2,752,814 | ) | $ | (2,354,220 | ) | |||||||||||||||||||||
|
|
|
|
|
|
* | All values denominated in USD. |
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. | |
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. | |
HKD | Hong Kong Dollar. | |
JPY | Japanese Yen. | |
SEK | Swedish Krona. | |
USD | United States Dollar. | |
See accompanying notes
15
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
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. | |
SPI 200 | Australian Equity Market Index Future. | |
S&P/TSX | Canadian Equity Market Index. | |
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, 2018, the investments were classified as described below:
International Equity Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets |
| |||||||||||||||||||||||||||
Foreign Common Stocks | ||||||||||||||||||||||||||||
Australia | $ | - | $ | 24,544,196 | $ | - | $ | 24,544,196 | ||||||||||||||||||||
Belgium | - | 26,220,548 | - | 26,220,548 | ||||||||||||||||||||||||
Canada | 153,055,342 | - | - | 153,055,342 | ||||||||||||||||||||||||
China | - | 33,644,929 | - | 33,644,929 | ||||||||||||||||||||||||
Denmark | - | 52,265,070 | - | 52,265,070 | ||||||||||||||||||||||||
Finland | 12,624,597 | 13,537,603 | - | 26,162,200 | ||||||||||||||||||||||||
France | - | 244,980,758 | - | 244,980,758 | ||||||||||||||||||||||||
Germany | - | 216,189,983 | - | 216,189,983 | ||||||||||||||||||||||||
Hong Kong | - | 27,960,814 | - | 27,960,814 | ||||||||||||||||||||||||
Ireland | 54,015,197 | 29,292,710 | - | 83,307,907 | ||||||||||||||||||||||||
Israel | 20,347,612 | 7,381,371 | - | 27,728,983 | ||||||||||||||||||||||||
Italy | - | 61,053,531 | - | 61,053,531 | ||||||||||||||||||||||||
Japan | - | 408,161,114 | - | 408,161,114 | ||||||||||||||||||||||||
Luxembourg | - | 32,732,380 | - | 32,732,380 | ||||||||||||||||||||||||
Netherlands | 11,480,969 | 209,880,745 | - | 221,361,714 | ||||||||||||||||||||||||
Norway | - | 43,221,876 | - | 43,221,876 | ||||||||||||||||||||||||
Republic of Korea | 15,216,316 | 83,687,841 | - | 98,904,157 | ||||||||||||||||||||||||
Singapore | - | 37,608,827 | - | 37,608,827 | ||||||||||||||||||||||||
Spain | - | 24,692,038 | - | 24,692,038 | ||||||||||||||||||||||||
Sweden | - | 34,963,130 | - | 34,963,130 | ||||||||||||||||||||||||
Switzerland | - | 229,342,046 | - | 229,342,046 | ||||||||||||||||||||||||
United Kingdom | 26,800,332 | 610,985,442 | 90,350 | 637,876,124 | ||||||||||||||||||||||||
Foreign Preferred Stocks |
| |||||||||||||||||||||||||||
Germany | - | 55,553,154 | - | 55,553,154 | ||||||||||||||||||||||||
Short-Term Investments | 78,615,200 | - | - | 78,615,200 | ||||||||||||||||||||||||
Securities Lending Collateral | 43,093,443 | - | - | 43,093,443 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 415,249,008 | $ | 2,507,900,106 | $ | 90,350 | $ | 2,923,239,464 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Assets | ||||||||||||||||||||||||||||
Futures Contracts | $ | 40,752 | $ | - | $ | - | $ | 40,752 | ||||||||||||||||||||
Forward Foreign Currency Contracts | - | 398,594 | - | 398,594 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Assets | $ | 40,752 | $ | 398,594 | $ | - | $ | 439,346 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Liabilities | ||||||||||||||||||||||||||||
Futures Contracts | $ | (2,769,680 | ) | $ | - | $ | - | $ | (2,769,680 | ) | ||||||||||||||||||
Forward Foreign Currency Contracts | - | (2,752,814 | ) | - | (2,752,814 | ) | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Liabilities | $ | (2,769,680 | ) | $ | (2,752,814 | ) | $ | - | $ | (5,522,494 | ) | |||||||||||||||||
|
|
|
|
|
|
|
|
See accompanying notes
16
American Beacon International Equity FundSM
Schedule of Investments
October 31, 2018
U.S. GAAP requires transfers between all levels to level 3 to be disclosed. During the year ended October 31, 2018, there were no transfers into or out of Level 3.
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 10/31/2017 | Purchases | Sales | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Transfer into Level 3 | Transfer out of Level 3 | Balance as of 10/31/2018 | Change in Unrealized Appreciation (Depreciation) at Period end** | ||||||||||||||||||||||||||||||
Common Stocks | $ | - | $ | 91,268 | $ | - | $ | - | $ | - | $ | (918 | ) | $ | - | $ | - | $ | 90,350 | $ | (918 | ) |
** | 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 Statement of Operations. |
The common stock classified as Level 3 was fair valued using the redemption value as of October 31, 2018. This security was included in the Level 3 category due to the use of unobservable inputs that were significant to the valuation.
See accompanying notes
17
American Beacon International Equity FundSM
Statement of Assets and Liabilities
October 31, 2018
Assets: | ||||
Investments in unaffiliated securities, at fair value†§ | $ | 2,801,530,821 | ||
Investments in affiliated securities, at fair value‡ | 121,708,643 | |||
Foreign currency, at fair value^ | 93 | |||
Deposits with broker for futures contracts | 18,312,018 | |||
Dividends and interest receivable | 6,981,402 | |||
Receivable for investments sold | 4,669,771 | |||
Receivable for fund shares sold | 3,881,465 | |||
Receivable for tax reclaims | 4,422,023 | |||
Receivable for expense reimbursement (Note 2) | 186 | |||
Unrealized appreciation from forward foreign currency contracts | 398,594 | |||
Prepaid expenses | 91,541 | |||
|
| |||
Total assets | 2,961,996,557 | |||
|
| |||
Liabilities: | ||||
Payable for investments purchased | 6,924,717 | |||
Payable for fund shares redeemed | 10,371,000 | |||
Payable for foreign currency deposits with broker for futures contracts, at fair value¤ | 4,077,358 | |||
Payable upon return of securities loaned (Note 9)§ | 43,093,443 | |||
Management and sub-advisory fees payable (Note 2) | 3,836,135 | |||
Service fees payable (Note 2) | 109,223 | |||
Transfer agent fees payable (Note 2) | 163,716 | |||
Custody and fund accounting fees payable | 67,026 | |||
Professional fees payable | 75,151 | |||
Trustee fees payable (Note 2) | 20,456 | |||
Payable for prospectus and shareholder reports | 113,276 | |||
Unrealized depreciation from forward foreign currency contracts | 2,752,814 | |||
Payable for variation margin from open futures contracts (Note 5) | 3,177,975 | |||
Other liabilities | 36,250 | |||
|
| |||
Total liabilities | 74,818,540 | |||
|
| |||
Net assets | $ | 2,887,178,017 | ||
|
| |||
Analysis of net assets: | ||||
Paid-in-capital | $ | 2,710,082,872 | ||
Total distributable earnings (deficits)A | 177,095,145 | |||
|
| |||
Net assets | $ | 2,887,178,017 | ||
|
|
See accompanying notes
18
American Beacon International Equity FundSM
Statement of Assets and Liabilities
October 31, 2018
Shares outstanding at no par value (unlimited shares authorized): | ||||
Institutional Class | 86,224,911 | |||
|
| |||
Y Class | 46,605,121 | |||
|
| |||
Investor Class | 13,543,268 | |||
|
| |||
Advisor Class | 2,566,290 | |||
|
| |||
A Class | 764,380 | |||
|
| |||
C Class | 371,427 | |||
|
| |||
R6 Class | 2,601,245 | |||
|
| |||
Net assets: | ||||
Institutional Class | $ | 1,613,462,237 | ||
|
| |||
Y Class | $ | 904,847,058 | ||
|
| |||
Investor Class | $ | 250,804,403 | ||
|
| |||
Advisor Class | $ | 48,571,916 | ||
|
| |||
A Class | $ | 14,141,551 | ||
|
| |||
C Class | $ | 6,625,329 | ||
|
| |||
R6 Class | $ | 48,725,523 | ||
|
| |||
Net asset value, offering and redemption price per share: | ||||
Institutional Class | $ | 18.71 | ||
|
| |||
Y Class | $ | 19.42 | ||
|
| |||
Investor Class | $ | 18.52 | ||
|
| |||
Advisor Class | $ | 18.93 | ||
|
| |||
A Class | $ | 18.50 | ||
|
| |||
A Class (offering price) | $ | 19.63 | ||
|
| |||
C Class | $ | 17.84 | ||
|
| |||
R6 Class | $ | 18.73 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 2,835,887,184 | ||
‡ Cost of investments in affiliated securities | $ | 121,708,643 | ||
§ Fair value of securities on loan | $ | 41,033,943 | ||
¤ Cost of foreign currency deposits with broker for futures contracts | $ | (4,136,908 | ) | |
^ Cost of foreign currency | $ | 94 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
19
American Beacon International Equity FundSM
Statement of Operations
For the year ended October 31, 2018
Investment income: | ||||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 88,866,699 | ||
Dividend income from affiliated securities (Note 8) | 1,828,438 | |||
Interest income (net of foreign taxes) | 11,900 | |||
Income derived from securities lending (Note 9) | 907,013 | |||
|
| |||
Total investment income | 91,614,050 | |||
|
| |||
Expenses: | ||||
Management and sub-advisory fees (Note 2) | 20,029,052 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 577,766 | |||
Y Class (Note 2) | 1,040,001 | |||
Investor Class | 14,045 | |||
Advisor Class | 2,845 | |||
A Class | 3,811 | |||
C Class | 2,769 | |||
R6 Class | 416 | |||
Custody and fund accounting fees | 891,551 | |||
Professional fees | 160,755 | |||
Registration fees and expenses | 164,431 | |||
Service fees (Note 2): | ||||
Investor Class | 1,071,699 | |||
Advisor Class | 135,576 | |||
A Class | 18,909 | |||
C Class | 5,730 | |||
Distribution fees (Note 2): | ||||
Advisor Class | 135,576 | |||
A Class | 41,754 | |||
C Class | 75,083 | |||
Prospectus and shareholder report expenses | 291,032 | |||
Trustee fees (Note 2) | 220,962 | |||
Other expenses | 308,679 | |||
|
| |||
Total expenses | 25,192,442 | |||
|
| |||
Net fees waived and expenses (reimbursed) (Note 2) | (8,383 | ) | ||
|
| |||
Net expenses | 25,184,059 | |||
|
| |||
Net investment income | 66,429,991 | |||
|
| |||
Realized and unrealized gain (loss) from investments: | ||||
Net realized gain (loss) from: | ||||
Investments in unaffiliated securitiesA | 180,506,328 | |||
Commission recapture (Note 1) | 22,432 | |||
Foreign currency transactions | (517,228 | ) | ||
Forward foreign currency contracts | (5,982,698 | ) | ||
Futures contracts | (3,463,552 | ) | ||
Change in net unrealized appreciation (depreciation) of: | ||||
Investments in unaffiliated securitiesB | (476,202,055 | ) | ||
Foreign currency transactions | 25,773 | |||
Forward foreign currency contracts | 592,626 | |||
Futures contracts | (7,263,158 | ) | ||
|
| |||
Net (loss) from investments | (312,281,532 | ) | ||
|
| |||
Net (decrease) in net assets resulting from operations | $ | (245,851,541 | ) | |
|
| |||
† Foreign taxes | $ | 8,672,394 | ||
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 net unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
20
American Beacon International Equity FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Increase (decrease) in net assets: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 66,429,991 | $ | 53,998,740 | ||||||||
Net realized gain from investments in unaffiliated securities, commission recapture, foreign currency transactions, forward foreign currency contracts, and futures contracts | 170,565,282 | 122,355,671 | ||||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities, foreign currency transactions, forward foreign currency contracts, and futures contracts | (482,846,814 | ) | 393,563,481 | |||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | (245,851,541 | ) | 569,917,892 | |||||||||
|
|
|
| |||||||||
Distributions to shareholders: | ||||||||||||
Net investment income: | ||||||||||||
Institutional Class | - | (34,791,829 | ) | |||||||||
Y Class | - | (18,973,818 | ) | |||||||||
Investor Class | - | (7,051,311 | ) | |||||||||
Advisor Class | - | (456,420 | ) | |||||||||
A Class | - | (472,655 | ) | |||||||||
C Class | - | (111,074 | ) | |||||||||
Total retained earnings:* | ||||||||||||
Institutional Class | (51,858,343 | ) | - | |||||||||
Y Class | (30,796,239 | ) | - | |||||||||
Investor Class | (8,756,108 | ) | - | |||||||||
Advisor Class | (1,516,721 | ) | - | |||||||||
A Class | (482,751 | ) | - | |||||||||
C Class | (155,808 | ) | - | |||||||||
R6 Class | (351,275 | ) | - | |||||||||
|
|
|
| |||||||||
Net distributions to shareholders | (93,917,245 | ) | (61,857,107 | ) | ||||||||
|
|
|
| |||||||||
Capital share transactions (Note 11): | ||||||||||||
Proceeds from sales of shares | 802,744,600 | 775,385,640 | ||||||||||
Reinvestment of dividends and distributions | 86,428,547 | 57,320,154 | ||||||||||
Cost of shares redeemed | (740,146,553 | ) | (913,700,486 | ) | ||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets from capital share transactions | 149,026,594 | (80,994,692 | ) | |||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets | (190,742,192 | ) | 427,066,093 | |||||||||
|
|
|
| |||||||||
Net assets: | ||||||||||||
Beginning of period | 3,077,920,209 | 2,650,854,116 | ||||||||||
|
|
|
| |||||||||
End of period | $ | 2,887,178,017 | $ | 3,077,920,209 | ||||||||
|
|
|
| |||||||||
* Distributions from net investment income and net realized capital gains are combined for the year ended October 31, 2018. See Note 1 in the Notes to Financial Statements for more information regarding new accounting pronouncements. |
|
See accompanying notes
21
American Beacon International Equity FundSM
October 31, 2018
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, as amended (the “Act”), as a diversified, open-end management investment company. As of October 31, 2018, the Trust consists of thirty-three active series, one of which is presented in this filing: American Beacon International Equity Fund (the “Fund”). The remaining thirty-two active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a Delaware corporation and a wholly-owned subsidiary of Resolute Investment Managers, Inc. (“RIM”) organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors. The Manager is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). RIM is, in turn, a wholly-owned subsidiary of Resolute Acquisition, Inc., which is a wholly-owned subsidiary of Resolute Topco, Inc., a wholly-owned subsidiary of Resolute Investment Holdings, LLC (“RIH”). RIH is owned primarily by Kelso Investment Associates VIII, L.P., KEP VI, LLC and Estancia Capital Partners L.P., investment funds affiliated with Kelso & Company, L.P. (“Kelso”) or Estancia Capital Management, LLC (“Estancia”), which are private equity firms.
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Premium Amortization of Purchased Callable Debt Securities. The amendments in the ASU shorten the premium amortization period on a purchased callable debt security from the security’s contractual life to the earliest call date. It is anticipated that this change will enhance disclosures by reducing losses recognized when a security is called on an earlier date. This ASU is effective for fiscal years beginning after December 15, 2018. The Manager continues to evaluate the impact this ASU will have on the financial statements and other disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The amendments in the ASU impact disclosure requirements for fair value measurement. It is anticipated that this change will enhance the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and can include the entire standard or certain provisions that exclude or amend disclosures. For the year ended October 31, 2018, the Fund has chosen to adopt certain provisions of the standard which eliminated the disclosures of transfers between level 1 and level 2 portfolio investments and the policy for the timing of transfers between levels of the fair value hierarchy. Management has evaluated that the full adoption of this ASU will not have a material impact on the Fund’s financial statements.
In August 2018, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Effective with the current reporting period, the Fund adopted the amendments with the impacts being that the Fund is no longer required to present components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributable earnings and the amount of undistributed net investment income on the Statement of Changes in Net Assets.
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 or through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 |
22
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
Class | Eligible Investors | Minimum Initial Investments | ||||
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 a broker or through 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, transfer agent fees, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Significant Accounting Policies
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 FASB Accounting Standards 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 as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled beyond a standard settlement period for the security after the trade date.
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, net of foreign taxes, is earned from settlement date, recorded on the accrual basis, and adjusted, if necessary, for accretion of discounts and amortization of premiums. Realized gains (losses) from securities sold 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
The Fund intends to declare income distributions daily and distribute them to Shareholders quarterly. The Fund’s final distribution for each taxable (fiscal) year will include any remaining investment company taxable
23
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
income undistributed during the year, as well as all net capital gain realized during the year. 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. If all or a portion of any Fund distribution exceeds the sum of the Fund’s investment company taxable income and realized net capital gain for a taxable year, the excess would be treated (i) first, as dividend income to the extent of the Fund’s current or accumulated earnings and profits, as calculated for federal income tax purposes (“E&P”), (ii) then as a tax-free “return of capital,” reducing a Shareholder’s adjusted tax basis in his or her Shares (which would result in a higher tax liability when the Shares are sold, even if they had not increased in value, or, in fact, had lost value), and (iii) then, after that basis is reduced to zero, as realized capital gain (assuming the Shares are held as capital assets), long- or short-term, depending on the Shareholder’s holding period for the Shares.
Section 19(a) of the Act and Rule 19a-1 thereunder require the Fund to provide a written statement accompanying any distribution from a source other than net income that adequately discloses its source or sources. Thus, if the source of a distribution were the original capital contribution of the Shareholder, and the payment amounted to a return of capital, the Fund would be required to provide written disclosure to that effect. Nevertheless, persons who periodically receive the payment of a dividend or other distribution may be under the impression that they are receiving net profits when they are not. Shareholders should read any written disclosure provided pursuant to Section 19(a) and Rule 19a-1 carefully and should not assume that the source of any distribution from the Fund is net profit.
Commission Recapture
The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If the 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 Trust’s Board of Trustees (the “Board”) deems 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.
24
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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 Asset 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, 2018 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 11,153,117 | ||||||||
Sub-Advisor Fees | 0.28 | % | 8,875,935 | |||||||||
|
|
|
| |||||||||
Total | 0.63 | % | $ | 20,029,052 | ||||||||
|
|
|
|
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, 2018, the Manager received securities lending fees of $93,380 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 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 a Service Plan that obligates the Manager to oversee additional shareholder servicing of the Investor, Advisor, A, and C Classes of the Fund. As compensation for performing the
25
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
duties required under the Service Plan, the Manager receives an annualized fee 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.
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 and Y Classes of the Fund and has agreed to compensate the intermediaries for providing these services. 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 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, 2018, 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 | $ | 1,524,948 |
As of October 31, 2018, 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 | $ | 140,150 |
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, 2018, 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 | $ | 116,909 | $ | 33,598 | $ | 150,507 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the 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
26
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
fund. When a fund liquidates portfolio securities to meet redemption requests, they often do not receive payment in settlement for up to two 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, 2018, 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, 2018, the Manager waived and/or reimbursed expenses as follows:
Expense Cap | Expiration of Reimbursed Expenses | |||||||||||||||||
Fund | Class | 11/1/2017 - 10/31/2018 | Reimbursed Expenses | (Recouped) Expenses | ||||||||||||||
International Equity | R6 | 0.66 | % | $ | 8,383 | $ | - | 2021 |
Of these amounts, $186 was disclosed as a receivable from the Manager on the Statement of Assets and Liabilities at October 31, 2018.
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 be reimbursed by the Fund for any contractual or voluntary fee reductions or expense reimbursements if reimbursement to 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 2021. The carryover of excess expenses potentially reimbursable to the Manager are as follows:
Fund | Recouped Expenses | Excess Expense Carryover | Expired Expense Carryover | Expiration of Reimbursed Expenses | ||||||||||||
International Equity | $ | - | $ | 3,001 | $ | - | 2020 |
The Distributor
Effective March 1, 2018, Resolute Investment Distributors, Inc. (“RID” or “Distributor”) replaced Foreside Fund Services, LLC (“Foreside”) as the Fund’s distributor and principal underwriter of the Fund’s shares.
RID is a registered broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor is affiliated with the Manager through common ownership. Under a Distribution Agreement with the Trust, the Distributor acts as the distributor and principal underwriter of the Trust in connection with the continuous offering of shares of the Fund. The Distributor continually distributes shares of the Fund on a best efforts basis. The Distributor has no obligation to sell any specific quantity of the Fund’s shares. Pursuant to the Distribution Agreement, to the extent applicable, the Distributor receives, and may re-allocate to broker-dealers, all or a portion of the sales charge paid by the purchasers of A Class and C Class shares. For A Class and C Class shares, the Distributor receives commission revenue consisting of the portion of A Class and C Class sales charge remaining after the allowances by the Distributor to the broker-dealers. The Distributor retains any portion of the commission fees that are not paid to the broker-dealers for use solely to pay distribution related expenses.
Prior to March 1, 2018, Foreside served as the distributor and principal underwriter of the Fund’s shares. Pursuant to a Sub-Administration Agreement between Foreside and the Manager in effect through February 28, 2018, Foreside received a fee from the Manager for providing administrative services in connection with the
27
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
marketing and distribution of shares of the Trust, including the registration of Manager employees as registered representatives of Foreside to facilitate distribution of Fund shares. Foreside also received a fee from the Manager under a Marketing Agreement pursuant to which Foreside provided services in connection with the marketing of a Fund to institutional investors. Pursuant to the Distribution Agreement with the Trust in effect through February 28, 2018, Foreside received, and may have re-allocated to broker-dealers, all or a portion of the sales charge paid by the purchasers of A and C Class shares. For A and C Class shares, Foreside received commission revenues consisting of the portion of A and C Class sales charge remaining after the allowances by Foreside to the broker dealers. Foreside retained any portion of the commission fees that were not paid to the broker-dealers for use solely to pay distribution related expenses.
Sales Commissions
The Fund’s Distributor, formerly 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 period November 1, 2017 through February 28, 2018 Foreside collected $3,091 for the Fund from the sale of Class A Shares. During the period March 1, 2018 through October 31, 2018 RID collected $1,554 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, 2018, there were no CDSC fees collected for 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 period November 1, 2017 through February 28, 2018, Foreside collected CDSC fees of $32 for Class C Shares of the Fund. During the period March 1, 2018 through October 31, 2018, RID collected CDSC fees of $590 for Class C Shares of the Fund.
Trustee Fees and Expenses
As compensation for their service to the Trust, American Beacon Select Funds, American Beacon Institutional Funds Trust, American Beacon Sound Point Enhanced Income Fund, and American Beacon Apollo Total Return Fund, each Trustee receives an annual retainer of $120,000, plus $10,000 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 $2,500 fee each quarter for his attendance at the committee meetings. Effective January 1, 2018, the Board Vice Chair receives an additional annual retainer of $10,000. 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 Trusts according to its respective net assets.
3. Security Valuation and Fair Value Measurements
The price of the Fund’s shares is based on its net asset value (“NAV”) per share. The Fund’s NAV is computed by adding total assets, subtracting all the Fund’s liabilities, and dividing the result by the total number of shares outstanding.
28
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
The NAV of each class of the Fund’s shares is determined based on a pro rata allocation of the Fund’s investment income, expenses and total capital gains and losses. The Fund’s NAV per share is determined each business day as of the regular close of trading on the New York Stock Exchange (“NYSE” or “Exchange”), which is typically 4:00 p.m. Eastern Time (“ET”). However, if trading on the NYSE closes at a time other than 4:00 p.m. ET, the Fund’s NAV per share typically would still be determined as of the regular close of trading on the NYSE. The Fund does not price its shares on days that the NYSE is closed. Foreign exchanges may permit trading in foreign securities on days when the Fund is not open for business, which may result in the value of the Fund’s portfolio investments being affected at a time when you are unable to buy or sell shares.
Equity securities, including shares of closed-end funds and exchange-traded funds (“ETFs”), are valued at the last sale price or official closing price taken from the primary exchange in which each security trades. Investments in other mutual funds are valued at the closing NAV per share on the day of valuation. Debt securities are valued at bid quotes from broker/dealers or evaluated bid prices from pricing services, who may consider a number of inputs and factors, such as prices of comparable securities, yield curves, spreads, credit ratings, coupon rates, maturity, default rates, and underlying collateral. Futures are valued based on their daily settlement prices. Exchange-traded and over-the-counter (“OTC”) options are valued at the last sale price. Options with no last sale for the day are priced at mid quote. Swaps are valued at evaluated mid prices from pricing services.
The valuation of securities traded on foreign markets and certain fixed income securities will generally be based on prices determined as of the earlier closing time of the markets on which they primarily trade unless a significant event has occurred. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. ET.
Securities may be valued at fair value, as determined in good faith and pursuant to procedures approved by the Board, under certain limited circumstances. For example, fair value pricing will be used when market quotations are not readily available or reliable, as determined by the Manager, such as when (i) trading for a security is restricted or stopped; (ii) a security’s trading market is closed (other than customary closings); or (iii) a security has been de-listed from a national exchange. A security with limited market liquidity may require fair value pricing if the Manager determines that the available price does not reflect the security’s true market value. In addition, if a significant event that the Manager determines to affect the value of one or more securities held by the Fund occurs after the close of a related exchange but before the determination of the Fund’s NAV, fair value pricing may be used on the affected security or securities. Securities of small-capitalization companies are also more likely to require a fair value determination using these procedures because they are more thinly traded and less liquid than the securities of larger-capitalization companies. The Fund may fair value securities as a result of significant events occurring after the close of the foreign markets in which the Fund invests as described below. In addition, the Fund may invest in illiquid securities requiring these procedures.
The Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund’s pricing time of 4:00 p.m. ET. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. If the Manager determines that the last quoted prices of non-U.S. securities will, in its judgment, materially affect the value of some or all its portfolio securities, the Manager can adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the Exchange. In deciding whether it is necessary to adjust closing prices to reflect fair value, the Manager reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. These securities are fair valued using a pricing service, using methods approved by the Board, that considers the correlation of the trading patterns of the foreign security to intraday trading in the U.S. markets, based on indices of domestic securities and other appropriate indicators such as prices of relevant American Depository Receipts (“ADRs”) and futures contracts. The Valuation Committee, established by the Board, may also fair value securities in other situations, such as when a particular foreign market is closed but the Fund is open. The Fund uses outside pricing services to provide closing prices and information to evaluate
29
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
and/or adjust those prices. As a means of evaluating its security valuation process, the Valuation Committee routinely compares closing prices, the next day’s opening prices in the same markets and adjusted prices.
Attempts to determine the fair value of securities introduce an element of subjectivity to the pricing of securities. As a result, the price of a security determined through fair valuation techniques may differ from the price quoted or published by other sources and may not accurately reflect the market value of the security when trading resumes. If a reliable market quotation becomes available for a security formerly valued through fair valuation techniques, the Manager compares the new market quotation to the fair value price to evaluate the effectiveness of the Fund’s fair valuation procedures. If any significant discrepancies are found, the Manager may adjust the Fund’s fair valuation procedures.
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.
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.
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.
30
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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 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 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
31
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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 OTC. OTC stock may be less liquid than exchange-traded stock.
Foreign Securities
The Fund 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 certificates of deposit (“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 Fund’s rights as an investor.
Illiquid and Restricted Securities
The Fund 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, 2018 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 Fund, to purchase such unregistered securities if certain conditions are met.
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.
32
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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. Preferred stocks are subject to the risks associated with other types of equity securities, as well as additional risks, such as credit risk, interest rate risk, potentially greater volatility and risks related to deferral, non-cumulative dividends, subordination, liquidity, limited voting rights, and special redemption rights.
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 to hedge foreign currency exposure 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.
During the year ended October 31, 2018, the Fund entered into forward foreign currency contracts primarily for hedging foreign currency fluctuations.
33
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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 Amounts Outstanding | ||||||||
Fund | Purchased Contracts | Sold Contracts | ||||||
International Equity | $ | 155,347,264 | $ | 53,006,109 |
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 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, 2018, the Fund entered into futures contracts primarily for return enhancement, hedging and 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, 2018 | |||
International Equity | 997 |
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, 2018: |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
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 | $ | - | $ | 398,594 | $ | - | $ | - | $ | - | $ | 398,594 | |||||||||||||||||||||||||||||||||||||||||||
Receivable for variation margin from open futures contracts(2) | - | - | - | - | 40,752 | 40,752 | |||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Unrealized depreciation of forward foreign currency contracts | $ | - | $ | (2,752,814 | ) | $ | - | $ | - | $ | - | $ | (2,752,814 | ) | |||||||||||||||||||||||||||||||||||||||||
Payable for variation margin from open futures contracts | - | - | - | - | (2,769,680 | ) | (2,769,680 | ) |
34
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
The effect of financial derivative instruments on the Statement of Operations as of October 31, 2018: |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) from derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign currency contracts | $ | - | $ | (5,982,698 | ) | $ | - | $ | - | $ | - | $ | (5,982,698 | ) | |||||||||||||||||||||||||||||||||||||||||
Futures contracts | - | - | - | - | (3,463,552 | ) | (3,463,552 | ) | |||||||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized appreciation | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Forward foreign currency contracts | $ | - | $ | 592,626 | $ | - | $ | - | $ | - | $ | 592,626 | |||||||||||||||||||||||||||||||||||||||||||
Futures contracts | - | - | - | - | (7,263,158 | ) | (7,263,158 | ) |
(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 the 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.
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, 2018.
Offsetting of Financial and Derivative Assets as of October 31, 2018: |
| |||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | 40,752 | $ | 2,769,680 | ||||||||
Forward Foreign Currency Contracts | 398,594 | 2,752,814 | ||||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | 439,346 | $ | 5,522,494 | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | (40,752 | ) | $ | (2,769,680 | ) | ||||||
|
|
|
| |||||||||
Total derivative assets and liabilities subject to an MNA | $ | 398,594 | $ | 2,752,814 | ||||||||
|
|
|
|
35
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
Financial Assets, Derivatives, and Collateral Received/(Pledged) by Counterparty as of October 31, 2018: |
| |||||||||||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||||||||||||||
Counterparty | Gross Amounts of Assets Presented in the Statement of Assets and Liabilities | Derivatives Available for Offset | Non-Cash Collateral Pledged | Cash Collateral Pledged | Net Amount | |||||||||||||||||||||||||||||||
BNP Paribas, N.A. | $ | 8,988 | $ | (8,988 | ) | $ | - | $ | - | $ | - | |||||||||||||||||||||||||
Bank of Montreal | 98,705 | (98,705 | ) | - | - | - | ||||||||||||||||||||||||||||||
Barclays Bank PLC | 105,704 | (105,704 | ) | - | - | - | ||||||||||||||||||||||||||||||
Citibank, N.A. | 69,527 | (32,230 | ) | - | - | 37,297 | ||||||||||||||||||||||||||||||
Goldman Sachs Capital Markets | 30,029 | (30,029 | ) | - | - | - | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank, N.A. | 39,637 | (39,637 | ) | - | - | - | ||||||||||||||||||||||||||||||
Morgan Stanley Bank, N.A. | 14,082 | - | - | - | 14,082 | |||||||||||||||||||||||||||||||
Royal Bank of Canada | 20,145 | (1,644 | ) | - | - | 18,501 | ||||||||||||||||||||||||||||||
UBS AG | 9,204 | (9,204 | ) | - | - | - | ||||||||||||||||||||||||||||||
Westpac Banking Corporation | 2,573 | (2,573 | ) | - | - | - | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | $ | 398,594 | $ | (328,714 | ) | $ | - | $ | - | $ | 69,880 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Gross Amounts Not Offset in the Statement of Assets and Liabilities | ||||||||||||||||||||||||||||||||||||
Counterparty | Gross Amounts of Liabilities Presented in the Statement of Assets and Liabilities | Derivatives Available for Offset | Non-Cash Collateral Received | Cash Collateral Received | Net Amount | |||||||||||||||||||||||||||||||
BNP Paribas, N.A. | $ | 38,324 | $ | (8,988 | ) | $ | - | $ | - | $ | 29,336 | |||||||||||||||||||||||||
Bank of Montreal | 355,834 | (98,705 | ) | - | - | 257,129 | ||||||||||||||||||||||||||||||
Barclays Bank PLC | 118,777 | (105,704 | ) | - | - | 13,073 | ||||||||||||||||||||||||||||||
Citibank, N.A. | 32,230 | (32,230 | ) | - | - | - | ||||||||||||||||||||||||||||||
Deutsche Bank AG | 48,578 | - | - | - | 48,578 | |||||||||||||||||||||||||||||||
Goldman Sachs Capital Markets | 71,504 | (30,029 | ) | - | - | 41,475 | ||||||||||||||||||||||||||||||
JPMorgan Chase Bank, N.A. | 80,874 | (39,637 | ) | - | - | 41,237 | ||||||||||||||||||||||||||||||
Royal Bank of Canada | 1,644 | (1,644 | ) | - | - | - | ||||||||||||||||||||||||||||||
Societe Generale | 1,450,517 | - | - | - | 1,450,517 | |||||||||||||||||||||||||||||||
Standard and Chartered Bank | 408,424 | - | - | - | 408,424 | |||||||||||||||||||||||||||||||
UBS AG | 41,561 | (9,204 | ) | - | - | 32,357 | ||||||||||||||||||||||||||||||
Westpac Banking Corporation | 104,547 | (2,573 | ) | - | - | 101,974 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total | $ | 2,752,814 | $ | (328,714 | ) | $ | - | $ | - | $ | 2,424,100 | |||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2018 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 43,093,443 | $ | - | $ | - | $ | - | $ | 43,093,443 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 43,093,443 | $ | - | $ | - | $ | - | 43,093,443 | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions |
| $ | 43,093,443 | |||||||||||||||||||||||||||||||||
|
|
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
36
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
payments or to otherwise honor its obligations to the Fund. 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.
Credit Risk
A Fund is subject to the risk that the issuer or guarantor of a debt security or a counterparty to a loan will fail to make timely payment of interest or principal or otherwise honor its obligations or default completely. A decline in the credit rating of an individual security held by a Fund may have an adverse impact on its price and make it difficult for a Fund to sell it. Ratings represent a rating agency’s opinion regarding the quality of the security and are not a guarantee of quality. Rating agencies might not always change their credit rating on an issuer or security in a timely manner to reflect events that could affect the issuer’s ability to make timely payments on its obligations. Credit risk is typically greater for securities with ratings that are below investment grade.
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 foreign 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 Investments 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
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.
37
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
The risk of investing in Europe may be heightened due to the 2016 referendum in which the United Kingdom voted to exit the European Union (EU). There is a significant degree of uncertainty about how negotiations relating to the United Kingdom’s withdrawal will be conducted, as well as the potential consequences and precise time frame for “Brexit.” It is expected that the United Kingdom’s exit from the EU will take place within two years of the United Kingdom notifying the European Council that it intends to withdraw from the EU. While it is not possible to determine the precise impact these events may have on a Fund, during this period and beyond, the impact on the United Kingdom and European economies and the broader global economy could be significant, resulting in negative impacts, such as increased volatility and illiquidity, and potentially lower economic growth, on markets in the United Kingdom, Europe and globally, which may adversely affect the value of a Fund’s investments. In addition, if one or more other countries were to exit the EU or abandon the use of the euro as a currency, the value of investments tied to those countries or the euro could decline significantly and unpredictably.
Forward Foreign Currency Contracts Risk
Forward foreign currency contracts, including non-deliverable forwards, are derivative instruments pursuant to a contract with a counterparty to pay a fixed price for an agreed amount of securities or other underlying assets at an agreed date or to buy or sell a specific currency at a future date at a price set at the time of the contract. The use of forward foreign currency contracts may expose the Fund to additional risks that it would not be subject to if it invested directly in the securities or currencies underlying the forward foreign currency contract.
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. Conditions in the U.S. and many foreign economies have resulted, and may continue to result, in certain 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 some cases, traditional market participants have been less willing to make a market in some types of debt instruments, which has affected the liquidity of those instruments. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise and the yields to decline. Reduced liquidity in fixed income and credit markets may negatively affect many issuers worldwide. 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. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time.
In response to the financial crisis, the U.S. and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. In some countries where economic conditions are recovering, they are nevertheless perceived as still fragile. Withdrawal of government support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities. The severity or duration of adverse economic conditions may also be
38
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
affected by policy changes made by governments or quasi-governmental organizations, including changes in tax laws. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for some time. Regulatory changes are causing some financial services companies to exit long-standing lines of business, resulting in dislocations for other market participants. In addition, political and diplomatic events within the U.S. and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, the threat of a federal government shutdown and threats not to increase the federal government’s debt limit, may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. The U.S. government has recently reduced federal corporate income tax rates, and future legislative, regulatory and policy changes may result in more restrictions on international trade, less stringent prudential regulation of certain players in the financial markets, and significant new investments in infrastructure and national defense. Markets may react strongly to expectations about the changes in these policies, which could increase volatility, especially if the markets’ expectations for changes in government policies are not borne out.
Changes in market conditions will not have the same impact on all types of securities. 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 significant rate increase on various markets. For example, because investors may buy securities or other investments with borrowed money, a significant increase in interest rates may cause a decline in the markets for those investments. Because of the sharp decline in the worldwide price of oil, there is a concern that oil producing nations may withdraw significant assets now held in U.S. Treasuries, which could force a substantial increase in interest rates. Regulators have expressed concern that rate increases may cause investors to sell fixed income securities faster than the market can absorb them, contributing to price volatility. 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. If a country’s economy slips into a deflationary pattern, it could last for a prolonged period and may be difficult to reverse. The precise details and the resulting impact of the United Kingdom’s vote to leave the European Union (the “EU”), commonly referred to as “Brexit,” are not yet known. The effect on the United Kingdom’s economy will likely depend on the nature of trade relations with the EU and other major economies following its exit, which are matters to be negotiated. The outcomes may cause increased volatility and have a significant adverse impact on world financial markets, other international trade agreements, and the United Kingdom and European economies, as well as the broader global economy for some time, which could significantly adversely affect the value of the Fund’s investments in the United Kingdom and Europe.
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 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. Because each sub-advisor manages its allocated portion of the Fund independently from another sub-advisor, 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-advisor 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-advisor may believe that temporary, defensive investments in short-term
39
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
instruments or cash are appropriate when another sub-advisor believes continued exposure to the equity or debt markets is appropriate for its allocated portion of the Fund. Because each sub-advisor 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.
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 companies.
Securities Lending Risk
To the extent the Fund lends its securities, it may be subject to the following risks. Borrowers of the Fund’s securities typically provide collateral in the form of cash that is reinvested in securities. The securities in which the collateral is invested may not perform sufficiently to cover the return collateral payments owed to borrowers. In addition, 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.
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.
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, 2018 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.
40
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
The tax character of distributions paid were as follows:
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Distributions paid from: |
| |||||||||||
Ordinary income* |
| |||||||||||
Institutional Class | $ | 33,083,270 | $ | 34,791,829 | ||||||||
Y Class | 19,410,963 | 18,973,818 | ||||||||||
Investor Class | 5,187,972 | 7,051,311 | ||||||||||
Advisor Class | 904,837 | 456,420 | ||||||||||
A Class | 277,117 | 472,655 | ||||||||||
C Class | 71,451 | 111,074 | ||||||||||
R6 Class | 225,362 | - | ||||||||||
Long-term capital gains |
| |||||||||||
Institutional Class | 18,775,073 | - | ||||||||||
Y Class | 11,385,276 | - | ||||||||||
Investor Class | 3,568,136 | - | ||||||||||
Advisor Class | 611,884 | - | ||||||||||
A Class | 205,634 | - | ||||||||||
C Class | 84,357 | - | ||||||||||
R6 Class | 125,913 | - | ||||||||||
|
|
|
| |||||||||
Total distributions paid | $ | 93,917,245 | $ | 61,857,107 | ||||||||
|
|
|
|
* For tax purposes, short-term gains are considered ordinary income distributions.
As of October 31, 2018 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 | $ | 2,970,868,793 | $ | 243,598,506 | $ | (290,991,618 | ) | $ | (47,393,112 | ) |
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 | $ | (47,393,112 | ) | $ | 55,542,651 | $ | 168,945,606 | $ | - | $ | - | $ | 177,095,145 |
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 the realization for tax purposes of unrealized gains from 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 Section 732 basis adjustments as of October 31, 2018:
Fund | Paid-In-Capital | Distributable Earnings/(Loss) | ||||||
International Equity | $ | 110,911 | $ | (110,911 | ) |
41
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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, 2018 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Sales (non-U.S. Government Securities) | ||||||||||
International Equity | $ | 1,051,233,743 | $ | 885,717,039 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2018 were as follows:
Fund | Type of Transaction | October 31, 2017 Shares/Fair Value | Purchases | Sales | October 31, 2018 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
International Equity | Direct | $ | 129,125,237 | $ | 970,187,026 | $ | 1,020,697,063 | $ | 78,615,200 | $ | 1,828,438 | |||||||||||||||||||||||||||||||
International Equity | Securities Lending | 51,596,738 | 958,432,288 | 966,935,583 | 43,093,443 | 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.
42
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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 | $ | 41,033,943 | $ | 43,093,443 | $ | - | $ | 43,093,443 |
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. Borrowing Arrangements
Effective November 16, 2017, the Fund, along with certain other funds managed by the Manager (“Participating Funds”), entered into a committed revolving line of credit (the “Committed Line”) agreement with State Street Bank and Trust Company (the “Bank”) to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Committed Line is $50 million with interest at a rate equal to the higher of (a) one-month London Inter-Bank Offered Rate (“LIBOR”) plus 1.25% per annum or (b) the Federal Funds rate plus 1.25% per annum on amounts borrowed. Each of the Participating Funds will pay a commitment fee at a rate of 0.25% per annum on the unused portion of the Committed Line amount. The Committed Line expires November 15, 2018, unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
Effective November 16, 2017, the Fund, along with certain other Participating Funds managed by the Manager, entered into an uncommitted discretionary demand revolving line of credit (the “Uncommitted Line”) agreement with the Bank to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Uncommitted Line is $50 million with interest at a rate equal to the higher of (a) one-month LIBOR plus 1.25% per annum or (b) the Federal Funds rate. The Uncommitted Line expires November 15, 2018 unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
The Participating Funds paid administration, legal and arrangement fees, which are recognized as a component of “Other expenses” on the Statement of Operations, along with commitment fees, that have been allocated among the Participating Funds based on average daily net assets.
During the year ended October 31, 2018, the Fund did not utilize this facility.
43
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
11. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 25,895,144 | $ | 534,557,653 | 24,547,005 | $ | 463,671,500 | ||||||||||||||||||||||
Reinvestment of dividends | 2,331,173 | 48,325,212 | 1,852,549 | 31,919,427 | ||||||||||||||||||||||||
Shares redeemed | (20,735,988 | ) | (420,683,891 | ) | (30,936,620 | ) | (572,495,075 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 7,490,329 | $ | 162,198,974 | (4,537,066 | ) | $ | (76,904,148 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 7,511,577 | 160,616,651 | 9,603,129 | $ | 188,451,831 | |||||||||||||||||||||||
Reinvestment of dividends | 1,249,691 | 26,893,341 | 972,177 | 17,372,801 | ||||||||||||||||||||||||
Shares redeemed | (9,727,486 | ) | (207,013,204 | ) | (8,510,279 | ) | (164,255,587 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (966,218 | ) | $ | (19,503,212 | ) | 2,065,027 | $ | 41,569,045 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,848,441 | $ | 37,668,754 | 3,314,057 | $ | 61,659,507 | ||||||||||||||||||||||
Reinvestment of dividends | 423,698 | 8,719,712 | 410,726 | 7,027,516 | ||||||||||||||||||||||||
Shares redeemed | (4,046,440 | ) | (82,887,269 | ) | (7,835,357 | ) | (145,535,610 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,774,301 | ) | $ | (36,498,803 | ) | (4,110,574 | ) | $ | (76,848,587 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 522,085 | $ | 10,866,488 | 1,750,129 | $ | 35,235,104 | ||||||||||||||||||||||
Reinvestment of dividends | 72,002 | 1,516,353 | 26,039 | 456,207 | ||||||||||||||||||||||||
Shares redeemed | (662,602 | ) | (13,941,921 | ) | (486,266 | ) | (9,383,666 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (68,515 | ) | $ | (1,559,080 | ) | 1,289,902 | $ | 26,307,645 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 341,544 | $ | 6,990,871 | 806,495 | $ | 14,930,964 | ||||||||||||||||||||||
Reinvestment of dividends | 22,967 | 472,205 | 25,526 | 435,992 | ||||||||||||||||||||||||
Shares redeemed | (464,462 | ) | (9,545,785 | ) | (1,051,715 | ) | (20,195,546 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (99,951 | ) | $ | (2,082,709 | ) | (219,694 | ) | $ | (4,828,590 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 98,798 | $ | 1,957,866 | 293,130 | $ | 5,116,728 | ||||||||||||||||||||||
Reinvestment of dividends | 7,541 | 150,449 | 6,515 | 108,211 | ||||||||||||||||||||||||
Shares redeemed | (117,307 | ) | (2,311,646 | ) | (93,337 | ) | (1,664,605 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | (10,968 | ) | $ | (203,331 | ) | 206,308 | $ | 3,560,334 | ||||||||||||||||||||
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|
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|
|
| |||||||||||||||||||||
44
American Beacon International Equity FundSM
Notes to Financial Statements
October 31, 2018
R6 Class | ||||||||||||||||||||||||||||
Year Ended October 31, 2018 | February 28, 2017A to October 31, 2017 | |||||||||||||||||||||||||||
International Equity Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 2,465,662 | $ | 50,086,317 | 313,319 | $ | 6,320,006 | ||||||||||||||||||||||
Reinvestment of dividends | 16,937 | 351,275 | - | - | ||||||||||||||||||||||||
Shares redeemed | (186,126 | ) | (3,762,837 | ) | (8,547 | ) | (170,397 | ) | ||||||||||||||||||||
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|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 2,296,473 | $ | 46,674,755 | 304,772 | $ | 6,149,609 | ||||||||||||||||||||||
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|
|
|
|
A Commencement of operations.
12. Subsequent Events
Effective November 15, 2018, the Fund, along with certain other funds managed by the Manager, entered into a committed revolving line of credit with a max borrowing amount of $250 million.
Management has evaluated additional 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.
45
American Beacon International Equity FundSM
(For a share outstanding throughout the period)
Institutional ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 20.88 | $ | 17.41 | $ | 18.79 | $ | 19.51 | $ | 20.07 | ||||||||||||||||||||||||||
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|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.44 | 0.39 | 0.29 | 0.35 | 0.54 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.95 | ) | 3.51 | (1.24 | ) | (0.55 | ) | (0.77 | ) | |||||||||||||||||||||||||||
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|
|
|
|
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|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.51 | ) | 3.90 | (0.95 | ) | (0.20 | ) | (0.23 | ) | |||||||||||||||||||||||||||
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|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.35 | ) | (0.43 | ) | (0.27 | ) | (0.52 | ) | (0.33 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.31 | ) | - | (0.16 | ) | - | - | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total distributions | (0.66 | ) | (0.43 | ) | (0.43 | ) | (0.52 | ) | (0.33 | ) | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 18.71 | $ | 20.88 | $ | 17.41 | $ | 18.79 | $ | 19.51 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Total returnC | (7.55 | )% | 22.94 | % | (5.07 | )% | (0.99 | )% | (1.18 | )% | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 1,613,462,237 | $ | 1,644,165,106 | $ | 1,450,052,040 | $ | 1,037,148,821 | $ | 956,960,452 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.73 | % | 0.73 | % | 0.69 | % | 0.70 | % | 0.72 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.73 | % | 0.73 | % | 0.69 | % | 0.69 | % | 0.70 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 2.17 | % | 2.01 | % | 2.22 | % | 1.93 | % | 2.74 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 2.17 | % | 2.01 | % | 2.22 | % | 1.94 | % | 2.76 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 32 | % | 25 | % | 33 | % | 23 | % |
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
46
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 21.64 | $ | 18.03 | $ | 19.46 | $ | 20.21 | $ | 20.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.46 | 0.38 | 0.41 | 0.35 | 0.50 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (2.04 | ) | 3.65 | (1.40 | ) | (0.57 | ) | (0.77 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.58 | ) | 4.03 | (0.99 | ) | (0.22 | ) | (0.27 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.33 | ) | (0.42 | ) | (0.28 | ) | (0.53 | ) | (0.33 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.31 | ) | - | (0.16 | ) | - | - | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.64 | ) | (0.42 | ) | (0.44 | ) | (0.53 | ) | (0.33 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | A | 0.00 | A | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 19.42 | $ | 21.64 | $ | 18.03 | $ | 19.46 | $ | 20.21 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | (7.58 | )% | 22.84 | % | (5.14 | )% | (1.06 | )% | (1.31 | )% | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 904,847,058 | $ | 1,029,629,647 | $ | 820,596,038 | $ | 587,949,806 | $ | 530,836,707 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.80 | % | 0.80 | % | 0.77 | % | 0.77 | % | 0.82 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.80 | % | 0.80 | % | 0.77 | % | 0.77 | % | 0.82 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 2.10 | % | 1.95 | % | 2.43 | % | 1.87 | % | 2.62 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 2.10 | % | 1.95 | % | 2.43 | % | 1.87 | % | 2.62 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 32 | % | 25 | % | 33 | % | 23 | % |
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
47
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 20.67 | $ | 17.24 | $ | 18.60 | $ | 19.32 | $ | 19.86 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.41 | 0.35 | 0.34 | 0.31 | 0.46 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.97 | ) | 3.45 | (1.33 | ) | (0.57 | ) | (0.76 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.56 | ) | 3.80 | (0.99 | ) | (0.26 | ) | (0.30 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.28 | ) | (0.37 | ) | (0.21 | ) | (0.46 | ) | (0.24 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.31 | ) | - | (0.16 | ) | - | - | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.59 | ) | (0.37 | ) | (0.37 | ) | (0.46 | ) | (0.24 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | A | 0.00 | A | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 18.52 | $ | 20.67 | $ | 17.24 | $ | 18.60 | $ | 19.32 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | (7.86 | )% | 22.50 | % | (5.38 | )% | (1.35 | )% | (1.54 | )% | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 250,804,403 | $ | 316,589,769 | $ | 334,895,337 | $ | 342,720,411 | $ | 348,541,811 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.06 | % | 1.07 | % | 1.06 | % | 1.03 | % | 1.05 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.06 | % | 1.07 | % | 1.06 | % | 1.03 | % | 1.05 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.83 | % | 1.69 | % | 1.95 | % | 1.60 | % | 2.36 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.83 | % | 1.69 | % | 1.95 | % | 1.60 | % | 2.36 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 32 | % | 25 | % | 33 | % | 23 | % |
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
48
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
Advisor ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 21.15 | $ | 17.62 | $ | 19.01 | $ | 19.76 | $ | 20.36 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.36 | 0.23 | 0.35 | 0.38 | 0.44 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.99 | ) | 3.64 | (1.37 | ) | (0.68 | ) | (0.77 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.63 | ) | 3.87 | (1.02 | ) | (0.30 | ) | (0.33 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.28 | ) | (0.34 | ) | (0.21 | ) | (0.45 | ) | (0.27 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.31 | ) | - | (0.16 | ) | - | - | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.59 | ) | (0.34 | ) | (0.37 | ) | (0.45 | ) | (0.27 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 18.93 | $ | 21.15 | $ | 17.62 | $ | 19.01 | $ | 19.76 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (7.99 | )% | 22.38 | % | (5.40 | )% | (1.51 | )% | (1.64 | )% | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 48,571,916 | $ | 55,715,606 | $ | 23,692,313 | $ | 22,912,069 | $ | 7,677,201 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.20 | % | 1.20 | % | 1.19 | % | 1.16 | % | 1.19 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.20 | % | 1.20 | % | 1.19 | % | 1.16 | % | 1.19 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.70 | % | 1.51 | % | 1.87 | % | 1.55 | % | 2.21 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.70 | % | 1.51 | % | 1.87 | % | 1.55 | % | 2.21 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 32 | % | 25 | % | 33 | % | 23 | % |
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
49
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 20.63 | $ | 17.23 | $ | 18.59 | $ | 19.32 | $ | 19.92 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.38 | 0.30 | 0.32 | 0.31 | 0.46 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.95 | ) | 3.48 | (1.30 | ) | (0.59 | ) | (0.78 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.57 | ) | 3.78 | (0.98 | ) | (0.28 | ) | (0.32 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.25 | ) | (0.38 | ) | (0.22 | ) | (0.45 | ) | (0.28 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.31 | ) | - | (0.16 | ) | - | - | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.56 | ) | (0.38 | ) | (0.38 | ) | (0.45 | ) | (0.28 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | A | 0.00 | A | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 18.50 | $ | 20.63 | $ | 17.23 | $ | 18.59 | $ | 19.32 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | (7.89 | )% | 22.43 | % | (5.34 | )% | (1.42 | )% | (1.65 | )% | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 14,141,551 | $ | 17,829,657 | $ | 18,673,142 | $ | 10,747,749 | $ | 8,540,234 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.08 | % | 1.12 | % | 1.07 | % | 1.08 | % | 1.15 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.08 | % | 1.12 | % | 1.07 | % | 1.08 | % | 1.15 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.80 | % | 1.65 | % | 1.94 | % | 1.55 | % | 2.31 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.80 | % | 1.65 | % | 1.94 | % | 1.55 | % | 2.31 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 32 | % | 25 | % | 33 | % | 23 | % |
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
50
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 19.93 | $ | 16.73 | $ | 18.09 | $ | 18.83 | $ | 19.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.22 | 0.17 | 0.18 | 0.16 | 0.30 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.87 | ) | 3.36 | (1.28 | ) | (0.56 | ) | (0.75 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.65 | ) | 3.53 | (1.10 | ) | (0.40 | ) | (0.45 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.13 | ) | (0.33 | ) | (0.10 | ) | (0.34 | ) | (0.19 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.31 | ) | - | (0.16 | ) | - | - | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.44 | ) | (0.33 | ) | (0.26 | ) | (0.34 | ) | (0.19 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | A | 0.00 | A | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 17.84 | $ | 19.93 | $ | 16.73 | $ | 18.09 | $ | 18.83 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | (8.52 | )% | 21.50 | % | (6.12 | )% | (2.12 | )% | (2.36 | )% | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: | ||||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 6,625,329 | $ | 7,622,425 | $ | 2,945,246 | $ | 3,899,081 | $ | 3,028,934 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.81 | % | 1.88 | % | 1.85 | % | 1.82 | % | 1.90 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.81 | % | 1.88 | % | 1.85 | % | 1.83 | % | 1.90 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.08 | % | 0.96 | % | 1.12 | % | 0.77 | % | 1.53 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.08 | % | 0.96 | % | 1.12 | % | 0.77 | % | 1.53 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 29 | % | 32 | % | 25 | % | 33 | % | 23 | % |
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
51
American Beacon International Equity FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||||||||||
Year Ended October 31, 2018 | February 28, 2017A to October 31, 2017 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ | 20.89 | $ | 17.80 | ||||||||
|
|
|
| |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income | 0.39 | 0.08 | ||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.88 | ) | 3.01 | |||||||||
|
|
|
| |||||||||
Total income (loss) from investment operations | (1.49 | ) | 3.09 | |||||||||
|
|
|
| |||||||||
Less distributions: | ||||||||||||
Dividends from net investment income | (0.36 | ) | - | |||||||||
Distributions from net realized gains | (0.31 | ) | - | |||||||||
|
|
|
| |||||||||
Total distributions | (0.67 | ) | - | |||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 18.73 | $ | 20.89 | ||||||||
|
|
|
| |||||||||
Total returnB | (7.47 | )% | 17.36 | %C | ||||||||
|
|
|
| |||||||||
Ratios and supplemental data: | ||||||||||||
Net assets, end of period | $ | 48,725,523 | $ | 6,367,999 | ||||||||
Ratios to average net assets: | ||||||||||||
Expenses, before reimbursements | 0.70 | % | 0.89 | %D | ||||||||
Expenses, net of reimbursements | 0.66 | % | 0.66 | %D | ||||||||
Net investment income, before expense reimbursements | 2.11 | % | 1.63 | %D | ||||||||
Net investment income, net of reimbursements | 2.15 | % | 1.85 | %D | ||||||||
Portfolio turnover rate | 29 | % | 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 rate is for the period from February 28, 2017 through October 31, 2017 and is annualized. |
See accompanying notes
52
American Beacon FundsSM
October 31, 2018 (Unaudited)
Certain tax information regarding the Funds are required to be provided to shareholders based upon the Fund’s income and distributions for the taxable year ended October 31, 2018. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2018.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2018. 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:
International Equity | N/A |
Qualified Dividend Income:
International Equity | 100.00 | % |
Long-Term Capital Gain Distributions:
International Equity | $ | 34,756,273 |
Short-Term Capital Gain Distributions:
International Equity | $ | 10,328,997 |
The Fund designated a foreign tax credit of $8,672,392 based on foreign sourced income of $97,554,254 for the year ended October 31, 2018.
Shareholders will receive notification in January 2019 of the applicable tax information necessary to prepare their 2018 income tax returns.
53
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 18, 2018 and June 5-6, 2018 (collectively, the “Meetings”), the Board of Trustees (“Board” or “Trustees”) considered and then, at its June 6, 2018 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (“Trust”), on behalf of the American Beacon International Equity Fund (“Fund”); and
(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 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, or derived from, 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 the subadvisors.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge 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 to the Board 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 from Broadridge, and to the performance of any 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 from Broadridge, 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 the expense limitation 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 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 |
54
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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 each type of service and observed that, with respect to such mutual funds, 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 investment advisory contracts, such as the Agreements. 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 relationships 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; 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 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.
55
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
With respect to the renewal of the Investment Advisory Agreements, the Board 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 indices, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding Broadridge’s independent methodology for selecting the Fund’s Broadridge performance universe. The Board also considered that the performance universes 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 the Fund’s benchmark index, and, with respect to Causeway, a composite of similar accounts managed by the subadvisor. 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 Manager earning a profit before and after the payment of distribution-related expenses by the Manager. 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 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 expense waivers and reimbursements for the Fund’s R6 Class shares that were in place during the last fiscal year. The Board further considered that, with respect to the Fund, the applicable 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 representations made by each subadvisor that the Fund’s subadvisory fee rate schedule for each such firm is favorable compared to other comparable client accounts of that firm. 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 the subadvisors may not account for their profits on an account-by-account basis and that different firms likely employ different methodologies in connection with these calculations.
56
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 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.
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 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 Fund appear to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made in comparison to 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. In reviewing the performance, the Trustees viewed longer-term performance over a full market cycle as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events and not necessarily reflective of manager skill.
The expense comparisons below were made in comparison to 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. 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. 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 subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
57
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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 | Below Average Expense Ratio |
Broadridge and Morningstar Performance Analysis (five-year period ended December 31, 2017)
Compared to Broadridge Performance Universe | 2 | nd Quintile | ||
Compared to Morningstar Category | 2 | nd Quintile |
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 ended December 31, 2017)
Causeway | 5 Years | 1 | st Quintile | |||||
Lazard | 5 Years | 1 | st Quintile | |||||
Templeton | 5 Years | 3 | rd 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 manages its 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 Management and Investment Advisory 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.
58
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-seven funds in the fund complex that includes the Trust, the American Beacon Select Funds, the American Beacon Institutional Funds Trust, the American Beacon Sound Point Enhanced Income Fund, and the American Beacon Apollo Total Return Fund. 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 | ||
INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Alan D. Feld** (81) | Trustee since 1996 | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (48) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Joseph B. Armes (56) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Gerard J. Arpey (60) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
59
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Brenda A. Cline (57) | Trustee since 2004 Vice Chair since 2018 | Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Trustee, Cushing Closed-End Funds (2017-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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Eugene J. Duffy (64) | Trustee since 2008 | Managing Director, Global Investment Management Distribution, Mesirow Financial (2016-Present); 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Claudia A. Holz*** (61) | Trustee since 2018 | Partner, KPMG LLP (1990-2017); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Douglas A. Lindgren**** (56) | Trustee since 2018 | CEO North America, Carne Global Financial Services (2016-2017); Managing Director, IPS Investment Management and Global Head, Content Management, UBS Wealth Management (2010-2016); Managing Director, P&S Hedge Funds, UBS Wealth Management (2008-2010); Managing Director, Head of Alternative Investments, UBS Financial Services, Inc. (2005-2008); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Richard A. Massman (75) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Barbara J. McKenna, CFA (55) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
60
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years | ||
NON-INTERESTED TRUSTEES (CONT.) | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
R. Gerald Turner (72) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (63) | President since 2009 | CEO and Director (2009-Present), and Chairman (2018-Present), American Beacon Advisors, Inc.; President, American Beacon Advisors (2009-2018); Chairman and CEO, Resolute Investment Managers, Inc. (2015-Present); Director, Chairman, President and CEO, Resolute Investment Distributors (2017-Present); Director, Chairman and CEO; Resolute Investment Services, Inc. (2015-Present); Director, Resolute Acquisition, Inc. (2015-Present); President (2015-2018), Director, Resolute Topco, Inc. (2015-Present), President (2015-2018), CEO (2015-Present), and Chairman (2018-Present), Resolute Investment Holdings, LLC; President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President, 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); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-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); President, American Beacon Sound Point Enhanced Income Fund (2018-Present); President, American Beacon Apollo Total Return Fund (2018-Present). |
61
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Rosemary K. Behan (59) | 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); Vice President, Secretary and General Counsel, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015-Present); Vice President, Secretary and General Counsel, Resolute Investment Services, 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); Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Secretary, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Secretary, Resolute Investment Distributors, Inc. (2017-Present); Vice President and Secretary, Continuous Capital, LLC (2018-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); Vice Chief Legal Officer, Vice President and Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Legal Officer, Vice President and Secretary American Beacon Apollo Total Return Fund (2018-Present). | ||
Brian E. Brett (58) | VP since 2004 | Senior Vice President, Head of Distribution (2012-Present) and Vice President, Director of Sales (2004-2012), American Beacon Advisors, Inc.; Senior Vice President, Resolute Investment Distributors, Inc. (2017-Present) and Vice President (2017-2018); 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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Paul B. Cavazos (49) | VP since 2016 | Chief Investment Officer and Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer, DTE Energy (2007-2016); Vice President, American Private Equity Management, L.L.C. (2017-Present) Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Erica Duncan (48) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, Resolute Investment Managers (2015-Present); Vice President, Resolute Investment Services, Inc. (2015-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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). |
62
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Melinda G. Heika (57) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present) and Chief Financial Officer (2010-Present); Treasurer and Chief Financial Officer, 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 and Chief Financial Officer, Resolute Investment Services, Inc. (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 and Chief Financial Officer, Alpha Quant Advisors, LLC (2016-Present); Treasurer, American Beacon Cayman Transformational Innovation, Ltd. (2017-Present); Treasurer, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Treasurer, Resolute Investment Distributors, Inc. (2017-2017); Treasurer and Chief Financial Officer, Continuous Capital, LLC (2018-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); Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Terri L. McKinney (54) | 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, Resolute Investment Services, Inc (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). |
63
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Jeffrey K. Ringdahl (43) | VP since 2010 | Chief Operating Officer (2010-Present), Vice President (2010-2013), Senior Vice President (2013-Present), Director (2015-Present), and President (2018-Present), American Beacon Advisors, Inc.; Senior Vice President (2018-Present), Vice President (2012-2018) and Manager (2015-2018), 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 (2015-Present), Senior Vice Present (2015-2018), and President (2018-Present), Resolute Investment Holdings, LLC; Director (2015-Present), Senior Vice President (2015-2018) and President (2018-Present), Resolute Topco, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Acquisition, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Investment Managers, Inc.; Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Director (2017-Present), Executive Vice President (2017-2018), and President and Chief Operating Officer (2018-Present), Resolute Investment Services, Inc.; Director and Executive Vice President, Resolute Investment Distributors, Inc. (2017-Present); Director, Shapiro Capital Management, LLC (2017-Present); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Director, Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present) | ||
Samuel J. Silver (55) | 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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). | ||
Christina E. Sears (47) | 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); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Distributors (2017-Present); Vice President, Continuous Capital, LLC (2018-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); Chief Compliance Officer and Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Compliance Officer and Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
64
Trustees and Officers of the American Beacon FundsSM (Unaudited)
Name, Age and Address | Position, Term of | Principal Occupation(s) During Past 5 Years | ||
OFFICERS (CONT.) | Term | |||
One Year | ||||
Sonia L. Bates (61) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-2018); Assistant Treasurer, Resolute Acquisition, Inc. (2015-2018); Assistant. Treasurer, Resolute Topco, Inc. (2015-2018); Assistant Treasurer, Resolute Investment Holdings, LLC. (2015-2018); 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 Cayman Transformational Innovation Company, Ltd. (2017-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); Assistant Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Shelley D. Abrahams (43) | Assistant Secretary since 2008 | 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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Rebecca L. Harris (51) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Services (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Diana N. Lai (42) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Teresa A. Oxford (60) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Resolute Investment Distributors (2018-Present); Assistant Secretary, Resolute Investment Services (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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
* As of 11/12/2014, the Board adopted a retirement plan that requires Trustees, other than Messrs. Feld and Massman 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.
*** Claudia A. Holz became a new Trustee to each of the Trusts on 4/1/2018.
**** Douglas A. Lindren became a new Trustee to each of the Trusts on 1/1/2018.
65
American Beacon FundsSM
October 31, 2018 (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 DST Asset Managers Solutions, Inc. Quincy, Massachusetts | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Resolute Investment Distributors, Inc. Irving, Texas |
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 10/18
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, 2018 |
Contents
1 | ||||
2 | ||||
6 | ||||
8 | ||||
Schedule of Investments: | ||||
9 | ||||
27 | ||||
30 | ||||
Financial Highlights: | ||||
50 | ||||
57 | ||||
Disclosure Regarding Approval of the Management and Investment Advisory Agreements | 58 | |||
63 | ||||
70 |
Additional Fund Information | Back Cover |
![]() | Dear Shareholders,
Long-term investing isn’t about identifying and anticipating the next big market move. It’s about identifying the right investment products for riding out those moves. As a long-term investor, you should strive to accomplish the three Ds: direction, discipline and diversification.
u Direction: Achieving your long-term financial goals requires an individualized plan of action. You may want your plan to provide some measure of protection against periods of geopolitical turmoil, economic uncertainty, market volatility and job insecurity. Your plan should be reviewed annually and be adjusted in the event your long-range needs change. |
u | Discipline: Long-term, systematic participation in an investment portfolio requires your resolution to stay the course. Spending time in the market – rather than trying to time the market – may place you in a better position to reach your long-term financial goals. |
u | Diversification: By investing in different types of investment categories and asset classes, you may be able to help mitigate financial risks across your investment portfolio. By allocating your investment portfolio according to your risk-tolerance level, you may be better positioned to weather storms and achieve your long-term financial goals. |
Since 1986, American Beacon has endeavored to provide investors with a disciplined approach to realizing long-term financial goals. As a manager of managers, we strive to provide investment products that may enable investors to participate during market upswings while potentially insulating against market downswings. Our approach is more than a concept. It’s the cornerstone of our culture. And we strive to apply it at every turn as we seek to provide a well-diversified line of investment products for your investment portfolio.
Many of the sub-advisors to our mutual funds pursue upside capture and/or downside protection using proprietary strategies. The investment teams behind our mutual funds seek to produce consistent, long-term results rather than focus only on short-term movements in the markets. In managing our investment products, we emphasize identifying opportunities that offer the potential for long-term rewards.
Thank you for your continued interest in American Beacon. For additional information about our investment products 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, 2018 (Unaudited)
For the year ended October 31, 2018, the broad market S&P 500® Index (the “Index”) and the Dow Jones Industrial Average gained 7.35% and 9.87%, respectively. From a style perspective, Growth significantly outperformed Value across all market caps, according to the Russell® Indexes. In terms of size, it went from largest to smallest with large caps as the best performers, followed by mid-caps and small caps.
The following table illustrates various Russell Index returns according to size and style.
12-Month Period Ended October 31, 2018
Large Caps | 1 Year | |||
Russell 1000 Index | 6.98 | |||
Russell 1000 Growth Index | 10.71 | |||
Russell 1000 Value Index | 3.04 | |||
Mid-Caps | 1 Year | |||
Russell Midcap Index | 2.80 | |||
Russell Midcap Growth Index | 6.14 | |||
Russell Midcap Value Index | 0.16 | |||
Small Caps | 1 Year | |||
Russell 2000 Index | 1.85 | |||
Russell 2000 Growth Index | 4.13 | |||
Russell 2000 Value Index | (0.59 | ) |
Although these returns may appear to be run of the mill, they are not. The 2017 calendar year ended on a strong note, riding on the wave of the Trump administration’s pro-growth policies and the Federal Reserve’s (the “Feds”) cautious navigation of the path to normalized interest rates. Short-volatility traders and cryptocurrencies were still all the rage. Unfortunately, 2018 came with a vengeance. By March of 2018, the short-volatility trade was literally wiped out and many cryptocurrencies lost value from previous-year highs. As market participants wondered how bad things would get, a shot of strong gross domestic product (“GDP”) growth in the second quarter of 2018 pushed markets higher through August. The last few months of the period under review witnessed the return of volatility as the rhetoric of a trade war heightened, economic growth forecasts declined, Capitol Hill gridlock following the mid-term elections dampened the potential for pro-growth policy, and the likelihood of continued rate hikes made investors nervous.
Looking more closely at the markets’ returns, a small subset of sectors accounted for most of the gains. For example, the Index derived more than 80% of its return from the Technology sector (315 basis points, or 3.15%), the Consumer Discretionary sector (146 basis points, or 1.46%) and the Health Care sector (144 basis points, or 1.44%), which comprise about 44% of the Index. The remaining eight sectors underperformed the Index. Similar trends also occurred in mid-caps and small caps; however, not to this degree. A narrow market is not uncommon as bull markets move into their later stages. For example, on August 22, 2018, the current bull market became the longest one in history, eclipsing the bull run in the 1990s.
The present bull market has been powered by slow and steady growth. In the last 12 months, the economy continued to be a bright spot. Third-quarter real GDP was up 3.5% (seasonally adjusted annual rate) on top of the strong 4.2% gain in the second quarter. In addition, the unemployment rate is near 50-year lows. Inflation, while rising, is still in an acceptable range, and the U.S. dollar is strong. All these factors contributed to the strong market returns and allowed the Fed to implement three rate hikes in 2018, with another expected in December.
Despite the favorable factors, the U.S. equity markets ended the 12-month period in a slump. Fear overwhelmed investors as the markets corrected. The markets sit at the crossroads of correction and a bear market – with risks of trade wars, slower growth and interest-rate hikes balanced by low unemployment, subdued inflation, and equity valuations near long-term averages.
2
American Beacon Small Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
The Investor Class of the American Beacon Small Cap Value Fund (the “Fund”) returned -3.28% for the twelve months ended October 31, 2018, underperforming the Russell 2000® Value Index (the “Index”) return of -0.59% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/2008 through 10/31/2018
Total Returns for the Period ended October 31, 2018 |
| |||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2018 | |||||||||||||||||||||||||||
Institutional Class (1,8) | AVFIX | (2.96 | )% | 8.19 | % | 6.80 | % | 12.83 | % | $ | 33,430 | |||||||||||||||||||||
Y Class (1,2,8) | ABSYX | (3.03 | )% | 8.11 | % | 6.71 | % | 12.71 | % | $ | 33,079 | |||||||||||||||||||||
Investor Class (1,8) | AVPAX | (3.28 | )% | 7.87 | % | 6.46 | % | 12.44 | % | $ | 32,314 | |||||||||||||||||||||
Advisor Class (1,3,8) | AASSX | (3.44 | )% | 7.67 | % | 6.28 | % | 12.27 | % | $ | 31,822 | |||||||||||||||||||||
A Class without sales charge (1,4,8) | ABSAX | (3.37 | )% | 7.77 | % | 6.37 | % | 12.33 | % | $ | 31,976 | |||||||||||||||||||||
A Class with sales charge (1,4,8) | ABSAX | (8.93 | )% | 5.66 | % | 5.12 | % | 11.66 | % | $ | 30,127 | |||||||||||||||||||||
C Class without sales charge (1,5,8) | ASVCX | (3.89 | )% | 7.04 | % | 5.61 | % | 11.65 | % | $ | 30,098 | |||||||||||||||||||||
C Class with sales charge (1,5,8) | ASVCX | (4.89 | )% | 7.04 | % | 5.61 | % | 11.65 | % | $ | 30,098 | |||||||||||||||||||||
R6 Class (1,6,8) | AASRX | (2.93 | )% | 8.21 | % | 6.81 | % | 12.83 | % | $ | 33,441 | |||||||||||||||||||||
Russell 2000® Value Index (7) | (0.59 | )% | 10.52 | % | 7.18 | % | 10.95 | % | $ | 28,257 |
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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only; and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. |
2. | Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 10/31/08 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 10/31/08. |
3
American Beacon Small Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
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. |
4. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/08 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 10/31/08. 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 10/31/08 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 10/31/08. 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 three-year, five-year and ten-year periods represent the returns achieved by the Institutional Class from 10/31/08 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 10/31/08. 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 were 0.83%, 0.91%, 1.13%, 1.31%, 1.21%, 1.97%, and 0.81%, 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 trailed the Index as both stock selection and sector allocation detracted value relative to the Index.
Most of the Fund’s underperformance related to security selection was attributed to holdings in the Consumer Discretionary and Materials sectors. In Consumer Discretionary, the Fund’s positions in Tenneco Inc., Class A (down 38.6%), MDC Partners (down 78.2%) and Whirlpool Corp., (down 31.0%) negatively impacted performance. Companies in the Materials sector detracting from performance included Ferroglobe PLC (down 61.4%), Polyone Corporation (down 28.7%) and Owens Illinois, Inc. (down 36.6%). Positive security selection in the Information Technology sector added relative value. Plantronics Inc. (up 30.3%) and Ciena Corp. (up 41.7%) were the largest contributors in the Information Technology sector.
From a sector allocation perspective, the Fund’s overweight position in Information Technology, the second worst performing sector, detracted from performance. An overweight in Materials, which was the worst performing sector during the period, also detracted from relative value. This underperformance was slightly offset by an overweight in Consumer Discretionary, the second best performing sector in the Index.
The sub-advisors continue to focus on uncovering investment opportunities through stock selection that should benefit the Fund’s performance over the longer term.
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4
American Beacon Small Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
Top Ten Holdings (% Net Assets) | ||||||||
Portland General Electric Co. | 0.9 | |||||||
ARRIS International PLC | 0.9 | |||||||
Callon Petroleum Co. | 0.8 | |||||||
American Axle & Manufacturing Holdings, Inc. | 0.7 | |||||||
Diodes, Inc. | 0.7 | |||||||
UMB Financial Corp. | 0.7 | |||||||
Enstar Group Ltd. | 0.7 | |||||||
Associated Banc-Corp | 0.7 | |||||||
Brooks Automation, Inc. | 0.7 | |||||||
Ciena Corp. | 0.7 | |||||||
Total Fund Holdings | 748 | |||||||
Sector Allocation (% Equities) | ||||||||
Financials | 27.4 | |||||||
Industrials | 19.4 | |||||||
Information Technology | 12.1 | |||||||
Consumer Discretionary | 11.7 | |||||||
Energy | 8.1 | |||||||
Materials | 5.5 | |||||||
Health Care | 4.4 | |||||||
Real Estate | 4.2 | |||||||
Utilities | 2.7 | |||||||
Consumer Staples | 2.4 | |||||||
Communication Services | 2.1 |
5
American Beacon Small Cap Value FundSM
Expense Example
October 31, 2018 (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, 2018 through October 31, 2018.
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, 2018 (Unaudited)
American Beacon Small Cap Value Fund |
| ||||||||||||||
Beginning Account Value 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period 5/1/2018-10/31/2018* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $964.20 | $3.96 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.20 | $4.08 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $963.70 | $4.31 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.80 | $4.43 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $962.80 | $5.64 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.50 | $5.80 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $961.90 | $6.28 | ||||||||||||
Hypothetical** | $1,000.00 | $1,018.80 | $6.46 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $962.10 | $6.08 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.00 | $6.26 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $959.00 | $9.23 | ||||||||||||
Hypothetical** | $1,000.00 | $1,015.80 | $9.50 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $964.60 | $3.81 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.32 | $3.92 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.80%, 0.87%, 1.14%, 1.27%, 1.23%, 1.87%, and 0.77% 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
To the Shareholders and the Board of Trustees of American Beacon Small Cap Value Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of American Beacon Small Cap Value Fund (the “Fund”) (one of the funds constituting American Beacon Funds (the “Trust”)), including the schedule of investments, as of October 31, 2018, and the related statement of operations, the statements of changes in net assets for each of the two years in the period then ended, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund at October 31, 2018, the results of its operations, the changes in its net assets for each of the two years in the period then ended and its financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more American Beacon investment companies since 1987.
Dallas, Texas
December 28, 2018
8
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% | |||||||||||||||
Communication Services - 2.08% | |||||||||||||||
Diversified Telecommunication Services - 0.13% | |||||||||||||||
IDT Corp., Class B | 349,596 | $ | 2,461,156 | ||||||||||||
Iridium Communications, Inc.A | 297,978 | 5,902,944 | |||||||||||||
|
| ||||||||||||||
8,364,100 | |||||||||||||||
|
| ||||||||||||||
Entertainment - 0.02% | |||||||||||||||
Marcus Corp. | 37,962 | 1,481,277 | |||||||||||||
|
| ||||||||||||||
Interactive Media & Services - 0.03% | |||||||||||||||
Cars.com, Inc.A | 57,357 | 1,497,591 | |||||||||||||
|
| ||||||||||||||
Media - 1.77% | |||||||||||||||
Entercom Communications Corp., Class AB | 202,778 | 1,316,029 | |||||||||||||
Entravision Communications Corp., Class A | 397,939 | 1,965,819 | |||||||||||||
EW Scripps Co., Class A | 634,287 | 10,668,707 | |||||||||||||
Gannett Co., Inc. | 290,291 | 2,815,823 | |||||||||||||
Gray Television, Inc.A | 1,008,576 | 17,458,451 | |||||||||||||
John Wiley & Sons, Inc., Class A | 197,512 | 10,713,051 | |||||||||||||
MDC Partners, Inc., Class AA | 1,783,965 | 4,406,393 | |||||||||||||
Meredith Corp.B | 181,726 | 9,369,793 | |||||||||||||
MSG Networks, Inc., Class AA | 269,589 | 6,887,999 | |||||||||||||
New Media Investment Group, Inc. | 96,769 | 1,359,604 | |||||||||||||
New York Times Co., Class A | 330,278 | 8,719,339 | |||||||||||||
Nexstar Media Group, Inc., Class A | 142,438 | 10,667,182 | |||||||||||||
Scholastic Corp. | 429,107 | 18,614,662 | |||||||||||||
Sinclair Broadcast Group, Inc., Class A | 144,834 | 4,148,046 | |||||||||||||
TEGNA, Inc. | 599,491 | 6,918,126 | |||||||||||||
|
| ||||||||||||||
116,029,024 | |||||||||||||||
|
| ||||||||||||||
Wireless Telecommunication Services - 0.13% | |||||||||||||||
Telephone & Data Systems, Inc. | 281,534 | 8,679,693 | |||||||||||||
|
| ||||||||||||||
Total Communication Services | 136,051,685 | ||||||||||||||
|
| ||||||||||||||
Consumer Discretionary - 11.26% | |||||||||||||||
Auto Components - 1.59% | |||||||||||||||
American Axle & Manufacturing Holdings, Inc.A | 3,229,812 | 48,996,248 | |||||||||||||
Cooper Tire & Rubber Co. | 266,992 | 8,247,383 | |||||||||||||
Cooper-Standard Holdings, Inc.A | 19,802 | 1,834,655 | |||||||||||||
Dana, Inc. | 237,652 | 3,700,242 | |||||||||||||
Gentherm, Inc.A | 325,282 | 14,195,306 | |||||||||||||
Horizon Global Corp.A B | 369,772 | 2,074,421 | |||||||||||||
Modine Manufacturing Co.A | 139,860 | 1,819,578 | |||||||||||||
Motorcar Parts of America, Inc.A | 91,709 | 1,942,397 | |||||||||||||
Standard Motor Products, Inc. | 113,309 | 6,131,150 | |||||||||||||
Stoneridge, Inc.A | 26,295 | 668,156 | |||||||||||||
Superior Industries International, Inc. | 237,625 | 2,335,854 | |||||||||||||
Tenneco, Inc., Class A | 276,691 | 9,526,471 | |||||||||||||
Tower International, Inc. | 89,617 | 2,660,729 | |||||||||||||
|
| ||||||||||||||
104,132,590 | |||||||||||||||
|
| ||||||||||||||
Automobiles - 0.10% | |||||||||||||||
Winnebago Industries, Inc. | 246,700 | 6,799,052 | |||||||||||||
|
| ||||||||||||||
Diversified Consumer Services - 0.70% | |||||||||||||||
Adtalem Global Education, Inc.A | 301,025 | 15,240,896 | |||||||||||||
American Public Education, Inc.A | 62,283 | 2,038,523 | |||||||||||||
Graham Holdings Co., Class B | 13,081 | 7,600,715 | |||||||||||||
H&R Block, Inc. | 524,723 | 13,926,148 | |||||||||||||
K12, Inc.A | 99,844 | 2,137,660 |
See accompanying notes
9
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Consumer Discretionary - 11.26% (continued) | |||||||||||||||
Diversified Consumer Services - 0.70% (continued) | |||||||||||||||
Sotheby’sA | 78,574 | $ | 3,300,108 | ||||||||||||
Strategic Education, Inc. | 11,581 | 1,457,121 | |||||||||||||
|
| ||||||||||||||
45,701,171 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 1.10% | |||||||||||||||
Belmond Ltd., Class AA | 363,445 | 6,222,178 | |||||||||||||
Bloomin’ Brands, Inc. | 796,188 | 15,883,951 | |||||||||||||
Bluegreen Vacations Corp.B | 98,886 | 1,295,407 | |||||||||||||
Bojangles’, Inc.A | 197,251 | 3,118,538 | |||||||||||||
Brinker International, Inc.B | 129,325 | 5,606,239 | |||||||||||||
Carrols Restaurant Group, Inc.A | 89,591 | 1,179,018 | |||||||||||||
Cheesecake Factory, Inc. | 414,750 | 20,049,015 | |||||||||||||
Dave & Buster’s Entertainment, Inc. | 175,995 | 10,480,502 | |||||||||||||
El Pollo Loco Holdings, Inc.A | 199,122 | 2,491,016 | |||||||||||||
Eldorado Resorts, Inc.A | 16,650 | 607,725 | |||||||||||||
Hilton Grand Vacations, Inc.A | 44,921 | 1,207,027 | |||||||||||||
International Speedway Corp., Class A | 75,983 | 2,850,122 | |||||||||||||
Ruth’s Hospitality Group, Inc. | 29,133 | 787,465 | |||||||||||||
|
| ||||||||||||||
71,778,203 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 1.83% | |||||||||||||||
Century Communities, Inc.A | 117,687 | 2,497,318 | |||||||||||||
CSS Industries, Inc. | 104,835 | 1,377,532 | |||||||||||||
Ethan Allen Interiors, Inc. | 516,021 | 9,876,642 | |||||||||||||
Flexsteel Industries, Inc. | 49,876 | 1,267,848 | |||||||||||||
Green Brick Partners, Inc.A | 57,534 | 540,820 | |||||||||||||
Helen of Troy Ltd.A | 175,367 | 21,766,552 | |||||||||||||
Hooker Furniture Corp. | 59,268 | 1,734,774 | |||||||||||||
iRobot Corp.A B | 10,005 | 882,141 | |||||||||||||
KB Home | 478,266 | 9,550,972 | |||||||||||||
La-Z-Boy, Inc. | 152,055 | 4,227,129 | |||||||||||||
LGI Homes, Inc.A B | 29,411 | 1,258,497 | |||||||||||||
Lifetime Brands, Inc. | 34,129 | 353,235 | |||||||||||||
M/I Homes, Inc.A | 328,106 | 7,930,322 | |||||||||||||
MDC Holdings, Inc. | 381,754 | 10,727,287 | |||||||||||||
Meritage Homes Corp.A | 67,114 | 2,499,997 | |||||||||||||
Taylor Morrison Home Corp., Class AA | 360,299 | 5,959,345 | |||||||||||||
Tempur Sealy International, Inc.A | 14,393 | 665,101 | |||||||||||||
TRI Pointe Group, Inc.A | 1,349,210 | 16,055,599 | |||||||||||||
Tupperware Brands Corp. | 81,001 | 2,843,135 | |||||||||||||
Whirlpool Corp. | 111,457 | 12,233,520 | |||||||||||||
William Lyon Homes, Class AA | 325,636 | 4,415,624 | |||||||||||||
ZAGG, Inc.A | 102,087 | 1,236,274 | |||||||||||||
|
| ||||||||||||||
119,899,664 | |||||||||||||||
|
| ||||||||||||||
Internet & Direct Marketing Retail - 0.05% | |||||||||||||||
Duluth Holdings, Inc., Class BA B | 42,209 | 1,297,082 | |||||||||||||
Lands’ End, Inc.A B | 127,728 | 2,083,244 | |||||||||||||
|
| ||||||||||||||
3,380,326 | |||||||||||||||
|
| ||||||||||||||
Leisure Products - 0.32% | |||||||||||||||
Brunswick Corp. | 214,595 | 11,156,794 | |||||||||||||
Malibu Boats, Inc., Class AA | 181,555 | 7,298,511 | |||||||||||||
Nautilus, Inc.A | 207,399 | 2,536,490 | |||||||||||||
|
| ||||||||||||||
20,991,795 | |||||||||||||||
|
| ||||||||||||||
Media - 0.12% | |||||||||||||||
AMC Networks, Inc., Class AA | 134,200 | 7,861,436 | |||||||||||||
|
| ||||||||||||||
See accompanying notes
10
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Consumer Discretionary - 11.26% (continued) | |||||||||||||||
Multiline Retail - 0.59% | |||||||||||||||
Big Lots, Inc. | 449,069 | $ | 18,645,345 | ||||||||||||
Dillard’s, Inc., Class AB | 279,168 | 19,659,011 | |||||||||||||
|
| ||||||||||||||
38,304,356 | |||||||||||||||
|
| ||||||||||||||
Specialty Retail - 4.30% | |||||||||||||||
Aaron’s, Inc. | 284,330 | 13,400,473 | |||||||||||||
Abercrombie & Fitch Co., Class A | 652,122 | 12,846,803 | |||||||||||||
Asbury Automotive Group, Inc.A | 84,859 | 5,524,321 | |||||||||||||
Ascena Retail Group, Inc.A | 394,822 | 1,520,065 | |||||||||||||
Bed Bath & Beyond, Inc.B | 420,018 | 5,771,047 | |||||||||||||
Buckle, Inc.B | 386,884 | 7,892,434 | |||||||||||||
Caleres, Inc. | 370,898 | 12,684,712 | |||||||||||||
Chico’s FAS, Inc. | 676,171 | 5,186,232 | |||||||||||||
Dick’s Sporting Goods, Inc. | 668,955 | 23,660,938 | |||||||||||||
DSW, Inc., Class A | 354,385 | 9,408,922 | |||||||||||||
Express, Inc.A | 1,510,445 | 13,307,020 | |||||||||||||
Foot Locker, Inc. | 309,100 | 14,570,974 | |||||||||||||
Francesca’s Holdings Corp.A | 508,631 | 1,546,238 | |||||||||||||
GameStop Corp., Class AB | 127,268 | 1,858,113 | |||||||||||||
Genesco, Inc.A | 130,476 | 5,583,068 | |||||||||||||
Group 1 Automotive, Inc. | 250,625 | 14,471,087 | |||||||||||||
Guess?, Inc. | 151,727 | 3,222,681 | |||||||||||||
Haverty Furniture Cos, Inc. | 33,360 | 676,541 | |||||||||||||
Hibbett Sports, Inc.A | 293,105 | 5,120,544 | |||||||||||||
Kirkland’s, Inc.A | 200,567 | 2,027,732 | |||||||||||||
Lithia Motors, Inc., Class A | 27,618 | 2,460,211 | |||||||||||||
Lumber Liquidators Holdings, Inc.A B | 98,768 | 1,181,265 | |||||||||||||
Murphy USA, Inc.A | 110,847 | 8,937,594 | |||||||||||||
Office Depot, Inc. | 7,013,497 | 17,954,552 | |||||||||||||
Party City Holdco, Inc.A B | 366,233 | 3,834,460 | |||||||||||||
Penske Automotive Group, Inc. | 228,323 | 10,132,975 | |||||||||||||
Pier 1 Imports, Inc. | 219,264 | 348,630 | |||||||||||||
Sally Beauty Holdings, Inc.A | 323,200 | 5,756,192 | |||||||||||||
Shoe Carnival, Inc. | 41,438 | 1,687,770 | |||||||||||||
Sonic Automotive, Inc., Class A | 1,276,929 | 23,137,953 | |||||||||||||
Sportsman’s Warehouse Holdings, Inc.A | 370,652 | 1,864,380 | |||||||||||||
Tailored Brands, Inc. | 134,267 | 2,820,950 | |||||||||||||
Urban Outfitters, Inc.A | 223,905 | 8,835,291 | |||||||||||||
Williams-Sonoma, Inc.B | 449,211 | 26,674,149 | |||||||||||||
Zumiez, Inc.A | 231,237 | 5,378,573 | |||||||||||||
|
| ||||||||||||||
281,284,890 | |||||||||||||||
|
| ||||||||||||||
Textiles, Apparel & Luxury Goods - 0.56% | |||||||||||||||
Crocs, Inc.A | 138,742 | 2,849,761 | |||||||||||||
Deckers Outdoor Corp.A | 52,359 | 6,658,494 | |||||||||||||
Movado Group, Inc. | 92,625 | 3,566,989 | |||||||||||||
Oxford Industries, Inc. | 127,638 | 11,357,229 | |||||||||||||
Vera Bradley, Inc.A | 402,384 | 5,307,445 | |||||||||||||
Wolverine World Wide, Inc. | 193,205 | 6,795,020 | |||||||||||||
|
| ||||||||||||||
36,534,938 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 736,668,421 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 2.36% | |||||||||||||||
Beverages - 0.21% | |||||||||||||||
Boston Beer Co., Inc., Class AA | 45,355 | 13,937,138 | |||||||||||||
|
| ||||||||||||||
Food & Staples Retailing - 0.74% | |||||||||||||||
Andersons, Inc. | 182,998 | 6,587,928 |
See accompanying notes
11
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Consumer Staples - 2.36% (continued) | |||||||||||||||
Food & Staples Retailing - 0.74% (continued) | |||||||||||||||
Casey’s General Stores, Inc. | 100,358 | $ | 12,656,147 | ||||||||||||
Performance Food Group Co.A | 231,200 | 6,778,784 | |||||||||||||
SpartanNash Co. | 132,085 | 2,357,717 | |||||||||||||
Sprouts Farmers Market, Inc.A | 420,458 | 11,306,116 | |||||||||||||
United Natural Foods, Inc.A | 171,908 | 3,735,561 | |||||||||||||
Village Super Market, Inc., Class A | 52,287 | 1,288,352 | |||||||||||||
Weis Markets, Inc. | 72,400 | 3,341,260 | |||||||||||||
|
| ||||||||||||||
48,051,865 | |||||||||||||||
|
| ||||||||||||||
Food Products - 1.18% | |||||||||||||||
B&G Foods, Inc.B | 72,586 | 1,890,140 | |||||||||||||
Cal-Maine Foods, Inc. | 110,000 | 5,353,700 | |||||||||||||
Darling Ingredients, Inc.A | 1,542,987 | 31,878,111 | |||||||||||||
Dean Foods Co. | 195,586 | 1,562,732 | |||||||||||||
Fresh Del Monte Produce, Inc. | 280,470 | 9,263,924 | |||||||||||||
Hain Celestial Group, Inc.A | 402,609 | 10,016,912 | |||||||||||||
Sanderson Farms, Inc. | 20,972 | 2,063,435 | |||||||||||||
SunOpta, Inc.A B | 2,060,885 | 15,291,767 | |||||||||||||
|
| ||||||||||||||
77,320,721 | |||||||||||||||
|
| ||||||||||||||
Household Products - 0.14% | |||||||||||||||
Energizer Holdings, Inc. | 156,333 | 9,187,690 | |||||||||||||
|
| ||||||||||||||
Metals & Mining - 0.00% | |||||||||||||||
Ferroglobe Representation & Warranty InsuranceC D | 2,123,070 | - | |||||||||||||
|
| ||||||||||||||
Personal Products - 0.02% | |||||||||||||||
Natural Health Trends Corp.B | 60,094 | 1,366,537 | |||||||||||||
|
| ||||||||||||||
Tobacco - 0.07% | |||||||||||||||
Universal Corp. | 67,100 | 4,553,406 | |||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 154,417,357 | ||||||||||||||
|
| ||||||||||||||
Energy - 7.77% | |||||||||||||||
Energy Equipment & Services - 2.44% | |||||||||||||||
C&J Energy Services, Inc.A | 1,051,418 | 19,745,630 | |||||||||||||
CARBO Ceramics, Inc.A B | 370,783 | 1,790,882 | |||||||||||||
Diamond Offshore Drilling, Inc.A B | 438,059 | 6,211,677 | |||||||||||||
Dril-Quip, Inc.A | 375,347 | 15,974,768 | |||||||||||||
Ensco PLC, Class A | 73,542 | 525,090 | |||||||||||||
Frank’s International N.V.A | 5,686,436 | 40,373,696 | |||||||||||||
Helix Energy Solutions Group, Inc.A | 398,422 | 3,394,555 | |||||||||||||
Key Energy Services, Inc.A | 308,100 | 2,788,305 | |||||||||||||
Mammoth Energy Services, Inc. | 120,400 | 3,005,184 | |||||||||||||
Matrix Service Co.A | 112,427 | 2,285,641 | |||||||||||||
McDermott International, Inc.A | 160,364 | 1,239,614 | |||||||||||||
Nabors Industries Ltd. | 867,466 | 4,311,306 | |||||||||||||
Newpark Resources, Inc.A | 1,095,460 | 8,993,727 | |||||||||||||
Nine Energy Service, Inc.A | 33,100 | 1,225,693 | |||||||||||||
Oceaneering International, Inc.A | 127,953 | 2,423,430 | |||||||||||||
Oil States International, Inc.A | 563,204 | 12,542,553 | |||||||||||||
Patterson-UTI Energy, Inc. | 617,472 | 10,274,734 | |||||||||||||
Quintana Energy Services, Inc.A | 296,600 | 1,895,274 | |||||||||||||
Rowan Cos PLC, Class AA | 92,630 | 1,473,743 | |||||||||||||
SEACOR Holdings, Inc.A | 113,390 | 5,441,586 | |||||||||||||
Smart Sand, Inc.A B | 591,468 | 1,638,366 | |||||||||||||
Superior Energy Services, Inc.A | 347,400 | 2,720,142 |
See accompanying notes
12
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Energy - 7.77% (continued) | |||||||||||||||
Energy Equipment & Services - 2.44% (continued) | |||||||||||||||
Transocean Ltd.A B | 562,724 | $ | 6,195,591 | ||||||||||||
Unit Corp.A | 145,509 | 3,365,623 | |||||||||||||
|
| ||||||||||||||
159,836,810 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 5.33% | |||||||||||||||
Alliance Resource Partners LP, MLP | 212,578 | 4,079,372 | |||||||||||||
Arch Coal, Inc., Class A | 108,710 | 10,425,289 | |||||||||||||
Berry Petroleum Corp. | 313,400 | 4,387,600 | |||||||||||||
Bonanza Creek Energy, Inc.A | 590,638 | 15,208,928 | |||||||||||||
California Resources Corp.A | 38,604 | 1,209,849 | |||||||||||||
Callon Petroleum Co.A | 4,986,411 | 49,714,518 | |||||||||||||
Carrizo Oil & Gas, Inc.A | 246,460 | 4,488,037 | |||||||||||||
Chesapeake Energy Corp.A B | 2,454,200 | 8,614,242 | |||||||||||||
CNX Midstream Partners LP, MLP | 73,253 | 1,336,867 | |||||||||||||
CNX Resources Corp.A | 575,582 | 9,007,858 | |||||||||||||
Contango Oil & Gas Co.A | 214,077 | 1,081,089 | |||||||||||||
Cosan Ltd., Class A | 328,595 | 2,743,768 | |||||||||||||
CVR Refining LP | 30,786 | 592,631 | |||||||||||||
Delek US Holdings, Inc. | 64,972 | 2,385,772 | |||||||||||||
Denbury Resources, Inc.A | 1,634,369 | 5,638,573 | |||||||||||||
Earthstone Energy, Inc., Class AA | 232,846 | 1,916,323 | |||||||||||||
EP Energy Corp., Class AA B | 272,538 | 490,568 | |||||||||||||
Gran Tierra Energy, Inc.A | 1,513,503 | 4,616,184 | |||||||||||||
Gulfport Energy Corp.A | 265,558 | 2,419,233 | |||||||||||||
HighPoint Resources Corp.A | 573,582 | 2,133,725 | |||||||||||||
Kosmos Energy Ltd.A | 2,096,571 | 13,606,746 | |||||||||||||
Midstates Petroleum Co., Inc.A | 107,621 | 775,947 | |||||||||||||
Murphy Oil Corp. | 444,909 | 14,174,801 | |||||||||||||
Nordic American Tankers Ltd.B | 777,877 | 2,014,701 | |||||||||||||
Oasis Petroleum, Inc.A | 1,304,960 | 13,127,898 | |||||||||||||
Par Pacific Holdings, Inc.A | 115,153 | 2,035,905 | |||||||||||||
PBF Energy, Inc., Class A | 43,200 | 1,807,920 | |||||||||||||
PBF Logistics LP | 86,409 | 1,888,037 | |||||||||||||
PDC Energy, Inc.A | 327,888 | 13,918,846 | |||||||||||||
Peabody Energy Corp. | 429,850 | 15,238,182 | |||||||||||||
Penn Virginia Corp.A | 106,200 | 7,304,436 | |||||||||||||
QEP Resources, Inc.A | 909,539 | 8,103,992 | |||||||||||||
Range Resources Corp. | 819,023 | 12,981,515 | |||||||||||||
Renewable Energy Group, Inc.A | 330,866 | 10,283,315 | |||||||||||||
REX American Resources Corp.A | 38,713 | 2,871,343 | |||||||||||||
SemGroup Corp., Class A | 194,559 | 3,597,396 | |||||||||||||
SM Energy Co. | 398,990 | 9,711,417 | |||||||||||||
Southwestern Energy Co.A | 1,956,996 | 10,450,359 | |||||||||||||
SRC Energy, Inc.A | 1,377,804 | 9,754,852 | |||||||||||||
Talos Energy, Inc.A | 67,900 | 1,769,474 | |||||||||||||
Ultra Petroleum Corp.A B | 1,789,355 | 2,147,226 | |||||||||||||
W&T Offshore, Inc.A | 805,485 | 5,428,969 | |||||||||||||
Whiting Petroleum Corp.A | 1,149,251 | 42,867,062 | |||||||||||||
World Fuel Services Corp. | 330,173 | 10,597,020 | |||||||||||||
|
| ||||||||||||||
348,947,785 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 508,784,595 | ||||||||||||||
|
| ||||||||||||||
Financials - 26.44% | |||||||||||||||
Banks - 15.15% | |||||||||||||||
1st Source Corp. | 12,893 | 600,685 | |||||||||||||
Access National Corp. | 47,163 | 1,224,823 | |||||||||||||
American National Bankshares, Inc. | 15,892 | 573,542 |
See accompanying notes
13
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Financials - 26.44% (continued) | |||||||||||||||
Banks - 15.15% (continued) | |||||||||||||||
Arrow Financial Corp. | 19,557 | $ | 687,233 | ||||||||||||
Associated Banc-Corp | 1,957,707 | 45,379,648 | |||||||||||||
Banc of California, Inc. | 117,458 | 1,873,455 | |||||||||||||
Bancorp, Inc.A | 357,839 | 3,757,310 | |||||||||||||
BancorpSouth Bank | 172,361 | 4,946,761 | |||||||||||||
Bank of Marin Bancorp | 26,304 | 2,235,577 | |||||||||||||
Bank of NT Butterfield & Son Ltd. | 576,484 | 23,226,540 | |||||||||||||
BankUnited, Inc. | 448,525 | 14,846,177 | |||||||||||||
Banner Corp. | 296,462 | 17,141,433 | |||||||||||||
Bar Harbor Bankshares | 49,323 | 1,261,189 | |||||||||||||
Berkshire Hills Bancorp, Inc. | 462,098 | 15,420,210 | |||||||||||||
Boston Private Financial Holdings, Inc. | 238,458 | 3,219,183 | |||||||||||||
Bridge Bancorp, Inc. | 19,560 | 580,932 | |||||||||||||
Brookline Bancorp, Inc. | 165,994 | 2,572,907 | |||||||||||||
Bryn Mawr Bank Corp. | 132,684 | 5,299,399 | |||||||||||||
Cadence Bancorp | 898,700 | 19,825,322 | |||||||||||||
Camden National Corp. | 15,489 | 628,079 | |||||||||||||
Carolina Financial Corp. | 116,536 | 3,856,176 | |||||||||||||
Cathay General Bancorp | 414,454 | 15,612,482 | |||||||||||||
CenterState Bank Corp. | 250,600 | 6,159,748 | |||||||||||||
Central Pacific Financial Corp. | 272,879 | 7,378,648 | |||||||||||||
Chemical Financial Corp. | 262,207 | 12,287,020 | |||||||||||||
CIT Group, Inc. | 141,900 | 6,723,222 | |||||||||||||
City Holding Co. | 9,277 | 684,457 | |||||||||||||
Community Trust Bancorp, Inc. | 42,053 | 1,913,832 | |||||||||||||
ConnectOne Bancorp, Inc. | 51,315 | 1,063,760 | |||||||||||||
Customers Bancorp, Inc.A | 246,193 | 5,044,495 | |||||||||||||
CVB Financial Corp. | 532,688 | 11,639,233 | |||||||||||||
Enterprise Financial Services Corp. | 54,090 | 2,350,211 | |||||||||||||
FCB Financial Holdings, Inc., Class AA | 102,833 | 4,023,855 | |||||||||||||
Fidelity Southern Corp. | 112,351 | 2,608,790 | |||||||||||||
Financial Institutions, Inc. | 85,253 | 2,433,973 | |||||||||||||
First BanCorpA | 311,905 | 2,878,883 | |||||||||||||
First Business Financial Services, Inc. | 28,153 | 589,242 | |||||||||||||
First Citizens BancShares, Inc., Class A | 12,596 | 5,373,831 | |||||||||||||
First Commonwealth Financial Corp. | 207,297 | 2,798,510 | |||||||||||||
First Financial Corp. | 111,001 | 5,090,506 | |||||||||||||
First Hawaiian, Inc. | 1,721,840 | 42,667,195 | |||||||||||||
First Horizon National Corp. | 1,087,600 | 17,553,864 | |||||||||||||
First Internet Bancorp | 64,127 | 1,652,553 | |||||||||||||
First Interstate BancSystem, Inc., Class A | 271,553 | 11,258,587 | |||||||||||||
First Merchants Corp. | 67,570 | 2,811,588 | |||||||||||||
First Mid-Illinois Bancshares, Inc. | 17,976 | 670,145 | |||||||||||||
First Midwest Bancorp, Inc. | 1,065,476 | 24,463,329 | |||||||||||||
Flushing Financial Corp. | 155,132 | 3,519,945 | |||||||||||||
FNB Corp. | 923,817 | 10,928,755 | |||||||||||||
Franklin Financial Network, Inc.A | 68,314 | 2,315,845 | |||||||||||||
Fulton Financial Corp. | 1,836,500 | 29,402,365 | |||||||||||||
Glacier Bancorp, Inc. | 50,147 | 2,126,233 | |||||||||||||
Great Western Bancorp, Inc. | 164,307 | 6,021,852 | |||||||||||||
Hancock Whitney Corp. | 751,141 | 31,517,876 | |||||||||||||
Hanmi Financial Corp. | 113,090 | 2,372,628 | |||||||||||||
Heartland Financial USA, Inc. | 44,841 | 2,382,851 | |||||||||||||
Heritage Financial Corp. | 196,730 | 6,437,006 | |||||||||||||
Hilltop Holdings, Inc. | 137,770 | 2,741,623 | |||||||||||||
HomeTrust Bancshares, Inc.A | 25,802 | 703,363 | |||||||||||||
Hope Bancorp, Inc. | 508,700 | 7,365,976 |
See accompanying notes
14
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Financials - 26.44% (continued) | |||||||||||||||
Banks - 15.15% (continued) | |||||||||||||||
Horizon Bancorp, Inc. | 73,426 | $ | 1,230,620 | ||||||||||||
Howard Bancorp, Inc.A | 39,141 | 622,733 | |||||||||||||
IBERIABANK Corp. | 264,065 | 19,670,202 | |||||||||||||
International Bancshares Corp. | 508,455 | 19,677,208 | |||||||||||||
Investors Bancorp, Inc. | 1,086,028 | 12,141,793 | |||||||||||||
Live Oak Bancshares, Inc. | 66,858 | 1,230,187 | |||||||||||||
Midland States Bancorp, Inc. | 88,176 | 2,378,107 | |||||||||||||
MidSouth Bancorp, Inc. | 51,698 | 686,549 | |||||||||||||
MidWestOne Financial Group, Inc. | 21,401 | 616,563 | |||||||||||||
National Bank Holdings Corp., Class A | 447,443 | 15,105,676 | |||||||||||||
National Bankshares, Inc. | 15,043 | 649,557 | |||||||||||||
Northrim BanCorp, Inc. | 36,311 | 1,380,907 | |||||||||||||
OFG Bancorp | 429,752 | 7,344,462 | |||||||||||||
Old National Bancorp | 1,963,169 | 35,042,567 | |||||||||||||
Opus Bank | 86,319 | 1,639,198 | |||||||||||||
Orrstown Financial Services, Inc. | 26,390 | 534,661 | |||||||||||||
Peapack Gladstone Financial Corp. | 41,015 | 1,106,995 | |||||||||||||
Popular, Inc. | 818,822 | 42,586,932 | |||||||||||||
Preferred Bank | 19,200 | 987,072 | |||||||||||||
Prosperity Bancshares, Inc. | 592,095 | 38,503,938 | |||||||||||||
RBB Bancorp | 56,387 | 1,216,831 | |||||||||||||
Renasant Corp. | 124,273 | 4,334,642 | |||||||||||||
Republic Bancorp, Inc., Class A | 48,178 | 2,161,747 | |||||||||||||
S&T Bancorp, Inc. | 65,006 | 2,607,391 | |||||||||||||
Sandy Spring Bancorp, Inc. | 16,855 | 599,195 | |||||||||||||
Seacoast Banking Corp. of FloridaA | 576,236 | 15,160,769 | |||||||||||||
Simmons First National Corp., Class A | 207,712 | 5,562,527 | |||||||||||||
South State Corp. | 248,142 | 16,791,769 | |||||||||||||
Southern National Bancorp of Virginia, Inc. | 125,734 | 1,899,841 | |||||||||||||
State Bank Financial Corp. | 20,618 | 527,202 | |||||||||||||
Sterling Bancorp | 283,300 | 5,093,734 | |||||||||||||
TCF Financial Corp. | 1,319,542 | 27,552,037 | |||||||||||||
Texas Capital Bancshares, Inc.A | 495,936 | 32,349,905 | |||||||||||||
Towne Bank | 209,198 | 5,884,740 | |||||||||||||
TriCo Bancshares | 36,438 | 1,312,497 | |||||||||||||
Trustmark Corp. | 437,086 | 13,462,249 | |||||||||||||
UMB Financial Corp. | 722,683 | 46,143,310 | |||||||||||||
Umpqua Holdings Corp. | 815,640 | 15,660,288 | |||||||||||||
Union Bankshares Corp. | 461,672 | 15,761,482 | |||||||||||||
United Bankshares, Inc. | 195,494 | 6,484,536 | |||||||||||||
United Community Banks, Inc. | 438,434 | 10,903,854 | |||||||||||||
Valley National Bancorp | 2,213,164 | 22,087,377 | |||||||||||||
Webster Financial Corp. | 457,155 | 26,899,000 | |||||||||||||
WesBanco, Inc. | 238,441 | 9,561,484 | |||||||||||||
West Bancorp, Inc. | 27,090 | 595,709 | |||||||||||||
Westamerica Bancorp | 186,498 | 10,856,049 | |||||||||||||
Wintrust Financial Corp. | 162,151 | 12,346,177 | |||||||||||||
|
| ||||||||||||||
991,677,127 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 2.37% | |||||||||||||||
AllianceBernstein Holding LP, MLP | 419,711 | 12,133,845 | |||||||||||||
Artisan Partners Asset Management, Inc., Class A | 138,599 | 3,798,999 | |||||||||||||
Blucora, Inc.A | 247,100 | 7,146,132 | |||||||||||||
BrightSphere Investment Group PLC | 917,808 | 10,463,011 | |||||||||||||
Cohen & Steers, Inc. | 252,462 | 9,692,016 | |||||||||||||
Donnelley Financial Solutions, Inc.A | 371,347 | 5,774,446 | |||||||||||||
Ellington Financial LLC | 181,740 | 2,795,161 |
See accompanying notes
15
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Financials - 26.44% (continued) | |||||||||||||||
Capital Markets - 2.37% (continued) | |||||||||||||||
Evercore, Inc., Class A | 199,298 | $ | 16,280,654 | ||||||||||||
Federated Investors, Inc., Class B | 538,333 | 13,280,675 | |||||||||||||
GAMCO Investors, Inc., Class A | 29,851 | 612,542 | |||||||||||||
Greenhill & Co., Inc. | 109,870 | 2,422,633 | |||||||||||||
INTL. FCStone, Inc.A | 50,852 | 2,302,579 | |||||||||||||
Investment Technology Group, Inc. | 50,988 | 1,401,150 | |||||||||||||
Legg Mason, Inc. | 88,766 | 2,504,976 | |||||||||||||
Och-Ziff Capital Management Group LLC, Class A | 897,481 | 1,059,028 | |||||||||||||
Oppenheimer Holdings, Inc., Class A | 241,074 | 7,415,436 | |||||||||||||
Piper Jaffray Cos | 39,020 | 2,707,208 | |||||||||||||
Stifel Financial Corp. | 442,386 | 20,225,888 | |||||||||||||
Victory Capital Holdings, Inc., Class AA | 226,536 | 1,766,981 | |||||||||||||
Virtus Investment Partners, Inc. | 36,276 | 3,603,658 | |||||||||||||
Waddell & Reed Financial, Inc., Class A | 1,221,354 | 23,291,221 | |||||||||||||
WisdomTree Investments, Inc. | 547,668 | 4,255,380 | |||||||||||||
|
| ||||||||||||||
154,933,619 | |||||||||||||||
|
| ||||||||||||||
Consumer Finance - 1.34% | |||||||||||||||
Encore Capital Group, Inc.A B | 49,846 | 1,266,587 | |||||||||||||
Enova International, Inc.A | 109,059 | 2,579,245 | |||||||||||||
EZCORP, Inc., Class AA | 297,498 | 2,957,130 | |||||||||||||
Navient Corp. | 869,934 | 10,073,836 | |||||||||||||
Nelnet, Inc., Class A | 148,513 | 8,359,797 | |||||||||||||
OneMain Holdings, Inc.A | 365,298 | 10,418,299 | |||||||||||||
PRA Group, Inc.A | 736,034 | 22,699,289 | |||||||||||||
SLM Corp.A | 2,810,803 | 28,501,542 | |||||||||||||
World Acceptance Corp.A | 9,082 | 921,732 | |||||||||||||
|
| ||||||||||||||
87,777,457 | |||||||||||||||
|
| ||||||||||||||
Diversified Financial Services - 0.07% | |||||||||||||||
Compass Diversified Holdings | 147,251 | 2,328,038 | |||||||||||||
FGL HoldingsA | 316,282 | 2,498,628 | |||||||||||||
|
| ||||||||||||||
4,826,666 | |||||||||||||||
|
| ||||||||||||||
Insurance - 4.72% | |||||||||||||||
Ambac Financial Group, Inc.A | 501,527 | 10,321,426 | |||||||||||||
American Equity Investment Life Holding Co. | 548,513 | 17,124,576 | |||||||||||||
Argo Group International Holdings Ltd. | 286,635 | 17,659,582 | |||||||||||||
Aspen Insurance Holdings Ltd. | 129,280 | 5,414,246 | |||||||||||||
Assured Guaranty Ltd. | 291,600 | 11,658,168 | |||||||||||||
Axis Capital Holdings Ltd. | 224,800 | 12,541,592 | |||||||||||||
CNO Financial Group, Inc. | 1,764,793 | 33,354,588 | |||||||||||||
eHealth, Inc.A | 191,986 | 6,596,639 | |||||||||||||
EMC Insurance Group, Inc. | 26,805 | 642,516 | |||||||||||||
Employers Holdings, Inc. | 164,410 | 7,556,284 | |||||||||||||
Enstar Group Ltd.A | 250,405 | 45,473,548 | |||||||||||||
FBL Financial Group, Inc., Class A | 32,970 | 2,274,271 | |||||||||||||
Global Indemnity Ltd. | 400,285 | 14,330,203 | |||||||||||||
Hanover Insurance Group, Inc. | 123,251 | 13,727,696 | |||||||||||||
Horace Mann Educators Corp. | 554,124 | 21,765,991 | |||||||||||||
Kemper Corp. | 135,929 | 10,220,502 | |||||||||||||
MBIA, Inc.A | 695,386 | 6,884,321 | |||||||||||||
National General Holdings Corp. | 338,300 | 9,425,038 | |||||||||||||
National Western Life Group, Inc., Class A | 14,345 | 3,862,822 | |||||||||||||
Navigators Group, Inc. | 23,930 | 1,654,760 | |||||||||||||
ProAssurance Corp. | 54,235 | 2,382,001 | |||||||||||||
RenaissanceRe Holdings Ltd. | 108,300 | 13,229,928 |
See accompanying notes
16
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Financials - 26.44% (continued) | |||||||||||||||
Insurance - 4.72% (continued) | |||||||||||||||
Safety Insurance Group, Inc. | 72,123 | $ | 6,006,403 | ||||||||||||
Selective Insurance Group, Inc. | 159,418 | 10,338,257 | |||||||||||||
State Auto Financial Corp. | 45,378 | 1,442,567 | |||||||||||||
Stewart Information Services Corp. | 49,512 | 2,043,855 | |||||||||||||
Third Point Reinsurance Ltd.A | 172,408 | 1,906,832 | |||||||||||||
United Fire Group, Inc. | 47,208 | 2,541,207 | |||||||||||||
Universal Insurance Holdings, Inc. | 93,790 | 3,937,304 | |||||||||||||
White Mountains Insurance Group Ltd. | 14,202 | 12,592,487 | |||||||||||||
|
| ||||||||||||||
308,909,610 | |||||||||||||||
|
| ||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) - 0.31% | |||||||||||||||
Apollo Commercial Real Estate Finance, Inc. | 467,592 | 8,748,646 | |||||||||||||
Ares Commercial Real Estate Corp. | 183,621 | 2,656,996 | |||||||||||||
Colony Credit Real Estate, Inc.B | 123,316 | 2,631,564 | |||||||||||||
Exantas Capital Corp. | 197,666 | 2,241,532 | |||||||||||||
Great Ajax Corp. | 49,137 | 640,747 | |||||||||||||
Owens Realty Mortgage, Inc.B | 40,158 | 614,417 | |||||||||||||
PennyMac Mortgage Investment Trust | 134,643 | 2,599,956 | |||||||||||||
|
| ||||||||||||||
20,133,858 | |||||||||||||||
|
| ||||||||||||||
Thrifts & Mortgage Finance - 2.48% | |||||||||||||||
Axos Financial, Inc.A | 169,051 | 5,132,388 | |||||||||||||
Capitol Federal Financial, Inc. | 516,797 | 6,413,451 | |||||||||||||
Dime Community Bancshares, Inc. | 213,029 | 3,434,027 | |||||||||||||
Essent Group Ltd.A | 532,811 | 21,003,410 | |||||||||||||
Flagstar Bancorp, Inc.A | 147,992 | 4,556,674 | |||||||||||||
HomeStreet, Inc.A | 101,271 | 2,631,021 | |||||||||||||
Kearny Financial Corp. | 249,975 | 3,234,676 | |||||||||||||
Luther Burbank Corp. | 309,869 | 2,996,433 | |||||||||||||
Merchants Bancorp | 113,537 | 2,611,351 | |||||||||||||
Meridian Bancorp, Inc. | 82,229 | 1,302,507 | |||||||||||||
Meta Financial Group, Inc. | 74,793 | 1,887,775 | |||||||||||||
MGIC Investment Corp.A | 3,462,717 | 42,279,775 | |||||||||||||
Northfield Bancorp, Inc. | 299,087 | 3,938,976 | |||||||||||||
Northwest Bancshares, Inc. | 264,571 | 4,270,176 | |||||||||||||
OceanFirst Financial Corp. | 130,000 | 3,291,600 | |||||||||||||
Oritani Financial Corp. | 257,992 | 3,769,263 | |||||||||||||
PCSB Financial Corp. | 71,509 | 1,338,648 | |||||||||||||
Provident Financial Services, Inc. | 131,189 | 3,201,012 | |||||||||||||
Radian Group, Inc. | 543,117 | 10,422,415 | |||||||||||||
Southern Missouri Bancorp, Inc. | 17,808 | 599,595 | |||||||||||||
Sterling Bancorp, Inc. | 105,284 | 1,089,689 | |||||||||||||
Territorial Bancorp, Inc. | 20,215 | 550,657 | |||||||||||||
TrustCo Bank Corp. | 240,324 | 1,800,027 | |||||||||||||
United Financial Bancorp, Inc. | 128,195 | 1,980,613 | |||||||||||||
Walker & Dunlop, Inc. | 84,148 | 3,530,850 | |||||||||||||
Washington Federal, Inc. | 829,750 | 23,365,760 | |||||||||||||
Waterstone Financial, Inc. | 81,328 | 1,328,900 | |||||||||||||
|
| ||||||||||||||
161,961,669 | |||||||||||||||
|
| ||||||||||||||
Total Financials | 1,730,220,006 | ||||||||||||||
|
| ||||||||||||||
Health Care - 4.21% | |||||||||||||||
Biotechnology - 0.31% | |||||||||||||||
Emergent BioSolutions, Inc.A | 137,652 | 8,422,926 | |||||||||||||
United Therapeutics Corp.A | 109,300 | 12,116,998 | |||||||||||||
|
| ||||||||||||||
20,539,924 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
17
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Health Care - 4.21% (continued) | |||||||||||||||
Health Care Equipment & Supplies - 0.57% | |||||||||||||||
Anika Therapeutics, Inc.A | 43,276 | $ | 1,547,550 | ||||||||||||
Haemonetics Corp.A | 16,599 | 1,734,097 | |||||||||||||
Invacare Corp. | 1,365,632 | 17,643,965 | |||||||||||||
Meridian Bioscience, Inc. | 256,847 | 4,163,490 | |||||||||||||
NuVasive, Inc.A | 196,186 | 11,019,768 | |||||||||||||
Varex Imaging Corp.A | 49,904 | 1,295,508 | |||||||||||||
|
| ||||||||||||||
37,404,378 | |||||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 2.51% | |||||||||||||||
Acadia Healthcare Co., Inc.A | 221,500 | 9,192,250 | |||||||||||||
Amedisys, Inc.A | 64,903 | 7,139,330 | |||||||||||||
AMN Healthcare Services, Inc.A | 372,637 | 18,862,885 | |||||||||||||
Diplomat Pharmacy, Inc.A | 327,547 | 6,498,532 | |||||||||||||
Encompass Health Corp. | 514,780 | 34,644,694 | |||||||||||||
Hanger, Inc.A | 697,921 | 13,023,206 | |||||||||||||
LHC Group, Inc.A | 165,069 | 15,092,259 | |||||||||||||
LifePoint Health, Inc.A | 162,821 | 10,560,570 | |||||||||||||
Magellan Health, Inc.A | 38,147 | 2,481,844 | |||||||||||||
MEDNAX, Inc.A | 494,696 | 20,425,998 | |||||||||||||
National HealthCare Corp. | 33,836 | 2,690,977 | |||||||||||||
Owens & Minor, Inc. | 236,860 | 1,871,194 | |||||||||||||
Providence Service Corp.A | 23,893 | 1,579,088 | |||||||||||||
Select Medical Holdings Corp.A | 376,027 | 6,234,528 | |||||||||||||
Tivity Health, Inc.A | 403,378 | 13,880,237 | |||||||||||||
|
| ||||||||||||||
164,177,592 | |||||||||||||||
|
| ||||||||||||||
Health Care Technology - 0.29% | |||||||||||||||
NextGen Healthcare, Inc.A | 314,841 | 4,650,201 | |||||||||||||
Omnicell, Inc.A | 197,497 | 13,963,038 | |||||||||||||
|
| ||||||||||||||
18,613,239 | |||||||||||||||
|
| ||||||||||||||
Life Sciences Tools & Services - 0.35% | |||||||||||||||
Cambrex Corp.A | 328,091 | 17,483,969 | |||||||||||||
Medpace Holdings, Inc.A | 108,300 | 5,642,430 | |||||||||||||
|
| ||||||||||||||
23,126,399 | |||||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 0.18% | |||||||||||||||
Innoviva, Inc.A | 273,126 | 3,812,839 | |||||||||||||
Supernus Pharmaceuticals, Inc.A | 164,755 | 7,835,748 | |||||||||||||
|
| ||||||||||||||
11,648,587 | |||||||||||||||
|
| ||||||||||||||
Total Health Care | 275,510,119 | ||||||||||||||
|
| ||||||||||||||
Industrials - 18.68% | |||||||||||||||
Aerospace & Defense - 1.76% | |||||||||||||||
AAR Corp. | 476,006 | 22,648,366 | |||||||||||||
Aerojet Rocketdyne Holdings, Inc.A | 426,062 | 15,048,510 | |||||||||||||
Aerovironment, Inc.A | 111,586 | 10,039,392 | |||||||||||||
Astronics Corp., Class BA | 3,882 | 112,963 | |||||||||||||
Astronics Corp.A | 38,226 | 1,114,670 | |||||||||||||
Cubic Corp. | 66,629 | 4,371,529 | |||||||||||||
Embraer S.A., Sponsored ADR | 1,070,200 | 23,833,354 | |||||||||||||
Esterline Technologies Corp.A | 204,413 | 23,989,910 | |||||||||||||
Moog, Inc., Class A | 53,455 | 3,824,705 | |||||||||||||
National Presto Industries, Inc. | 18,054 | 2,250,792 | |||||||||||||
Triumph Group, Inc. | 119,246 | 2,176,240 | |||||||||||||
Vectrus, Inc.A | 130,458 | 3,496,274 |
See accompanying notes
18
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Industrials - 18.68% (continued) | |||||||||||||||
Aerospace & Defense - 1.76% (continued) | |||||||||||||||
Wesco Aircraft Holdings, Inc.A | 196,149 | $ | 1,996,797 | ||||||||||||
|
| ||||||||||||||
114,903,502 | |||||||||||||||
|
| ||||||||||||||
Air Freight & Logistics - 0.64% | |||||||||||||||
Air Transport Services Group, Inc.A | 1,039,453 | 20,373,279 | |||||||||||||
Atlas Air Worldwide Holdings, Inc.A | 68,767 | 3,549,752 | |||||||||||||
Hub Group, Inc., Class AA | 384,989 | 17,640,196 | |||||||||||||
|
| ||||||||||||||
41,563,227 | |||||||||||||||
|
| ||||||||||||||
Airlines - 0.37% | |||||||||||||||
Allegiant Travel Co. | 64,547 | 7,367,394 | |||||||||||||
Hawaiian Holdings, Inc. | 206,972 | 7,163,301 | |||||||||||||
SkyWest, Inc. | 140,141 | 8,028,678 | |||||||||||||
Spirit Airlines, Inc.A | 35,152 | 1,824,389 | |||||||||||||
|
| ||||||||||||||
24,383,762 | |||||||||||||||
|
| ||||||||||||||
Building Products - 1.98% | |||||||||||||||
Apogee Enterprises, Inc. | 48,272 | 1,742,619 | |||||||||||||
Armstrong Flooring, Inc.A | 479,301 | 7,453,131 | |||||||||||||
Builders FirstSource, Inc.A | 549,252 | 6,799,740 | |||||||||||||
Caesarstone Ltd.B | 146,255 | 2,309,367 | |||||||||||||
Gibraltar Industries, Inc.A | 649,755 | 23,157,268 | |||||||||||||
Insteel Industries, Inc. | 45,334 | 1,184,124 | |||||||||||||
Masonite International Corp.A | 482,349 | 26,717,311 | |||||||||||||
NCI Building Systems, Inc.A | 49,665 | 608,396 | |||||||||||||
Patrick Industries, Inc.A | 66,042 | 2,873,487 | |||||||||||||
Simpson Manufacturing Co., Inc. | 532,353 | 30,386,709 | |||||||||||||
Trex Co., Inc.A | 178,019 | 10,912,565 | |||||||||||||
Universal Forest Products, Inc. | 551,683 | 15,596,078 | |||||||||||||
|
| ||||||||||||||
129,740,795 | |||||||||||||||
|
| ||||||||||||||
Commercial Services & Supplies - 1.72% | |||||||||||||||
ACCO Brands Corp. | 671,057 | 5,415,430 | |||||||||||||
Deluxe Corp. | 222,728 | 10,514,989 | |||||||||||||
Ennis, Inc. | 95,963 | 1,857,844 | |||||||||||||
Essendant, Inc. | 149,715 | 1,907,369 | |||||||||||||
Herman Miller, Inc. | 342,273 | 11,277,895 | |||||||||||||
Knoll, Inc. | 1,016,647 | 20,180,443 | |||||||||||||
LSC Communications, Inc. | 1,265,100 | 11,929,893 | |||||||||||||
Matthews International Corp., Class A | 127,498 | 5,306,467 | |||||||||||||
Mobile Mini, Inc. | 760,576 | 31,274,885 | |||||||||||||
MSA Safety, Inc. | 70,339 | 7,346,205 | |||||||||||||
Quad/Graphics, Inc. | 102,485 | 1,581,344 | |||||||||||||
Steelcase, Inc., Class A | 156,775 | 2,602,465 | |||||||||||||
Team, Inc.A B | 56,130 | 1,116,987 | |||||||||||||
UniFirst Corp. | 3,931 | 586,898 | |||||||||||||
|
| ||||||||||||||
112,899,114 | |||||||||||||||
|
| ||||||||||||||
Construction & Engineering - 2.18% | |||||||||||||||
AECOMA | 394,647 | 11,500,014 | |||||||||||||
Aegion Corp.A | 243,133 | 4,707,055 | |||||||||||||
Construction Partners, Inc., Class AA | 325,905 | 2,946,181 | |||||||||||||
Dycom Industries, Inc.A | 26,698 | 1,812,260 | |||||||||||||
EMCOR Group, Inc. | 294,613 | 20,911,631 | |||||||||||||
Granite Construction, Inc. | 232,452 | 10,627,705 | |||||||||||||
KBR, Inc. | 1,739,722 | 34,411,701 | |||||||||||||
MasTec, Inc.A | 50,879 | 2,213,745 |
See accompanying notes
19
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Industrials - 18.68% (continued) | |||||||||||||||
Construction & Engineering - 2.18% (continued) | |||||||||||||||
MYR Group, Inc.A | 64,241 | $ | 2,145,007 | ||||||||||||
Primoris Services Corp. | 1,330,716 | 28,171,258 | |||||||||||||
Quanta Services, Inc.A | 262,287 | 8,183,354 | |||||||||||||
Tutor Perini Corp.A | 936,977 | 14,523,144 | |||||||||||||
Valmont Industries, Inc. | 4,766 | 592,462 | |||||||||||||
|
| ||||||||||||||
142,745,517 | |||||||||||||||
|
| ||||||||||||||
Electrical Equipment - 1.54% | |||||||||||||||
Atkore International Group, Inc.A | 163,179 | 3,142,827 | |||||||||||||
Encore Wire Corp. | 433,803 | 19,174,093 | |||||||||||||
EnerSys | 442,522 | 35,211,475 | |||||||||||||
Generac Holdings, Inc.A | 225,926 | 11,461,226 | |||||||||||||
Preformed Line Products Co. | 18,630 | 1,177,416 | |||||||||||||
Regal Beloit Corp. | 255,078 | 18,289,093 | |||||||||||||
Sunrun, Inc.A | 268,326 | 3,289,677 | |||||||||||||
Thermon Group Holdings, Inc.A | 75,399 | 1,627,110 | |||||||||||||
TPI Composites, Inc.A | 292,280 | 7,382,993 | |||||||||||||
|
| ||||||||||||||
100,755,910 | |||||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 0.07% | |||||||||||||||
Raven Industries, Inc. | 106,148 | 4,615,315 | |||||||||||||
|
| ||||||||||||||
Machinery - 5.04% | |||||||||||||||
Actuant Corp., Class A | 1,024,262 | 24,428,649 | |||||||||||||
Alamo Group, Inc. | 7,598 | 651,300 | |||||||||||||
Altra Industrial Motion Corp. | 100,705 | 3,249,750 | |||||||||||||
Astec Industries, Inc. | 191,359 | 7,197,012 | |||||||||||||
Barnes Group, Inc. | 425,841 | 24,102,601 | |||||||||||||
Blue Bird Corp.A B | 203,312 | 3,783,636 | |||||||||||||
Briggs & Stratton Corp. | 620,069 | 9,009,603 | |||||||||||||
Chart Industries, Inc.A | 292,382 | 19,896,595 | |||||||||||||
Colfax Corp.A | 879,954 | 24,665,111 | |||||||||||||
Columbus McKinnon Corp. | 93,338 | 3,428,305 | |||||||||||||
Commercial Vehicle Group, Inc.A | 312,108 | 2,088,002 | |||||||||||||
EnPro Industries, Inc. | 128,533 | 7,994,753 | |||||||||||||
Federal Signal Corp. | 1,430,425 | 31,455,046 | |||||||||||||
Global Brass & Copper Holdings, Inc. | 424,106 | 13,410,232 | |||||||||||||
Graham Corp. | 55,873 | 1,375,034 | |||||||||||||
Greenbrier Cos, Inc. | 411,125 | 19,507,881 | |||||||||||||
Hillenbrand, Inc. | 162,834 | 7,799,749 | |||||||||||||
Hurco Cos, Inc. | 46,294 | 1,886,017 | |||||||||||||
Hyster-Yale Materials Handling, Inc. | 182,997 | 11,062,169 | |||||||||||||
Kennametal, Inc. | 566,182 | 20,071,152 | |||||||||||||
Lindsay Corp. | 111,777 | 10,688,117 | |||||||||||||
Luxfer Holdings PLC | 26,927 | 621,475 | |||||||||||||
Lydall, Inc.A | 34,110 | 1,018,866 | |||||||||||||
Meritor, Inc.A | 146,341 | 2,486,334 | |||||||||||||
Miller Industries, Inc. | 226,733 | 5,480,137 | |||||||||||||
Mueller Industries, Inc. | 81,352 | 1,980,921 | |||||||||||||
Navistar International Corp.A | 159,433 | 5,339,411 | |||||||||||||
Park-Ohio Holdings Corp. | 110,087 | 3,641,678 | |||||||||||||
REV Group, Inc.B | 149,938 | 1,635,824 | |||||||||||||
Standex International Corp. | 10,552 | 855,978 | |||||||||||||
Sun Hydraulics Corp. | 98,909 | 4,589,378 | |||||||||||||
Tennant Co. | 45,179 | 2,761,340 | |||||||||||||
Terex Corp. | 674,039 | 22,506,162 | |||||||||||||
Timken Co. | 206,010 | 8,147,695 |
See accompanying notes
20
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Industrials - 18.68% (continued) | |||||||||||||||
Machinery - 5.04% (continued) | |||||||||||||||
TriMas Corp.A | 178,838 | $ | 5,266,779 | ||||||||||||
Trinity Industries, Inc. | 350,126 | 9,996,097 | |||||||||||||
Wabash National Corp. | 210,245 | 3,174,699 | |||||||||||||
Watts Water Technologies, Inc., Class A | 37,219 | 2,607,191 | |||||||||||||
|
| ||||||||||||||
329,860,679 | |||||||||||||||
|
| ||||||||||||||
Marine - 0.57% | |||||||||||||||
Kirby Corp.A | 105,719 | 7,605,425 | |||||||||||||
Matson, Inc. | 849,985 | 29,817,474 | |||||||||||||
|
| ||||||||||||||
37,422,899 | |||||||||||||||
|
| ||||||||||||||
Professional Services - 0.95% | |||||||||||||||
Barrett Business Services, Inc. | 8,191 | 515,378 | |||||||||||||
CBIZ, Inc.A | 37,496 | 831,661 | |||||||||||||
FTI Consulting, Inc.A | 22,682 | 1,567,553 | |||||||||||||
GP Strategies Corp.A | 74,341 | 1,086,122 | |||||||||||||
Hudson Global, Inc.A | 623,926 | 973,324 | |||||||||||||
Huron Consulting Group, Inc.A | 254,414 | 13,863,019 | |||||||||||||
InnerWorkings, Inc.A | 539,210 | 3,876,920 | |||||||||||||
Kelly Services, Inc., Class A | 412,089 | 9,679,971 | |||||||||||||
Kforce, Inc. | 40,338 | 1,243,217 | |||||||||||||
Korn/Ferry International | 406,399 | 18,344,851 | |||||||||||||
Navigant Consulting, Inc. | 135,788 | 2,933,021 | |||||||||||||
Resources Connection, Inc. | 81,716 | 1,333,605 | |||||||||||||
TrueBlue, Inc.A | 252,120 | 5,881,959 | |||||||||||||
|
| ||||||||||||||
62,130,601 | |||||||||||||||
|
| ||||||||||||||
Road & Rail - 0.50% | |||||||||||||||
ArcBest Corp. | 440,001 | 16,332,837 | |||||||||||||
Marten Transport Ltd. | 268,021 | 5,162,084 | |||||||||||||
Ryder System, Inc. | 90,594 | 5,010,754 | |||||||||||||
Universal Logistics Holdings, Inc. | 66,357 | 1,802,920 | |||||||||||||
Werner Enterprises, Inc. | 141,192 | 4,544,971 | |||||||||||||
|
| ||||||||||||||
32,853,566 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 1.36% | |||||||||||||||
Air Lease Corp. | 279,962 | 10,666,552 | |||||||||||||
Aircastle Ltd. | 720,510 | 13,999,509 | |||||||||||||
Applied Industrial Technologies, Inc. | 87,498 | 5,751,244 | |||||||||||||
Beacon Roofing Supply, Inc.A | 16,448 | 459,064 | |||||||||||||
GATX Corp. | 98,286 | 7,364,570 | |||||||||||||
Kaman Corp. | 122,008 | 7,749,948 | |||||||||||||
MRC Global, Inc.A | 315,077 | 4,987,669 | |||||||||||||
NOW, Inc.A | 277,900 | 3,568,236 | |||||||||||||
Rush Enterprises, Inc., Class A | 520,449 | 18,418,690 | |||||||||||||
Textainer Group Holdings Ltd.A | 48,684 | 571,063 | |||||||||||||
Titan Machinery, Inc.A | 64,890 | 924,683 | |||||||||||||
Triton International Ltd. | 207,020 | 6,659,833 | |||||||||||||
WESCO International, Inc.A | 158,314 | 7,944,197 | |||||||||||||
|
| ||||||||||||||
89,065,258 | |||||||||||||||
|
| ||||||||||||||
Total Industrials | 1,222,940,145 | ||||||||||||||
|
| ||||||||||||||
Information Technology - 11.63% | |||||||||||||||
Communications Equipment - 2.21% | |||||||||||||||
ARRIS International PLCA | 2,246,529 | 55,871,176 | |||||||||||||
CalAmp Corp.A | 107,519 | 2,143,929 |
See accompanying notes
21
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Information Technology - 11.63% (continued) | |||||||||||||||
Communications Equipment - 2.21% (continued) | |||||||||||||||
Casa Systems, Inc.A | 369,800 | $ | 5,325,120 | ||||||||||||
Ciena Corp.A | 1,419,541 | 44,374,852 | |||||||||||||
Comtech Telecommunications Corp. | 22,383 | 624,933 | |||||||||||||
Digi International, Inc.A | 122,590 | 1,422,044 | |||||||||||||
Finisar Corp.A | 294,100 | 4,908,529 | |||||||||||||
InterDigital, Inc. | 89,301 | 6,335,906 | |||||||||||||
NETGEAR, Inc.A | 263,742 | 14,632,406 | |||||||||||||
Plantronics, Inc. | 93,667 | 5,523,543 | |||||||||||||
Quantenna Communications, Inc.A | 111,005 | 1,993,650 | |||||||||||||
Ribbon Communications, Inc.A | 216,264 | 1,470,595 | |||||||||||||
|
| ||||||||||||||
144,626,683 | |||||||||||||||
|
| ||||||||||||||
Electronic Equipment, Instruments & Components - 4.94% | |||||||||||||||
Anixter International, Inc.A | 219,081 | 14,391,431 | |||||||||||||
Avnet, Inc. | 311,390 | 12,477,397 | |||||||||||||
AVX Corp. | 635,242 | 10,595,837 | |||||||||||||
Belden, Inc. | 86,545 | 4,677,757 | |||||||||||||
Benchmark Electronics, Inc. | 87,575 | 1,911,762 | |||||||||||||
Celestica, Inc.A | 612,119 | 6,353,795 | |||||||||||||
Daktronics, Inc. | 404,811 | 2,959,168 | |||||||||||||
ePlus, Inc.A | 15,217 | 1,291,619 | |||||||||||||
FabrinetA | 537,269 | 23,274,493 | |||||||||||||
FARO Technologies, Inc.A | 464,144 | 23,457,838 | |||||||||||||
II-VI, Inc.A | 1,165,514 | 43,392,086 | |||||||||||||
Insight Enterprises, Inc.A | 261,441 | 13,513,885 | |||||||||||||
Itron, Inc.A | 150,026 | 7,822,356 | |||||||||||||
Jabil, Inc. | 414,708 | 10,255,729 | |||||||||||||
KEMET Corp.A | 154,360 | 3,361,961 | |||||||||||||
Methode Electronics, Inc. | 148,115 | 4,384,204 | |||||||||||||
MTS Systems Corp. | 384,843 | 18,222,316 | |||||||||||||
PC Connection, Inc. | 117,415 | 3,891,133 | |||||||||||||
Plexus Corp.A | 519,002 | 30,309,717 | |||||||||||||
Sanmina Corp.A | 337,554 | 8,540,116 | |||||||||||||
ScanSource, Inc.A | 275,402 | 10,707,630 | |||||||||||||
SYNNEX Corp. | 27,024 | 2,097,333 | |||||||||||||
Tech Data Corp.A | 322,401 | 22,780,855 | |||||||||||||
TTM Technologies, Inc.A | 431,009 | 5,042,805 | |||||||||||||
Vishay Intertechnology, Inc. | 2,041,900 | 37,366,770 | |||||||||||||
|
| ||||||||||||||
323,079,993 | |||||||||||||||
|
| ||||||||||||||
IT Services - 1.01% | |||||||||||||||
CACI International, Inc., Class AA | 39,097 | 6,977,251 | |||||||||||||
CSG Systems International, Inc. | 464,000 | 16,286,400 | |||||||||||||
LiveRamp Holdings, Inc.A | 40,350 | 1,843,188 | |||||||||||||
Luxoft Holding, Inc.A | 61,821 | 2,548,880 | |||||||||||||
NIC, Inc. | 623,550 | 8,299,450 | |||||||||||||
Science Applications International Corp. | 100,750 | 7,003,133 | |||||||||||||
Sykes Enterprises, Inc.A | 192,171 | 5,893,885 | |||||||||||||
Travelport Worldwide Ltd. | 942,945 | 14,106,457 | |||||||||||||
Unisys Corp.A B | 181,176 | 3,335,450 | |||||||||||||
|
| ||||||||||||||
66,294,094 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 2.61% | |||||||||||||||
Advanced Energy Industries, Inc.A | 147,209 | 6,334,403 | |||||||||||||
Amkor Technology, Inc.A | 333,684 | 2,385,841 | |||||||||||||
Aquantia Corp.A B | 120,634 | 1,153,261 | |||||||||||||
Brooks Automation, Inc. | 1,435,257 | 44,536,025 |
See accompanying notes
22
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Information Technology - 11.63% (continued) | |||||||||||||||
Semiconductors & Semiconductor Equipment - 2.61% (continued) | |||||||||||||||
ChipMOS Technologies, Inc., ADRB | 141,794 | $ | 1,868,845 | ||||||||||||
Cirrus Logic, Inc.A | 366,852 | 13,734,939 | |||||||||||||
Cohu, Inc. | 367,843 | 7,651,134 | |||||||||||||
Diodes, Inc.A | 1,579,359 | 47,680,848 | |||||||||||||
First Solar, Inc.A | 64,653 | 2,702,495 | |||||||||||||
Ichor Holdings Ltd.A B | 58,828 | 1,044,197 | |||||||||||||
Kulicke & Soffa Industries, Inc. | 319,215 | 6,489,641 | |||||||||||||
PDF Solutions, Inc.A | 62,331 | 498,648 | |||||||||||||
Photronics, Inc.A | 1,970,481 | 19,192,485 | |||||||||||||
Semtech Corp.A | 187,769 | 8,438,339 | |||||||||||||
SMART Global Holdings, Inc.A B | 134,793 | 3,775,552 | |||||||||||||
Synaptics, Inc.A | 61,109 | 2,294,032 | |||||||||||||
Veeco Instruments, Inc.A | 88,271 | 839,457 | |||||||||||||
|
| ||||||||||||||
170,620,142 | |||||||||||||||
|
| ||||||||||||||
Software - 0.68% | |||||||||||||||
CommVault Systems, Inc.A | 91,702 | 5,338,890 | |||||||||||||
LogMeIn, Inc. | 122,365 | 10,538,074 | |||||||||||||
MicroStrategy, Inc., Class AA | 15,046 | 1,895,345 | |||||||||||||
Monotype Imaging Holdings, Inc. | 32,809 | 575,142 | |||||||||||||
Verint Systems, Inc.A | 575,267 | 26,272,444 | |||||||||||||
|
| ||||||||||||||
44,619,895 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 0.18% | |||||||||||||||
Cray, Inc.A | 432,307 | 9,809,046 | |||||||||||||
Super Micro Computer, Inc.A | 171,705 | 2,249,335 | |||||||||||||
|
| ||||||||||||||
12,058,381 | |||||||||||||||
|
| ||||||||||||||
Total Information Technology | 761,299,188 | ||||||||||||||
|
| ||||||||||||||
Materials - 5.34% | |||||||||||||||
Chemicals - 1.67% | |||||||||||||||
American Vanguard Corp. | 67,129 | 1,080,777 | |||||||||||||
Cabot Corp. | 546,314 | 26,594,565 | |||||||||||||
Core Molding Technologies, Inc. | 39,785 | 270,936 | |||||||||||||
FutureFuel Corp. | 136,269 | 2,234,812 | |||||||||||||
GCP Applied Technologies, Inc.A | 22,684 | 589,103 | |||||||||||||
Hawkins, Inc. | 56,061 | 1,887,013 | |||||||||||||
HB Fuller Co. | 91,730 | 4,078,316 | |||||||||||||
Innospec, Inc. | 89,965 | 6,020,458 | |||||||||||||
Koppers Holdings, Inc.A | 57,270 | 1,531,972 | |||||||||||||
Kraton Corp.A | 290,613 | 8,003,482 | |||||||||||||
Kronos Worldwide, Inc. | 188,494 | 2,644,571 | |||||||||||||
LSB Industries, Inc.A | 108,730 | 826,348 | |||||||||||||
Minerals Technologies, Inc. | 113,139 | 6,194,360 | |||||||||||||
PolyOne Corp. | 721,880 | 23,323,943 | |||||||||||||
Rayonier Advanced Materials, Inc. | 423,949 | 5,248,489 | |||||||||||||
Stepan Co. | 154,097 | 12,726,871 | |||||||||||||
Trinseo S.A. | 114,554 | 6,172,170 | |||||||||||||
|
| ||||||||||||||
109,428,186 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 0.28% | |||||||||||||||
Greif, Inc., Class A | 69,928 | 3,307,594 | |||||||||||||
Owens-Illinois, Inc.A | 385,644 | 6,043,042 | |||||||||||||
Silgan Holdings, Inc. | 356,024 | 8,555,257 | |||||||||||||
|
| ||||||||||||||
17,905,893 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
23
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Materials - 5.34% (continued) | |||||||||||||||
Metals & Mining - 2.48% | |||||||||||||||
Allegheny Technologies, Inc.A | 1,589,900 | $ | 41,162,511 | ||||||||||||
Carpenter Technology Corp. | 479,226 | 20,899,046 | |||||||||||||
Cleveland-Cliffs, Inc.A | 1,128,524 | 12,142,918 | |||||||||||||
Coeur Mining, Inc.A | 1,891,487 | 9,041,308 | |||||||||||||
Compass Minerals International, Inc. | 38,442 | 1,864,821 | |||||||||||||
Elah Holdings, Inc.A | 3,612 | 328,692 | |||||||||||||
Ferroglobe PLC | 2,562,970 | 15,608,487 | |||||||||||||
Haynes International, Inc. | 40,272 | 1,166,277 | |||||||||||||
Hecla Mining Co. | 1,757,014 | 4,216,834 | |||||||||||||
Hudbay Minerals, Inc. | 376,394 | 1,471,701 | |||||||||||||
Kaiser Aluminum Corp. | 6,386 | 609,033 | |||||||||||||
Materion Corp. | 317,451 | 18,040,740 | |||||||||||||
Pan American Silver Corp. | 431,205 | 6,330,089 | |||||||||||||
Schnitzer Steel Industries, Inc., Class A | 292,889 | 7,878,714 | |||||||||||||
SunCoke Energy Partners LP | 136,919 | 1,894,959 | |||||||||||||
United States Steel Corp. | 339,800 | 9,014,894 | |||||||||||||
Warrior Met Coal, Inc. | 142,000 | 3,976,000 | |||||||||||||
Worthington Industries, Inc. | 159,818 | 6,693,178 | |||||||||||||
|
| ||||||||||||||
162,340,202 | |||||||||||||||
|
| ||||||||||||||
Paper & Forest Products - 0.91% | |||||||||||||||
Boise Cascade Co. | 130,945 | 4,031,797 | |||||||||||||
Clearwater Paper Corp.A | 95,946 | 2,316,136 | |||||||||||||
Domtar Corp. | 416,032 | 19,266,442 | |||||||||||||
Louisiana-Pacific Corp. | 959,749 | 20,893,736 | |||||||||||||
Mercer International, Inc. | 292,629 | 4,450,887 | |||||||||||||
PH Glatfelter Co. | 186,827 | 3,344,203 | |||||||||||||
Schweitzer-Mauduit International, Inc. | 95,587 | 3,051,137 | |||||||||||||
Verso Corp., Class AA | 86,700 | 2,437,137 | |||||||||||||
|
| ||||||||||||||
59,791,475 | |||||||||||||||
|
| ||||||||||||||
Total Materials | 349,465,756 | ||||||||||||||
|
| ||||||||||||||
Real Estate - 4.10% | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 4.07% | |||||||||||||||
Agree Realty Corp. | 218,551 | 12,516,416 | |||||||||||||
Americold Realty Trust | 471,363 | 11,666,234 | |||||||||||||
Ashford Hospitality Trust, Inc. | 964,341 | 4,966,356 | |||||||||||||
Brandywine Realty Trust | 538,925 | 7,577,286 | |||||||||||||
CareTrust REIT, Inc. | 414,127 | 7,313,483 | |||||||||||||
Colony Capital, Inc. | 1,215,880 | 7,137,216 | |||||||||||||
CoreCivic, Inc. | 686,949 | 15,428,875 | |||||||||||||
Cousins Properties, Inc. | 1,610,770 | 13,385,499 | |||||||||||||
GEO Group, Inc. | 1,357,178 | 30,007,206 | |||||||||||||
Granite Real Estate Investment Trust | 363,260 | 15,049,862 | |||||||||||||
Hersha Hospitality Trust | 357,923 | 6,285,128 | |||||||||||||
Hospitality Properties Trust | 118,232 | 3,029,104 | |||||||||||||
Lexington Realty Trust | 1,868,999 | 14,522,122 | |||||||||||||
Medical Properties Trust, Inc. | 346,606 | 5,150,565 | |||||||||||||
Outfront Media, Inc. | 526,083 | 9,322,191 | |||||||||||||
Pennsylvania Real Estate Investment Trust | 168,753 | 1,510,339 | |||||||||||||
Preferred Apartment Communities, Inc., Class A | 523,930 | 8,828,220 | |||||||||||||
Ramco-Gershenson Properties Trust | 541,255 | 7,187,866 | |||||||||||||
Retail Properties of America, Inc., Class A | 916,820 | 11,249,381 | |||||||||||||
Ryman Hospitality Properties, Inc. | 125,994 | 9,775,874 | |||||||||||||
Select Income REIT | 241,720 | 4,570,925 | |||||||||||||
Seritage Growth PropertiesB | 984,120 | 37,416,242 |
See accompanying notes
24
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.47% (continued) | |||||||||||||||
Real Estate - 4.10% (continued) | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 4.07% (continued) | |||||||||||||||
Sunstone Hotel Investors, Inc. | 666,361 | $ | 9,642,244 | ||||||||||||
Urban Edge Properties | 611,790 | 12,535,577 | |||||||||||||
|
| ||||||||||||||
266,074,211 | |||||||||||||||
|
| ||||||||||||||
Real Estate Management & Development - 0.03% | |||||||||||||||
HFF, Inc., Class A | 20,955 | 770,096 | |||||||||||||
Marcus & Millichap, Inc.A | 18,680 | 648,570 | |||||||||||||
Tejon Ranch Co.A | 44,093 | 837,767 | |||||||||||||
|
| ||||||||||||||
2,256,433 | |||||||||||||||
|
| ||||||||||||||
Total Real Estate | 268,330,644 | ||||||||||||||
|
| ||||||||||||||
Utilities - 2.60% | |||||||||||||||
Electric Utilities - 1.47% | |||||||||||||||
ALLETE, Inc. | 126,865 | 9,388,010 | |||||||||||||
El Paso Electric Co. | 23,747 | 1,354,767 | |||||||||||||
IDACORP, Inc. | 202,333 | 18,869,576 | |||||||||||||
PNM Resources, Inc. | 66,647 | 2,559,911 | |||||||||||||
Portland General Electric Co. | 1,363,976 | 61,488,038 | |||||||||||||
Spark Energy, Inc., Class AB | 311,472 | 2,323,581 | |||||||||||||
|
| ||||||||||||||
95,983,883 | |||||||||||||||
|
| ||||||||||||||
Gas Utilities - 0.70% | |||||||||||||||
Chesapeake Utilities Corp. | 134,294 | 10,669,658 | |||||||||||||
Northwest Natural Holding Co. | 33,390 | 2,163,338 | |||||||||||||
South Jersey Industries, Inc. | 366,129 | 10,815,451 | |||||||||||||
Southwest Gas Holdings, Inc. | 228,607 | 17,664,463 | |||||||||||||
Spire, Inc. | 35,238 | 2,557,574 | |||||||||||||
Star Group LP | 75,828 | 724,916 | |||||||||||||
Suburban Propane Partners LP | 61,178 | 1,397,917 | |||||||||||||
|
| ||||||||||||||
45,993,317 | |||||||||||||||
|
| ||||||||||||||
Independent Power & Renewable Electricity Producers - 0.16% | |||||||||||||||
Clearway Energy, Inc., Class A | 87,090 | 1,691,288 | |||||||||||||
Clearway Energy, Inc. | 467,360 | 9,164,929 | |||||||||||||
|
| ||||||||||||||
10,856,217 | |||||||||||||||
|
| ||||||||||||||
Multi-Utilities - 0.27% | |||||||||||||||
Avista Corp. | 53,905 | 2,771,795 | |||||||||||||
Black Hills Corp. | 42,646 | 2,537,437 | |||||||||||||
NorthWestern Corp. | 183,556 | 10,785,751 | |||||||||||||
Unitil Corp. | 29,506 | 1,401,830 | |||||||||||||
|
| ||||||||||||||
17,496,813 | |||||||||||||||
|
| ||||||||||||||
Total Utilities | 170,330,230 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $5,804,641,466) | 6,314,018,146 | ||||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 3.53% (Cost $231,346,704) | |||||||||||||||
Investment Companies - 3.53% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%E F | 231,346,704 | 231,346,704 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 2.01% (Cost $131,390,683) | |||||||||||||||
Investment Companies - 2.01% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%E F | 131,390,683 | 131,390,683 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 102.01% (Cost $6,167,378,853) | 6,676,755,533 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (2.01%) | (131,482,299 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 6,545,273,234 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
See accompanying notes
25
American Beacon Small Cap Value FundSM
Schedule of Investments
October 31, 2018
A Non-income producing security.
B All or a portion of this security is on loan at October 31, 2018.
C Fair valued pursuant to procedures approved by the Board of Trustees. At period end, the value of these securities amounted to $0 or 0.00% of net assets.
D Value was determined using significant unobservable inputs.
E The Fund is affiliated by having the same investment advisor.
F 7-day yield.
ADR - American Depositary Receipt.
LLC - Limited Liability Company.
LP - Limited Partnership.
MLP – Master Limited Partnership.
PLC - Public Limited Company.
Long Futures Contracts Open on October 31, 2018: |
| |||||||||||||||
Equity Futures Contracts | ||||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||||
Russell 2000 E-Mini Index Futures | 2,867 | December 2018 | $ | 239,281,007 | $ | 216,730,865 | $ | (22,550,142 | ) | |||||||
|
|
|
|
|
| |||||||||||
$ | 239,281,007 | $ | 216,730,865 | $ | (22,550,142 | ) | ||||||||||
|
|
|
|
|
|
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2018, the investments were classified as described below:
Small Cap Value Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 6,314,018,146 | $ | - | $ | 0 | (1) | $ | 6,314,018,146 | |||||||||||||||||||
Short-Term Investments | 231,346,704 | - | - | 231,346,704 | ||||||||||||||||||||||||
Securities Lending Collateral | 131,390,683 | - | - | 131,390,683 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 6,676,755,533 | $ | - | $ | - | $ | 6,676,755,533 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Liabilities | ||||||||||||||||||||||||||||
Futures Contracts | $ | (22,550,142 | ) | $ | - | $ | - | $ | (22,550,142 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Liabilities | $ | (22,550,142 | ) | $ | - | $ | - | $ | (22,550,142 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
(1) Investment held in the Fund’s Portfolio with $0 fair value.
U.S. GAAP requires transfers between all levels to level 3 to be disclosed. During the year ended October 31, 2018, there were no transfers into or out of Level 3.
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 10/31/2017 | Purchases | Sales | Accrued Discounts (Premiums) | Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Transfer into Level 3 | Transfer out of Level 3 | Balance as of 10/31/2018 | Change in Unrealized Appreciation (Depreciation) at Period end** | ||||||||||||||||||||||||||||||
Common Stocks | $ | 0 | (1) | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 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 Statement 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
26
American Beacon Small Cap Value FundSM
Statement of Assets and Liabilities
October 31, 2018
Assets: |
| |||
Investments in unaffiliated securities, at fair value†§ | $ | 6,314,018,146 | ||
Investments in affiliated securities, at fair value‡ | 362,737,387 | |||
Deposit with brokers for futures contracts | 32,902,635 | |||
Dividends and interest receivable | 2,809,719 | |||
Receivable for investments sold | 20,034,074 | |||
Receivable for fund shares sold | 5,881,957 | |||
Prepaid expenses | 120,025 | |||
|
| |||
Total assets | 6,738,503,943 | |||
|
| |||
Liabilities: |
| |||
Payable for investments purchased | 28,373,775 | |||
Payable for fund shares redeemed | 5,928,068 | |||
Management and sub-advisory fees payable (Note 2) | 4,295,592 | |||
Service fees payable (Note 2) | 207,114 | |||
Transfer agent fees payable (Note 2) | 137,160 | |||
Payable upon return of securities loaned (Note 9)§ | 131,390,683 | |||
Custody and fund accounting fees payable | 70,499 | |||
Professional fees payable | 86,525 | |||
Trustee fees payable (Note 2) | 44,798 | |||
Payable for prospectus and shareholder reports | 110,198 | |||
Payable for variation margin from open futures contracts (Note 5) | 22,543,795 | |||
Other liabilities | 42,502 | |||
|
| |||
Total liabilities | 193,230,709 | |||
|
| |||
Net assets | $ | 6,545,273,234 | ||
|
| |||
Analysis of net assets: |
| |||
Paid-in-capital | $ | 5,379,245,818 | ||
Total distributable earnings (deficits)A | 1,166,027,416 | |||
|
| |||
Net assets | $ | 6,545,273,234 | ||
|
| |||
Shares outstanding at no par value (unlimited shares authorized): |
| |||
Institutional Class | 176,163,992 | |||
|
| |||
Y Class | 13,275,117 | |||
|
| |||
Investor Class | 21,444,011 | |||
|
| |||
Advisor Class | 3,132,149 | |||
|
| |||
A Class | 2,692,772 | |||
|
| |||
C Class | 571,242 | |||
|
| |||
R6 Class | 34,519,305 | |||
|
| |||
Net assets: |
| |||
Institutional Class | $ | 4,604,864,422 | ||
|
| |||
Y Class | $ | 342,125,601 | ||
|
| |||
Investor Class | $ | 538,602,473 | ||
|
| |||
Advisor Class | $ | 77,578,775 | ||
|
| |||
A Class | $ | 66,380,615 | ||
|
| |||
C Class | $ | 13,480,297 | ||
|
| |||
R6 Class | $ | 902,241,051 | ||
|
| |||
Net asset value, offering and redemption price per share: |
| |||
Institutional Class | $ | 26.14 | ||
|
| |||
Y Class | $ | 25.77 | ||
|
| |||
Investor Class | $ | 25.12 | ||
|
| |||
Advisor Class | $ | 24.77 | ||
|
| |||
A Class | $ | 24.65 | ||
|
| |||
A Class (offering price) | $ | 26.15 | ||
|
| |||
C Class | $ | 23.60 | ||
|
| |||
R6 Class | $ | 26.14 | ||
|
| |||
† Cost of investments in unaffiliated securities | $ | 5,804,641,466 | ||
‡ Cost of investments in affiliated securities | $ | 362,737,387 | ||
§ Fair value of securities on loan | $ | 126,252,889 | ||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
27
American Beacon Small Cap Value FundSM
Statement of Operations
For the year ended October 31, 2018
Investment income: |
| |||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 98,195,560 | ||
Dividend income from affiliated securities (Note 8) | 3,764,704 | |||
Interest income | 40,624 | |||
Income derived from securities lending (Note 9) | 2,473,019 | |||
|
| |||
Total investment income | 104,473,907 | |||
|
| |||
Expenses: |
| |||
Management and sub-advisory fees (Note 2) | 52,968,583 | |||
Transfer agent fees: | ||||
Institutional Class (Note 2) | 1,561,838 | |||
Y Class (Note 2) | 380,918 | |||
Investor Class | 29,336 | |||
Advisor Class | 7,395 | |||
A Class | 6,726 | |||
C Class | 3,550 | |||
R6 Class | 18,392 | |||
Custody and fund accounting fees | 626,962 | |||
Professional fees | 326,012 | |||
Registration fees and expenses | 167,145 | |||
Service fees (Note 2): | ||||
Investor Class | 2,157,748 | |||
Advisor Class | 235,712 | |||
A Class | 127,110 | |||
C Class | 11,052 | |||
Distribution fees (Note 2): | ||||
Advisor Class | 236,094 | |||
A Class | 185,030 | |||
C Class | 150,455 | |||
Prospectus and shareholder report expenses | 433,525 | |||
Trustee fees (Note 2) | 498,220 | |||
Other expenses | 354,401 | |||
|
| |||
Total expenses | 60,486,204 | |||
|
| |||
Net fees waived and expenses (reimbursed (Note 2)A | (15,836 | ) | ||
|
| |||
Net expenses | 60,470,368 | |||
|
| |||
Net investment income | 44,003,539 | |||
|
| |||
Realized and unrealized gain (loss) from investments: |
| |||
Net realized gain (loss) from: | ||||
Investments in unaffiliated securitiesB | 683,101,516 | |||
Commission recapture (Note 1) | 38,096 | |||
Foreign currency transactions | (13,146 | ) | ||
Futures contracts | 23,811,684 | |||
Change in net unrealized appreciation (depreciation) of: | ||||
Investments in unaffiliated securitiesC | (915,066,156 | ) | ||
Foreign currency transactions | 313 | |||
Futures contracts | (29,111,482 | ) | ||
|
| |||
Net (loss) from investments | (237,239,175 | ) | ||
|
| |||
Net (decrease) in net assets resulting from operations | $ | (193,235,636 | ) | |
|
| |||
† Foreign taxes | $ | 422,513 | ||
A The Manager voluntarily reimbursed service fees in the amount of $15,836. |
| |||
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 net unrealized appreciation (depreciation) at year end. |
|
See accompanying notes
28
American Beacon Small Cap Value FundSM
Statement of Changes in Net Assets
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Increase (decrease) in net assets: | ||||||||||||
Operations: | ||||||||||||
Net investment income | $ | 44,003,539 | $ | 35,906,655 | ||||||||
Net realized gain from investments in unaffiliated securities, commission recapture, foreign currency transactions, and futures contracts | 706,938,150 | 579,320,266 | ||||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities, foreign currency transactions, and futures contracts | (944,177,325 | ) | 807,767,623 | |||||||||
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|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | (193,235,636 | ) | 1,422,994,544 | |||||||||
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| |||||||||
Distributions to shareholders: |
| |||||||||||
Net investment income: | ||||||||||||
Institutional Class | - | (44,712,589 | ) | |||||||||
Y Class | - | (2,820,317 | ) | |||||||||
Investor Class | - | (3,777,116 | ) | |||||||||
Advisor Class | - | (514,722 | ) | |||||||||
A Class | - | (310,111 | ) | |||||||||
Net realized gain from investments: | ||||||||||||
Institutional Class | - | (122,225,000 | ) | |||||||||
Y Class | - | (8,295,210 | ) | |||||||||
Investor Class | - | (15,742,672 | ) | |||||||||
Advisor Class | - | (2,933,912 | ) | |||||||||
A Class | - | (1,474,164 | ) | |||||||||
C Class | - | (344,117 | ) | |||||||||
Total retained earnings:* | ||||||||||||
Institutional Class | (483,990,858 | ) | - | |||||||||
Y Class | (34,475,891 | ) | - | |||||||||
Investor Class | (58,686,508 | ) | - | |||||||||
Advisor Class | (8,714,846 | ) | - | |||||||||
A Class | (6,415,873 | ) | - | |||||||||
C Class | (1,398,033 | ) | - | |||||||||
R6 Class | (35,513,779 | ) | - | |||||||||
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|
|
| |||||||||
Net distributions to shareholders | (629,195,788 | ) | (203,149,930 | ) | ||||||||
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| |||||||||
Capital share transactions (Note 11): |
| |||||||||||
Proceeds from sales of shares | 1,841,822,459 | 2,041,595,238 | ||||||||||
Reinvestment of dividends and distributions | 608,543,857 | 196,388,754 | ||||||||||
Cost of shares redeemed | (2,123,030,353 | ) | (2,233,807,450 | ) | ||||||||
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| |||||||||
Net increase in net assets from capital share transactions | 327,335,963 | 4,176,542 | ||||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets | (495,095,461 | ) | 1,224,021,156 | |||||||||
|
|
|
| |||||||||
Net assets: |
| |||||||||||
Beginning of period | 7,040,368,695 | 5,816,347,539 | ||||||||||
|
|
|
| |||||||||
End of period | $ | 6,545,273,234 | $ | 7,040,368,695 | ||||||||
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* Distributions from net investment income and net realized capital gains are combined for the year ended October 31, 2018. See Note 1 in the Notes to Financial Statements for more information regarding new accounting pronouncements. |
|
See accompanying notes
29
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, as amended (the “Act”), as a diversified, open-end management investment company. As of October 31, 2018, the Trust consists of thirty-three active series, one of which is presented in this filing: American Beacon Small Cap Value Fund (the “Fund”). The remaining thirty-two active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a Delaware corporation and a wholly-owned subsidiary of Resolute Investment Managers, Inc. (“RIM”) organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors. The Manager is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). RIM is, in turn, a wholly-owned subsidiary of Resolute Acquisition, Inc., which is a wholly-owned subsidiary of Resolute Topco, Inc., a wholly-owned subsidiary of Resolute Investment Holdings, LLC (“RIH”). RIH is owned primarily by Kelso Investment Associates VIII, L.P., KEP VI, LLC and Estancia Capital Partners L.P., investment funds affiliated with Kelso & Company, L.P. (“Kelso”) or Estancia Capital Management, LLC (“Estancia”), which are private equity firms.
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Premium Amortization of Purchased Callable Debt Securities. The amendments in the ASU shorten the premium amortization period on a purchased callable debt security from the security’s contractual life to the earliest call date. It is anticipated that this change will enhance disclosures by reducing losses recognized when a security is called on an earlier date. This ASU is effective for fiscal years beginning after December 15, 2018. The Manager continues to evaluate the impact this ASU will have on the financial statements and other disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The amendments in the ASU impact disclosure requirements for fair value measurement. It is anticipated that this change will enhance the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and can include the entire standard or certain provisions that exclude or amend disclosures. For the year ended October 31, 2018, the Fund has chosen to adopt certain provisions of the standard which eliminated the disclosures of transfers between level 1 and level 2 portfolio investments and the policy for the timing of transfers between levels of the fair value hierarchy. Management has evaluated that the full adoption of this ASU will not have a material impact on the Fund’s financial statements.
In August 2018, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Effective with the current reporting period, the Fund adopted the amendments with the impacts being that the Fund is no longer required to present components of distributable earnings on the Statement of Assets and Liabilities or the sources of distributable earnings and the amount of undistributed net investment income on the Statement of Changes in Net Assets.
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 or through intermediary channels. | $ | 250,000 | |||
Y Class | Large institutional retirement plan investors - sold directly or through intermediary channels. | $ | 100,000 |
30
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Class | Eligible Investors | Minimum Initial Investments | ||||
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 a broker or through 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 respective Fund. Class specific expenses, where applicable, currently include service, distribution, transfer agent fees, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Significant Accounting Policies
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 FASB Accounting Standards 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 as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled beyond a standard settlement period for the security after the trade date.
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. Realized gains (losses) from securities sold are determined on the basis of specific lot identification.
Distributions to Shareholders
The Fund intends to declare income distributions daily and distribute them to Shareholders quarterly. The Fund’s final distribution for each taxable (fiscal) year will include any remaining investment company taxable income undistributed during the year, as well as all net capital gain realized during the year. 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. If all or a portion of any Fund distribution exceeds the sum of the Fund’s investment company taxable income and realized net capital gain for a taxable year, the excess would be treated (i) first, as dividend income to the extent of the Fund’s current or accumulated earnings and profits, as calculated for federal income tax purposes (“E&P”), (ii) then as a tax-free “return of capital,” reducing a Shareholder’s adjusted tax basis in his or her Shares (which would result in a higher tax liability when the Shares are sold, even if they had not increased in value, or, in fact, had lost value), and (iii) then, after that basis is reduced to zero, as realized capital gain (assuming the Shares are held as capital assets), long- or short-term, depending on the Shareholder’s holding period for the Shares.
31
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Section 19(a) of the Act and Rule 19a-1 thereunder require the Fund to provide a written statement accompanying any distribution from a source other than net income that adequately discloses its source or sources. Thus, if the source of a distribution were the original capital contribution of the Shareholder, and the payment amounted to a return of capital, the Fund would be required to provide written disclosure to that effect. Nevertheless, persons who periodically receive the payment of a dividend or other distribution may be under the impression that they are receiving net profits when they are not. Shareholders should read any written disclosure provided pursuant to Section 19(a) and Rule 19a-1 carefully and should not assume that the source of any distribution from the Fund is net profit.
Commission Recapture
The Fund has established brokerage commission recapture arrangements with certain brokers or dealers. If the 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 Trust’s Board of Trustees (the “Board”) deems 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 $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 BNY Mellon Asset
32
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Management North America Corporation (“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, 2018 were as follows:
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 25,400,214 | ||||||||
Sub-Advisor Fees | 0.38 | % | 27,568,369 | |||||||||
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Total | 0.73 | % | $ | 52,968,583 | ||||||||
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|
|
|
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, 2018, the Manager received securities lending fees of $264,301 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 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 a Service Plan that obligates the Manager to oversee additional shareholder servicing of the Investor, Advisor, A, and C Classes of the Fund. As compensation for performing the duties required under the Service Plan, the Manager receives an annualized fee up to 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.
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 and Y Classes of the Fund and has agreed to compensate the intermediaries for providing these services. 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 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
33
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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 | $ | 1,749,350 |
As of October 31, 2018, 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 | $ | 92,483 |
Brokerage Commissions
Affiliated entities of a sub-advisor to the Fund received commissions on purchases and sales of the Fund’s portfolio securities totaling $122,480 for the year ended October 31, 2018.
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, 2018, 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 | $ | 241,828 | $ | 183,722 | $ | 425,550 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the 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 two 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, 2018, the Fund did not utilize the credit facility.
34
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 be reimbursed by the Fund for any contractual or voluntary fee reductions or expense reimbursements if reimbursement to 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, 2018 there were no waived fees, expenses reimbursed, or recouped expenses.
The Distributor
Effective March 1, 2018, Resolute Investment Distributors, Inc. (“RID” or “Distributor”) replaced Foreside Fund Services, LLC (“Foreside”) as the Fund’s distributor and principal underwriter of the Fund’s shares.
RID is a registered broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor is affiliated with the Manager through common ownership. Under a Distribution Agreement with the Trust, the Distributor acts as the distributor and principal underwriter of the Trust in connection with the continuous offering of shares of the Fund. The Distributor continually distributes shares of the Fund on a best efforts basis. The Distributor has no obligation to sell any specific quantity of the Fund’s shares. Pursuant to the Distribution Agreement, to the extent applicable, the Distributor receives, and may re-allocate to broker-dealers, all or a portion of the sales charge paid by the purchasers of A Class and C Class shares. For A Class and C Class shares, the Distributor receives commission revenue consisting of the portion of A Class and C Class sales charge remaining after the allowances by the Distributor to the broker-dealers. The Distributor retains any portion of the commission fees that are not paid to the broker-dealers for use solely to pay distribution related expenses.
Prior to March 1, 2018, Foreside served as the distributor and principal underwriter of the Fund’s shares. Pursuant to a Sub-Administration Agreement between Foreside and the Manager in effect through February 28, 2018, Foreside received a fee from the Manager for providing administrative services in connection with the marketing and distribution of shares of the Trust, including the registration of Manager employees as registered representatives of Foreside to facilitate distribution of Fund shares. Foreside also received a fee from the Manager under a Marketing Agreement pursuant to which Foreside provided services in connection with the marketing of a Fund to institutional investors. Pursuant to the Distribution Agreement with the Trust in effect through February 28, 2018, Foreside received, and may have re-allocated to broker-dealers, all or a portion of the sales charge paid by the purchasers of A and C Class shares. For A and C Class shares, Foreside received commission revenues consisting of the portion of A and C Class sales charge remaining after the allowances by Foreside to the broker dealers. Foreside retained any portion of the commission fees that were not paid to the broker-dealers for use solely to pay distribution related expenses.
Sales Commissions
The Fund’s Distributor, formerly 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 period November 1, 2017 through February 28, 2018, Foreside collected $3,562 for the Fund from the sale of Class A Shares. During the period March 1, 2018 through October 31, 2018, RID collected $2,251 from the sale of Class A Shares of the Fund.
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, 2018, there were no CDSC fees collected for Class A Shares of the Fund.
35
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 period November 1, 2017 through February 28, 2018, Foreside collected CDSC fees of $229 for Class C Shares of the Fund. During the period March 1, 2018 through October 31, 2018, RID collected CDSC fees of $391 for Class C Shares of the Fund.
Trustee Fees and Expenses
As compensation for their service to the Trust, American Beacon Select Funds, American Beacon Institutional Funds Trust, American Beacon Sound Point Enhanced Income Fund, and American Beacon Apollo Total Return Fund, each Trustee receives an annual retainer of $120,000, plus $10,000 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 $2,500 fee each quarter for his attendance at the committee meetings. Effective January 1, 2018, the Board Vice Chair receives an additional annual retainer of $10,000. 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 Trusts according to its respective net assets.
3. Security Valuation and Fair Value Measurements
The price of the Fund’s shares is based on its net asset value (“NAV”) per share. The Fund’s NAV is computed by adding total assets, subtracting all the Fund’s liabilities, and dividing the result by the total number of shares outstanding.
The NAV of each class of the Fund’s shares is determined based on a pro rata allocation of the Fund’s investment income, expenses and total capital gains and losses. The Fund’s NAV per share is determined each business day as of the regular close of trading on the New York Stock Exchange (“NYSE” or “Exchange”), which is typically 4:00 p.m. Eastern Time (“ET”). However, if trading on the NYSE closes at a time other than 4:00 p.m. ET, the Fund’s NAV per share typically would still be determined as of the regular close of trading on the NYSE. The Fund does not price its shares on days that the NYSE is closed. Foreign exchanges may permit trading in foreign securities on days when the Fund is not open for business, which may result in the value of the Fund’s portfolio investments being affected at a time when you are unable to buy or sell shares.
Equity securities, including shares of closed-end funds and exchange-traded funds (“ETFs”), are valued at the last sale price or official closing price taken from the primary exchange in which each security trades. Investments in other mutual funds are valued at the closing NAV per share on the day of valuation. Debt securities are valued at bid quotes from broker/dealers or evaluated bid prices from pricing services, who may consider a number of inputs and factors, such as prices of comparable securities, yield curves, spreads, credit ratings, coupon rates, maturity, default rates, and underlying collateral. Futures are valued based on their daily settlement prices. Exchange-traded and over-the-counter (“OTC”) options are valued at the last sale price. Options with no last sale for the day are priced at mid quote. Swaps are valued at evaluated mid prices from pricing services.
The valuation of securities traded on foreign markets and certain fixed income securities will generally be based on prices determined as of the earlier closing time of the markets on which they primarily trade unless a significant event has occurred. When the Fund holds securities or other assets that are denominated in a foreign currency, the Fund will normally use the currency exchange rates as of 4:00 p.m. ET.
36
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Securities may be valued at fair value, as determined in good faith and pursuant to procedures approved by the Board, under certain limited circumstances. For example, fair value pricing will be used when market quotations are not readily available or reliable, as determined by the Manager, such as when (i) trading for a security is restricted or stopped; (ii) a security’s trading market is closed (other than customary closings); or (iii) a security has been de-listed from a national exchange. A security with limited market liquidity may require fair value pricing if the Manager determines that the available price does not reflect the security’s true market value. In addition, if a significant event that the Manager determines to affect the value of one or more securities held by the Fund occurs after the close of a related exchange but before the determination of the Fund’s NAV, fair value pricing may be used on the affected security or securities. Securities of small-capitalization companies are also more likely to require a fair value determination using these procedures because they are more thinly traded and less liquid than the securities of larger-capitalization companies. The Fund may fair value securities as a result of significant events occurring after the close of the foreign markets in which the Fund invests as described below. In addition, the Fund may invest in illiquid securities requiring these procedures.
The Fund may use fair value pricing for securities primarily traded in non-U.S. markets because most foreign markets close well before the Fund’s pricing time of 4:00 p.m. ET. The earlier close of these foreign markets gives rise to the possibility that significant events, including broad market moves, may have occurred in the interim and may materially affect the value of those securities. If the Manager determines that the last quoted prices of non-U.S. securities will, in its judgment, materially affect the value of some or all its portfolio securities, the Manager can adjust the previous closing prices to reflect what it believes to be the fair value of the securities as of the close of the Exchange. In deciding whether it is necessary to adjust closing prices to reflect fair value, the Manager reviews a variety of factors, including developments in foreign markets, the performance of U.S. securities markets, and the performance of instruments trading in U.S. markets that represent foreign securities and baskets of foreign securities. These securities are fair valued using a pricing service, using methods approved by the Board, that considers the correlation of the trading patterns of the foreign security to intraday trading in the U.S. markets, based on indices of domestic securities and other appropriate indicators such as prices of relevant American Depository Receipts (“ADRs”) and futures contracts. The Valuation Committee, established by the Board, may also fair value securities in other situations, such as when a particular foreign market is closed but the Fund is open. The Fund uses outside pricing services to provide closing prices and information to evaluate and/or adjust those prices. As a means of evaluating its security valuation process, the Valuation Committee routinely compares closing prices, the next day’s opening prices in the same markets and adjusted prices.
Attempts to determine the fair value of securities introduce an element of subjectivity to the pricing of securities. As a result, the price of a security determined through fair valuation techniques may differ from the price quoted or published by other sources and may not accurately reflect the market value of the security when trading resumes. If a reliable market quotation becomes available for a security formerly valued through fair valuation techniques, the Manager compares the new market quotation to the fair value price to evaluate the effectiveness of the Fund’s fair valuation procedures. If any significant discrepancies are found, the Manager may adjust the Fund’s fair valuation procedures.
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. |
37
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 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
38
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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 OTC. OTC stock may be less liquid than exchange-traded stock.
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.
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.
39
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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.
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 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, 2018, 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, 2018 | |||
Small Cap Value | 2,786 |
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, 2018: |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments |
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Payable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | (22,550,142 | ) | $ | (22,550,142 | ) | |||||||||||||||||||||||||||||||||||||||||
40
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
The effect of financial derivative instruments on the Statement of Operations as of October 31, 2018: |
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Derivatives not accounted for as hedging instruments |
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| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) from derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 23,811,684 | $ | 23,811,684 | |||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized appreciation | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | (29,111,482 | ) | $ | (29,111,482 | ) |
(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.
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, 2018.
Offsetting of Financial and Derivative Assets as of October 31, 2018: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | - | $ | 22,550,142 | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | - | $ | 22,550,142 | ||||||||
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|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | - | $ | (22,550,142 | ) | |||||||
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|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2018 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 131,390,683 | $ | - | $ | - | $ | - | $ | 131,390,683 | ||||||||||||||||||||||||||
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Total Borrowings | $ | 131,390,683 | $ | - | $ | - | $ | - | $ | 131,390,683 | ||||||||||||||||||||||||||
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Gross amount of recognized liabilities for securities lending transactions |
| $ | 131,390,683 | |||||||||||||||||||||||||||||||||
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6. Principal Risks
Investing in the Fund may involve certain risks including, but not limited to, those described below.
Equity Investments 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
41
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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
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. Conditions in the U.S. and many foreign economies have resulted, and may continue to result, in certain 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 some cases, traditional market participants have been less willing to make a market in some types of debt instruments, which has affected the liquidity of those instruments. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise and the yields to decline. Reduced liquidity in fixed income and credit markets may negatively affect many issuers worldwide. 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. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time.
In response to the financial crisis, the U.S. and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. In some countries where economic conditions are recovering, they are nevertheless perceived as still fragile. Withdrawal of government support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities. The severity or duration of adverse economic conditions may also be
42
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
affected by policy changes made by governments or quasi-governmental organizations, including changes in tax laws. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for some time. Regulatory changes are causing some financial services companies to exit long-standing lines of business, resulting in dislocations for other market participants. In addition, political and diplomatic events within the U.S. and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, the threat of a federal government shutdown and threats not to increase the federal government’s debt limit, may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. The U.S. government has recently reduced federal corporate income tax rates, and future legislative, regulatory and policy changes may result in more restrictions on international trade, less stringent prudential regulation of certain players in the financial markets, and significant new investments in infrastructure and national defense. Markets may react strongly to expectations about the changes in these policies, which could increase volatility, especially if the markets’ expectations for changes in government policies are not borne out.
Changes in market conditions will not have the same impact on all types of securities. 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 significant rate increase on various markets. For example, because investors may buy securities or other investments with borrowed money, a significant increase in interest rates may cause a decline in the markets for those investments. Because of the sharp decline in the worldwide price of oil, there is a concern that oil producing nations may withdraw significant assets now held in U.S. Treasuries, which could force a substantial increase in interest rates. Regulators have expressed concern that rate increases may cause investors to sell fixed income securities faster than the market can absorb them, contributing to price volatility. 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. If a country’s economy slips into a deflationary pattern, it could last for a prolonged period and may be difficult to reverse. The precise details and the resulting impact of the United Kingdom’s vote to leave the European Union (the “EU”), commonly referred to as “Brexit,” are not yet known. The effect on the United Kingdom’s economy will likely depend on the nature of trade relations with the EU and other major economies following its exit, which are matters to be negotiated. The outcomes may cause increased volatility and have a significant adverse impact on world financial markets, other international trade agreements, and the United Kingdom and European economies, as well as the broader global economy for some time, which could significantly adversely affect the value of the Fund’s investments in the United Kingdom and Europe.
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-advisor manages its allocated portion of the Fund independently from another sub-advisor, 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-advisor 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-advisor may believe that temporary, defensive investments in short-term instruments or cash are appropriate when another sub-advisor believes continued exposure to the equity or debt markets is appropriate for its allocated portion of the Fund. Because each sub-advisor 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.
43
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
Other Investment Companies Risk
The Fund may invest in shares of other registered investment companies, including ETFs and money market funds that are advised by the Manager. 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 those investment companies in addition to the Fund’s direct fees and expenses and will be subject to the risks associated with investments in those companies. 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. Borrowers of the Fund’s securities typically provide collateral in the form of cash that is reinvested in securities. The securities in which the collateral is invested may not perform sufficiently to cover the return collateral payments owed to borrowers. In addition, 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.
Sector Risk
Sector risk is the risk associated with a Fund holding a significant amount of investments in similar businesses, which would be similarly affected by particular economic or market events, which may, in certain circumstances, cause the value of the equity and debt securities of companies in a particular sector of the market to change.
To the extent a Fund invests in the financial services sector, the value of the Fund’s shares may be particularly vulnerable to factors affecting that sector, such as the availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, extensive government regulation and price competition. The value of a Fund’s shares could experience significantly greater volatility than investment companies investing more broadly.
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, 2018 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.
44
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
The tax character of distributions paid were as follows:
Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||
Distributions paid from: | ||||||||||||
Ordinary income* | ||||||||||||
Institutional Class | $ | 108,083,614 | $ | 47,650,547 | ||||||||
Y Class | 7,511,690 | 3,019,712 | ||||||||||
Investor Class | 11,549,809 | 4,155,527 | ||||||||||
Advisor Class | 1,566,030 | 585,244 | ||||||||||
A Class | 1,244,711 | 345,546 | ||||||||||
C Class | 245,106 | 8,272 | ||||||||||
R6 Class | 8,023,251 | - | ||||||||||
Long-term capital gains | ||||||||||||
Institutional Class | 375,907,244 | 119,287,042 | ||||||||||
Y Class | 26,964,201 | 8,095,815 | ||||||||||
Investor Class | 47,136,699 | 15,364,261 | ||||||||||
Advisor Class | 7,148,816 | 2,863,390 | ||||||||||
A Class | 5,171,162 | 1,438,729 | ||||||||||
C Class | 1,152,927 | 335,845 | ||||||||||
R6 Class | 27,490,528 | - | ||||||||||
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Total distributions paid | $ | 629,195,788 | $ | 203,149,930 | ||||||||
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* For tax purposes, short-term gains are considered ordinary income distributions.
As of October 31, 2018, 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 | $ | 6,230,459,556 | $ | 931,254,035 | $ | (484,958,184 | ) | $ | 446,295,851 |
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 | $ | 446,295,851 | $ | 114,315,282 | $ | 605,416,283 | $ | - | $ | - | $ | 1,166,027,416 |
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 investments in real estate investment securities and publicly traded partnerships, and the realization for tax purposes of unrealized gains from 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 tax-exempt interest and nondeductible expenses from investments in publicly traded partnerships as of October 31, 2018:
Fund | Paid-In-Capital | Distributable Earnings/(Loss) | ||||||||||
Small Cap Value | $ | (21,498 | ) | $ | 21,498 |
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, 2018, the Fund did not have any capital loss carryforwards.
45
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, 2018 were as follows:
Fund | Purchases (non-U.S. Government Securities) | Sales (non-U.S. Government Securities) | ||||||||||
Small Cap Value | $ | 4,770,097,692 | $ | 5,036,536,201 |
A summary of the Fund’s transactions in the USG Select Fund for the year ended October 31, 2018 were as follows:
Fund | Type of Transaction | October 31, 2017 Shares/Fair Value | Purchases | Sales | October 31, 2018 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
Small Cap Value | Direct | $ | 209,651,676 | $ | 1,796,299,120 | $ | 1,774,604,092 | $ | 231,346,704 | $ | 3,764,704 | |||||||||||||||||||||||||||||||
Small Cap Value | Securities Lending | 236,088,074 | 962,181,494 | 1,066,878,885 | 131,390,683 | 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.
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
46
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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 | $ | 126,252,889 | $ | 131,390,683 | $ | - | $ | 131,390,683 |
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. Borrowing Arrangements
Effective November 16, 2017, the Fund, along with certain other funds managed by the Manager (“Participating Funds”), entered into a committed revolving line of credit (the “Committed Line”) agreement with State Street Bank and Trust Company (the “Bank”) to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Committed Line is $50 million with interest at a rate equal to the higher of (a) one-month London Inter-Bank Offered Rate (“LIBOR”) plus 1.25% per annum or (b) the Federal Funds rate plus 1.25% per annum on amounts borrowed. Each of the Participating Funds will pay a commitment fee at a rate of 0.25% per annum on the unused portion of the Committed Line amount. The Committed Line expires November 15, 2018, unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
Effective November 16, 2017, the Fund, along with certain other Participating Funds managed by the Manager, entered into an uncommitted discretionary demand revolving line of credit (the “Uncommitted Line”) agreement with the Bank to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Uncommitted Line is $50 million with interest at a rate equal to the higher of (a) one-month LIBOR plus 1.25% per annum or (b) the Federal Funds rate. The Uncommitted Line expires November 15, 2018 unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
The Participating Funds paid administration, legal and arrangement fees, which are recognized as a component of “Other expenses” on the Statement of Operations, along with commitment fees, that have been allocated among the Participating Funds based on average daily net assets.
During the year ended October 31, 2018, the Fund did not utilize this facility.
47
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
11. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Fund:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 28,795,136 | $ | 813,629,911 | 49,422,685 | $ | 1,376,685,742 | ||||||||||||||||||||||
Reinvestment of dividends | 16,834,084 | 466,809,134 | 5,798,690 | 161,493,508 | ||||||||||||||||||||||||
Shares redeemed | (56,760,794 | ) | (1,614,754,138 | ) | (61,608,781 | ) | (1,720,366,623 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (11,131,574 | ) | $ | (334,315,093 | ) | (6,387,406 | ) | $ | (182,187,373 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 4,344,937 | $ | 121,072,021 | 5,596,098 | $ | 152,304,889 | ||||||||||||||||||||||
Reinvestment of dividends | 1,202,236 | 32,893,173 | 377,530 | 10,385,850 | ||||||||||||||||||||||||
Shares redeemed | (5,295,216 | ) | (145,505,953 | ) | (5,257,927 | ) | (143,345,782 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 251,957 | $ | 8,459,241 | 715,701 | $ | 19,344,957 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 3,480,761 | $ | 95,354,068 | 5,842,502 | $ | 156,520,663 | ||||||||||||||||||||||
Reinvestment of dividends | 2,130,538 | 56,927,968 | 705,910 | 19,003,095 | ||||||||||||||||||||||||
Shares redeemed | (7,367,883 | ) | (200,093,625 | ) | (9,608,715 | ) | (256,230,663 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,756,584 | ) | $ | (47,811,589 | ) | (3,060,303 | ) | $ | (80,706,905 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 690,534 | $ | 18,573,884 | 1,009,536 | $ | 26,701,726 | ||||||||||||||||||||||
Reinvestment of dividends | 330,358 | 8,714,846 | 129,599 | 3,448,634 | ||||||||||||||||||||||||
Shares redeemed | (1,403,591 | ) | (37,945,197 | ) | (2,369,756 | ) | (62,775,350 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (382,699 | ) | $ | (10,656,467 | ) | (1,230,621 | ) | $ | (32,624,990 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,187,223 | $ | 32,064,750 | 1,059,496 | $ | 27,970,034 | ||||||||||||||||||||||
Reinvestment of dividends | 241,813 | 6,345,165 | 66,206 | 1,754,460 | ||||||||||||||||||||||||
Shares redeemed | (1,004,403 | ) | (26,949,383 | ) | (1,591,955 | ) | (41,214,901 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 424,633 | $ | 11,460,532 | (466,253 | ) | $ | (11,490,407 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 94,040 | $ | 2,432,559 | 226,407 | $ | 5,808,095 | ||||||||||||||||||||||
Reinvestment of dividends | 53,040 | 1,339,793 | 11,793 | 303,207 | ||||||||||||||||||||||||
Shares redeemed | (144,241 | ) | (3,717,938 | ) | (203,109 | ) | (5,189,248 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 2,839 | $ | 54,414 | 35,091 | $ | 922,054 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
48
American Beacon Small Cap Value FundSM
Notes to Financial Statements
October 31, 2018
R6 Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Small Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 26,568,807 | $ | 758,695,266 | 10,184,651 | $ | 295,604,089 | ||||||||||||||||||||||
Reinvestment of dividends | 1,281,161 | 35,513,778 | - | - | ||||||||||||||||||||||||
Shares redeemed | (3,354,657 | ) | (94,064,119 | ) | (160,657 | ) | (4,684,883 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 24,495,311 | $ | 700,144,925 | 10,023,994 | $ | 290,919,206 | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
12. Subsequent Events
Effective November 15, 2018, the Fund, along with certain other funds managed by the Manager, entered into a committed revolving line of credit with a max borrowing amount of $250 million.
Management has evaluated additional 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.
49
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016A | 2015 | 2014B | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 29.51 | $ | 24.36 | $ | 24.69 | $ | 27.80 | $ | 28.04 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.21 | 0.17 | 0.23 | 0.24 | 0.17 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.94 | ) | 5.83 | 0.79 | 0.02 | 2.18 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (0.73 | ) | 6.00 | 1.02 | 0.26 | 2.35 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.15 | ) | (0.23 | ) | (0.20 | ) | (0.19 | ) | (0.14 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.64 | ) | (0.85 | ) | (1.35 | ) | (3.37 | ) | (2.59 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 26.14 | $ | 29.51 | $ | 24.36 | $ | 24.69 | $ | 27.80 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (2.96 | )% | 24.80 | % | 4.58 | % | 0.87 | % | 8.78 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 4,604,864,422 | $ | 5,527,380,111 | $ | 4,717,291,753 | $ | 4,313,522,956 | $ | 4,002,884,144 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.80 | % | 0.82 | % | 0.83 | % | 0.81 | % | 0.80 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.80 | % | 0.82 | % | 0.83 | % | 0.81 | % | 0.80 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.66 | % | 0.58 | % | 1.01 | % | 0.99 | % | 0.67 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.66 | % | 0.58 | % | 1.01 | % | 0.99 | % | 0.67 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 48 | % | 53 | % | 47 | % | 73 | % |
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 Partners, LLC. |
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
50
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016A | 2015 | 2014B | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 29.13 | $ | 24.06 | $ | 24.41 | $ | 27.52 | $ | 27.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.17 | 0.12 | 0.23 | 0.23 | 0.18 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.90 | ) | 5.78 | 0.76 | 0.01 | 2.12 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (0.73 | ) | 5.90 | 0.99 | 0.24 | 2.30 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.14 | ) | (0.21 | ) | (0.19 | ) | (0.17 | ) | (0.14 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.63 | ) | (0.83 | ) | (1.34 | ) | (3.35 | ) | (2.59 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 25.77 | $ | 29.13 | $ | 24.06 | $ | 24.41 | $ | 27.52 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (3.03 | )% | 24.70 | % | 4.49 | % | 0.79 | % | 8.67 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 342,125,601 | $ | 379,409,116 | $ | 296,082,333 | $ | 251,360,287 | $ | 190,416,114 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.87 | % | 0.90 | % | 0.90 | % | 0.90 | % | 0.89 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.87 | % | 0.90 | % | 0.90 | % | 0.90 | % | 0.89 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.59 | % | 0.50 | % | 0.94 | % | 0.90 | % | 0.58 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.59 | % | 0.50 | % | 0.94 | % | 0.90 | % | 0.58 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 48 | % | 53 | % | 47 | % | 73 | % |
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 Partners, LLC. |
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
51
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016A | 2015 | 2014B | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 28.46 | $ | 23.52 | $ | 23.86 | $ | 26.96 | $ | 27.27 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.11 | 0.11 | 0.19 | 0.18 | 0.10 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.89 | ) | 5.60 | 0.73 | (0.02 | ) | 2.09 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (0.78 | ) | 5.71 | 0.92 | 0.16 | 2.19 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.07 | ) | (0.15 | ) | (0.11 | ) | (0.08 | ) | (0.05 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.56 | ) | (0.77 | ) | (1.26 | ) | (3.26 | ) | (2.50 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 25.12 | $ | 28.46 | $ | 23.52 | $ | 23.86 | $ | 26.96 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (3.28 | )% | 24.43 | % | 4.27 | % | 0.50 | % | 8.40 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 538,602,473 | $ | 660,241,571 | $ | 617,552,712 | $ | 723,044,801 | $ | 851,731,763 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.13 | % | 1.12 | % | 1.14 | % | 1.15 | % | 1.16 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.13 | % | 1.12 | % | 1.14 | % | 1.15 | % | 1.16 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.33 | % | 0.27 | % | 0.70 | % | 0.67 | % | 0.33 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.33 | % | 0.27 | % | 0.70 | % | 0.67 | % | 0.33 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 48 | % | 53 | % | 47 | % | 73 | % |
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 Partners, LLC. |
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
52
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Advisor ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016B | 2015 | 2014C | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 28.09 | $ | 23.22 | $ | 23.60 | $ | 26.69 | $ | 27.06 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.06 | 0.03 | 0.12 | 0.13 | 0.06 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.88 | ) | 5.57 | 0.73 | 0.01 | 2.07 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (0.82 | ) | 5.60 | 0.85 | 0.14 | 2.13 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.01 | ) | (0.11 | ) | (0.08 | ) | (0.05 | ) | (0.05 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.50 | ) | (0.73 | ) | (1.23 | ) | (3.23 | ) | (2.50 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 24.77 | $ | 28.09 | $ | 23.22 | $ | 23.60 | $ | 26.69 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnD | (3.44 | )% | 24.26 | % | 4.01 | % | 0.41 | % | 8.22 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 77,578,775 | $ | 98,718,359 | $ | 110,205,158 | $ | 98,224,328 | $ | 102,681,998 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.28 | % | 1.30 | % | 1.31 | % | 1.31 | % | 1.29 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.28 | % | 1.30 | % | 1.31 | % | 1.31 | % | 1.29 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.18 | % | 0.11 | % | 0.53 | % | 0.51 | % | 0.18 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.18 | % | 0.11 | % | 0.53 | % | 0.51 | % | 0.18 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 48 | % | 53 | % | 47 | % | 73 | % |
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 Partners, LLC. |
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
53
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016A | 2015 | 2014B | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 27.99 | $ | 23.14 | $ | 23.54 | $ | 26.63 | $ | 27.03 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.07 | 0.07 | 0.15 | 0.13 | 0.11 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.86 | ) | 5.53 | 0.73 | 0.02 | 2.03 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (0.79 | ) | 5.60 | 0.88 | 0.15 | 2.14 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.06 | ) | (0.13 | ) | (0.13 | ) | (0.06 | ) | (0.09 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.55 | ) | (0.75 | ) | (1.28 | ) | (3.24 | ) | (2.54 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 24.65 | $ | 27.99 | $ | 23.14 | $ | 23.54 | $ | 26.63 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (3.37 | )% | 24.36 | % | 4.17 | % | 0.45 | % | 8.30 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 66,380,615 | $ | 63,481,305 | $ | 63,277,387 | $ | 54,815,183 | $ | 29,569,753 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupments | 1.20 | % | 1.20 | % | 1.21 | % | 1.21 | % | 1.27 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupments | 1.20 | % | 1.20 | % | 1.21 | % | 1.22 | % | 1.27 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupments | 0.25 | % | 0.20 | % | 0.64 | % | 0.56 | % | 0.19 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupments | 0.25 | % | 0.20 | % | 0.64 | % | 0.54 | % | 0.20 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 48 | % | 53 | % | 47 | % | 73 | % |
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 Partners, LLC. |
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
54
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016A | 2015 | 2014B | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 26.98 | $ | 22.39 | $ | 22.84 | $ | 26.05 | $ | 26.60 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income (loss) | (0.08 | ) | (0.14 | ) | (0.02 | ) | 0.03 | (0.07 | ) | |||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.81 | ) | 5.35 | 0.72 | (0.06 | ) | 1.97 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (0.89 | ) | 5.21 | 0.70 | (0.03 | ) | 1.90 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Distributions from net realized gains | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (2.49 | ) | (0.62 | ) | (1.15 | ) | (3.18 | ) | (2.45 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 23.60 | $ | 26.98 | $ | 22.39 | $ | 22.84 | $ | 26.05 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (3.89 | )% | 23.39 | % | 3.42 | % | (0.31 | )% | 7.46 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 13,480,297 | $ | 15,335,554 | $ | 11,938,196 | $ | 11,718,580 | $ | 9,676,368 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupments | 1.86 | % | 1.96 | % | 1.96 | % | 1.97 | % | 2.03 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupments | 1.76 | % | 1.96 | % | 1.96 | % | 1.98 | % | 2.03 | % | ||||||||||||||||||||||||||
Net investment (loss), before expense reimbursements or recoupments | (0.41 | )% | (0.58 | )% | (0.12 | )% | (0.17 | )% | (0.56 | )% | ||||||||||||||||||||||||||
Net investment (loss), net of reimbursements or recoupments | (0.31 | )% | (0.58 | )% | (0.12 | )% | (0.17 | )% | (0.56 | )% | ||||||||||||||||||||||||||
Portfolio turnover rate | 69 | % | 48 | % | 53 | % | 47 | % | 73 | % |
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 Partners, LLC. |
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
55
American Beacon Small Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||||||||||
Year Ended October 31, 2018 | February 28, 2017A to October 31, 2017 | |||||||||||
|
| |||||||||||
Net asset value, beginning of period | $ | 29.51 | $ | 28.03 | ||||||||
|
|
|
| |||||||||
Income (loss) from investment operations: | ||||||||||||
Net investment income | 0.22 | – | B | |||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.94 | ) | 1.48 | |||||||||
|
|
|
| |||||||||
Total income (loss) from investment operations | (0.72 | ) | 1.48 | |||||||||
|
|
|
| |||||||||
Less distributions: | ||||||||||||
Dividends from net investment income | (0.16 | ) | - | |||||||||
Distributions from net realized gains | (2.49 | ) | - | |||||||||
|
|
|
| |||||||||
Total distributions | (2.65 | ) | - | |||||||||
|
|
|
| |||||||||
Net asset value, end of period | $ | 26.14 | $ | 29.51 | ||||||||
|
|
|
| |||||||||
Total returnC | (2.93 | )% | 5.28 | %D | ||||||||
|
|
|
| |||||||||
Ratios and supplemental data: |
| |||||||||||
Net assets, end of period | $ | 902,241,051 | $ | 295,802,679 | ||||||||
Ratios to average net assets: | ||||||||||||
Expenses, before reimbursements | 0.77 | % | 0.80 | %E | ||||||||
Expenses, net of reimbursements | 0.77 | % | 0.80 | %E | ||||||||
Net investment income (loss), before expense reimbursements | 0.66 | % | (0.04 | )%E | ||||||||
Net investment income (loss), net of reimbursements | 0.66 | % | (0.04 | )%E | ||||||||
Portfolio turnover rate | 69 | % | 48 | %F |
A | Commencement of operations. |
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. |
D | Not annualized. |
E | Annualized. |
F | Portfolio turnover rate is for the period from February 28, 2017 through October 31, 2017 and is not annualized. |
See accompanying notes
56
Federal Tax Information
October 31, 2018 (Unaudited)
Certain tax information regarding the Funds are required to be provided to shareholders based upon the Fund’s income and distributions for the taxable year ended October 31, 2018. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2018.
The Fund designated the following items with regard to distributions paid during the fiscal year ended October 31, 2018. 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:
Small Cap Value | 50.02 | % |
Qualified Dividend Income:
Small Cap Value | 53.34 | % |
Long-Term Capital Gain Distributions:
Small Cap Value | $ | 490,971,577 |
Short-Term Capital Gain Distributions:
Small Cap Value | $ | 104,377,716 |
Shareholders will receive notification in January 2019 of the applicable tax information necessary to prepare their 2018 income tax returns.
57
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 18, 2018 and June 5-6, 2018 (collectively, the “Meetings”), the Board of Trustees (“Board” or “Trustees”) considered and then, at its June 6, 2018 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager”) and the American Beacon Funds (“Trust”), on behalf of the American Beacon Small Cap Value Fund (“Fund”); and
(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 BNY Mellon Asset Management North America Corp. (“BNY Mellon”) (each, a “subadvisor” and collectively, 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, or derived from, 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 the subadvisors.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge 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 to the Board 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 from Broadridge, and to the performance of any 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 from Broadridge, 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 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 |
58
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 each type of service and observed that, with respect to such mutual funds, 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 investment advisory contracts, such as the Agreements. 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 relationships 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; 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 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.
59
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
With respect to the renewal of the Investment Advisory Agreements, the Board 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 indices, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding Broadridge’s independent methodology for selecting the Fund’s Broadridge performance universe. The Board also considered that the performance universes 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 similar accounts or a composite of similar 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 Manager earning a profit before and after the payment of distribution-related expenses by the Manager. 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 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 further considered that, with respect to the Fund, the applicable 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 representations made by Barrow, Brandywine, Foundry, Hillcrest and Hotchkis that the Fund’s subadvisory fee rate schedule for each such firm is favorable compared to other comparable client accounts of that firm, and representations made by BNY Mellon that, for fee comparison purposes, it does not manage any comparable client accounts, and therefore could not provide fee schedules for comparable investment accounts managed by BNY Mellon. 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 the subadvisors may not account for their profits on an account-by-account basis and that different firms likely employ different methodologies in connection with these calculations.
60
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 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.
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 Barrow, Brandywine, Foundry Hotchkis and BNY Mellon benefit 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 Fund appear to be fair and reasonable.
Additional Considerations and Conclusions with Respect to the Fund
The performance comparisons below were made in comparison to 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.
In reviewing the performance, the Trustees viewed longer-term performance over a full market cycle as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events and not necessarily reflective of manager skill.
The expense comparisons below were made in comparison to 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. 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. 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 subadvisors’ use of soft dollars was requested from the Manager and was considered by the Trustees.
61
Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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 |
Broadridge and Morningstar Performance Analysis (five-year period ended December 31, 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 BNY Mellon, 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 ended December 31, 2017)
Barrow (Fundamental Strategy) | 5 Years | 1 | st Quintile | |||||
Barrow (Diversified Strategy)* | 3 Years | 3 | rd Quintile | |||||
Brandywine | 5 Years | 1 | st Quintile | |||||
Foundry | 5 Years | 1 | st Quintile | |||||
Hillcrest* | 3 Years | 3 | rd Quintile | |||||
Hotchkis (Fundamental Strategy) | 5 Years | 1 | st Quintile | |||||
BNY Mellon | 5 Years | 2 | nd Quintile | |||||
* Does not yet have a 5-year performance record. |
The Trustees also considered: (1) that the three-year period was not long enough to fully evaluate the performance of the Barrow Diversified Strategy and Hillcrest and that the Manager was closely monitoring this performance; (2) information provided by each subadvisor, other than BNY Mellon, regarding fee rates charged for managing accounts in the same strategy as the subadvisor manages its allocation of the Fund; (3) BNY Mellon’s representation that it manages no other non-insurance registered investment company accounts in the same strategy as the subadvisor manages its 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 Management and Investment Advisory 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.
62
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-seven funds in the fund complex that includes the Trust, the American Beacon Select Funds, the American Beacon Institutional Funds Trust, the American Beacon Sound Point Enhanced Income Fund, and the American Beacon Apollo Total Return Fund. 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** (81) | Trustee since 1996 | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (48) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Joseph B. Armes (56) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Gerard J. Arpey (60) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
63
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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Brenda A. Cline (57) | Trustee since 2004 Vice Chair since 2018 | Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Trustee, Cushing Closed-End Funds (2017-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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Eugene J. Duffy (64) | Trustee since 2008 | Managing Director, Global Investment Management Distribution, Mesirow Financial (2016-Present); 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Claudia A. Holz*** (61) | Trustee since 2018 | Partner, KPMG LLP (1990-2017); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Douglas A. Lindgren**** (56) | Trustee since 2018 | CEO North America, Carne Global Financial Services (2016-2017); Managing Director, IPS Investment Management and Global Head, Content Management, UBS Wealth Management (2010-2016); Managing Director, P&S Hedge Funds, UBS Wealth Management (2008-2010); Managing Director, Head of Alternative Investments, UBS Financial Services, Inc. (2005-2008); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Richard A. Massman (75) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Barbara J. McKenna, CFA (55) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
64
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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
R. Gerald Turner (72) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (63) | President since 2009 | CEO and Director (2009-Present), and Chairman (2018-Present), American Beacon Advisors, Inc.; President, American Beacon Advisors (2009-2018); Chairman and CEO, Resolute Investment Managers, Inc. (2015-Present); Director, Chairman, President and CEO, Resolute Investment Distributors (2017-Present); Director, Chairman and CEO; Resolute Investment Services, Inc. (2015-Present); Director, Resolute Acquisition, Inc. (2015-Present); President (2015-2018), Director, Resolute Topco, Inc. (2015-Present), President (2015-2018), CEO (2015-Present), and Chairman (2018-Present), Resolute Investment Holdings, LLC; President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President, 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); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-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); President, American Beacon Sound Point Enhanced Income Fund (2018-Present); President, American Beacon Apollo Total Return Fund (2018-Present). |
65
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 | |||
One Year | ||||
Rosemary K. Behan (59) | 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); Vice President, Secretary and General Counsel, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015-Present); Vice President, Secretary and General Counsel, Resolute Investment Services, 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); Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Secretary, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Secretary, Resolute Investment Distributors, Inc. (2017-Present); Vice President and Secretary, Continuous Capital, LLC (2018-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); Vice Chief Legal Officer, Vice President and Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Legal Officer, Vice President and Secretary American Beacon Apollo Total Return Fund (2018-Present). | ||
Brian E. Brett (58) | VP since 2004 | Senior Vice President, Head of Distribution (2012-Present) and Vice President, Director of Sales (2004-2012), American Beacon Advisors, Inc.; Senior Vice President, Resolute Investment Distributors, Inc. (2017-Present) and Vice President (2017-2018); 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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Paul B. Cavazos (49) | VP since 2016 | Chief Investment Officer and Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer, DTE Energy (2007-2016); Vice President, American Private Equity Management, L.L.C. (2017-Present) Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Erica Duncan (48) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, Resolute Investment Managers (2015-Present); Vice President, Resolute Investment Services, Inc. (2015-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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). |
66
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 | |||
One Year | ||||
Melinda G. Heika (57) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present) and Chief Financial Officer (2010-Present); Treasurer and Chief Financial Officer, 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 and Chief Financial Officer, Resolute Investment Services, Inc. (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 and Chief Financial Officer, Alpha Quant Advisors, LLC (2016-Present); Treasurer, American Beacon Cayman Transformational Innovation, Ltd. (2017-Present); Treasurer, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Treasurer, Resolute Investment Distributors, Inc. (2017-2017); Treasurer and Chief Financial Officer, Continuous Capital, LLC (2018-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); Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Terri L. McKinney (54) | 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, Resolute Investment Services, Inc (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). |
67
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 | |||
One Year | ||||
Jeffrey K. Ringdahl (43) | VP since 2010 | Chief Operating Officer (2010-Present), Vice President (2010-2013), Senior Vice President (2013-Present), Director (2015-Present), and President (2018-Present), American Beacon Advisors, Inc.; Senior Vice President (2018-Present), Vice President (2012-2018) and Manager (2015-2018), 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 (2015-Present), Senior Vice Present (2015-2018), and President (2018-Present), Resolute Investment Holdings, LLC; Director (2015-Present), Senior Vice President (2015-2018) and President (2018-Present), Resolute Topco, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Acquisition, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Investment Managers, Inc.; Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Director (2017-Present), Executive Vice President (2017-2018), and President and Chief Operating Officer (2018-Present), Resolute Investment Services, Inc.; Director and Executive Vice President, Resolute Investment Distributors, Inc. (2017-Present); Director, Shapiro Capital Management, LLC (2017-Present); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Director, Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present) | ||
Samuel J. Silver (55) | 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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). | ||
Christina E. Sears (47) | 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); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Distributors (2017-Present); Vice President, Continuous Capital, LLC (2018-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); Chief Compliance Officer and Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Compliance Officer and Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
68
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 | |||
One Year | ||||
Sonia L. Bates (61) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-2018); Assistant Treasurer, Resolute Acquisition, Inc. (2015-2018); Assistant. Treasurer, Resolute Topco, Inc. (2015-2018); Assistant Treasurer, Resolute Investment Holdings, LLC. (2015-2018); 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 Cayman Transformational Innovation Company, Ltd. (2017-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); Assistant Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Shelley D. Abrahams (43) | Assistant Secretary since 2008 | 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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Rebecca L. Harris (51) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Services (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Diana N. Lai (42) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Teresa A. Oxford (60) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Resolute Investment Distributors (2018-Present); Assistant Secretary, Resolute Investment Services (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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
* As of 11/12/2014, the Board adopted a retirement plan that requires Trustees, other than Messrs. Feld and Massman 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.
*** Claudia A. Holz became a new Trustee to each of the Trusts on 4/1/2018.
**** Douglas A. Lindren became a new Trustee to each of the Trusts on 1/1/2018.
69
American Beacon FundsSM
October 31, 2018 (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. 20549-1520. 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 DST Asset Manager Solutions, Inc. Quincy, Massachusetts | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Resolute Investment Distributors, Inc. Irving, Texas |
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 10/18
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, 2018 |
Contents
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Disclosure Regarding Approvals of the Management and Investment Advisory Agreements | 80 | |||
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| Back Cover |
![]() | Dear Shareholders,
Long-term investing isn’t about identifying and anticipating the next big market move. It’s about identifying the right investment products for riding out those moves. As a long-term investor, you should strive to accomplish the three Ds: direction, discipline and diversification.
u Direction: Achieving your long-term financial goals requires an individualized plan of action. You may want your plan to provide some measure of protection against periods of geopolitical turmoil, economic uncertainty, market volatility and job insecurity. Your plan should be reviewed annually and be adjusted in the event your long-range needs change. |
u | Discipline: Long-term, systematic participation in an investment portfolio requires your resolution to stay the course. Spending time in the market – rather than trying to time the market – may place you in a better position to reach your long-term financial goals. |
u | Diversification: By investing in different types of investment categories and asset classes, you may be able to help mitigate financial risks across your investment portfolio. By allocating your investment portfolio according to your risk-tolerance level, you may be better positioned to weather storms and achieve your long-term financial goals. |
Since 1986, American Beacon has endeavored to provide investors with a disciplined approach to realizing long-term financial goals. As a manager of managers, we strive to provide investment products that may enable investors to participate during market upswings while potentially insulating against market downswings. Our approach is more than a concept. It’s the cornerstone of our culture. And we strive to apply it at every turn as we seek to provide a well-diversified line of investment products for your investment portfolio.
Many of the sub-advisors to our mutual funds pursue upside capture and/or downside protection using proprietary strategies. The investment teams behind our mutual funds seek to produce consistent, long-term results rather than focus only on short-term movements in the markets. In managing our investment products, we emphasize identifying opportunities that offer the potential for long-term rewards.
Thank you for your continued interest in American Beacon. For additional information about our investment products 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, 2018 (Unaudited)
Domestic Bond Market Overview
Over the past 12 months, the Federal Reserve (the “Fed”) continued on the path of removing monetary stimulus from the economic system by raising the target federal funds rate four times, a quarter percentage point each, taking the rate from a range of 1.00% to 1.25% to a range of 2.00% to 2.25%. The Fed also increased its balance-sheet reduction program as planned. Given these moves, monetary policy was no longer characterized as “accommodative” by the Federal Open Market Committee in its official September release. However, during the press conference, Chairman Jerome H. Powell stated the change in language did not indicate “any change in the likely path of policy.” In the U.S. economy, despite the ongoing trade war with China, consumer confidence surged to its highest level since the year 2000, and small-business optimism reached an all-time high. Additionally, the third-quarter gross domestic product was 3.50%, and inflation remained around the Fed’s target of 2.00%.
Given the reduction in monetary stimulus and strong economic data, interest rates rose, and the yield curve flattened during the past 12 months. The 10-year Treasury yield rose 77 basis points (+0.77%) to 3.15% at period end. The two-year Treasury yield increased 127 basis points (+1.27%) to 2.87%, and the 30-year Treasury yield increased 51 basis points (+0.51%) to 3.39%. These moves caused the two- to 30-year Treasury yield spread to flatten by 76 basis points (-0.76%) to 0.52%.
As interest rates rose, bond prices declined, leading to a total return of -2.05% for the Bloomberg Barclays U.S. Aggregate Bond Index (the “Index”) over the past 12 months. Credit risk was generally out of favor over the period as three of the four credit sectors posted a negative excess return. The Corporate sector was the worst performer with -47 basis points (-0.47%) of excess return relative to similar-duration Treasury securities. The Mortgage-Backed Securities and Agency sectors followed with -23 basis points (-0.23%) and -9 basis points (-0.09%), respectively. The lone bright spot was the Asset-Backed Securities sector with 34 basis points (0.34%) of excess return relative to similar-duration Treasuries. Thus, the Index had a negative return of -17 basis points (-0.17%) for the period.
Domestic Equity Market Overview
For the year ended October 31, 2018, the broad market S&P 500® Index (the “Index”) and the Dow Jones Industrial Average gained 7.35% and 9.87%, respectively. From a style perspective, Growth significantly outperformed Value across all market caps, according to the Russell® Indexes. In terms of size, it went from largest to smallest with large caps as the best performers, followed by mid-caps and small caps.
The following table illustrates various Russell Index returns according to size and style.
12-Month Period Ended October 31, 2018
Large Caps | 1 Year | |||
Russell 1000 Index | 6.98 | % | ||
Russell 1000 Growth Index | 10.71 | % | ||
Russell 1000 Value Index | 3.04 | % | ||
Mid-Caps | 1 Year | |||
Russell Midcap Index | 2.80 | % | ||
Russell Midcap Growth Index | 6.14 | % | ||
Russell Midcap Value Index | 0.16 | % | ||
Small Caps | 1 Year | |||
Russell 2000 Index | 1.85 | % | ||
Russell 2000 Growth Index | 4.13 | % | ||
Russell 2000 Value Index | (0.59 | )% |
2
Domestic Bond and Domestic Equity Market Overviews
October 31, 2018 (Unaudited)
Although these returns may appear to be run of the mill, they are not. The 2017 calendar year ended on a strong note, riding on the wave of the Trump administration’s pro-growth policies and the Fed’s cautious navigation of the path to normalized interest rates. Short-volatility traders and cryptocurrencies were still all the rage. Unfortunately, 2018 came with a vengeance. By March of 2018, the short-volatility trade was literally wiped out and many cryptocurrencies lost value from previous-year highs. As market participants wondered how bad things would get, a shot of strong gross domestic product (“GDP”) growth in the second quarter of 2018 pushed markets higher through August. The last few months of the period under review witnessed the return of volatility as the rhetoric of a trade war heightened, economic growth forecasts declined, Capitol Hill gridlock following the mid-term elections dampened the potential for pro-growth policy, and the likelihood of continued rate hikes made investors nervous.
Looking more closely at the markets’ returns, a small subset of sectors accounted for most of the gains. For example, the Index derived more than 80% of its return from the Technology sector (315 basis points, or 3.15%), the Consumer Discretionary sector (146 basis points, or 1.46%) and the Health Care sector (144 basis points, or 1.44%), which comprise about 44% of the Index. The remaining eight sectors underperformed the Index. Similar trends also occurred in mid-caps and small caps; however, not to this degree. A narrow market is not uncommon as bull markets move into their later stages. For example, on August 22, 2018, the current bull market became the longest one in history, eclipsing the bull run in the 1990s.
The present bull market has been powered by slow and steady growth. In the last 12 months, the economy continued to be a bright spot. Third-quarter real GDP was up 3.5% (seasonally adjusted annual rate) on top of the strong 4.2% gain in the second quarter. In addition, the unemployment rate is near 50-year lows. Inflation, while rising, is still in an acceptable range, and the U.S. dollar is strong. All these factors contributed to the strong market returns and allowed the Fed to implement three rate hikes in 2018, with another expected in December.
Despite the favorable factors, the U.S. equity markets ended the 12-month period in a slump. Fear overwhelmed investors as the markets corrected. The markets sit at the crossroads of correction and a bear market – with risks of trade wars, slower growth and interest-rate hikes balanced by low unemployment, subdued inflation, and equity valuations near long-term averages.
3
American Beacon Balanced FundSM
Performance Overview
October 31, 2018 (Unaudited)
The Investor Class of the American Beacon Balanced Fund (the “Fund”) returned 0.62% for the twelve months ended October 31, 2018, underperforming the 60% Russell 1000® Value Index/40% Bloomberg Barclays U.S. Aggregate Bond Index (“Balanced Composite Index”) return of 1.08% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/2008 through 10/31/2018
Total Returns for the Period ended October 31, 2018 |
| |||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2018 | |||||||||||||||||||||||||||
Institutional Class (1,7) | AADBX | 0.84 | % | 6.46 | % | 6.03 | % | 9.53 | % | $ | 24,849 | |||||||||||||||||||||
Y Class (1,2,7) | ACBYX | 0.88 | % | 6.46 | % | 6.00 | % | 9.47 | % | $ | 24,705 | |||||||||||||||||||||
Investor Class (1,7) | AABPX | 0.62 | % | 6.13 | % | 5.70 | % | 9.18 | % | $ | 24,065 | |||||||||||||||||||||
Advisor Class (1,7) | ABLSX | 0.49 | % | 5.97 | % | 5.52 | % | 9.00 | % | $ | 23,675 | |||||||||||||||||||||
A Class without sales charge (1,3,7) | ABFAX | 0.73 | % | 6.12 | % | 5.65 | % | 9.10 | % | $ | 23,895 | |||||||||||||||||||||
A Class with sales charge (1,3,7) | ABFAX | (5.04 | )% | 4.05 | % | 4.41 | % | 8.46 | % | $ | 22,531 | |||||||||||||||||||||
C Class without sales charge (1,4,7) | ABCCX | 0.04 | % | 5.34 | % | 4.87 | % | 8.43 | % | $ | 22,462 | |||||||||||||||||||||
C Class with sales charge (1,4,7) | ABCCX | (0.96 | )% | 5.34 | % | 4.87 | % | 8.43 | % | $ | 22,462 | |||||||||||||||||||||
Bloomberg Barclays U.S. Aggregate Bond Index (6) | (2.05 | )% | 1.04 | % | 1.83 | % | 3.94 | % | $ | 14,715 | ||||||||||||||||||||||
Russell 1000® Value Index (6) | 3.03 | % | 8.88 | % | 8.61 | % | 11.30 | % | $ | 29,170 | ||||||||||||||||||||||
Balanced Composite Index (5) | 1.08 | % | 5.80 | % | 5.99 | % | 8.59 | % | $ | 22,794 |
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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only; and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. |
2. | Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 10/31/08 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 |
4
American Beacon Balanced FundSM
Performance Overview
October 31, 2018 (Unaudited)
may be higher than they would have been had the Y Class been in existence since 10/31/08. 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. |
3. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/08 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 10/31/08. 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 10/31/08 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 10/31/08. A portion of the fees charged to the C Class of the Fund 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. 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 U.S. Aggregate Bond 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 U.S. Aggregate Bond 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 ratios set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, and C Class shares were 0.60%, 0.69%, 0.90%, 1.09%, 1.00%, and 1.74%, 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 65% in equities (including equitized cash) and 35% in fixed-income securities.
The equity portion of the Fund (excluding equitized cash) returned 2.27% for the period, underperforming the Russell 1000 Value Index (the “Index”) return of 3.03%. The Fund underperformed the Index as both sector allocation and stock selection detracted value relative to the Index.
Stock selection in the Financials and Industrials sectors contributed the majority of the underperformance during the twelve-month period. In the Financials sector, American International Group (down 34.89%) lost value, followed by Citigroup, Inc., which fell 8.42%. In the Industrials sector, the Fund’s position in Johnson Controls International (down 19.45%) and Macquarie Infrastructure Corp., (down 37.70%) were the biggest detractors. Within Energy, positions in ConocoPhillips (up 39.04%) and BP PLC, Sponsored ADR (up 12.81%) both had positive impacts on performance.
The Fund’s overweight to Consumer Discretionary (down 2.12%) and underweight to Health Care (up 13.73%) hurt performance the most through sector allocation. On the other hand, being overweight in Information Technology (up 8.13%) helped buoy the Fund’s relative underperformance.
The fixed-income portion of the Fund returned -0.74% for the twelve-month period, outperforming the Bloomberg Barclays U.S. Aggregate Bond Index (the “Barclays Index”) return of -2.05%. 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 0.4%) and CMO (up 0.5%) added relative value. Good selections in Manufacturing (down 0.8%) and Energy (down 2.8%), within Corporates, also benefited the Fund. From a duration perspective, the portfolio was helped by an overweight allocation and good selections in the 0 to 1 year maturity range.
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, 2018 (Unaudited)
Top Ten Holdings (% Net Assets) | ||||||||
U.S. Treasury Notes/Bonds, 2.352%, Due 4/30/2020, (3-mo. Treasury money market yield + 0.030%) | 5.2 | |||||||
Citigroup, Inc. | 2.0 | |||||||
General Motors Co. | 1.9 | |||||||
BP PLC, Sponsored ADR | 1.7 | |||||||
Bank of America Corp. | 1.6 | |||||||
JPMorgan Chase & Co. | 1.6 | |||||||
American International Group, Inc. | 1.6 | |||||||
Comcast Corp., Class A | 1.5 | |||||||
ConocoPhillips | 1.4 | |||||||
Wells Fargo & Co. | 1.4 | |||||||
Total Fund Holdings | 502 | |||||||
Sector Allocation (% Equities) | ||||||||
Financials | 24.8 | |||||||
Energy | 17.3 | |||||||
Information Technology | 10.6 | |||||||
Health Care | 10.4 | |||||||
Consumer Discretionary | 10.1 | |||||||
Industrials | 8.4 | |||||||
Communication Services | 8.3 | |||||||
Consumer Staples | 5.0 | |||||||
Materials | 3.9 | |||||||
Utilities | 1.2 | |||||||
Sector Allocation (% Fixed Income) | ||||||||
U.S. Treasury Obligations | 43.3 | |||||||
U.S. Agency Mortgage-Backed Obligations | 15.5 | |||||||
Financial | 13.4 | |||||||
Consumer, Cyclical | 5.6 | |||||||
Communications | 4.1 | |||||||
Consumer, Non-Cyclical | 3.0 | |||||||
Utilities | 2.8 | |||||||
Industrial | 2.8 | |||||||
Asset-Backed Obligations | 2.6 | |||||||
Technology | 2.3 | |||||||
Commercial Mortgage-Backed Obligations | 1.8 | |||||||
Energy | 1.6 | |||||||
Basic Materials | 0.7 | |||||||
Foreign Sovereign Obligations | 0.5 |
6
American Beacon Mid-Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
The Investor Class of the American Beacon Mid-Cap Value Fund (the “Fund”) returned -7.13% for the twelve months ended October 31, 2018, underperforming the Russell Midcap® Value Index (the “Index”) return of 0.16% for the same period.
Comparison of Change in Value of a $10,000 Investment for the period from 10/31/2008 through 10/31/2018
Total Returns for the Period ended October 31, 2018 |
| |||||||||||||||||||||||||||||||
Ticker | 1 Year | 3 Years | 5 Years | 10 Years | Value of $10,000 10/31/2018 | |||||||||||||||||||||||||||
Institutional Class (1,3,10) | AACIX | (6.89 | )% | 5.94 | % | 6.12 | % | 13.80 | % | $ | 36,428 | |||||||||||||||||||||
Y Class (1,4,10) | ACMYX | (6.96 | )% | 5.85 | % | 6.07 | % | 13.73 | % | $ | 36,219 | |||||||||||||||||||||
Investor Class (1,2,10) | AMPAX | (7.13 | )% | 5.70 | % | 5.89 | % | 13.59 | % | $ | 35,773 | |||||||||||||||||||||
Advisor Class (1,5,10) | AMCSX | (7.38 | )% | 5.38 | % | 5.57 | % | 13.27 | % | $ | 34,769 | |||||||||||||||||||||
A Class without sales charge (1,6,10) | ABMAX | (7.32 | )% | 5.53 | % | 5.70 | % | 13.31 | % | $ | 34,879 | |||||||||||||||||||||
A Class with sales charge (1,6,10) | ABMAX | (12.66 | )% | 3.47 | % | 4.46 | % | 12.64 | % | $ | 32,876 | |||||||||||||||||||||
C Class without sales charge (1,7,10) | AMCCX | (7.85 | )% | 4.78 | % | 4.93 | % | 12.63 | % | $ | 32,862 | |||||||||||||||||||||
C Class with sales charge (1,7,10) | AMCCX | (8.85 | )% | 4.78 | % | 4.93 | % | 12.63 | % | $ | 32,862 | |||||||||||||||||||||
R6 Class (1,8,10) | AMDRX | (6.89 | )% | 5.94 | % | 6.12 | % | 13.80 | % | $ | 36,428 | |||||||||||||||||||||
Russell Midcap® Value Index (9) | 0.16 | % | 8.15 | % | 8.11 | % | 13.35 | % | $ | 35,011 |
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. Generally accepted accounting principles require adjustments to be made to the net assets of the Fund at period end for financial reporting purposes only; and as such, the total return based on the unadjusted net asset value per share may differ from the total return reported in the financial highlights. |
2. | A portion of the fees charged to the Investor Class of the Fund was waived from 2008 through 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than actual returns shown from 2008 through 2013. |
7
American Beacon Mid-Cap Value FundSM
Performance Overview
October 31, 2018 (Unaudited)
3. | A portion of the fees charged to the Institutional Class of the Fund was waived from 2008 through 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than actual returns shown from 2008 through 2013. |
4. | Fund performance for the ten-year period represents the total returns achieved by the Institutional Class from 10/31/08 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 10/31/08. 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 2008 through 2013 and fully recovered in 2014. Performance prior to waiving fees was lower than the actual returns shown from 2008 through 2013. |
6. | Fund performance for the ten-year period represents the total returns achieved by the Investor Class from 10/31/08 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 10/31/08. 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 10/31/08 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 10/31/08. A portion of the fees charged to the C Class of the Fund was waived from 2010 through 2013 and fully 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. | Fund performance for the one-year, three-year, five-year and ten-year periods represents the returns achieved by the Institutional Class from 10/31/08 through 2/28/18, 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 10/31/08. A portion of the fees charged to the R6 Class of the Fund has been waived since 2/28/18. Performance prior to waiving fees was lower than the actual returns shown. |
9. | 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. |
10. | The Total Annual Fund Operating Expense ratios set forth in the most recent Fund prospectus for the Institutional, Y, Investor, Advisor, A, R6 and C Class shares were 0.90%, 0.98%, 1.10%, 1.41%, 1.28%, 0.89% 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 trailed the Index as both stock selection and sector allocation detracted value relative to the Index.
From a security selection perspective, the Fund’s relative underperformance was driven by holdings in the Energy, Information Technology and Industrials sectors. Within Energy, EQT Corp. was down 44.4%, while Weatherford International was down 59.0%. Companies in the Consumer Discretionary sector detracting from performance included Dana, Inc. (down 48.0%) and Adient PLC (down 64.8%). In the Industrials sector, Jeld Wen Holding (down 56.6%) and Ryder System (down 30.0%) were the largest detractors for the period. Slightly offsetting this underperformance were positions in the Financials sector, such as Validus Holdings (up 25.8%), Voya Financial (up 10.7%) and Hanover Insurance Group (up 20.2%).
In sector allocation, the Fund’s overweight positions in the Industrials and Consumer Discretionary sectors, two of the worst performing sectors in the Index, were the primary drivers of underperformance for the period. Offsetting some of this performance was an overweight position in Information Technology, a top performing sector for the period. Also adding modest value was an underweight to Materials.
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, 2018 (Unaudited)
Top Ten Holdings (% Net Assets) | ||||||||
KeyCorp | 1.9 | |||||||
Axis Capital Holdings Ltd. | 1.9 | |||||||
Willis Towers Watson PLC | 1.9 | |||||||
Fifth Third Bancorp | 1.9 | |||||||
MGM Growth Properties LLC, Class A | 1.6 | |||||||
Dover Corp. | 1.6 | |||||||
Murphy Oil Corp. | 1.5 | |||||||
Universal Health Services, Inc., Class B | 1.5 | |||||||
Avnet, Inc. | 1.5 | |||||||
Cardinal Health, Inc. | 1.4 | |||||||
Total Fund Holdings | 118 | |||||||
Sector Allocation (% Equities) | ||||||||
Financials | 22.8 | |||||||
Industrials | 16.1 | |||||||
Consumer Discretionary | 11.8 | |||||||
Energy | 8.9 | |||||||
Health Care | 8.5 | |||||||
Information Technology | 8.4 | |||||||
Real Estate | 6.9 | |||||||
Utilities | 6.8 | |||||||
Communication Services | 4.0 | |||||||
Materials | 3.7 | |||||||
Consumer Staples | 2.1 |
9
American Beacon FundSM
October 31, 2018 (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, 2018 through October 31, 2018.
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, 2018 (Unaudited)
American Beacon Balanced Fund |
| ||||||||||||||
Beginning Account Value 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period 5/1/2018-10/31/2018* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $990.70 | $3.06 | ||||||||||||
Hypothetical** | $1,000.00 | $1,022.10 | $3.11 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $991.60 | $3.51 | ||||||||||||
Hypothetical** | $1,000.00 | $1,021.70 | $3.57 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $990.50 | $4.92 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.30 | $4.99 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $989.70 | $5.52 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.70 | $5.60 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $990.30 | $4.41 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.80 | $4.48 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $987.30 | $8.16 | ||||||||||||
Hypothetical** | $1,000.00 | $1,017.00 | $8.29 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.61%, 0.70%, 0.98%, 1.10%, 0.88%, and 1.63% 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. |
American Beacon Mid-Cap Value Fund |
| ||||||||||||||
Beginning Account Value 5/1/2018 | Ending Account Value 10/31/2018 | Expenses Paid During Period 5/1/2018-10/31/2018* | |||||||||||||
Institutional Class | |||||||||||||||
Actual | $1,000.00 | $935.50 | $4.20 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.90 | $4.38 | ||||||||||||
Y Class | |||||||||||||||
Actual | $1,000.00 | $935.00 | $4.63 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.40 | $4.84 | ||||||||||||
Investor Class | |||||||||||||||
Actual | $1,000.00 | $934.30 | $5.75 | ||||||||||||
Hypothetical** | $1,000.00 | $1,019.30 | $6.01 | ||||||||||||
Advisor Class | |||||||||||||||
Actual | $1,000.00 | $933.00 | $6.72 | ||||||||||||
Hypothetical** | $1,000.00 | $1,018.20 | $7.02 | ||||||||||||
A Class | |||||||||||||||
Actual | $1,000.00 | $933.50 | $6.24 | ||||||||||||
Hypothetical** | $1,000.00 | $1,018.80 | $6.51 | ||||||||||||
C Class | |||||||||||||||
Actual | $1,000.00 | $930.50 | $9.25 | ||||||||||||
Hypothetical** | $1,000.00 | $1,015.60 | $9.65 | ||||||||||||
R6 Class | |||||||||||||||
Actual | $1,000.00 | $935.50 | $4.29 | ||||||||||||
Hypothetical** | $1,000.00 | $1,020.77 | $4.48 |
* | Expenses are equal to the Fund’s annualized expense ratios for the six-month period of 0.86%, 0.95%, 1.18%, 1.38%, 1.28%, 1.90%, and 0.88% 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. |
11
American Beacon FundsSM
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Trustees of American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund
Opinion on the Financial Statements
We have audited the accompanying statements of assets and liabilities of American Beacon Balanced Fund and American Beacon Mid-Cap Value Fund (collectively referred to as the “Funds”), (two of the funds constituting American Beacon Funds (the “Trust”)), including the schedules of investments, as of October 31, 2018, 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, the financial highlights for each of the five years in the period then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of each of the Funds at October 31, 2018, 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 their financial highlights for each of the five years in the period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Trust’s management. Our responsibility is to express an opinion on each of the Funds’ financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Trust in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Trust is not required to have, nor were we engaged to perform, an audit of the Trust’s internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Trust’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2018, by correspondence with the custodian and brokers or by other appropriate auditing procedures where replies from brokers were not received. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more American Beacon investment companies since 1987.
Dallas, Texas
December 28, 2018
12
American Beacon Balanced FundSM
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 62.19% | |||||||||||||||
Communication Services - 5.17% | |||||||||||||||
Diversified Telecommunication Services - 1.15% | |||||||||||||||
AT&T, Inc. | 75,473 | $ | 2,315,512 | ||||||||||||
Verizon Communications, Inc. | 19,717 | 1,125,643 | |||||||||||||
|
| ||||||||||||||
3,441,155 | |||||||||||||||
|
| ||||||||||||||
Entertainment - 0.18% | |||||||||||||||
Walt Disney Co. | 4,600 | 528,218 | |||||||||||||
|
| ||||||||||||||
Interactive Media & Services - 0.57% | |||||||||||||||
Facebook, Inc., Class AA | 11,200 | 1,700,048 | |||||||||||||
|
| ||||||||||||||
Media - 2.79% | |||||||||||||||
CBS Corp., Class B, NVDR | 14,152 | 811,617 | |||||||||||||
Comcast Corp., Class A | 113,940 | 4,345,672 | |||||||||||||
Discovery, Inc., Class AA B | 5,100 | 165,189 | |||||||||||||
Discovery, Inc., Class CA | 63,499 | 1,861,156 | |||||||||||||
Interpublic Group of Cos, Inc. | 15,100 | 349,716 | |||||||||||||
News Corp., Class A | 41,300 | 544,747 | |||||||||||||
Omnicom Group, Inc. | 3,886 | 288,807 | |||||||||||||
|
| ||||||||||||||
8,366,904 | |||||||||||||||
|
| ||||||||||||||
Wireless Telecommunication Services - 0.48% | |||||||||||||||
Vodafone Group PLC, Sponsored ADR | 75,732 | 1,433,607 | |||||||||||||
|
| ||||||||||||||
Total Communication Services | 15,469,932 | ||||||||||||||
|
| ||||||||||||||
Consumer Discretionary - 6.29% | |||||||||||||||
Auto Components - 1.18% | |||||||||||||||
Adient PLCB | 18,532 | 563,743 | |||||||||||||
Garrett Motion, Inc.A | 853 | 12,940 | |||||||||||||
Goodyear Tire & Rubber Co. | 29,759 | 626,725 | |||||||||||||
Magna International, Inc. | 47,627 | 2,345,154 | |||||||||||||
|
| ||||||||||||||
3,548,562 | |||||||||||||||
|
| ||||||||||||||
Automobiles - 2.04% | |||||||||||||||
General Motors Co. | 154,571 | 5,655,753 | |||||||||||||
Harley-Davidson, Inc. | 11,841 | 452,563 | |||||||||||||
|
| ||||||||||||||
6,108,316 | |||||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 0.54% | |||||||||||||||
Carnival Corp. | 13,042 | 730,874 | |||||||||||||
Norwegian Cruise Line Holdings Ltd.A | 19,965 | 879,857 | |||||||||||||
|
| ||||||||||||||
1,610,731 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 0.90% | |||||||||||||||
DR Horton, Inc. | 26,211 | 942,548 | |||||||||||||
Mohawk Industries, Inc.A | 8,200 | 1,022,786 | |||||||||||||
Tupperware Brands Corp. | 20,500 | 719,550 | |||||||||||||
|
| ||||||||||||||
2,684,884 | |||||||||||||||
|
| ||||||||||||||
Multiline Retail - 0.82% | |||||||||||||||
Dollar General Corp. | 21,951 | 2,444,902 | |||||||||||||
|
| ||||||||||||||
Specialty Retail - 0.81% | |||||||||||||||
Bed Bath & Beyond, Inc.B | 14,824 | 203,682 | |||||||||||||
Lowe’s Cos, Inc. | 23,442 | 2,232,147 | |||||||||||||
|
| ||||||||||||||
2,435,829 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 18,833,224 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
13
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 62.19% (continued) | |||||||||||||||
Consumer Staples - 3.11% | |||||||||||||||
Beverages - 0.83% | |||||||||||||||
Molson Coors Brewing Co., Class B | 22,600 | $ | 1,446,400 | ||||||||||||
PepsiCo, Inc. | 9,200 | 1,033,896 | |||||||||||||
|
| ||||||||||||||
2,480,296 | |||||||||||||||
|
| ||||||||||||||
Food Products - 0.84% | |||||||||||||||
Ingredion, Inc. | 5,500 | 556,490 | |||||||||||||
Kellogg Co. | 4,792 | 313,780 | |||||||||||||
Mondelez International, Inc., Class A | 21,800 | 915,164 | |||||||||||||
Tyson Foods, Inc., Class A | 12,400 | 743,008 | |||||||||||||
|
| ||||||||||||||
2,528,442 | |||||||||||||||
|
| ||||||||||||||
Personal Products - 0.23% | |||||||||||||||
Unilever PLC, Sponsored ADR | 12,700 | 672,846 | |||||||||||||
|
| ||||||||||||||
Tobacco - 1.21% | |||||||||||||||
Altria Group, Inc. | 21,614 | 1,405,775 | |||||||||||||
Imperial Brands PLC, Sponsored ADR | 27,160 | 919,366 | |||||||||||||
Philip Morris International, Inc. | 14,792 | 1,302,731 | |||||||||||||
|
| ||||||||||||||
3,627,872 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 9,309,456 | ||||||||||||||
|
| ||||||||||||||
Energy - 10.74% | |||||||||||||||
Energy Equipment & Services - 2.02% | |||||||||||||||
Halliburton Co. | 34,800 | 1,206,864 | |||||||||||||
Helmerich & Payne, Inc. | 11,200 | 697,648 | |||||||||||||
National Oilwell Varco, Inc. | 13,100 | 482,080 | |||||||||||||
Oceaneering International, Inc.A | 27,055 | 512,422 | |||||||||||||
Schlumberger Ltd. | 61,556 | 3,158,438 | |||||||||||||
|
| ||||||||||||||
6,057,452 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 8.72% | |||||||||||||||
Apache Corp. | 49,614 | 1,876,897 | |||||||||||||
BP PLC, Sponsored ADR | 118,113 | 5,122,561 | |||||||||||||
Canadian Natural Resources Ltd. | 95,265 | 2,602,640 | |||||||||||||
Chevron Corp. | 15,474 | 1,727,672 | |||||||||||||
ConocoPhillips | 62,023 | 4,335,408 | |||||||||||||
Devon Energy Corp. | 43,607 | 1,412,867 | |||||||||||||
Hess Corp. | 29,032 | 1,666,437 | |||||||||||||
Kinder Morgan, Inc. | 38,600 | 656,972 | |||||||||||||
Kosmos Energy Ltd.A | 40,369 | 261,995 | |||||||||||||
Marathon Oil Corp. | 94,031 | 1,785,649 | |||||||||||||
Marathon Petroleum Corp. | 5,531 | 389,659 | |||||||||||||
Murphy Oil Corp. | 28,575 | 910,399 | |||||||||||||
Phillips 66 | 23,035 | 2,368,459 | |||||||||||||
Royal Dutch Shell PLC, Class A, Sponsored ADR | 15,935 | 1,006,932 | |||||||||||||
|
| ||||||||||||||
26,124,547 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 32,181,999 | ||||||||||||||
|
| ||||||||||||||
Financials - 15.44% | |||||||||||||||
Banks - 7.72% | |||||||||||||||
Banco Santander S.A., ADRB | 204,800 | 978,944 | |||||||||||||
Bank of America Corp. | 175,943 | 4,838,433 | |||||||||||||
BNP Paribas S.A., ADRB | 22,600 | 587,374 | |||||||||||||
CIT Group, Inc. | 6,650 | 315,077 | |||||||||||||
Citigroup, Inc. | 89,266 | 5,843,352 |
See accompanying notes
14
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 62.19% (continued) | |||||||||||||||
Financials - 15.44% (continued) | |||||||||||||||
Banks - 7.72% (continued) | |||||||||||||||
Citizens Financial Group, Inc. | 22,568 | $ | 842,915 | ||||||||||||
JPMorgan Chase & Co. | 44,120 | 4,809,962 | |||||||||||||
PNC Financial Services Group, Inc. | 4,399 | 565,228 | |||||||||||||
Wells Fargo & Co. | 81,284 | 4,326,747 | |||||||||||||
|
| ||||||||||||||
23,108,032 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 2.85% | |||||||||||||||
Bank of New York Mellon Corp. | 10,215 | 483,476 | |||||||||||||
Blackstone Group LP, MLP | 59,630 | 1,929,627 | |||||||||||||
Goldman Sachs Group, Inc. | 6,297 | 1,419,155 | |||||||||||||
Invesco Ltd. | 42,700 | 927,017 | |||||||||||||
KKR & Co., Inc., Class A | 99,684 | 2,357,527 | |||||||||||||
Morgan Stanley | 7,337 | 335,007 | |||||||||||||
State Street Corp. | 15,806 | 1,086,662 | |||||||||||||
|
| ||||||||||||||
8,538,471 | |||||||||||||||
|
| ||||||||||||||
Consumer Finance - 2.11% | |||||||||||||||
Ally Financial, Inc. | 19,700 | 500,577 | |||||||||||||
Capital One Financial Corp. | 14,629 | 1,306,370 | |||||||||||||
Discover Financial Services | 13,700 | 954,479 | |||||||||||||
Navient Corp. | 39,575 | 458,278 | |||||||||||||
OneMain Holdings, Inc.A | 20,265 | 577,958 | |||||||||||||
Santander Consumer USA Holdings, Inc. | 46,679 | 875,231 | |||||||||||||
SLM Corp.A | 121,730 | 1,234,342 | |||||||||||||
Synchrony Financial | 14,300 | 412,984 | |||||||||||||
|
| ||||||||||||||
6,320,219 | |||||||||||||||
|
| ||||||||||||||
Diversified Financial Services - 0.87% | |||||||||||||||
AXA Equitable Holdings, Inc. | 31,800 | 645,222 | |||||||||||||
Berkshire Hathaway, Inc., Class BA | 9,542 | 1,958,782 | |||||||||||||
|
| ||||||||||||||
2,604,004 | |||||||||||||||
|
| ||||||||||||||
Insurance - 1.89% | |||||||||||||||
American International Group, Inc. | 112,611 | 4,649,708 | |||||||||||||
Travelers Cos, Inc. | 8,157 | 1,020,686 | |||||||||||||
|
| ||||||||||||||
5,670,394 | |||||||||||||||
|
| ||||||||||||||
Total Financials | 46,241,120 | ||||||||||||||
|
| ||||||||||||||
Health Care - 6.44% | |||||||||||||||
Biotechnology - 0.59% | |||||||||||||||
Biogen, Inc.A | 1,472 | 447,885 | |||||||||||||
Celgene Corp.A | 6,286 | 450,078 | |||||||||||||
Gilead Sciences, Inc. | 9,720 | 662,710 | |||||||||||||
Portola Pharmaceuticals, Inc.A B | 11,300 | 222,497 | |||||||||||||
|
| ||||||||||||||
1,783,170 | |||||||||||||||
|
| ||||||||||||||
Health Care Equipment & Supplies - 1.18% | |||||||||||||||
Medtronic PLC | 31,508 | 2,830,048 | |||||||||||||
Zimmer Biomet Holdings, Inc. | 6,132 | 696,534 | |||||||||||||
|
| ||||||||||||||
3,526,582 | |||||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 1.98% | |||||||||||||||
Anthem, Inc. | 10,098 | 2,782,706 | |||||||||||||
CVS Health Corp. | 43,617 | 3,157,434 | |||||||||||||
|
| ||||||||||||||
5,940,140 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
15
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 62.19% (continued) | |||||||||||||||
Health Care - 6.44% (continued) | |||||||||||||||
Pharmaceuticals - 2.69% | |||||||||||||||
GlaxoSmithKline PLC, Sponsored ADR | 24,343 | $ | 950,838 | ||||||||||||
Horizon Pharma PLCA | 24,812 | 451,826 | |||||||||||||
Jazz Pharmaceuticals PLCA | 2,893 | 459,466 | |||||||||||||
Johnson & Johnson | 3,994 | 559,120 | |||||||||||||
Merck & Co., Inc. | 15,219 | 1,120,271 | |||||||||||||
Mylan N.V.A | 20,644 | 645,125 | |||||||||||||
Pfizer, Inc. | 49,205 | 2,118,767 | |||||||||||||
Sanofi, ADR | 38,923 | 1,740,637 | |||||||||||||
|
| ||||||||||||||
8,046,050 | |||||||||||||||
|
| ||||||||||||||
Total Health Care | 19,295,942 | ||||||||||||||
|
| ||||||||||||||
Industrials - 5.24% | |||||||||||||||
Aerospace & Defense - 0.84% | |||||||||||||||
Embraer S.A., Sponsored ADR | 10,824 | 241,050 | |||||||||||||
General Dynamics Corp. | 3,108 | 536,379 | |||||||||||||
Raytheon Co. | 6,088 | 1,065,644 | |||||||||||||
United Technologies Corp. | 5,328 | 661,791 | |||||||||||||
|
| ||||||||||||||
2,504,864 | |||||||||||||||
|
| ||||||||||||||
Airlines - 0.95% | |||||||||||||||
American Airlines Group, Inc. | 44,061 | 1,545,660 | |||||||||||||
Delta Air Lines, Inc. | 23,945 | 1,310,510 | |||||||||||||
|
| ||||||||||||||
2,856,170 | |||||||||||||||
|
| ||||||||||||||
Building Products - 0.87% | |||||||||||||||
Johnson Controls International PLC | 80,582 | 2,576,206 | |||||||||||||
Resideo Technologies, Inc.A | 1,423 | 29,944 | |||||||||||||
|
| ||||||||||||||
2,606,150 | |||||||||||||||
|
| ||||||||||||||
Construction & Engineering - 0.02% | |||||||||||||||
AECOMA | 2,378 | 69,295 | |||||||||||||
|
| ||||||||||||||
Electrical Equipment - 0.15% | |||||||||||||||
Eaton Corp. PLC | 6,083 | 435,969 | |||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 1.05% | |||||||||||||||
General Electric Co. | 188,935 | 1,908,243 | |||||||||||||
Honeywell International, Inc. | 8,535 | 1,236,039 | |||||||||||||
|
| ||||||||||||||
3,144,282 | |||||||||||||||
|
| ||||||||||||||
Machinery - 0.97% | |||||||||||||||
CNH Industrial N.V.B | 124,280 | 1,291,269 | |||||||||||||
Cummins, Inc. | 9,672 | 1,322,066 | |||||||||||||
PACCAR, Inc. | 5,139 | 294,002 | |||||||||||||
|
| ||||||||||||||
2,907,337 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 0.39% | |||||||||||||||
AerCap Holdings N.V.A | 23,591 | 1,181,437 | |||||||||||||
|
| ||||||||||||||
Total Industrials | 15,705,504 | ||||||||||||||
|
| ||||||||||||||
Information Technology - 6.62% | |||||||||||||||
Communications Equipment - 0.59% | |||||||||||||||
Cisco Systems, Inc. | 24,471 | 1,119,548 | |||||||||||||
Telefonaktiebolaget LM Ericsson, Sponsored ADR | 73,920 | 640,147 | |||||||||||||
|
| ||||||||||||||
1,759,695 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
16
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 62.19% (continued) | |||||||||||||||
Information Technology - 6.62% (continued) | |||||||||||||||
Electronic Equipment, Instruments & Components - 0.78% | |||||||||||||||
Corning, Inc. | 34,995 | $ | 1,118,090 | ||||||||||||
IPG Photonics Corp.A | 5,600 | 747,880 | |||||||||||||
TE Connectivity Ltd. | 6,358 | 479,521 | |||||||||||||
|
| ||||||||||||||
2,345,491 | |||||||||||||||
|
| ||||||||||||||
IT Services - 0.44% | |||||||||||||||
First Data Corp., Class AA | 52,600 | 985,724 | |||||||||||||
Teradata Corp.A | 8,818 | 320,975 | |||||||||||||
|
| ||||||||||||||
1,306,699 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 1.32% | |||||||||||||||
Micron Technology, Inc.A | 55,335 | 2,087,236 | |||||||||||||
QUALCOMM, Inc. | 29,752 | 1,871,104 | |||||||||||||
|
| ||||||||||||||
3,958,340 | |||||||||||||||
|
| ||||||||||||||
Software - 2.62% | |||||||||||||||
Microsoft Corp. | 34,142 | 3,646,707 | |||||||||||||
Oracle Corp. | 85,929 | 4,196,772 | |||||||||||||
|
| ||||||||||||||
7,843,479 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 0.87% | |||||||||||||||
Hewlett Packard Enterprise Co. | 171,108 | 2,609,397 | |||||||||||||
|
| ||||||||||||||
Total Information Technology | 19,823,101 | ||||||||||||||
|
| ||||||||||||||
Materials - 2.43% | |||||||||||||||
Chemicals - 1.81% | |||||||||||||||
Air Products & Chemicals, Inc. | 12,878 | 1,987,719 | |||||||||||||
DowDuPont, Inc. | 45,227 | 2,438,640 | |||||||||||||
Eastman Chemical Co. | 12,585 | 986,035 | |||||||||||||
|
| ||||||||||||||
5,412,394 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 0.62% | |||||||||||||||
Crown Holdings, Inc.A | 21,035 | 889,570 | |||||||||||||
International Paper Co. | 21,325 | 967,302 | |||||||||||||
|
| ||||||||||||||
1,856,872 | |||||||||||||||
|
| ||||||||||||||
Total Materials | 7,269,266 | ||||||||||||||
|
| ||||||||||||||
Utilities - 0.71% | |||||||||||||||
Electric Utilities - 0.71% | |||||||||||||||
Entergy Corp. | 7,999 | 671,516 | |||||||||||||
PPL Corp. | 23,547 | 715,829 | |||||||||||||
Southern Co. | 16,543 | 744,931 | |||||||||||||
|
| ||||||||||||||
2,132,276 | |||||||||||||||
|
| ||||||||||||||
Total Utilities | 2,132,276 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $153,032,528) | 186,261,820 | ||||||||||||||
|
| ||||||||||||||
Principal Amount | |||||||||||||||
CORPORATE OBLIGATIONS - 10.99% | |||||||||||||||
Basic Materials - 0.21% | |||||||||||||||
Dow Chemical Co., | |||||||||||||||
4.125%, Due 11/15/2021 | $ | 145,000 | 147,191 | ||||||||||||
3.500%, Due 10/1/2024 | 299,000 | 289,999 | |||||||||||||
EI du Pont de Nemours & Co., 2.200%, Due 5/1/2020 | 70,000 | 69,142 |
See accompanying notes
17
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.99% (continued) | |||||||||||||||
Basic Materials - 0.21% (continued) | |||||||||||||||
Nucor Corp., | |||||||||||||||
4.125%, Due 9/15/2022 | $ | 52,000 | $ | 52,911 | |||||||||||
4.000%, Due 8/1/2023 | 80,000 | 81,035 | |||||||||||||
|
| ||||||||||||||
640,278 | |||||||||||||||
|
| ||||||||||||||
Communications - 0.89% | |||||||||||||||
Amazon.com, Inc., 3.875%, Due 8/22/2037 | 70,000 | 66,040 | |||||||||||||
AT&T, Inc., | |||||||||||||||
4.450%, Due 4/1/2024 | 80,000 | 80,775 | |||||||||||||
3.400%, Due 5/15/2025 | 169,000 | 158,679 | |||||||||||||
4.500%, Due 5/15/2035 | 106,000 | 95,633 | |||||||||||||
6.350%, Due 3/15/2040 | 40,000 | 42,246 | |||||||||||||
CBS Corp., 3.375%, Due 3/1/2022 | 337,000 | 331,662 | |||||||||||||
Charter Communications Operating LLC, 3.750%, Due 2/15/2028 | 130,000 | 117,727 | |||||||||||||
Comcast Corp., | |||||||||||||||
3.150%, Due 3/1/2026 | 84,000 | 78,552 | |||||||||||||
4.600%, Due 10/15/2038 | 75,000 | 73,385 | |||||||||||||
6.550%, Due 7/1/2039 | 217,000 | 256,131 | |||||||||||||
eBay, Inc., 2.150%, Due 6/5/2020 | 95,000 | 93,323 | |||||||||||||
NBCUniversal Enterprise, Inc., 2.737%, Due 4/1/2021, (3-mo. USD LIBOR + 0.400%)C D | 735,000 | 734,818 | |||||||||||||
RELX Capital, Inc., 3.500%, Due 3/16/2023 | 55,000 | 54,226 | |||||||||||||
Verizon Communications, Inc., | |||||||||||||||
4.125%, Due 3/16/2027 | 150,000 | 148,457 | |||||||||||||
4.329%, Due 9/21/2028 | 180,000 | 178,077 | |||||||||||||
Warner Media LLC, 4.750%, Due 3/29/2021 | 157,000 | 161,116 | |||||||||||||
|
| ||||||||||||||
2,670,847 | |||||||||||||||
|
| ||||||||||||||
Consumer, Cyclical - 1.93% | |||||||||||||||
American Honda Finance Corp., | |||||||||||||||
3.875%, Due 9/21/2020C | 250,000 | 252,874 | |||||||||||||
3.375%, Due 12/10/2021 | 130,000 | 129,830 | |||||||||||||
Aptiv Corp., 4.150%, Due 3/15/2024 | 110,000 | 109,112 | |||||||||||||
Costco Wholesale Corp., 2.150%, Due 5/18/2021 | 190,000 | 185,360 | |||||||||||||
Daimler Finance North America LLC, | |||||||||||||||
2.250%, Due 9/3/2019C | 169,000 | 167,746 | |||||||||||||
2.450%, Due 5/18/2020C | 313,000 | 308,271 | |||||||||||||
2.760%, Due 2/22/2021, (3-mo. USD LIBOR + 0.450%)C D | 575,000 | 574,494 | |||||||||||||
Dollar General Corp., 4.125%, Due 5/1/2028 | 50,000 | 48,441 | |||||||||||||
Dollar Tree, Inc., 3.700%, Due 5/15/2023 | 85,000 | 82,843 | |||||||||||||
Ford Motor Credit Co. LLC, | |||||||||||||||
3.408%, Due 1/9/2020, (3-mo. USD LIBOR + 1.000%)D | 222,000 | 222,056 | |||||||||||||
3.218%, Due 4/5/2021, (3-mo. USD LIBOR + 0.810%)D | 470,000 | 466,102 | |||||||||||||
5.875%, Due 8/2/2021 | 200,000 | 207,016 | |||||||||||||
3.810%, Due 1/9/2024 | 95,000 | 88,262 | |||||||||||||
General Motors Financial Co., Inc., | |||||||||||||||
3.366%, Due 4/13/2020, (3-mo. USD LIBOR + 0.930%)D | 805,000 | 808,726 | |||||||||||||
3.150%, Due 6/30/2022 | 90,000 | 86,438 | |||||||||||||
Home Depot, Inc., | |||||||||||||||
2.700%, Due 4/1/2023 | 72,000 | 69,769 | |||||||||||||
3.350%, Due 9/15/2025 | 65,000 | 63,606 | |||||||||||||
McDonald’s Corp., 3.700%, Due 1/30/2026 | 133,000 | 129,761 | |||||||||||||
Nissan Motor Acceptance Corp., 2.350%, Due 3/4/2019C | 289,000 | 288,446 | |||||||||||||
O’Reilly Automotive, Inc., 4.350%, Due 6/1/2028 | 115,000 | 112,858 | |||||||||||||
PACCAR Financial Corp., | |||||||||||||||
1.300%, Due 5/10/2019 | 58,000 | 57,529 | |||||||||||||
2.200%, Due 9/15/2019 | 52,000 | 51,680 | |||||||||||||
Starbucks Corp., 4.000%, Due 11/15/2028 | 90,000 | 87,440 | |||||||||||||
Toyota Motor Credit Corp., 3.450%, Due 9/20/2023 | 250,000 | 248,181 |
See accompanying notes
18
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.99% (continued) | |||||||||||||||
Consumer, Cyclical - 1.93% (continued) | |||||||||||||||
Volkswagen Group of America Finance LLC, 2.450%, Due 11/20/2019C | $ | 313,000 | $ | 309,883 | |||||||||||
Walgreens Boots Alliance, Inc., 3.800%, Due 11/18/2024 | 145,000 | 141,548 | |||||||||||||
Walmart, Inc., | |||||||||||||||
3.400%, Due 6/26/2023 | 260,000 | 259,123 | |||||||||||||
7.550%, Due 2/15/2030 | 169,000 | 222,433 | |||||||||||||
|
| ||||||||||||||
5,779,828 | |||||||||||||||
|
| ||||||||||||||
Consumer, Non-Cyclical - 0.97% | |||||||||||||||
Abbott Laboratories, 4.900%, Due 11/30/2046 | 70,000 | 72,128 | |||||||||||||
AbbVie, Inc., | |||||||||||||||
3.200%, Due 5/14/2026 | 85,000 | 77,794 | |||||||||||||
4.300%, Due 5/14/2036 | 87,000 | 77,767 | |||||||||||||
Altria Group, Inc., 4.750%, Due 5/5/2021 | 145,000 | 149,120 | |||||||||||||
Amgen, Inc., 4.400%, Due 5/1/2045 | 75,000 | 68,236 | |||||||||||||
Anheuser-Busch InBev Finance, Inc., | |||||||||||||||
2.650%, Due 2/1/2021 | 145,000 | 142,152 | |||||||||||||
3.650%, Due 2/1/2026 | 145,000 | 137,927 | |||||||||||||
Anheuser-Busch InBev Worldwide, Inc., 4.375%, Due 4/15/2038 | 35,000 | 31,814 | |||||||||||||
Anthem, Inc., 2.500%, Due 11/21/2020 | 90,000 | 88,170 | |||||||||||||
Baxalta, Inc., 4.000%, Due 6/23/2025 | 20,000 | 19,494 | |||||||||||||
Bayer US Finance LLC, 2.375%, Due 10/8/2019C | 300,000 | 297,511 | |||||||||||||
Celgene Corp., 5.250%, Due 8/15/2043 | 70,000 | 68,681 | |||||||||||||
CVS Health Corp., | |||||||||||||||
2.125%, Due 6/1/2021 | 60,000 | 57,828 | |||||||||||||
5.050%, Due 3/25/2048 | 55,000 | 53,628 | |||||||||||||
General Mills, Inc., 2.200%, Due 10/21/2019 | 289,000 | 286,361 | |||||||||||||
Genzyme Corp., 5.000%, Due 6/15/2020 | 39,000 | 40,107 | |||||||||||||
Halfmoon Parent, Inc., 4.125%, Due 11/15/2025C | 75,000 | 74,130 | |||||||||||||
Humana, Inc., 3.150%, Due 12/1/2022 | 115,000 | 111,839 | |||||||||||||
Kaiser Foundation Hospitals, 4.150%, Due 5/1/2047 | 45,000 | 42,812 | |||||||||||||
Kraft Heinz Foods Co., 5.000%, Due 7/15/2035 | 65,000 | 61,598 | |||||||||||||
Medtronic, Inc., 3.500%, Due 3/15/2025 | 313,000 | 306,403 | |||||||||||||
Molson Coors Brewing Co., 3.000%, Due 7/15/2026 | 90,000 | 80,059 | |||||||||||||
Philip Morris International, Inc., 2.625%, Due 3/6/2023 | 85,000 | 81,226 | |||||||||||||
Reynolds American, Inc., 5.850%, Due 8/15/2045 | 65,000 | 66,762 | |||||||||||||
S&P Global, Inc., 4.400%, Due 2/15/2026 | 70,000 | 71,304 | |||||||||||||
UnitedHealth Group, Inc., | |||||||||||||||
1.625%, Due 3/15/2019 | 120,000 | 119,489 | |||||||||||||
3.950%, Due 10/15/2042 | 80,000 | 73,468 | |||||||||||||
Zimmer Biomet Holdings, Inc., 3.550%, Due 4/1/2025 | 85,000 | 80,174 | |||||||||||||
Zoetis, Inc., 3.000%, Due 9/12/2027 | 75,000 | 68,513 | |||||||||||||
|
| ||||||||||||||
2,906,495 | |||||||||||||||
|
| ||||||||||||||
Energy - 0.35% | |||||||||||||||
BP Capital Markets America, Inc., 3.796%, Due 9/21/2025 | 50,000 | 49,006 | |||||||||||||
Chevron Corp., 1.790%, Due 11/16/2018 | 100,000 | 99,973 | |||||||||||||
Columbia Pipeline Group, Inc., 4.500%, Due 6/1/2025 | 81,000 | 81,395 | |||||||||||||
Concho Resources, Inc., 4.300%, Due 8/15/2028 | 85,000 | 82,937 | |||||||||||||
Enterprise Products Operating LLC, 6.125%, Due 10/15/2039 | 45,000 | 50,787 | |||||||||||||
EOG Resources, Inc., 4.150%, Due 1/15/2026 | 70,000 | 70,592 | |||||||||||||
Marathon Petroleum Corp., 3.625%, Due 9/15/2024 | 60,000 | 58,474 | |||||||||||||
MPLX LP, | |||||||||||||||
4.875%, Due 12/1/2024 | 62,000 | 63,487 | |||||||||||||
5.200%, Due 3/1/2047 | 46,000 | 43,507 | |||||||||||||
ONEOK, Inc., 4.550%, Due 7/15/2028 | 90,000 | 88,088 | |||||||||||||
Phillips 66, 4.300%, Due 4/1/2022 | 47,000 | 47,935 | |||||||||||||
Phillips 66 Partners LP, | |||||||||||||||
3.550%, Due 10/1/2026 | 53,000 | 49,508 | |||||||||||||
3.750%, Due 3/1/2028 | 50,000 | 46,290 |
See accompanying notes
19
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.99% (continued) | |||||||||||||||
Energy - 0.35% (continued) | |||||||||||||||
Spectra Energy Partners LP, 3.375%, Due 10/15/2026 | $ | 63,000 | $ | 58,421 | |||||||||||
Sunoco Logistics Partners Operations LP, 4.250%, Due 4/1/2024 | 48,000 | 47,316 | |||||||||||||
TC PipeLines LP, 3.900%, Due 5/25/2027 | 40,000 | 37,195 | |||||||||||||
Valero Energy Corp., 4.350%, Due 6/1/2028 | 60,000 | 58,565 | |||||||||||||
|
| ||||||||||||||
1,033,476 | |||||||||||||||
|
| ||||||||||||||
Financial - 4.02% | |||||||||||||||
American Campus Communities Operating Partnership LP, 3.625%, Due 11/15/2027 | 85,000 | 78,803 | |||||||||||||
American Express Co., | |||||||||||||||
3.400%, Due 2/27/2023 | 145,000 | 142,152 | |||||||||||||
4.050%, Due 12/3/2042 | 90,000 | 84,183 | |||||||||||||
American International Group, Inc., 4.875%, Due 6/1/2022 | 289,000 | 297,214 | |||||||||||||
Bank of America Corp., | |||||||||||||||
3.124%, Due 1/20/2023, (3-mo. USD LIBOR + 1.160%)D | 210,000 | 205,204 | |||||||||||||
4.125%, Due 1/22/2024 | 193,000 | 194,121 | |||||||||||||
6.110%, Due 1/29/2037 | 176,000 | 196,796 | |||||||||||||
5.000%, Due 1/21/2044 | 245,000 | 250,498 | |||||||||||||
Bank of New York Mellon Corp., | |||||||||||||||
2.200%, Due 3/4/2019 | 176,000 | 175,686 | |||||||||||||
3.250%, Due 5/16/2027 | 140,000 | 132,865 | |||||||||||||
BB&T Corp., 2.750%, Due 4/1/2022 | 150,000 | 146,047 | |||||||||||||
Boston Properties LP, 3.200%, Due 1/15/2025 | 130,000 | 123,510 | |||||||||||||
Capital One Financial Corp., 2.500%, Due 5/12/2020 | 115,000 | 113,373 | |||||||||||||
CBOE Global Markets, Inc., 3.650%, Due 1/12/2027 | 125,000 | 118,326 | |||||||||||||
Chubb INA Holdings, Inc., 3.350%, Due 5/3/2026 | 70,000 | 67,332 | |||||||||||||
Citibank NA, 2.688%, Due 2/12/2021, (3-mo. USD LIBOR + 0.350%)D | 510,000 | 509,867 | |||||||||||||
Citigroup, Inc., | |||||||||||||||
3.887%, Due 1/10/2028, (3-mo. USD LIBOR + 1.563%)D | 295,000 | 282,106 | |||||||||||||
5.875%, Due 1/30/2042 | 145,000 | 163,793 | |||||||||||||
Crown Castle International Corp., 3.400%, Due 2/15/2021 | 84,000 | 83,467 | |||||||||||||
Digital Realty Trust LP, 3.700%, Due 8/15/2027 | 95,000 | 88,816 | |||||||||||||
ERP Operating LP, 3.000%, Due 4/15/2023 | 52,000 | 50,538 | |||||||||||||
Goldman Sachs Group, Inc., | |||||||||||||||
5.750%, Due 1/24/2022 | 385,000 | 406,822 | |||||||||||||
3.060%, Due 2/23/2023, (3-mo. USD LIBOR + 0.750%)D | 1,040,000 | 1,038,951 | |||||||||||||
2.908%, Due 6/5/2023, (3-mo. USD LIBOR + 1.053%)D | 155,000 | 149,358 | |||||||||||||
3.500%, Due 1/23/2025 | 95,000 | 90,935 | |||||||||||||
3.272%, Due 9/29/2025, (3-mo. USD LIBOR + 1.201%)D | 85,000 | 80,582 | |||||||||||||
HCP, Inc., 2.625%, Due 2/1/2020 | 85,000 | 84,081 | |||||||||||||
Intercontinental Exchange, Inc., | |||||||||||||||
2.750%, Due 12/1/2020 | 72,000 | 71,177 | |||||||||||||
4.250%, Due 9/21/2048 | 35,000 | 32,614 | |||||||||||||
JPMorgan Chase & Co., | |||||||||||||||
3.625%, Due 5/13/2024 | 434,000 | 427,302 | |||||||||||||
3.797%, Due 7/23/2024, (3-mo. USD LIBOR + 0.890%)D | 85,000 | 84,432 | |||||||||||||
3.782%, Due 2/1/2028, (3-mo. USD LIBOR + 1.337%)D | 120,000 | 115,437 | |||||||||||||
3.882%, Due 7/24/2038, (3-mo. USD LIBOR + 1.360%)D | 140,000 | 126,678 | |||||||||||||
5.500%, Due 10/15/2040 | 313,000 | 344,202 | |||||||||||||
KeyCorp, 5.100%, Due 3/24/2021 | 60,000 | 62,102 | |||||||||||||
Liberty Mutual Group, Inc., 4.250%, Due 6/15/2023C | 113,000 | 113,364 | |||||||||||||
Mastercard, Inc., 3.375%, Due 4/1/2024 | 105,000 | 103,970 | |||||||||||||
MetLife, Inc., | |||||||||||||||
6.375%, Due 6/15/2034 | 169,000 | 200,079 | |||||||||||||
4.721%, Due 12/15/2044 | 193,000 | 190,329 | |||||||||||||
Metropolitan Life Global Funding I, | |||||||||||||||
2.559%, Due 9/19/2019, (3-mo. USD LIBOR + 0.220%)C D | 355,000 | 355,288 | |||||||||||||
2.638%, Due 1/8/2021, (3-mo. USD LIBOR + 0.230%)C D | 480,000 | 479,517 |
See accompanying notes
20
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.99% (continued) | |||||||||||||||
Financial - 4.02% (continued) | |||||||||||||||
Morgan Stanley, | |||||||||||||||
7.300%, Due 5/13/2019 | $ | 361,000 | $ | 368,956 | |||||||||||
5.625%, Due 9/23/2019 | 169,000 | 172,624 | |||||||||||||
3.700%, Due 10/23/2024 | 170,000 | 165,653 | |||||||||||||
3.591%, Due 7/22/2028, (3-mo. USD LIBOR + 1.340%)D | 105,000 | 98,334 | |||||||||||||
National Rural Utilities Cooperative Finance Corp., | |||||||||||||||
1.650%, Due 2/8/2019 | 92,000 | 91,715 | |||||||||||||
2.950%, Due 2/7/2024 | 65,000 | 62,661 | |||||||||||||
PNC Financial Services Group, Inc., 3.300%, Due 3/8/2022 | 110,000 | 108,912 | |||||||||||||
Prudential Financial, Inc., 4.600%, Due 5/15/2044 | 313,000 | 304,432 | |||||||||||||
Public Storage, 2.370%, Due 9/15/2022 | 105,000 | 100,610 | |||||||||||||
Raymond James Financial, Inc., 3.625%, Due 9/15/2026 | 105,000 | 98,808 | |||||||||||||
Simon Property Group LP, | |||||||||||||||
2.200%, Due 2/1/2019 | 170,000 | 169,717 | |||||||||||||
3.375%, Due 10/1/2024 | 313,000 | 303,997 | |||||||||||||
State Street Corp., 3.300%, Due 12/16/2024 | 120,000 | 116,462 | |||||||||||||
SunTrust Bank, 2.450%, Due 8/1/2022 | 110,000 | 105,352 | |||||||||||||
Travelers Cos, Inc., 4.000%, Due 5/30/2047 | 70,000 | 64,947 | |||||||||||||
Ventas Realty LP, 5.700%, Due 9/30/2043 | 55,000 | 58,587 | |||||||||||||
Visa, Inc., | |||||||||||||||
2.800%, Due 12/14/2022 | 65,000 | 63,338 | |||||||||||||
3.150%, Due 12/14/2025 | 105,000 | 101,025 | |||||||||||||
Wells Fargo & Co., | |||||||||||||||
2.150%, Due 1/30/2020, Series N | 55,000 | 54,285 | |||||||||||||
2.550%, Due 12/7/2020 | 110,000 | 107,817 | |||||||||||||
3.533%, Due 7/26/2021, (3-mo. USD LIBOR + 1.025%)D | 1,087,000 | 1,103,897 | |||||||||||||
3.000%, Due 10/23/2026 | 65,000 | 59,453 | |||||||||||||
4.750%, Due 12/7/2046 | 90,000 | 85,534 | |||||||||||||
|
| ||||||||||||||
12,029,033 | |||||||||||||||
|
| ||||||||||||||
Industrial - 0.86% | |||||||||||||||
BAE Systems Holdings, Inc., 3.800%, Due 10/7/2024C | 313,000 | 307,667 | |||||||||||||
Burlington Northern Santa Fe LLC, | |||||||||||||||
3.650%, Due 9/1/2025 | 65,000 | 64,635 | |||||||||||||
5.750%, Due 5/1/2040 | 202,000 | 232,466 | |||||||||||||
Caterpillar Financial Services Corp., 1.350%, Due 5/18/2019 | 105,000 | 104,093 | |||||||||||||
CSX Corp., 5.500%, Due 4/15/2041 | 157,000 | 166,776 | |||||||||||||
Eaton Corp., 2.750%, Due 11/2/2022 | 75,000 | 72,414 | |||||||||||||
General Dynamics Corp., 2.875%, Due 5/11/2020 | 135,000 | 134,502 | |||||||||||||
General Electric Co., | |||||||||||||||
6.000%, Due 8/7/2019 | 169,000 | 172,356 | |||||||||||||
5.500%, Due 1/8/2020 | 120,000 | 122,378 | |||||||||||||
John Deere Capital Corp., | |||||||||||||||
1.950%, Due 6/22/2020 | 105,000 | 103,273 | |||||||||||||
2.150%, Due 9/8/2022 | 90,000 | 85,734 | |||||||||||||
Lockheed Martin Corp., 3.550%, Due 1/15/2026 | 90,000 | 87,859 | |||||||||||||
Martin Marietta Materials, Inc., 4.250%, Due 12/15/2047 | 95,000 | 76,270 | |||||||||||||
Northrop Grumman Corp., | |||||||||||||||
5.050%, Due 8/1/2019 | 72,000 | 72,952 | |||||||||||||
3.850%, Due 4/15/2045 | 130,000 | 113,568 | |||||||||||||
Stanley Black & Decker, Inc., 2.451%, Due 11/17/2018 | 135,000 | 134,957 | |||||||||||||
Union Pacific Corp., 4.100%, Due 9/15/2067 | 90,000 | 74,355 | |||||||||||||
United Technologies Corp., | |||||||||||||||
1.900%, Due 5/4/2020 | 105,000 | 102,780 | |||||||||||||
4.125%, Due 11/16/2028 | 95,000 | 93,308 | |||||||||||||
6.125%, Due 7/15/2038 | 217,000 | 246,955 | |||||||||||||
|
| ||||||||||||||
2,569,298 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
21
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
CORPORATE OBLIGATIONS - 10.99% (continued) | |||||||||||||||
Technology - 0.80% | |||||||||||||||
Analog Devices, Inc., 3.900%, Due 12/15/2025 | $ | 75,000 | $ | 73,370 | |||||||||||
Apple, Inc., 2.850%, Due 5/11/2024 | 210,000 | 201,537 | |||||||||||||
Autodesk, Inc., 3.500%, Due 6/15/2027 | 95,000 | 87,222 | |||||||||||||
Broadcom Corp., 2.375%, Due 1/15/2020 | 41,000 | 40,522 | |||||||||||||
Broadridge Financial Solutions, Inc., 3.400%, Due 6/27/2026 | 65,000 | 61,162 | |||||||||||||
Dell International LLC / EMC Corp., 4.420%, Due 6/15/2021C | 135,000 | 136,120 | |||||||||||||
Hewlett Packard Enterprise Co., 6.350%, Due 10/15/2045 | 1,178,000 | 1,152,280 | |||||||||||||
HP, Inc., 4.050%, Due 9/15/2022 | 145,000 | 146,386 | |||||||||||||
Intel Corp., 3.300%, Due 10/1/2021 | 86,000 | 86,091 | |||||||||||||
Microsoft Corp., 4.450%, Due 11/3/2045 | 135,000 | 139,418 | |||||||||||||
Oracle Corp., | |||||||||||||||
2.500%, Due 5/15/2022 | 115,000 | 111,309 | |||||||||||||
4.300%, Due 7/8/2034 | 112,000 | 109,732 | |||||||||||||
QUALCOMM, Inc., 3.000%, Due 5/20/2022 | 65,000 | 63,700 | |||||||||||||
|
| ||||||||||||||
2,408,849 | |||||||||||||||
|
| ||||||||||||||
Utilities - 0.96% | |||||||||||||||
Berkshire Hathaway Energy Co., 6.125%, Due 4/1/2036 | 287,000 | 338,277 | |||||||||||||
Consolidated Edison Co. of New York, Inc., | |||||||||||||||
5.500%, Due 12/1/2039, Series 09-C | 169,000 | 189,749 | |||||||||||||
4.625%, Due 12/1/2054 | 55,000 | 53,589 | |||||||||||||
Delmarva Power & Light Co., 3.500%, Due 11/15/2023 | 86,000 | 85,346 | |||||||||||||
Dominion Energy, Inc., 2.579%, Due 7/1/2020 | 90,000 | 88,632 | |||||||||||||
DPL, Inc., 7.250%, Due 10/15/2021 | 295,000 | 313,255 | |||||||||||||
Duke Energy Corp., 3.550%, Due 9/15/2021 | 130,000 | 129,916 | |||||||||||||
Duke Energy Progress LLC, 4.150%, Due 12/1/2044 | 125,000 | 118,854 | |||||||||||||
Edison International, 2.950%, Due 3/15/2023 | 82,000 | 77,996 | |||||||||||||
Entergy Louisiana, LLC, 4.000%, Due 3/15/2033 | 67,000 | 66,026 | |||||||||||||
Florida Power & Light Co., 3.950%, Due 3/1/2048 | 50,000 | 46,355 | |||||||||||||
Georgia Power Co., 1.950%, Due 12/1/2018 | 55,000 | 54,958 | |||||||||||||
MidAmerican Energy Co., 3.100%, Due 5/1/2027 | 100,000 | 94,720 | |||||||||||||
National Fuel Gas Co., 3.950%, Due 9/15/2027 | 125,000 | 114,392 | |||||||||||||
Nevada Power Co., 2.750%, Due 4/15/2020, Series BB | 50,000 | 49,767 | |||||||||||||
NiSource, Inc., | |||||||||||||||
3.490%, Due 5/15/2027 | 70,000 | 65,715 | |||||||||||||
3.950%, Due 3/30/2048 | 65,000 | 55,966 | |||||||||||||
Southern Co., | |||||||||||||||
2.150%, Due 9/1/2019 | 92,000 | 91,200 | |||||||||||||
2.750%, Due 6/15/2020 | 241,000 | 238,376 | |||||||||||||
Southern Power Co., | |||||||||||||||
4.150%, Due 12/1/2025 | 84,000 | 82,174 | |||||||||||||
4.950%, Due 12/15/2046, Series F | 62,000 | 58,692 | |||||||||||||
Southwestern Electric Power Co., 3.550%, Due 2/15/2022 | 289,000 | 287,530 | |||||||||||||
Union Electric Co., 6.700%, Due 2/1/2019 | 96,000 | 96,919 | |||||||||||||
WEC Energy Group, Inc., 3.550%, Due 6/15/2025 | 94,000 | 92,122 | |||||||||||||
|
| ||||||||||||||
2,890,526 | |||||||||||||||
|
| ||||||||||||||
Total Corporate Obligations (Cost $33,060,523) | 32,928,630 | ||||||||||||||
|
| ||||||||||||||
FOREIGN CORPORATE OBLIGATIONS - 1.58% | |||||||||||||||
Basic Materials - 0.04% | |||||||||||||||
LYB International Finance II B.V., 3.500%, Due 3/2/2027 | 55,000 | 50,208 | |||||||||||||
Nutrien Ltd., 4.000%, Due 12/15/2026 | 74,000 | 70,805 | |||||||||||||
|
| ||||||||||||||
121,013 | |||||||||||||||
|
| ||||||||||||||
Communications - 0.53% | |||||||||||||||
Alibaba Group Holding Ltd., 3.600%, Due 11/28/2024 | 313,000 | 304,532 | |||||||||||||
America Movil S.A.B. de C.V., 6.375%, Due 3/1/2035 | 169,000 | 193,299 |
See accompanying notes
22
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
FOREIGN CORPORATE OBLIGATIONS - 1.58% (continued) | |||||||||||||||
Communications - 0.53% (continued) | |||||||||||||||
Bell Canada, Inc., 4.464%, Due 4/1/2048 | $ | 45,000 | $ | 43,002 | |||||||||||
Deutsche Telekom International Finance B.V., 4.875%, Due 3/6/2042C | 150,000 | 144,300 | |||||||||||||
Rogers Communications, Inc., 3.625%, Due 12/15/2025 | 85,000 | 81,994 | |||||||||||||
TELUS Corp., 2.800%, Due 2/16/2027 | 74,000 | 66,891 | |||||||||||||
Thomson Reuters Corp., | |||||||||||||||
4.300%, Due 11/23/2023 | 145,000 | 146,234 | |||||||||||||
3.850%, Due 9/29/2024 | 193,000 | 186,731 | |||||||||||||
Vodafone Group PLC, 6.150%, Due 2/27/2037 | 393,000 | 414,605 | |||||||||||||
|
| ||||||||||||||
1,581,588 | |||||||||||||||
|
| ||||||||||||||
Consumer, Non-Cyclical - 0.07% | |||||||||||||||
Coca-Cola Femsa S.A.B. de C.V., 3.875%, Due 11/26/2023 | 65,000 | 64,426 | |||||||||||||
Sanofi, 4.000%, Due 3/29/2021 | 75,000 | 76,120 | |||||||||||||
Shire Acquisitions Investments Ireland DAC, 2.875%, Due 9/23/2023 | 85,000 | 80,185 | |||||||||||||
|
| ||||||||||||||
220,731 | |||||||||||||||
|
| ||||||||||||||
Energy - 0.20% | |||||||||||||||
Canadian Natural Resources Ltd., | |||||||||||||||
3.900%, Due 2/1/2025 | 60,000 | 58,272 | |||||||||||||
6.250%, Due 3/15/2038 | 176,000 | 198,291 | |||||||||||||
Husky Energy, Inc., 3.950%, Due 4/15/2022 | 100,000 | 100,283 | |||||||||||||
TransCanada PipeLines Ltd., | |||||||||||||||
3.750%, Due 10/16/2023 | 145,000 | 143,671 | |||||||||||||
6.100%, Due 6/1/2040 | 82,000 | 91,615 | |||||||||||||
|
| ||||||||||||||
592,132 | |||||||||||||||
|
| ||||||||||||||
Financial - 0.64% | |||||||||||||||
Bank of Montreal, 1.750%, Due 9/11/2019 | 135,000 | 133,600 | |||||||||||||
HSBC Holdings PLC, 3.262%, Due 3/13/2023, (3-mo. USD LIBOR + 1.055%)D | 148,000 | 144,570 | |||||||||||||
Macquarie Bank Ltd., 2.758%, Due 4/4/2019, (3-mo. USD LIBOR + 0.350%)C D | 355,000 | 355,174 | |||||||||||||
National Australia Bank Ltd., 2.820%, Due 5/22/2020, (3-mo. USD LIBOR + 0.510%)C D | 470,000 | 471,580 | |||||||||||||
Nordea Bank AB, 4.875%, Due 1/27/2020C | 120,000 | 122,301 | |||||||||||||
Royal Bank of Canada, | |||||||||||||||
2.125%, Due 3/2/2020 | 130,000 | 128,286 | |||||||||||||
3.200%, Due 4/30/2021 | 170,000 | 169,291 | |||||||||||||
Toronto-Dominion Bank, | |||||||||||||||
3.000%, Due 6/11/2020 | 120,000 | 119,651 | |||||||||||||
2.550%, Due 1/25/2021 | 115,000 | 113,138 | |||||||||||||
Trinity Acquisition PLC, 4.400%, Due 3/15/2026 | 67,000 | 66,198 | |||||||||||||
Westpac Banking Corp., 2.650%, Due 1/25/2021 | 90,000 | 88,461 | |||||||||||||
|
| ||||||||||||||
1,912,250 | |||||||||||||||
|
| ||||||||||||||
Industrial - 0.10% | |||||||||||||||
Ingersoll-Rand Luxembourg Finance S.A., 2.625%, Due 5/1/2020 | 145,000 | 143,330 | |||||||||||||
Johnson Controls International PLC, 5.000%, Due 3/30/2020 | 145,000 | 148,075 | |||||||||||||
|
| ||||||||||||||
291,405 | |||||||||||||||
|
| ||||||||||||||
Total Foreign Corporate Obligations (Cost $4,698,015) | 4,719,119 | ||||||||||||||
|
| ||||||||||||||
FOREIGN SOVEREIGN OBLIGATIONS - 0.16% | |||||||||||||||
European Investment Bank, 2.375%, Due 6/15/2022 | 125,000 | 121,776 | |||||||||||||
Kreditanstalt fuer Wiederaufbau, 2.125%, Due 6/15/2022 | 120,000 | 115,883 | |||||||||||||
Province of Ontario Canada, 2.500%, Due 4/27/2026 | 150,000 | 140,259 | |||||||||||||
Province of Quebec Canada, 2.375%, Due 1/31/2022 | 105,000 | 102,193 | |||||||||||||
|
| ||||||||||||||
Total Foreign Sovereign Obligations (Cost $499,192) | 480,111 | ||||||||||||||
|
| ||||||||||||||
See accompanying notes
23
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
COMMERCIAL MORTGAGE-BACKED OBLIGATIONS - 0.63% | |||||||||||||||
Ginnie Mae REMIC Trust, | |||||||||||||||
1.147%, Due 12/16/2038, 2013-139 A | $ | 303,850 | $ | 299,984 | |||||||||||
1.624%, Due 7/16/2039, 2013-78 AB | 436,938 | 418,629 | |||||||||||||
1.368%, Due 11/16/2041, 2013-125 AB | 650,705 | 624,513 | |||||||||||||
3.200%, Due 11/16/2044, 2011-92 B | 7,116 | 7,106 | |||||||||||||
GS Mortgage Securities Trust, 3.679%, Due 8/10/2043, 2010-C1 A1C | 15,588 | 15,634 | |||||||||||||
JPMBB Commercial Mortgage Securities Trust, 3.157%, Due 7/15/2045, 2013-C12 ASB | 288,872 | 288,005 | |||||||||||||
WFRBS Commercial Mortgage Trust, 3.660%, Due 3/15/2047, 2014-C19 A3 | 219,000 | 219,760 | |||||||||||||
|
| ||||||||||||||
Total Commercial Mortgage-Backed Obligations (Cost $1,926,434) | 1,873,631 | ||||||||||||||
|
| ||||||||||||||
ASSET-BACKED OBLIGATIONS - 0.90% | |||||||||||||||
Ally Auto Receivables Trust, 1.750%, Due 12/15/2021, 2017 4 A3 | 285,000 | 281,504 | |||||||||||||
Americredit Automobile Receivables Trust, 1.530%, Due 7/8/2021, 2016 4 A3 | 95,760 | 95,215 | |||||||||||||
AmeriCredit Automobile Receivables Trust, 1.900%, Due 3/18/2022, 2017 3 A3 | 185,000 | 182,737 | |||||||||||||
BMW Vehicle Lease Trust, 2.070%, Due 10/20/2020, 2017 2 A3 | 180,000 | 178,272 | |||||||||||||
Capital One Multi-Asset Execution Trust, 1.340%, Due 4/15/2022, 2016 A3 A3 | 318,000 | 315,063 | |||||||||||||
Chase Issuance Trust, 1.370%, Due 6/15/2021, 2016 A2 A | 265,000 | 262,535 | |||||||||||||
Ford Credit Auto Lease Trust, 2.030%, Due 12/15/2020, 2017 B A3 | 170,000 | 168,467 | |||||||||||||
Ford Credit Auto Owner Trust, 2.030%, Due 8/15/2020, 2015 A B | 292,000 | 290,863 | |||||||||||||
GM Financial Automobile Leasing Trust, 2.060%, Due 5/20/2020, 2017 1 A3 | 284,000 | 282,779 | |||||||||||||
GM Financial Consumer Automobile Receivables Trust, 2.320%, Due 7/18/2022, 2018 1 A3 | 95,000 | 93,628 | |||||||||||||
John Deere Owner Trust, 3.080%, Due 11/15/2022, 2018 B A3 | 190,000 | 189,395 | |||||||||||||
Nissan Auto Receivables Owner Trust, 2.120%, Due 4/18/2022, 2017 C A3 | 100,000 | 98,376 | |||||||||||||
PSNH Funding LLC, 3.094%, Due 2/1/2026, 2018 1 A1 | 130,000 | 129,314 | |||||||||||||
World Omni Auto Receivables Trust, 1.950%, Due 2/15/2023, 2017 B A3 | 135,000 | 132,376 | |||||||||||||
|
| ||||||||||||||
Total Asset-Backed Obligations (Cost $2,724,626) | 2,700,524 | ||||||||||||||
|
| ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 5.35% | |||||||||||||||
Federal Home Loan Mortgage Corp., | |||||||||||||||
4.500%, Due 3/1/2019 | 2,417 | 2,454 | |||||||||||||
5.000%, Due 10/1/2020 | 5,126 | 5,212 | |||||||||||||
3.500%, Due 8/1/2026 | 30,812 | 30,838 | |||||||||||||
3.500%, Due 9/1/2028 | 218,303 | 218,620 | |||||||||||||
3.000%, Due 11/1/2032 | 211,595 | 207,300 | |||||||||||||
5.000%, Due 8/1/2033 | 45,984 | 48,677 | |||||||||||||
5.500%, Due 2/1/2034 | 46,707 | 50,239 | |||||||||||||
4.000%, Due 1/1/2041 | 163,695 | 165,165 | |||||||||||||
4.500%, Due 2/1/2041 | 116,145 | 120,343 | |||||||||||||
3.500%, Due 6/1/2042 | 537,589 | 528,083 | |||||||||||||
3.500%, Due 7/1/2042 | 150,086 | 147,438 | |||||||||||||
3.000%, Due 11/1/2046 | 318,549 | 301,686 | |||||||||||||
3.500%, Due 1/1/2048 | 490,636 | 477,911 | |||||||||||||
|
| ||||||||||||||
2,303,966 | |||||||||||||||
|
| ||||||||||||||
Federal National Mortgage Association, | |||||||||||||||
4.000%, Due 8/1/2020 | 10,773 | 10,950 | |||||||||||||
3.500%, Due 1/1/2028E | 101,968 | 102,151 | |||||||||||||
4.000%, Due 10/1/2033 | 257,197 | 262,110 | |||||||||||||
5.000%, Due 3/1/2034E | 50,292 | 53,350 | |||||||||||||
4.500%, Due 4/1/2034 | 88,824 | 91,409 | |||||||||||||
3.500%, Due 6/1/2037 | 311,057 | 307,713 | |||||||||||||
5.500%, Due 6/1/2038 | 9,509 | 10,179 | |||||||||||||
4.500%, Due 1/1/2040 | 128,082 | 132,631 | |||||||||||||
5.000%, Due 5/1/2040 | 201,286 | 212,821 | |||||||||||||
5.000%, Due 6/1/2040 | 160,879 | 170,148 | |||||||||||||
4.000%, Due 9/1/2040 | 110,095 | 110,931 | |||||||||||||
4.000%, Due 1/1/2041 | 214,705 | 216,331 | |||||||||||||
4.500%, Due 10/1/2041 | 139,732 | 144,434 |
See accompanying notes
24
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
U.S. AGENCY MORTGAGE-BACKED OBLIGATIONS - 5.35% (continued) | |||||||||||||||
Federal National Mortgage Association, (continued) | |||||||||||||||
3.000%, Due 6/1/2043 | $ | 852,015 | $ | 812,898 | |||||||||||
3.500%, Due 7/1/2043 | 149,577 | 146,601 | |||||||||||||
3.000%, Due 8/1/2043 | 746,185 | 711,991 | |||||||||||||
4.000%, Due 11/1/2044E | 126,293 | 127,841 | |||||||||||||
4.000%, Due 7/1/2045 | 694,669 | 695,646 | |||||||||||||
3.500%, Due 8/1/2045 | 137,609 | 134,529 | |||||||||||||
3.500%, Due 11/1/2045 | 1,514,565 | 1,480,664 | |||||||||||||
3.000%, Due 4/1/2046 | 178,603 | 169,181 | |||||||||||||
3.500%, Due 5/1/2046 | 520,085 | 508,130 | |||||||||||||
4.000%, Due 7/1/2046 | 300,723 | 301,402 | |||||||||||||
3.000%, Due 10/1/2046 | 52,622 | 49,822 | |||||||||||||
3.000%, Due 11/1/2046 | 348,564 | 330,446 | |||||||||||||
3.500%, Due 11/1/2046 | 541,643 | 529,521 | |||||||||||||
3.000%, Due 12/1/2046E | 211,917 | 200,899 | |||||||||||||
3.000%, Due 2/1/2047 | 232,840 | 220,445 | |||||||||||||
3.000%, Due 3/1/2047E | 423,621 | 401,619 | |||||||||||||
3.500%, Due 3/1/2047 | 109,737 | 106,964 | |||||||||||||
3.000%, Due 4/1/2047 | 44,675 | 42,297 | |||||||||||||
4.500%, Due 7/1/2047 | 136,830 | 140,323 | |||||||||||||
3.500%, Due 9/1/2047 | 133,484 | 130,288 | |||||||||||||
4.000%, Due 11/1/2047 | 315,601 | 315,948 | |||||||||||||
4.000%, Due 4/1/2048 | 331,511 | 331,875 | |||||||||||||
4.500%, Due 7/1/2048 | 388,793 | 398,574 | |||||||||||||
5.000%, Due 8/1/2048 | 293,052 | 306,166 | |||||||||||||
5.000%, Due 9/1/2048 | 394,239 | 411,861 | |||||||||||||
|
| ||||||||||||||
10,831,089 | |||||||||||||||
|
| ||||||||||||||
Government National Mortgage Association, | |||||||||||||||
6.500%, Due 8/15/2027 | 41,592 | 45,355 | |||||||||||||
6.500%, Due 11/15/2027 | 45,299 | 49,397 | |||||||||||||
7.500%, Due 12/15/2028 | 42,442 | 47,380 | |||||||||||||
5.500%, Due 7/15/2033 | 47,588 | 51,235 | |||||||||||||
6.000%, Due 12/15/2033 | 61,084 | 67,804 | |||||||||||||
5.500%, Due 2/20/2034 | 66,574 | 71,142 | |||||||||||||
5.000%, Due 10/15/2039 | 101,002 | 107,299 | |||||||||||||
3.500%, Due 9/15/2041 | 274,303 | 270,951 | |||||||||||||
3.000%, Due 1/20/2046 | 80,938 | 77,734 | |||||||||||||
3.000%, Due 4/20/2046 | 206,769 | 198,232 | |||||||||||||
3.000%, Due 6/20/2046 | 273,319 | 261,865 | |||||||||||||
3.500%, Due 8/20/2047 | 145,891 | 143,395 | |||||||||||||
3.500%, Due 10/20/2047 | 224,390 | 220,551 | |||||||||||||
4.000%, Due 1/20/2048 | 507,677 | 511,294 | |||||||||||||
4.500%, Due 2/20/2048 | 370,064 | 379,875 | |||||||||||||
4.500%, Due 4/20/2048 | 239,052 | 245,436 | |||||||||||||
5.000%, Due 5/20/2048 | 126,555 | 131,679 | |||||||||||||
|
| ||||||||||||||
2,880,624 | |||||||||||||||
|
| ||||||||||||||
Total U.S. Agency Mortgage-Backed Obligations (Cost $16,542,768) | 16,015,679 | ||||||||||||||
|
| ||||||||||||||
U.S. TREASURY OBLIGATIONS - 12.50% | |||||||||||||||
U.S. Treasury Notes/Bonds, | |||||||||||||||
1.250%, Due 2/29/2020 | 964,000 | 944,532 | |||||||||||||
2.352%, Due 4/30/2020, (3-mo. Treasury money market yield + 0.030%)D | 15,540,000 | 15,542,998 | |||||||||||||
1.750%, Due 10/31/2020 | 964,000 | 942,912 | |||||||||||||
1.250%, Due 3/31/2021 | 964,000 | 927,172 | |||||||||||||
1.375%, Due 4/30/2021 | 964,000 | 928,528 | |||||||||||||
2.000%, Due 5/31/2021 | 1,446,000 | 1,413,182 | |||||||||||||
2.000%, Due 2/15/2022 | 2,406,000 | 2,334,760 | |||||||||||||
1.750%, Due 9/30/2022 | 500,000 | 477,500 |
See accompanying notes
25
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
Principal Amount | Fair Value | ||||||||||||||
U.S. TREASURY OBLIGATIONS - 12.50% (continued) | |||||||||||||||
U.S. Treasury Notes/Bonds, (continued) | |||||||||||||||
1.625%, Due 11/15/2022 | $ | 964,000 | $ | 914,633 | |||||||||||
2.000%, Due 2/15/2023 | 500,000 | 480,312 | |||||||||||||
2.625%, Due 2/28/2023 | 970,000 | 956,284 | |||||||||||||
2.750%, Due 7/31/2023 | 500,000 | 494,824 | |||||||||||||
2.500%, Due 8/15/2023 | 964,000 | 943,063 | |||||||||||||
2.375%, Due 8/15/2024 | 620,000 | 598,179 | |||||||||||||
2.875%, Due 7/31/2025 | 500,000 | 494,004 | |||||||||||||
6.875%, Due 8/15/2025 | 279,000 | 343,737 | |||||||||||||
2.000%, Due 11/15/2026 | 1,685,000 | 1,551,516 | |||||||||||||
2.875%, Due 5/15/2028 | 200,000 | 195,422 | |||||||||||||
5.250%, Due 11/15/2028 | 217,000 | 255,526 | |||||||||||||
4.750%, Due 2/15/2037 | 304,000 | 366,011 | |||||||||||||
4.500%, Due 8/15/2039 | 241,000 | 283,062 | |||||||||||||
3.125%, Due 11/15/2041 | 826,000 | 792,476 | |||||||||||||
2.500%, Due 5/15/2046 | 2,348,000 | 1,967,551 | |||||||||||||
3.000%, Due 8/15/2048 | 3,550,000 | 3,282,502 | |||||||||||||
|
| ||||||||||||||
37,430,686 | |||||||||||||||
|
| ||||||||||||||
Total U.S. Treasury Obligations (Cost $37,968,282) | 37,430,686 | ||||||||||||||
|
| ||||||||||||||
Shares | |||||||||||||||
SHORT-TERM INVESTMENTS - 5.08% | |||||||||||||||
Investment Companies - 2.61% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%F G | 7,833,723 | 7,833,723 | |||||||||||||
|
| ||||||||||||||
Principal Amount | |||||||||||||||
U.S. Treasury Obligations - 2.47% | |||||||||||||||
U.S. Treasury Notes/Bonds, | |||||||||||||||
2.389%, Due 4/30/2019, (3-mo. Treasury money market yield + 0.070%)D | $ | 1,700,000 | 1,701,091 | ||||||||||||
1.125%, Due 5/31/2019 | 723,000 | 717,097 | |||||||||||||
0.750%, Due 7/15/2019 | 1,056,000 | 1,042,388 | |||||||||||||
0.875%, Due 7/31/2019 | 482,000 | 475,843 | |||||||||||||
2.379%, Due 7/31/2019, (3-mo. Treasury money market yield + 0.060%)D | 2,290,000 | 2,291,667 | |||||||||||||
0.875%, Due 9/15/2019 | 1,205,000 | 1,186,313 | |||||||||||||
|
| ||||||||||||||
7,414,399 | |||||||||||||||
|
| ||||||||||||||
7,414,399 | |||||||||||||||
|
| ||||||||||||||
Total Short-Term Investments (Cost $15,279,325) | 15,248,122 | ||||||||||||||
|
| ||||||||||||||
Shares | |||||||||||||||
SECURITIES LENDING COLLATERAL - 0.90% (Cost $2,690,067) | |||||||||||||||
Investment Companies - 0.90% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%F G | 2,690,067 | 2,690,067 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 100.28% (Cost $268,421,760) | 300,348,389 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (0.28%) | (839,866 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 299,508,523 | |||||||||||||
|
| ||||||||||||||
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, 2018.
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 $5,509,118 or 1.84% 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, 2018.
See accompanying notes
26
American Beacon Balanced FundSM
Schedule of Investments
October 31, 2018
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.
LIBOR - London Interbank Offered Rate.
LLC - Limited Liability Company.
LP - Limited Partnership.
MLP - Master Limited Partnership.
NVDR - Non Voting Depositary Receipt.
PLC - Public Limited Company.
REMIC – Real Estate Mortgage Investment Conduit.
Long Futures Contracts Open on October 31, 2018: |
| |||||||||||||||
Equity Futures Contracts | ||||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||||
S&P 500 E-Mini Index Futures | 59 | December 2018 | $ | 8,238,573 | $ | 7,997,745 | $ | (240,828 | ) | |||||||
|
|
|
|
|
| |||||||||||
$ | 8,238,573 | $ | 7,997,745 | $ | (240,828 | ) | ||||||||||
|
|
|
|
|
|
Index Abbreviations: | ||
S&P 500 | Standard & Poor’s U.S. Equity Large Cap Index. |
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2018, the investments were classified as described below:
Balanced Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 186,261,820 | $ | - | $ | - | $ | 186,261,820 | ||||||||||||||||||||
Corporate Obligations | - | 32,928,630 | - | 32,928,630 | ||||||||||||||||||||||||
Foreign Corporate Obligations | - | 4,719,119 | - | 4,719,119 | ||||||||||||||||||||||||
Foreign Sovereign Obligations | - | 480,111 | - | 480,111 | ||||||||||||||||||||||||
Commercial Mortgage-Backed Obligations | - | 1,873,631 | - | 1,873,631 | ||||||||||||||||||||||||
Asset-Backed Obligations | - | 2,700,524 | - | 2,700,524 | ||||||||||||||||||||||||
U.S. Agency Mortgage-Backed Obligations | - | 16,015,679 | - | 16,015,679 | ||||||||||||||||||||||||
U.S. Treasury Obligations | - | 37,430,686 | - | 37,430,686 | ||||||||||||||||||||||||
Short-Term Investments: | ||||||||||||||||||||||||||||
Investment Companies | 7,833,723 | - | - | 7,833,723 | ||||||||||||||||||||||||
U.S. Treasury Obligations | - | 7,414,399 | - | 7,414,399 | ||||||||||||||||||||||||
Securities Lending Collateral | 2,690,067 | - | - | 2,690,067 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 196,785,610 | $ | 103,562,779 | $ | - | $ | 300,348,389 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Liabilities | ||||||||||||||||||||||||||||
Futures Contracts | $ | (240,828 | ) | $ | - | $ | - | $ | (240,828 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Liabilities | $ | (240,828 | ) | $ | - | $ | - | $ | (240,828 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires transfers between all levels to level 3 to be disclosed. During the year ended October 31, 2018, there were no transfers into or out of Level 3.
See accompanying notes
27
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.58% | |||||||||||||||
Communication Services - 3.86% | |||||||||||||||
Media - 3.86% | |||||||||||||||
Altice USA, Inc., Class A | 232,656 | $ | 3,794,619 | ||||||||||||
Interpublic Group of Cos, Inc. | 314,335 | 7,279,999 | |||||||||||||
Meredith Corp.A | 103,659 | 5,344,658 | |||||||||||||
News Corp., Class A | 333,122 | 4,393,879 | |||||||||||||
Omnicom Group, Inc. | 107,434 | 7,984,495 | |||||||||||||
|
| ||||||||||||||
28,797,650 | |||||||||||||||
|
| ||||||||||||||
Total Communication Services | 28,797,650 | ||||||||||||||
|
| ||||||||||||||
Consumer Discretionary - 11.38% | |||||||||||||||
Auto Components - 1.98% | |||||||||||||||
Adient PLC | 71,105 | 2,163,014 | |||||||||||||
Dana, Inc. | 355,796 | 5,539,744 | |||||||||||||
Delphi Technologies PLC | 97,095 | 2,081,717 | |||||||||||||
Lear Corp. | 37,240 | 4,949,196 | |||||||||||||
|
| ||||||||||||||
14,733,671 | |||||||||||||||
|
| ||||||||||||||
Diversified Consumer Services - 0.79% | |||||||||||||||
Adtalem Global Education, Inc.B | 116,520 | 5,899,408 | |||||||||||||
|
| ||||||||||||||
Hotels, Restaurants & Leisure - 2.48% | |||||||||||||||
Norwegian Cruise Line Holdings Ltd.B | 137,549 | 6,061,784 | |||||||||||||
Royal Caribbean Cruises Ltd. | 70,845 | 7,419,597 | |||||||||||||
Wyndham Destinations, Inc. | 140,148 | 5,028,510 | |||||||||||||
|
| ||||||||||||||
18,509,891 | |||||||||||||||
|
| ||||||||||||||
Household Durables - 1.89% | |||||||||||||||
DR Horton, Inc. | 115,569 | 4,155,861 | |||||||||||||
Lennar Corp., Class A | 50,654 | 2,177,109 | |||||||||||||
Newell Brands, Inc. | 252,652 | 4,012,114 | |||||||||||||
Whirlpool Corp. | 34,385 | 3,774,097 | |||||||||||||
|
| ||||||||||||||
14,119,181 | |||||||||||||||
|
| ||||||||||||||
Internet & Direct Marketing Retail - 0.36% | |||||||||||||||
Qurate Retail, Inc.B | 123,523 | 2,710,095 | |||||||||||||
|
| ||||||||||||||
Multiline Retail - 1.10% | |||||||||||||||
Dollar General Corp. | 73,877 | 8,228,420 | |||||||||||||
|
| ||||||||||||||
Specialty Retail - 2.08% | |||||||||||||||
Aaron’s, Inc. | 114,352 | 5,389,410 | |||||||||||||
Advance Auto Parts, Inc. | 47,146 | 7,532,045 | |||||||||||||
Foot Locker, Inc. | 55,180 | 2,601,185 | |||||||||||||
|
| ||||||||||||||
15,522,640 | |||||||||||||||
|
| ||||||||||||||
Textiles, Apparel & Luxury Goods - 0.70% | |||||||||||||||
Gildan Activewear, Inc. | 33,926 | 1,014,727 | |||||||||||||
Hanesbrands, Inc. | 243,675 | 4,181,463 | |||||||||||||
|
| ||||||||||||||
5,196,190 | |||||||||||||||
|
| ||||||||||||||
Total Consumer Discretionary | 84,919,496 | ||||||||||||||
|
| ||||||||||||||
Consumer Staples - 2.05% | |||||||||||||||
Beverages - 0.99% | |||||||||||||||
Coca-Cola European Partners PLC | 162,483 | 7,391,352 | |||||||||||||
|
| ||||||||||||||
See accompanying notes
28
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.58% (continued) | |||||||||||||||
Consumer Staples - 2.05% (continued) | |||||||||||||||
Household Products - 1.06% | |||||||||||||||
Spectrum Brands Holdings, Inc. | 121,332 | $ | 7,880,513 | ||||||||||||
|
| ||||||||||||||
Total Consumer Staples | 15,271,865 | ||||||||||||||
|
| ||||||||||||||
Energy - 8.57% | |||||||||||||||
Energy Equipment & Services - 1.95% | |||||||||||||||
National Oilwell Varco, Inc. | 187,051 | 6,883,477 | |||||||||||||
TechnipFMC PLC | 199,268 | 5,240,748 | |||||||||||||
Weatherford International PLCA B | 1,805,369 | 2,437,248 | |||||||||||||
|
| ||||||||||||||
14,561,473 | |||||||||||||||
|
| ||||||||||||||
Oil, Gas & Consumable Fuels - 6.62% | |||||||||||||||
Cenovus Energy, Inc. | 499,019 | 4,221,701 | |||||||||||||
Chesapeake Energy Corp.A B | 541,767 | 1,901,602 | |||||||||||||
Devon Energy Corp. | 212,223 | 6,876,025 | |||||||||||||
EQT Corp. | 272,697 | 9,263,517 | |||||||||||||
Golar LNG Ltd. | 220,940 | 5,916,773 | |||||||||||||
Murphy Oil Corp. | 361,536 | 11,518,537 | |||||||||||||
Parsley Energy, Inc., Class AB | 154,374 | 3,615,439 | |||||||||||||
Vermilion Energy, Inc.A | 229,678 | 6,100,248 | |||||||||||||
|
| ||||||||||||||
49,413,842 | |||||||||||||||
|
| ||||||||||||||
Total Energy | 63,975,315 | ||||||||||||||
|
| ||||||||||||||
Financials - 22.06% | |||||||||||||||
Banks - 6.76% | |||||||||||||||
Fifth Third Bancorp | 511,886 | 13,815,803 | |||||||||||||
FNB Corp. | 495,156 | 5,857,695 | |||||||||||||
KeyCorp | 790,481 | 14,355,135 | |||||||||||||
Pinnacle Financial Partners, Inc. | 47,537 | 2,486,185 | |||||||||||||
Regions Financial Corp. | 395,782 | 6,716,421 | |||||||||||||
Signature Bank | 46,593 | 5,120,571 | |||||||||||||
Valley National Bancorp | 211,979 | 2,115,550 | |||||||||||||
|
| ||||||||||||||
50,467,360 | |||||||||||||||
|
| ||||||||||||||
Capital Markets - 3.18% | |||||||||||||||
Apollo Global Management LLC, Class A, MLP | 190,325 | 5,599,361 | |||||||||||||
Franklin Resources, Inc. | 171,895 | 5,242,798 | |||||||||||||
Invesco Ltd. | 202,373 | 4,393,518 | |||||||||||||
KKR & Co., Inc., Class A | 358,068 | 8,468,308 | |||||||||||||
|
| ||||||||||||||
23,703,985 | |||||||||||||||
|
| ||||||||||||||
Consumer Finance - 2.91% | |||||||||||||||
Ally Financial, Inc. | 384,351 | 9,766,359 | |||||||||||||
Discover Financial Services | 35,530 | 2,475,375 | |||||||||||||
Navient Corp. | 335,256 | 3,882,264 | |||||||||||||
SLM Corp.B | 551,978 | 5,597,057 | |||||||||||||
|
| ||||||||||||||
21,721,055 | |||||||||||||||
|
| ||||||||||||||
Diversified Financial Services - 2.35% | |||||||||||||||
AXA Equitable Holdings, Inc. | 322,604 | 6,545,635 | |||||||||||||
Jefferies Financial Group, Inc. | 191,951 | 4,121,188 | |||||||||||||
Voya Financial, Inc. | 156,148 | 6,833,037 | |||||||||||||
|
| ||||||||||||||
17,499,860 | |||||||||||||||
|
| ||||||||||||||
See accompanying notes
29
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.58% (continued) | |||||||||||||||
Financials - 22.06% (continued) | |||||||||||||||
Insurance - 5.84% | |||||||||||||||
Assurant, Inc. | 41,521 | $ | 4,036,256 | ||||||||||||
Axis Capital Holdings Ltd. | 252,431 | 14,083,126 | |||||||||||||
Fidelity National Financial, Inc. | 310,671 | 10,391,945 | |||||||||||||
Hanover Insurance Group, Inc. | 11,426 | 1,272,628 | |||||||||||||
Willis Towers Watson PLC | 96,634 | 13,834,123 | |||||||||||||
|
| ||||||||||||||
43,618,078 | |||||||||||||||
|
| ||||||||||||||
Mortgage Real Estate Investment Trusts (REITs) - 0.40% | |||||||||||||||
MFA Financial, Inc. | 432,719 | 2,998,743 | |||||||||||||
|
| ||||||||||||||
Thrifts & Mortgage Finance - 0.62% | |||||||||||||||
New York Community Bancorp, Inc. | 481,944 | 4,617,024 | |||||||||||||
|
| ||||||||||||||
Total Financials | 164,626,105 | ||||||||||||||
|
| ||||||||||||||
Health Care - 8.19% | |||||||||||||||
Health Care Equipment & Supplies - 1.15% | |||||||||||||||
Zimmer Biomet Holdings, Inc. | 75,846 | 8,615,347 | |||||||||||||
|
| ||||||||||||||
Health Care Providers & Services - 5.92% | |||||||||||||||
Cardinal Health, Inc. | 205,770 | 10,411,962 | |||||||||||||
Cigna Corp. | 40,963 | 8,758,299 | |||||||||||||
McKesson Corp. | 45,087 | 5,625,054 | |||||||||||||
MEDNAX, Inc.B | 201,360 | 8,314,155 | |||||||||||||
Universal Health Services, Inc., Class B | 91,477 | 11,119,944 | |||||||||||||
|
| ||||||||||||||
44,229,414 | |||||||||||||||
|
| ||||||||||||||
Pharmaceuticals - 1.12% | |||||||||||||||
Mylan N.V.B | 266,544 | 8,329,500 | |||||||||||||
|
| ||||||||||||||
Total Health Care | 61,174,261 | ||||||||||||||
|
| ||||||||||||||
Industrials - 15.60% | |||||||||||||||
Aerospace & Defense - 2.55% | |||||||||||||||
Spirit AeroSystems Holdings, Inc., Class A | 107,020 | 8,990,750 | |||||||||||||
TransDigm Group, Inc.B | 30,462 | 10,060,076 | |||||||||||||
|
| ||||||||||||||
19,050,826 | |||||||||||||||
|
| ||||||||||||||
Airlines - 0.53% | |||||||||||||||
Alaska Air Group, Inc. | 63,919 | 3,925,905 | |||||||||||||
|
| ||||||||||||||
Building Products - 1.86% | |||||||||||||||
JELD-WEN Holding, Inc.B | 345,708 | 5,621,212 | |||||||||||||
Johnson Controls International PLC | 114,602 | 3,663,826 | |||||||||||||
Owens Corning | 96,185 | 4,546,665 | |||||||||||||
|
| ||||||||||||||
13,831,703 | |||||||||||||||
|
| ||||||||||||||
Commercial Services & Supplies - 1.02% | |||||||||||||||
Republic Services, Inc. | 104,716 | 7,610,759 | |||||||||||||
|
| ||||||||||||||
Construction & Engineering - 1.50% | |||||||||||||||
AECOMB | 165,028 | 4,808,916 | |||||||||||||
KBR, Inc. | 322,787 | 6,384,727 | |||||||||||||
|
| ||||||||||||||
11,193,643 | |||||||||||||||
|
| ||||||||||||||
Industrial Conglomerates - 0.73% | |||||||||||||||
Carlisle Companies, Inc. | 56,640 | 5,470,857 | |||||||||||||
|
| ||||||||||||||
See accompanying notes
30
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.58% (continued) | |||||||||||||||
Industrials - 15.60% (continued) | |||||||||||||||
Machinery - 4.21% | |||||||||||||||
Dover Corp. | 141,597 | $ | 11,729,895 | ||||||||||||
Snap-on, Inc. | 30,734 | 4,731,192 | |||||||||||||
Stanley Black & Decker, Inc. | 58,944 | 6,868,155 | |||||||||||||
Terex Corp. | 128,807 | 4,300,866 | |||||||||||||
Wabtec Corp.A | 46,278 | 3,795,722 | |||||||||||||
|
| ||||||||||||||
31,425,830 | |||||||||||||||
|
| ||||||||||||||
Professional Services - 0.53% | |||||||||||||||
Nielsen Holdings PLC | 151,389 | 3,933,086 | |||||||||||||
|
| ||||||||||||||
Road & Rail - 1.76% | |||||||||||||||
Avis Budget Group, Inc.B | 174,398 | 4,904,072 | |||||||||||||
Ryder System, Inc. | 149,210 | 8,252,805 | |||||||||||||
|
| ||||||||||||||
13,156,877 | |||||||||||||||
|
| ||||||||||||||
Trading Companies & Distributors - 0.91% | |||||||||||||||
AerCap Holdings N.V.B | 136,012 | 6,811,481 | |||||||||||||
|
| ||||||||||||||
Total Industrials | 116,410,967 | ||||||||||||||
|
| ||||||||||||||
Information Technology - 8.09% | |||||||||||||||
Electronic Equipment, Instruments & Components - 2.77% | |||||||||||||||
Anixter International, Inc.B | 132,413 | 8,698,210 | |||||||||||||
Avnet, Inc. | 270,882 | 10,854,242 | |||||||||||||
Keysight Technologies, Inc.B | 20,170 | 1,151,303 | |||||||||||||
|
| ||||||||||||||
20,703,755 | |||||||||||||||
|
| ||||||||||||||
IT Services - 1.93% | |||||||||||||||
Alliance Data Systems Corp. | 24,035 | 4,955,537 | |||||||||||||
Genpact Ltd. | 165,393 | 4,533,422 | |||||||||||||
Total System Services, Inc. | 54,134 | 4,934,314 | |||||||||||||
|
| ||||||||||||||
14,423,273 | |||||||||||||||
|
| ||||||||||||||
Semiconductors & Semiconductor Equipment - 2.44% | |||||||||||||||
Marvell Technology Group Ltd. | 370,144 | 6,074,063 | |||||||||||||
Microchip Technology, Inc. | 127,766 | 8,404,447 | |||||||||||||
Versum Materials, Inc. | 118,257 | 3,732,191 | |||||||||||||
|
| ||||||||||||||
18,210,701 | |||||||||||||||
|
| ||||||||||||||
Technology Hardware, Storage & Peripherals - 0.95% | |||||||||||||||
Hewlett Packard Enterprise Co. | 462,041 | 7,046,125 | |||||||||||||
|
| ||||||||||||||
Total Information Technology | 60,383,854 | ||||||||||||||
|
| ||||||||||||||
Materials - 3.53% | |||||||||||||||
Chemicals - 2.18% | |||||||||||||||
Ashland Global Holdings, Inc. | 91,117 | 6,740,836 | |||||||||||||
Axalta Coating Systems Ltd.B | 222,537 | 5,492,213 | |||||||||||||
Eastman Chemical Co. | 51,652 | 4,046,934 | |||||||||||||
|
| ||||||||||||||
16,279,983 | |||||||||||||||
|
| ||||||||||||||
Containers & Packaging - 1.35% | |||||||||||||||
Owens-Illinois, Inc.B | 307,862 | 4,824,198 | |||||||||||||
Packaging Corp. of America | 57,515 | 5,280,452 | |||||||||||||
|
| ||||||||||||||
10,104,650 | |||||||||||||||
|
| ||||||||||||||
Total Materials | 26,384,633 | ||||||||||||||
|
|
See accompanying notes
31
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2018
Shares | Fair Value | ||||||||||||||
COMMON STOCKS - 96.58% (continued) | |||||||||||||||
Real Estate - 6.63% | |||||||||||||||
Equity Real Estate Investment Trusts (REITs) - 6.15% | |||||||||||||||
AvalonBay Communities, Inc. | 33,084 | $ | 5,802,272 | ||||||||||||
EPR Properties | 102,990 | 7,079,532 | |||||||||||||
GEO Group, Inc. | 172,363 | 3,810,946 | |||||||||||||
HCP, Inc. | 134,805 | 3,713,878 | |||||||||||||
Lamar Advertising Co., Class A | 97,160 | 7,123,771 | |||||||||||||
Liberty Property Trust | 146,023 | 6,113,983 | |||||||||||||
MGM Growth Properties LLC, Class A | 433,606 | 12,266,714 | |||||||||||||
|
| ||||||||||||||
45,911,096 | |||||||||||||||
|
| ||||||||||||||
Real Estate Management & Development - 0.48% | |||||||||||||||
Realogy Holdings Corp.A | 188,489 | 3,594,485 | |||||||||||||
|
| ||||||||||||||
Total Real Estate | 49,505,581 | ||||||||||||||
|
| ||||||||||||||
Utilities - 6.62% | |||||||||||||||
Electric Utilities - 5.92% | |||||||||||||||
Edison International | 111,827 | 7,759,675 | |||||||||||||
Evergy, Inc. | 64,739 | 3,624,737 | |||||||||||||
FirstEnergy Corp. | 155,700 | 5,804,496 | |||||||||||||
PG&E Corp. | 218,789 | 10,241,513 | |||||||||||||
Pinnacle West Capital Corp. | 100,069 | 8,230,675 | |||||||||||||
Xcel Energy, Inc. | 173,282 | 8,492,551 | |||||||||||||
|
| ||||||||||||||
44,153,647 | |||||||||||||||
|
| ||||||||||||||
Gas Utilities - 0.70% | |||||||||||||||
UGI Corp. | 98,566 | 5,229,912 | |||||||||||||
|
| ||||||||||||||
Total Utilities | 49,383,559 | ||||||||||||||
|
| ||||||||||||||
Total Common Stocks (Cost $721,802,196) | 720,833,286 | ||||||||||||||
|
| ||||||||||||||
SHORT-TERM INVESTMENTS - 3.05% (Cost $22,792,845) | |||||||||||||||
Investment Companies - 3.05% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%C D | 22,792,845 | 22,792,845 | |||||||||||||
|
| ||||||||||||||
SECURITIES LENDING COLLATERAL - 1.63% (Cost $12,169,943) | |||||||||||||||
Investment Companies - 1.63% | |||||||||||||||
American Beacon U.S. Government Money Market Select Fund, Select Class, 2.11%C D | 12,169,943 | 12,169,943 | |||||||||||||
|
| ||||||||||||||
TOTAL INVESTMENTS - 101.26% (Cost $756,764,984) | 755,796,074 | ||||||||||||||
LIABILITIES, NET OF OTHER ASSETS - (1.26%) | (9,410,681 | ) | |||||||||||||
|
| ||||||||||||||
TOTAL NET ASSETS - 100.00% | $ | 746,385,393 | |||||||||||||
|
| ||||||||||||||
Percentages are stated as a percent of net assets. |
A All or a portion of this security is on loan at October 31, 2018.
B Non-income producing security.
C The Fund is affiliated by having the same investment advisor.
D 7-day yield.
LLC - Limited Liability Company.
MLP - Master Limited Partnership.
PLC - Public Limited Company.
See accompanying notes
32
American Beacon Mid-Cap Value FundSM
Schedule of Investments
October 31, 2018
Long Futures Contracts Open on October 31, 2018: |
| |||||||||||||||
Equity Futures Contracts | ||||||||||||||||
Description | Number of Contracts | Expiration Date | Notional Amount | Contract Value | Unrealized Appreciation (Depreciation) | |||||||||||
S&P MidCap 400 E-Mini Index Futures | 119 | December 2018 | $ | 23,162,665 | $ | 21,715,120 | $ | (1,447,545 | ) | |||||||
|
|
|
|
|
| |||||||||||
$ | 23,162,665 | $ | 21,715,120 | $ | (1,447,545 | ) | ||||||||||
|
|
|
|
|
|
Index Abbreviations: | ||
S&P 400 | Standard & Poor’s Midcap Index. |
The Fund’s investments are summarized by level based on the inputs used to determine their values. As of October 31, 2018, the investments were classified as described below:
Mid-Cap Value Fund | Level 1 | Level 2 | Level 3 | Total | ||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||
Common Stocks | $ | 720,833,286 | $ | - | $ | - | $ | 720,833,286 | ||||||||||||||||||||
Short-Term Investments | 22,792,845 | - | - | 22,792,845 | ||||||||||||||||||||||||
Securities Lending Collateral | 12,169,943 | - | - | 12,169,943 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Investments in Securities - Assets | $ | 755,796,074 | $ | - | $ | - | $ | 755,796,074 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Financial Derivative Instruments - Liabilities | ||||||||||||||||||||||||||||
Futures Contracts | $ | (1,447,545 | ) | $ | - | $ | - | $ | (1,447,545 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total Financial Derivative Instruments - Liabilities | $ | (1,447,545 | ) | $ | - | $ | - | $ | (1,447,545 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
|
U.S. GAAP requires transfers between all levels to level 3 to be disclosed. During the year ended October 31, 2018, there were no transfers into or out of Level 3.
See accompanying notes
33
American Beacon FundsSM
Statements of Assets and Liabilities
October 31, 2018
Balanced Fund | Mid-Cap Value Fund | |||||||||||
Assets: | ||||||||||||
Investments in unaffiliated securities, at fair value†§ | $ | 289,824,599 | $ | 720,833,286 | ||||||||
Investments in affiliated securities, at fair value‡ | 10,523,790 | 34,962,788 | ||||||||||
Cash | 86,426 | 54,388 | ||||||||||
Deposit with brokers for futures contracts | 605,842 | 2,477,481 | ||||||||||
Dividends and interest receivable | 760,360 | 411,225 | ||||||||||
Receivable for investments sold | 5,106,716 | 5,101,634 | ||||||||||
Receivable for fund shares sold | 225,651 | 923,984 | ||||||||||
Prepaid expenses | 194,996 | 51,861 | ||||||||||
|
|
|
| |||||||||
Total assets | 307,328,380 | 764,816,647 | ||||||||||
|
|
|
| |||||||||
Liabilities: | ||||||||||||
Payable for investments purchased | 4,503,993 | 3,126,794 | ||||||||||
Payable for fund shares redeemed | 141,716 | 906,307 | ||||||||||
Payable for expense reimbursement (Note 2) | - | 318 | ||||||||||
Management and sub-advisory fees payable (Note 2) | 91,334 | 520,822 | ||||||||||
Service fees payable (Note 2) | 58,368 | 110,992 | ||||||||||
Transfer agent fees payable (Note 2) | 12,701 | 19,482 | ||||||||||
Payable upon return of securities loaned (Note 9)§ | 2,690,067 | 12,169,943 | ||||||||||
Custody and fund accounting fees payable | 7,929 | 6,969 | ||||||||||
Professional fees payable | 52,538 | 38,835 | ||||||||||
Trustee fees payable (Note 2) | 2,102 | 5,251 | ||||||||||
Payable for prospectus and shareholder reports | 16,084 | 17,058 | ||||||||||
Payable for variation margin from open futures contracts (Note 5) | 240,737 | 1,501,683 | ||||||||||
Other liabilities | 2,288 | 6,800 | ||||||||||
|
|
|
| |||||||||
Total liabilities | 7,819,857 | 18,431,254 | ||||||||||
|
|
|
| |||||||||
Net assets | $ | 299,508,523 | $ | 746,385,393 | ||||||||
|
|
|
| |||||||||
Analysis of net assets: | ||||||||||||
Paid-in-capital | 245,459,170 | $ | 709,061,116 | |||||||||
Total distributable earnings (deficits)A | 54,049,353 | 37,324,277 | ||||||||||
|
|
|
| |||||||||
Net assets | $ | 299,508,523 | $ | 746,385,393 | ||||||||
|
|
|
|
See accompanying notes
34
American Beacon FundsSM
Statements of Assets and Liabilities
October 31, 2018
Balanced Fund | Mid-Cap Value Fund | |||||||||||
Shares outstanding at no par value (unlimited shares authorized): | ||||||||||||
Institutional Class | 3,715,744 | 16,027,144 | ||||||||||
|
|
|
| |||||||||
Y Class | 4,372,156 | 6,290,621 | ||||||||||
|
|
|
| |||||||||
Investor Class | 7,473,498 | 24,232,254 | ||||||||||
|
|
|
| |||||||||
Advisor Class | 403,690 | 237,174 | ||||||||||
|
|
|
| |||||||||
A Class | 1,259,878 | 797,184 | ||||||||||
|
|
|
| |||||||||
C Class | 2,477,621 | 399,941 | ||||||||||
|
|
|
| |||||||||
R6 ClassB | N/A | 12,357 | ||||||||||
|
|
|
| |||||||||
Net assets: | ||||||||||||
Institutional Class | $ | 60,191,704 | $ | 248,752,034 | ||||||||
|
|
|
| |||||||||
Y Class | $ | 71,296,735 | $ | 96,799,413 | ||||||||
|
|
|
| |||||||||
Investor Class | $ | 107,677,984 | $ | 379,123,913 | ||||||||
|
|
|
| |||||||||
Advisor Class | $ | 6,174,284 | $ | 3,597,339 | ||||||||
|
|
|
| |||||||||
A Class | $ | 18,121,273 | $ | 12,080,510 | ||||||||
|
|
|
| |||||||||
C Class | $ | 36,046,543 | $ | 5,840,412 | ||||||||
|
|
|
| |||||||||
R6 ClassB | N/A | $ | 191,772 | |||||||||
|
|
|
| |||||||||
Net asset value, offering and redemption price per share: | ||||||||||||
Institutional Class | $ | 16.20 | $ | 15.52 | ||||||||
|
|
|
| |||||||||
Y Class | $ | 16.31 | $ | 15.39 | ||||||||
|
|
|
| |||||||||
Investor Class | $ | 14.41 | $ | 15.65 | ||||||||
|
|
|
| |||||||||
Advisor Class | $ | 15.29 | $ | 15.17 | ||||||||
|
|
|
| |||||||||
A Class | $ | 14.38 | $ | 15.15 | ||||||||
|
|
|
| |||||||||
A Class (offering price) | $ | 15.26 | $ | 16.07 | ||||||||
|
|
|
| |||||||||
C Class | $ | 14.55 | $ | 14.60 | ||||||||
|
|
|
| |||||||||
R6 ClassB | N/A | $ | 15.52 | |||||||||
|
|
|
| |||||||||
† Cost of investments in unaffiliated securities | $ | 257,897,970 | $ | 721,802,196 | ||||||||
‡ Cost of investments in affiliated securities | $ | 10,523,790 | $ | 34,962,788 | ||||||||
§ Fair value of securities on loan | $ | 2,596,483 | $ | 11,632,124 | ||||||||
A The Fund’s investments in affiliated securities did not have unrealized appreciation (depreciation) at year end. |
| |||||||||||
B Class commenced operations February 28, 2018 (Note 1). |
|
See accompanying notes
35
American Beacon FundsSM
Statements of Operations
For the year ended October 31, 2018
Balanced Fund | Mid-Cap Value Fund | |||||||||||
Investment income: | ||||||||||||
Dividend income from unaffiliated securities (net of foreign taxes)† | $ | 5,360,026 | $ | 15,701,100 | ||||||||
Dividend income from affiliated securities (Note 8) | 96,361 | 570,682 | ||||||||||
Interest income | 3,090,301 | 4,642 | ||||||||||
Income derived from securities lending (Note 9) | 27,107 | 90,607 | ||||||||||
|
|
|
| |||||||||
Total investment income | 8,573,795 | 16,367,031 | ||||||||||
|
|
|
| |||||||||
Expenses: | ||||||||||||
Management and sub-advisory fees (Note 2) | 1,754,892 | 6,204,256 | ||||||||||
Transfer agent fees: | ||||||||||||
Institutional Class (Note 2) | 9,121 | 63,418 | ||||||||||
Y Class (Note 2) | 61,127 | 108,954 | ||||||||||
Investor Class | 8,811 | 13,766 | ||||||||||
Advisor Class | 543 | 2,277 | ||||||||||
A Class | 1,263 | 1,193 | ||||||||||
C Class | 2,551 | 1,378 | ||||||||||
R6 Class | - | 2,131 | ||||||||||
Custody and fund accounting fees | 45,995 | 93,343 | ||||||||||
Professional fees | 60,487 | 66,301 | ||||||||||
Registration fees and expenses | 86,508 | 125,507 | ||||||||||
Service fees (Note 2): | ||||||||||||
Investor Class | 390,629 | 1,111,866 | ||||||||||
Advisor Class | 19,858 | 9,225 | ||||||||||
A Class | 9,561 | 23,093 | ||||||||||
C Class | 15,938 | 1,455 | ||||||||||
Distribution fees (Note 2): | ||||||||||||
Advisor Class | 19,973 | 9,225 | ||||||||||
A Class | 52,714 | 36,059 | ||||||||||
C Class | 406,208 | 68,453 | ||||||||||
Prospectus and shareholder report expenses | 40,003 | 79,054 | ||||||||||
Trustee fees (Note 2) | 23,429 | 55,232 | ||||||||||
Other expenses | 34,466 | 49,654 | ||||||||||
|
|
|
| |||||||||
Total expenses | 3,044,077 | 8,125,840 | ||||||||||
|
|
|
| |||||||||
Net fees waived and expenses (reimbursed) / recouped (Note 2)A | (64,825 | ) | (2,078 | ) | ||||||||
|
|
|
| |||||||||
Net expenses | 2,979,252 | 8,123,762 | ||||||||||
|
|
|
| |||||||||
Net investment income | 5,594,543 | 8,243,269 | ||||||||||
|
|
|
| |||||||||
Realized and unrealized gain (loss) from investments: | ||||||||||||
Net realized gain (loss) from: | ||||||||||||
Investments in unaffiliated securitiesB | 22,517,268 | 35,734,348 | ||||||||||
Commission recapture (Note 1) | 3,304 | 51,069 | ||||||||||
Foreign currency transactions | 915 | (1,057 | ) | |||||||||
Futures contracts | 268,213 | 3,261,868 | ||||||||||
Change in net unrealized appreciation (depreciation) of: | ||||||||||||
Investments in unaffiliated securitiesC | (23,885,306 | ) | (111,472,440 | ) | ||||||||
Foreign currency transactions | - | 47 | ||||||||||
Futures contracts | (338,507 | ) | (2,708,683 | ) | ||||||||
|
|
|
| |||||||||
Net (loss) from investments | (1,434,113 | ) | (75,134,848 | ) | ||||||||
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | $ | 4,160,430 | $ | (66,891,579 | ) | |||||||
|
|
|
| |||||||||
† Foreign taxes | $ | 59,657 | $ | 82,932 | ||||||||
A The Manager voluntarily reimbursed service fees in the Balanced Fund in the amount of $64,825. |
| |||||||||||
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 net 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, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||||||
Increase (decrease) in net assets: | ||||||||||||||||||||||||||||
Operations: | ||||||||||||||||||||||||||||
Net investment income | $ | 5,594,543 | $ | 8,296,612 | $ | 8,243,269 | $ | 5,825,978 | ||||||||||||||||||||
Net realized gain from investments in unaffiliated securities, commission recapture, foreign currency transactions, and futures contracts | 22,789,700 | 61,221,937 | 39,046,228 | 34,267,279 | ||||||||||||||||||||||||
Change in net unrealized appreciation (depreciation) of investments in unaffiliated securities, foreign currency transactions, and futures contracts | (24,223,813 | ) | 11,140,075 | (114,181,076 | ) | 92,030,585 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations | 4,160,430 | 80,658,624 | (66,891,579 | ) | 132,123,842 | |||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Distributions to shareholders: | ||||||||||||||||||||||||||||
Net investment income: | ||||||||||||||||||||||||||||
Institutional Class | - | (3,922,895 | ) | - | (3,184,300 | ) | ||||||||||||||||||||||
Y Class | - | (1,320,074 | ) | - | (1,054,082 | ) | ||||||||||||||||||||||
Investor Class | - | (2,791,629 | ) | - | (3,122,003 | ) | ||||||||||||||||||||||
Advisor Class | - | (196,602 | ) | - | (63,730 | ) | ||||||||||||||||||||||
A Class | - | (506,915 | ) | - | (224,784 | ) | ||||||||||||||||||||||
C Class | - | (535,923 | ) | - | (30,824 | ) | ||||||||||||||||||||||
Total retained earnings:* | ||||||||||||||||||||||||||||
Institutional Class | (6,261,952 | ) | - | (9,434,653 | ) | - | ||||||||||||||||||||||
Y Class | (4,822,027 | ) | - | (3,447,030 | ) | - | ||||||||||||||||||||||
Investor Class | (9,640,824 | ) | - | (9,262,634 | ) | - | ||||||||||||||||||||||
Advisor Class | (761,574 | ) | - | (94,728 | ) | - | ||||||||||||||||||||||
A Class | (1,718,656 | ) | - | (434,137 | ) | - | ||||||||||||||||||||||
C Class | (2,976,692 | ) | - | (184,144 | ) | - | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net distributions to shareholders | (26,181,725 | ) | (9,274,038 | ) | (22,857,326 | ) | (7,679,723 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Capital share transactions (Note 11): | ||||||||||||||||||||||||||||
Proceeds from sales of shares | 53,469,502 | 125,828,653 | 405,914,174 | 180,157,266 | ||||||||||||||||||||||||
Reinvestment of dividends and distributions | 25,384,629 | 8,901,335 | 22,545,457 | 7,582,763 | ||||||||||||||||||||||||
Cost of shares redeemed | (109,865,841 | ) | (571,205,485 | ) | (261,376,072 | ) | (183,160,251 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net assets from capital share transactions | (31,011,710 | ) | (436,475,497 | ) | 167,083,559 | 4,579,778 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in net assets | (53,033,005 | ) | (365,090,911 | ) | 77,334,654 | 129,023,897 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net assets: | ||||||||||||||||||||||||||||
Beginning of period | 352,541,528 | 717,632,439 | 669,050,739 | 540,026,842 | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
End of period | $ | 299,508,523 | $ | 352,541,528 | $ | 746,385,393 | $ | 669,050,739 | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
* Distributions from net investment income and net realized capital gains are combined for the year ended October 31, 2018. See Note 1 in the Notes to Financial Statements for more information regarding new accounting pronouncements. |
|
See accompanying notes
37
American Beacon FundsSM
October 31, 2018
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, as amended (the “Act”), as diversified, open-end management investment companies. As of October 31, 2018, the Trust consists of thirty-three 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-one active series are reported in separate filings.
American Beacon Advisors, Inc. (the “Manager”) is a Delaware corporation and a wholly-owned subsidiary of Resolute Investment Managers, Inc. (“RIM”) organized in 1986 to provide business management, advisory, administrative, and asset management consulting services to the Trust and other investors. The Manager is registered as an investment advisor under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). RIM is, in turn, a wholly-owned subsidiary of Resolute Acquisition, Inc., which is a wholly-owned subsidiary of Resolute Topco, Inc., a wholly-owned subsidiary of Resolute Investment Holdings, LLC (“RIH”). RIH is owned primarily by Kelso Investment Associates VIII, L.P., KEP VI, LLC and Estancia Capital Partners L.P., investment funds affiliated with Kelso & Company, L.P. (“Kelso”) or Estancia Capital Management, LLC (“Estancia”), which are private equity firms.
Recent Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Premium Amortization of Purchased Callable Debt Securities. The amendments in the ASU shorten the premium amortization period on a purchased callable debt security from the security’s contractual life to the earliest call date. It is anticipated that this change will enhance disclosures by reducing losses recognized when a security is called on an earlier date. This ASU is effective for fiscal years beginning after December 15, 2018. The Manager continues to evaluate the impact this ASU will have on the financial statements and other disclosures.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820). The amendments in the ASU impact disclosure requirements for fair value measurement. It is anticipated that this change will enhance the effectiveness of disclosures in the notes to the financial statements. This ASU is effective for fiscal years beginning after December 15, 2019. Early adoption is permitted and can include the entire standard or certain provisions that exclude or amend disclosures. For the year ended October 31, 2018, the Funds have chosen to adopt the standard. The adoption of this ASU guidance did not have a material impact on the financial statements and other disclosures.
In August 2018, the U.S. Securities and Exchange Commission (“SEC”) adopted amendments to certain disclosure requirements in Securities Act Release No. 33-10532, Disclosure Update and Simplification, which is intended to facilitate the disclosure of information to investors and simplify compliance without significantly altering the total mix of information provided to investors. Effective with the current reporting period, the Fund adopted the amendments with the impacts being that the Fund is no longer required to present components of distributable earnings on the Statements of Assets and Liabilities or the sources of distributable earnings and the amount of undistributed net investment income on the Statements of Changes in Net Assets.
Class Disclosure
On February 28, 2018, the Mid-Cap Value Fund created the R6 Class, a new class made available for sale to large institutional retirement plan investors pursuant to an amendment to the Fund’s registration statement filed with the SEC. Refer to the Fund’s prospectus for more details.
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 |
38
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Class | Eligible Investors | Minimum Initial Investments | ||||
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 a broker or through 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 respective Fund. Class specific expenses, where applicable, currently include service, distribution, transfer agent fees, and sub-transfer agent fees that vary amongst the classes as described more fully in Note 2.
Significant Accounting Policies
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 FASB Accounting Standards 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 as of the trade date for financial reporting purposes. Securities purchased or sold on a when-issued or delayed-delivery basis may be settled beyond a standard settlement period for the security after the trade date.
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 convertible securities, premiums attributable to the conversion feature are not amortized. Realized gains (losses) from securities sold are determined on the basis of specific lot identification. Estimated tax liabilities on certain foreign securities are recorded on an accrual basis and are reflected as components of interest income or net change in unrealized appreciation (depreciation) on investments on the Statement of Operations, as appropriate. Tax liabilities realized as a result of such security sales are reflected as a component of net realized gain (loss) on investments on the Statement of Operations. Paydown gains (losses) on mortgage-related and other asset-backed securities, if any, are recorded as components of interest income on the Statements of Operations. Income or short-term capital gain distributions received from registered investment companies, if any, are recorded as dividend income. Long-term gain distributions received from registered investment companies, if any, are recorded as realized gains.
Debt obligations may be placed on a non-accrual status and related interest income may be reduced by ceasing current accruals and writing off interest receivable when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. A debt obligation is removed for non-accrual when the issuer resumes interest payments or when collectability of interest is probable. Realized gains (losses) from securities sold are determined on the basis of specific lot identification.
39
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Distributions to Shareholders
Distributions, if any, of net investment income of the Balanced Fund will normally be declared and paid quarterly. Distributions, if any, of 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 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 the 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 Trust’s Board of Trustees (the “Board”) deems 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.
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 significant ownership of more than 5% of the Funds’ outstanding shares could have a material impact on the Funds. As of October 31, 2018, based on management’s evaluation of the shareholder account base, exclusive of omnibus accounts, one account has been identified as representing a non-affiliated significant ownership of approximately 7% of the Balanced Fund’s outstanding shares and one account has been identified as representing a non-affiliated significant ownership of approximately 16% of the Mid-Cap Value Fund’s outstanding shares.
40
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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 each 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.
The Management and Sub-Advisory Fees paid by the Funds for the year ended October 31, 2018 were as follows:
Balanced Fund
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 1,171,539 | ||||||||
Sub-Advisor Fees | 0.17 | % | 583,353 | |||||||||
|
|
|
| |||||||||
Total | 0.52 | % | $ | 1,754,892 | ||||||||
|
|
|
|
Mid-Cap Value Fund
Effective Fee Rate | Amount of Fees Paid | |||||||||||
Management Fees | 0.35 | % | $ | 2,816,411 | ||||||||
Sub-Advisor Fees | 0.42 | % | 3,387,845 | |||||||||
|
|
|
| |||||||||
Total | 0.77 | % | $ | 6,204,256 | ||||||||
|
|
|
|
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 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 Statements of Operations. During the year ended October 31, 2018, the Manager received securities lending fees of $3,011 and $9,395 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
41
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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 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 0.25% 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.
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 and Y Classes of the Funds and has agreed to compensate the intermediaries for providing these services. 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 Fund’s transfer agent and other service providers if the shareholders’ accounts were maintained directly by the Fund’s transfer agent. Accordingly, the Funds, pursuant to 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, 2018, 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 | $ | 66,154 | ||
Mid-Cap Value | 149,067 |
As of October 31, 2018, 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 | $ | 7,771 | ||
Mid-Cap Value | 10,735 |
42
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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, 2018, 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 | $ | 6,190 | $ | 3,630 | $ | 9,820 | ||||||
Mid-Cap Value | 38,187 | 18,132 | 56,319 |
Interfund Credit Facility
Pursuant to an exemptive order issued by the 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 two 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, 2018, the Balanced Fund borrowed $4,754,923 for 1 day at an interest rate of 2.06% with interest charges of $268. This amount is included in “Interest income” on the Statements of Operations. During the year ended October 31, 2018, the Mid-Cap Value Fund did not utilize the credit facility.
Expense Reimbursement Plan
The Manager voluntarily agreed to reduce fees and/or reimburse expenses for the classes of the Funds to the extent that total operating expenses exceed the Funds’ expense cap. During the year ended October 31, 2018, the Manager waived and/or reimbursed expenses as follows:
Expense Cap | Expiration of Reimbursed Expenses | |||||||||||||||||
Fund | Class | 2/28/2018 - 10/31/2018 | Reimbursed Expenses | (Recouped) Expenses | ||||||||||||||
Mid-Cap Value | R6 | 0.88 | %(1) | $ | 2,078 | $ | - | 2021 |
(1) | Voluntary expense cap effective February 28, 2018. |
Of these amounts, $318 was disclosed as a payable to the Manager on the Statements of Assets and Liabilities at October 31, 2018 for the Mid-Cap Value Fund.
The Funds have adopted an Expense Reimbursement Plan whereby the Manager may seek repayment of such fee reductions and expense reimbursements. Under the policy, the Manager can be reimbursed by the Funds for any contractual or voluntary fee reductions or expense reimbursements if reimbursement to the Manager (a) occurs
43
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
within three years after the Manager’s own waiver or reimbursement and (b) does not cause the Funds’ 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 2021. The Funds did not record a liability for potential reimbursement due to the current assessment that a reimbursement is unlikely.
The Distributor
Effective March 1, 2018, Resolute Investment Distributors, Inc. (“RID” or “Distributor”) replaced Foreside Fund Services, LLC (“Foreside”) as the Funds’ distributor and principal underwriter of the Funds’ shares.
RID is a registered broker-dealer and is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). The Distributor is affiliated with the Manager through common ownership. Under a Distribution Agreement with the Trust, the Distributor acts as the distributor and principal underwriter of the Trust in connection with the continuous offering of shares of the Funds. The Distributor continually distributes shares of the Funds on a best efforts basis. The Distributor has no obligation to sell any specific quantity of the Funds’ shares. Pursuant to the Distribution Agreement, to the extent applicable, the Distributor receives, and may re-allocate to broker-dealers, all or a portion of the sales charge paid by the purchasers of A Class and C Class shares. For A Class and C Class shares, the Distributor receives commission revenue consisting of the portion of A Class and C Class sales charge remaining after the allowances by the Distributor to the broker-dealers. The Distributor retains any portion of the commission fees that are not paid to the broker-dealers for use solely to pay distribution related expenses.
Prior to March 1, 2018, Foreside served as the distributor and principal underwriter of the Funds’ shares. Pursuant to a Sub-Administration Agreement between Foreside and the Manager in effect through February 28, 2018, Foreside received a fee from the Manager for providing administrative services in connection with the marketing and distribution of shares of the Trust, including the registration of Manager employees as registered representatives of Foreside to facilitate distribution of Fund shares. Foreside also received a fee from the Manager under a Marketing Agreement pursuant to which Foreside provided services in connection with the marketing of a Fund to institutional investors. Pursuant to the Distribution Agreement with the Trust in effect through February 28, 2018, Foreside received, and may have re-allocated to broker-dealers, all or a portion of the sales charge paid by the purchasers of A and C Class shares. For A and C Class shares, Foreside received commission revenues consisting of the portion of A and C Class sales charge remaining after the allowances by Foreside to the broker dealers. Foreside retained any portion of the commission fees that were not paid to the broker-dealers for use solely to pay distribution related expenses.
Sales Commissions
The Funds’ Distributor, formerly 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 period ended February 28, 2018, Foreside collected $3,380 and $2,255 for Balanced Fund and Mid-Cap Value Fund, respectively, from the sale of Class A Shares. During the period March 1, 2018 through October 31, 2018, RID collected $4,077 and $1,302 for the 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, 2018, there were no CDSC fees collected for Class A Shares of the Funds.
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 period ended
44
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
February 28, 2018, Foreside collected CDSC fees of $2,422 and $64 for Class C Shares of the Balanced Fund and Mid-Cap Value Fund, respectively. During the period March 1, 2018 through October 31, 2018, RID collected $3,280 and $1,344 for Class C Shares of both Funds, respectively.
Trustee Fees and Expenses
As compensation for their service to the Trust, American Beacon Select Funds, American Beacon Institutional Funds Trust, American Beacon Sound Point Enhanced Income Fund, and American Beacon Apollo Total Return Fund, each Trustee receives an annual retainer of $120,000, plus $10,000 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 $2,500 fee each quarter for his attendance at the committee meetings. Effective January 1, 2018, the Board Vice Chair receives an additional annual retainer of $10,000. 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 Trusts according to its respective net assets.
3. Security Valuation and Fair Value Measurements
The price of the Fund’s shares is based on the Fund’s Net Asset Value (“NAV”). The NAV of the Fund, or each of its share classes, as applicable, is determined by dividing the total value of portfolio investments and other assets, less any liabilities attributable to the Fund or class, by the total number of shares outstanding of the Fund or class.
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. Certain fixed-income securities purchased on a delayed-delivery basis are marked-to-market daily until settlement at the forward settlement date.
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 following procedures approved 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.
45
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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 (“ABS”) 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
46
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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 and Non-Voting Depositary Receipts
American Depositary Receipts (“ADRs”) are depositary receipts for foreign issuers in registered form traded in U.S. securities markets. Non-Voting Depositary Receipts (“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 are securities issued by trusts and special purpose entities that are backed by pools of assets, such as automobile and credit-card receivables and home equity loans, which pass through the payments on the underlying obligations to the security holders (less servicing fees paid to the originator or fees for any credit enhancement). Typically, loans or accounts receivable paper are transferred from the originator to a specially created trust, which repackages the trust’s interests as securities with a minimum denomination and a specific term. The securities are then privately placed or publicly offered. Examples include certificates for automobile receivables and so-called plastic bonds, backed by credit card receivables. The Funds are permitted to invest in asset-backed securities, subject to the Funds’ rating and quality requirements.
The value of an asset-backed security is affected by, among other things, changes in the market’s perception of the asset backing the security, the creditworthiness of the servicing agent for the loan pool, the originator of the loans and the financial institution providing any credit enhancement. Payments of principal and interest passed through to holders of asset-backed securities are frequently supported by some form of credit enhancement, such as a letter of credit, surety bond, limited guarantee by another entity or by having a priority to certain of the borrower’s other assets. The degree of credit enhancement varies, and generally applies to only a portion of the asset-backed security’s par value. Value is also affected if any credit enhancement has been exhausted.
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 OTC. OTC stock may be less liquid than exchange-traded stock.
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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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.
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 certificates of deposit (“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.
High-Yield Securities
Non-investment-grade securities are rated below the four highest credit grades by at least one of the public rating agencies (or are unrated if not publicly rated). Participation in high-yielding securities transactions generally involves greater returns in the form of higher average yields. However, participation in such transactions involves
48
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
greater risks, including sensitivity to economic changes, solvency, and relative liquidity in the secondary trading market. Lower ratings may reflect a greater possibility that the financial condition of the issuer, or adverse changes in general economic conditions, or both, may impair the ability of the issuer to make payments of interest and principal. The prices and yields of lower-rated securities generally fluctuate more than higher-quality securities, and such prices may decline significantly in periods of general economic difficulty or rising interest rates.
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, 2018 are disclosed in the Fund’s Notes to the Schedules 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.
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 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.
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 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 Funds’ 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
49
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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.
Privately Issued Mortgage-Backed Securities
Pools created by non-governmental issuers generally offer a higher rate of interest than government and government-related pools because there are no direct or indirect government guarantees of payments in such pools. However, timely payment of interest and principal of these pools is often partially supported by various enhancements such as over-collateralization and senior/subordination structures and by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. The insurance and guarantees are issued by government entities, private insurers or the mortgage poolers. Although the market for such securities is becoming increasingly liquid, securities issued by certain private organizations may not be readily marketable.
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 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
50
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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 and credit ratings. The principal and interest components of selected securities are traded independently under the STRIPS program. Under the STRIPS program, the principal and interest components are individually numbered and separately issued by the U.S. Treasury at the request of depository financial institutions, which then trade the component parts independently.
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 gain market exposure on cash balances to hedge foreign currency exposure 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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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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, 2018, the Funds entered into futures 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, 2018 | |||
Balanced | 65 | |||
Mid-Cap Value | 172 |
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, 2018: |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Payable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | (240,828 | ) | $ | (240,828 | ) | |||||||||||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statements of Operations as of October 31, 2018: |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivatives not accounted for as hedging instruments |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) from derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 268,213 | $ | 268,213 | |||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized appreciation | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | (338,507 | ) | $ | (338,507 | ) |
52
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Mid-Cap Value Fund
Fair values of financial instruments on the Statements of Assets and Liabilities as of October 31, 2018: |
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Derivatives not accounted for as hedging instruments |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Liabilities: | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Payable for variation margin from open futures contracts(2) | $ | - | $ | - | $ | - | $ | - | $ | (1,447,545 | ) | $ | (1,447,545 | ) | |||||||||||||||||||||||||||||||||||||||||
The effect of financial derivative instruments on the Statements of Operations as of October 31, 2018: |
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Derivatives not accounted for as hedging instruments |
|
| |||||||||||||||||||||||||||||||||||||||||||||||||||||
Realized gain (loss) from derivatives | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | 3,261,868 | $ | 3,261,868 | |||||||||||||||||||||||||||||||||||||||||||
Net change in unrealized appreciation | Credit contracts | Foreign exchange contracts | Commodity contracts | Interest rate contracts | Equity contracts | Total | |||||||||||||||||||||||||||||||||||||||||||||||||
Futures contracts | $ | - | $ | - | $ | - | $ | - | $ | (2,708,683 | ) | $ | (2,708,683 | ) |
(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.
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, 2018.
Balanced Fund
Offsetting of Financial and Derivative Assets as of October 31, 2018: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | - | $ | 240,828 | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | - | $ | 240,828 | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | - | $ | (240,828 | ) | |||||||
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|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2018 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 2,690,067 | $ | - | $ | - | $ | - | $ | 2,690,067 | ||||||||||||||||||||||||||
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|
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|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 2,690,067 | $ | - | $ | - | $ | - | $ | 2,690,067 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions |
| $ | 2,690,067 | |||||||||||||||||||||||||||||||||
|
|
53
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Mid-Cap Value Fund
Offsetting of Financial and Derivative Assets as of October 31, 2018: | ||||||||||||
Assets | Liabilities | |||||||||||
Futures Contracts | $ | - | $ | 1,447,545 | ||||||||
|
|
|
| |||||||||
Total derivative assets and liabilities in the Statement of Assets and Liabilities | $ | - | $ | 1,447,545 | ||||||||
|
|
|
| |||||||||
Derivatives not subject to a Master Netting Agreement or similar agreement (“MNA”) | $ | - | $ | (1,447,545 | ) | |||||||
|
|
|
|
Remaining Contractual Maturity of the Agreements As of October 31, 2018 | ||||||||||||||||||||||||||||||||||||
Overnight and Continuous | <30 days | Between 30 & 90 days | >90 days | Total | ||||||||||||||||||||||||||||||||
Securities Lending Transactions | ||||||||||||||||||||||||||||||||||||
Common Stocks | $ | 12,169,943 | $ | - | $ | - | $ | - | $ | 12,169,943 | ||||||||||||||||||||||||||
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|
|
|
|
|
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|
| |||||||||||||||||||||||||||
Total Borrowings | $ | 12,169,943 | $ | - | $ | - | $ | - | $ | 12,169,943 | ||||||||||||||||||||||||||
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| |||||||||||||||||||||||||||
Gross amount of recognized liabilities for securities lending transactions |
| $ | 12,169,943 | |||||||||||||||||||||||||||||||||
|
|
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, interest rate risk, prepayment risk and extension risk. Small movements in interest rates (both increases and decreases) may quickly and significantly reduce the value of certain mortgage-backed and asset-backed securities. If interest rates fall, the rate of prepayments tends to increase as borrowers are motivated to pay off debt and refinance at new lower rates. When mortgages and other obligations are prepaid and when securities are called, a Fund may have to reinvest in securities with a lower yield or fail to recover additional amounts (i.e., premiums) paid for securities with higher interest rates, resulting in an unexpected capital loss and/or a decrease in the amount of dividends and yield. Because prepayments increase when interest rates fall, the prices of mortgage-backed and asset-backed securities do not increase as much as other fixed income securities when interest rates fall. When interest rates rise, borrowers are less likely to prepay their mortgage and other loans. A decreased rate of prepayments lengthens the expected maturity of mortgage-backed and asset-backed securities. Therefore, the prices of mortgage-backed and asset-backed securities may decrease more than prices of other fixed-income securities when interest rates rise. Rising interest rates tend to extend the duration of these securities, making them more sensitive to changes in interest rates. Rising interest rates also may increase the risk of default by borrowers. As a result, in a period of rising interest rates, a Fund that holds these types of securities, may experience additional volatility and losses. A decline in the credit quality of and defaults by 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 a Fund. In addition, certain asset-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.
Credit Risk
A Fund is subject to the risk that the issuer or guarantor of a debt security or a counterparty to a loan will fail to make timely payment of interest or principal or otherwise honor its obligations or default completely. A decline in the credit rating of an individual security held by a Fund may have an adverse impact on its price and make it difficult for a Fund to sell it. Ratings represent a rating agency’s opinion regarding the quality of the security and are not a guarantee of quality. Rating agencies might not always change their credit rating on an
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Notes to Financial Statements
October 31, 2018
issuer or security in a timely manner to reflect events that could affect the issuer’s ability to make timely payments on its obligations. Credit risk is typically greater for securities with ratings that are below investment grade.
Equity Investments 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 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 are subject to certain of the risks associated with investing directly in foreign securities, including, but not limited to, currency exchange rate fluctuations, political and financial instability in the home country of a particular depositary receipt, less liquidity and more volatility, less government regulation and supervision and delays in transaction settlement.
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.
The risk of investing in Europe may be heightened due to the 2016 referendum in which the United Kingdom voted to exit the European Union (EU). There is a significant degree of uncertainty about how negotiations relating to the United Kingdom’s withdrawal will be conducted, as well as the potential consequences and precise time frame for “Brexit.” It is expected that the United Kingdom’s exit from the EU will take place within two years of the United Kingdom notifying the European Council that it intends to withdraw from the EU. While it is not possible to determine the precise impact these events may have on a Fund, during this period and beyond, the impact on the United Kingdom and European economies and the broader global economy could be significant, resulting in negative impacts, such as increased volatility and illiquidity, and potentially lower economic growth, on markets in the United Kingdom, Europe and globally, which may adversely affect the value of a Fund’s investments. In addition, if one or more other countries were to exit the EU or abandon the use of the euro as a currency, the value of investments tied to those countries or the euro could decline significantly and unpredictably.
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
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Notes to Financial Statements
October 31, 2018
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 Funds 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 Funds believe is its fair market value. In addition, transaction costs may be higher for restricted securities and the Funds may receive only limited information regarding the issuer of a restricted security. The Funds 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
Investments in investment-grade and non-investment grade fixed-income securities are subject to interest rate risk. The value of the Balanced Fund’s fixed-income investments typically will fall when interest rates rise. The Fund may be particularly sensitive to changes in interest rates if it invests in debt securities with intermediate and long terms to maturity. Debt securities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than debt securities with shorter durations. For example, if a bond has a duration of seven years, a 1% increase in interest rates could be expected to result in a 7% decrease in the value of the bond. Yields of debt securities will fluctuate over time. Following the financial crisis that started in 2008, the Federal Reserve attempted to stabilize the economy and support the economic recovery by keeping the federal funds rate (the interest rate at which depository institutions lend reserve balances to each other overnight) at or near zero percent. The Federal Reserve has raised the federal funds rate several times since December 2015 and has signaled additional increases in the near future. Interest rates may rise significantly and/or rapidly, potentially resulting insubstantial losses to a Fund. During periods of very low or negative interest rates, the Fund may be unable to maintain positive returns. Certain European countries and Japan have recently experienced negative interest rates on deposits and debt securities have traded at negative yields. Negative interest rates may become more prevalent among non-U.S. issuers, and potentially within the United States. Changing interest rates, including rates that fall below zero, may have unpredictable effects on markets, may result in heightened market volatility and may detract from Fund performance to the extent the Fund is exposed to such interest rates.
Liquidity Risk
When there is little or no active trading market for a specific security it can become more difficult to purchase or sell the securities at or near their perceived value. During such periods, certain investments held by the Fund may be difficult to sell or other investments may be difficult to purchase at favorable times or prices. As a result, the Fund may have to lower the price on certain securities that it is trying to sell, sell other securities instead or forgo an investment opportunity, any of which could have a negative effect on Fund management or performance. Redemptions by a few large investors in the Fund at such times may have a significant adverse effect on the Fund’s NAV and remaining Fund shareholders. In addition, the market-making capacity of dealers in certain types of securities has been reduced in recent years, in part as a result of structural and regulatory changes, such as fewer proprietary trading desks and increased regulatory capital requirements for broker-dealers. Further, many broker-dealers have reduced their inventory of certain debt securities. This could negatively affect the Fund’s ability to buy or sell debt securities and increase the related volatility and trading costs. The Fund may lose money if it is forced to sell certain investments at unfavorable prices to meet redemption requests or other cash needs.
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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Market Risk
Since the financial crisis that started in 2008, the U.S. and many foreign economies continue to experience its after-effects. Conditions in the U.S. and many foreign economies have resulted, and may continue to result, in certain 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 some cases, traditional market participants have been less willing to make a market in some types of debt instruments, which has affected the liquidity of those instruments. During times of market turmoil, investors tend to look to the safety of securities issued or backed by the U.S. Treasury, causing the prices of these securities to rise and the yields to decline. Reduced liquidity in fixed income and credit markets may negatively affect many issuers worldwide. 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. A rise in protectionist trade policies, and the possibility of changes to some international trade agreements, could affect the economies of many nations in ways that cannot necessarily be foreseen at the present time.
In response to the financial crisis, the U.S. and other governments and the Federal Reserve and certain foreign central banks have taken steps to support financial markets. In some countries where economic conditions are recovering, they are nevertheless perceived as still fragile. Withdrawal of government support, failure of efforts in response to the crisis, or investor perception that such efforts are not succeeding, could adversely impact the value and liquidity of certain securities. The severity or duration of adverse economic conditions may also be affected by policy changes made by governments or quasi-governmental organizations, including changes in tax laws. The impact of new financial regulation legislation on the markets and the practical implications for market participants may not be fully known for some time. Regulatory changes are causing some financial services companies to exit long-standing lines of business, resulting in dislocations for other market participants. In addition, political and diplomatic events within the U.S. and abroad, such as the U.S. government’s inability at times to agree on a long-term budget and deficit reduction plan, the threat of a federal government shutdown and threats not to increase the federal government’s debt limit, may affect investor and consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant degree. The U.S. government has recently reduced federal corporate income tax rates, and future legislative, regulatory and policy changes may result in more restrictions on international trade, less stringent prudential regulation of certain players in the financial markets, and significant new investments in infrastructure and national defense. Markets may react strongly to expectations about the changes in these policies, which could increase volatility, especially if the markets’ expectations for changes in government policies are not borne out.
Changes in market conditions will not have the same impact on all types of securities. 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 significant rate increase on various markets. For example, because investors may buy securities or other investments with borrowed money, a significant increase in interest rates may cause a decline in the markets for those investments. Because of the sharp decline in the worldwide price of oil, there is a concern that oil producing nations may withdraw significant assets now held in U.S. Treasuries, which could force a substantial increase in interest rates. Regulators have expressed concern that rate increases may cause investors to sell fixed income securities faster than the market can absorb them, contributing to price volatility. 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. If a country’s economy slips into a deflationary pattern, it could last for a prolonged period and may be difficult to reverse. The precise details and the resulting impact of the United Kingdom’s vote to leave the European Union (the “EU”), commonly referred to as “Brexit,” are not yet known. The effect on the United Kingdom’s economy will likely depend on the nature of trade relations with the EU and other major economies following its exit, which are matters to be negotiated. The outcomes may cause increased volatility and have a significant adverse impact on world financial markets, other international
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Notes to Financial Statements
October 31, 2018
trade agreements, and the United Kingdom and European economies, as well as the broader global economy for some time, which could significantly adversely affect the value of the Fund’s investments in the United Kingdom and Europe.
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. When mortgages and other obligations are prepaid and when securities are called, a Fund may have to reinvest in securities with a lower yield or fail to recover additional amounts (i.e., premiums) paid for securities with higher interest rates, resulting in an unexpected capital loss and/or a decrease in the amount of dividends and yield.
Multiple Sub-Advisor Risk
The Manager may allocate the Funds’ assets among multiple sub-advisors, each of which is responsible for investing its allocated portion of the Funds’ assets. To a significant extent, the Funds’ performance will depend on the success of the Manager in allocating the Funds’ assets to sub-advisors and its selection and oversight of the sub-advisors. Because each sub-advisor manages its allocated portion of the Funds independently from another sub-advisor, the same security may be held in different portions of the Funds, or may be acquired for one portion of the Funds at a time when a sub-advisor 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 Funds’ holdings. Similarly, under some market conditions, one sub-advisor may believe that temporary, defensive investments in short-term instruments or cash are appropriate when another sub-advisor believes continued exposure to the equity or debt markets is appropriate for its allocated portion of the Funds. Because each sub-advisor directs the trading for its own portion of the Funds, and does not aggregate its transactions with those of the other sub-advisors, the Funds 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 Funds’ assets among the Funds’ sub-advisors in a manner that it believes is consistent with achieving the Funds’ investment objective(s), the Manager may be subject to potential conflicts of interest in allocating the Funds’ assets among sub-advisors.
Other Investment Companies Risk
The Funds may invest in shares of other registered investment companies, including ETFs and money market funds that are advised by the Manager. 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 those investment companies in addition to the Funds’ direct fees and expenses and will be subject to the risks associated with investments in those companies.
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 its price.
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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Redemption Risk
The Funds may experience periods of high levels of redemptions that could cause the Funds to sell assets at inopportune times or at a loss or depressed value. The sale of assets to meet redemption requests may create net capital gains, which could cause the Funds to have to distribute substantial capital gains.
Sector Risk
Sector risk is the risk associated with a Fund holding a significant amount of investments in similar businesses, which would be similarly affected by particular economic or market events, which may, in certain circumstances, cause the value of the equity and debt securities of companies in a particular sector of the market to change. To the extent a Fund has substantial holdings within a particular sector, the risks to a Fund associated with that sector increase.
Securities Lending Risk
A Fund may lend its portfolio securities to brokers, dealers and financial institutions to seek income. There is a risk that a borrower may default on its obligations to return loaned securities; however, a Fund’s securities lending agent may indemnify the Fund against that risk. There is a risk that the assets of a Fund’s securities lending agent may be insufficient to satisfy any contractual indemnification requirements to the Fund. Borrowers of a Fund’s securities typically provide collateral in the form of cash that is reinvested in securities. A Fund will be responsible for the risks associated with the investment of cash collateral, including any collateral invested in an affiliated money market fund. A Fund may lose money on its investment of cash collateral or may fail to earn sufficient income on its investment to meet obligations to the borrower. In addition, delays may occur in the recovery of securities from borrowers, which could interfere with a Fund’s ability to vote proxies or to settle transactions and 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. 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.
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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
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, 2018 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 tax character of distributions paid were as follows:
Balanced Fund | Mid-Cap Value Fund | |||||||||||||||||||||||||||
Year Ended October 31, 2018 | Year Ended October 31, 2017 | Year Ended October 31, 2018 | Year Ended October 31, 2017 | |||||||||||||||||||||||||
Distributions paid from: | ||||||||||||||||||||||||||||
Ordinary income* | ||||||||||||||||||||||||||||
Institutional Class | $ | 3,590,211 | $ | 3,922,895 | $ | 2,517,255 | $ | 3,184,300 | ||||||||||||||||||||
Y Class | 2,835,075 | 1,320,074 | 867,845 | 1,054,082 | ||||||||||||||||||||||||
Investor Class | 5,484,303 | 2,791,629 | 2,066,989 | 3,122,003 | ||||||||||||||||||||||||
Advisor Class | 404,894 | 196,602 | 5,325 | 63,730 | ||||||||||||||||||||||||
A Class | 990,798 | 506,915 | 59,166 | 224,784 | ||||||||||||||||||||||||
C Class | 1,588,575 | 535,923 | - | 30,824 | ||||||||||||||||||||||||
Long-term capital gains | ||||||||||||||||||||||||||||
Institutional Class | 2,671,741 | - | 6,917,398 | - | ||||||||||||||||||||||||
Y Class | 1,986,952 | - | 2,579,185 | - | ||||||||||||||||||||||||
Investor Class | 4,156,521 | - | 7,195,645 | - | ||||||||||||||||||||||||
Advisor Class | 356,680 | - | 89,403 | - | ||||||||||||||||||||||||
A Class | 727,858 | - | 374,971 | - | ||||||||||||||||||||||||
C Class | 1,388,117 | - | 184,144 | - | ||||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total distributions paid | $ | 26,181,725 | $ | 9,274,038 | $ | 22,857,326 | $ | 7,679,723 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
* For tax purposes, short-term gains are considered ordinary income distributions.
As of October 31, 2018 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 | $ | 269,645,635 | $ | 43,584,692 | $ | (12,881,938 | ) | $ | 30,702,754 | |||||||
Mid-Cap Value | 762,091,162 | 79,064,538 | (85,359,706 | ) | (6,295,168 | ) |
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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Fund | Net Unrealized Appreciation (Depreciation) | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Accumulated Capital and Other (Losses) | Other Temporary Differences | Distributable Earnings | ||||||||||||||||||
Balanced | $ | 30,702,754 | $ | 2,433,799 | $ | 20,912,800 | $ | - | $ | - | $ | 54,049,353 | ||||||||||||
Mid-Cap Value | (6,295,168 | ) | 6,472,244 | 37,147,201 | - | - | 37,324,277 |
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 investments in real estate investment securities and publicly traded partnerships, and book amortization of premiums.
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 tax-exempt interest and nondeductible expenses from investments in publicly traded partnerships and as of October 31, 2018:
Fund | Paid-In-Capital | Distributable Earnings/(Loss) | ||||||
Balanced | $ | (9,531 | ) | $ | 9,531 | |||
Mid-Cap Value | 3,314 | (3,314 | ) |
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, 2018, the Funds 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, 2018 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 | $ | 55,019,266 | $ | 28,690,217 | $ | 113,907,606 | $ | 17,004,682 | ||||||||
Mid-Cap Value | 421,162,637 | - | 256,088,405 | - |
A summary of the Funds’ transactions in the USG Select Fund for the year ended October 31, 2018 were as follows:
Fund | Type of Transaction | October 31, 2017 Shares/Fair Value | Purchases | Sales | October 31, 2018 Shares/Fair Value | Dividend Income | ||||||||||||||||||||||||||||||||||||
Balanced | Direct | $ | 7,863,253 | $ | 122,532,010 | $ | 122,561,540 | $ | 7,833,723 | $ | 96,361 | |||||||||||||||||||||||||||||||
Balanced | Securities Lending | 3,085,328 | 59,592,645 | 59,987,906 | 2,690,067 | N/A | ||||||||||||||||||||||||||||||||||||
Mid-Cap Value | Direct | 32,552,471 | 439,654,782 | 449,414,408 | 22,792,845 | 570,682 | ||||||||||||||||||||||||||||||||||||
Mid-Cap Value | Securities Lending | 19,270,065 | 263,212,693 | 270,312,815 | 12,169,943 | N/A |
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American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
9. Securities Lending
The Funds may lend their 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 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, 2018, 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 | $ | 2,596,483 | $ | 2,690,067 | $ | - | $ | 2,690,067 | ||||||||
Mid-Cap Value | 11,632,124 | 12,169,943 | - | 12,169,943 |
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.
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October 31, 2018
10. Borrowing Arrangements
Effective November 16, 2017, the Funds, along with certain other funds managed by the Manager (“Participating Funds”), entered into a committed revolving line of credit (the “Committed Line”) agreement with State Street Bank and Trust Company (the “Bank”) to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Committed Line is $50 million with interest at a rate equal to the higher of (a) one-month London Inter-Bank Offered Rate (“LIBOR”) plus 1.25% per annum or (b) the Federal Funds rate plus 1.25% per annum on amounts borrowed. Each of the Participating Funds will pay a commitment fee at a rate of 0.25% per annum on the unused portion of the Committed Line amount. The Committed Line expires November 15, 2018, unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
Effective November 16, 2017, the Funds, along with certain other Participating Funds managed by the Manager, entered into an uncommitted discretionary demand revolving line of credit (the “Uncommitted Line”) agreement with the Bank to be used to facilitate portfolio liquidity. The maximum borrowing amount under the Uncommitted Line is $50 million with interest at a rate equal to the higher of (a) one-month LIBOR plus 1.25% per annum or (b) the Federal Funds rate. The Uncommitted Line expires November 15, 2018 unless extended by the Bank or terminated by the Participating Funds in accordance with the agreement.
The Participating Funds paid administration, legal and arrangement fees, which are recognized as a component of “Other expenses” on the Statements of Operations, along with commitment fees, that have been allocated among the Participating Funds based on average daily net assets.
During the year ended October 31, 2018, the Funds did not utilize this facility.
11. Capital Share Transactions
The tables below summarize the activity in capital shares for each Class of the Funds:
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 531,898 | $ | 8,911,974 | 1,092,787 | $ | 18,080,161 | ||||||||||||||||||||||
Reinvestment of dividends | 371,350 | 6,232,774 | 238,615 | 3,910,236 | ||||||||||||||||||||||||
Shares redeemed | (2,279,037 | ) | (38,703,020 | ) | (28,034,177 | ) | (458,858,477 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (1,375,789 | ) | $ | (23,558,272 | ) | (26,702,775 | ) | $ | (436,868,080 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,548,487 | $ | 26,278,299 | 3,930,687 | $ | 64,515,384 | ||||||||||||||||||||||
Reinvestment of dividends | 262,445 | 4,429,699 | 65,834 | 1,098,461 | ||||||||||||||||||||||||
Shares redeemed | (1,172,305 | ) | (19,896,265 | ) | (2,147,617 | ) | (35,745,768 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 638,627 | $ | 10,811,733 | 1,848,904 | $ | 29,868,077 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 693,194 | $ | 10,443,570 | 1,891,239 | $ | 27,893,209 | ||||||||||||||||||||||
Reinvestment of dividends | 632,578 | 9,450,425 | 183,821 | 2,729,041 | ||||||||||||||||||||||||
Shares redeemed | (1,856,761 | ) | (27,850,950 | ) | (3,351,461 | ) | (49,631,206 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (530,989 | ) | $ | (7,956,955 | ) | (1,276,401 | ) | $ | (19,008,956 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
63
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 60,001 | $ | 958,063 | 105,859 | $ | 1,651,482 | ||||||||||||||||||||||
Reinvestment of dividends | 48,037 | 761,574 | 12,537 | 196,603 | ||||||||||||||||||||||||
Shares redeemed | (372,487 | ) | (5,908,441 | ) | (183,384 | ) | (2,863,636 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (264,449 | ) | $ | (4,188,804 | ) | (64,988 | ) | $ | (1,015,551 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 160,555 | $ | 2,416,192 | 410,539 | $ | 6,059,817 | ||||||||||||||||||||||
Reinvestment of dividends | 111,181 | 1,658,485 | 31,357 | 464,996 | ||||||||||||||||||||||||
Shares redeemed | (428,548 | ) | (6,460,378 | ) | (843,857 | ) | (12,512,241 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (156,812 | ) | $ | (2,385,701 | ) | (401,961 | ) | $ | (5,987,428 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Balanced Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 293,469 | $ | 4,461,404 | 511,750 | $ | 7,628,600 | ||||||||||||||||||||||
Reinvestment of dividends | 188,746 | 2,851,672 | 33,550 | 501,998 | ||||||||||||||||||||||||
Shares redeemed | (726,271 | ) | (11,046,787 | ) | (776,384 | ) | (11,594,157 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (244,056 | ) | $ | (3,733,711 | ) | (231,084 | ) | $ | (3,463,559 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Institutional Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 6,269,618 | $ | 106,947,861 | 5,954,710 | $ | 95,148,198 | ||||||||||||||||||||||
Reinvestment of dividends | 526,390 | 9,164,443 | 200,907 | 3,102,004 | ||||||||||||||||||||||||
Shares redeemed | (6,183,734 | ) | (105,856,767 | ) | (4,676,013 | ) | (74,643,061 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 612,274 | $ | 10,255,537 | 1,479,604 | $ | 23,607,141 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Y Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 1,857,922 | $ | 31,620,714 | 1,882,597 | $ | 30,182,084 | ||||||||||||||||||||||
Reinvestment of dividends | 197,830 | 3,416,518 | 68,733 | 1,052,987 | ||||||||||||||||||||||||
Shares redeemed | (1,620,549 | ) | (27,617,833 | ) | (1,053,861 | ) | (16,770,607 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase in shares outstanding | 435,203 | $ | 7,419,399 | 897,469 | $ | 14,464,464 | ||||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Investor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 14,508,017 | $ | 258,034,860 | 2,951,825 | $ | 47,658,072 | ||||||||||||||||||||||
Reinvestment of dividends | 526,115 | 9,254,355 | 199,673 | 3,114,890 | ||||||||||||||||||||||||
Shares redeemed | (6,582,101 | ) | (113,606,798 | ) | (4,583,694 | ) | (73,830,629 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 8,452,031 | $ | 153,682,417 | (1,432,196 | ) | $ | (23,057,667 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Advisor Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 113,873 | $ | 1,888,435 | 81,445 | $ | 1,272,473 | ||||||||||||||||||||||
Reinvestment of dividends | 5,543 | 94,728 | 4,212 | 63,730 | ||||||||||||||||||||||||
Shares redeemed | (101,012 | ) | (1,693,636 | ) | (350,490 | ) | (5,453,538 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net increase (decrease) in shares outstanding | 18,404 | $ | 289,527 | (264,833 | ) | $ | (4,117,335 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
64
American Beacon FundsSM
Notes to Financial Statements
October 31, 2018
A Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 343,780 | $ | 5,748,823 | 318,235 | $ | 4,979,042 | ||||||||||||||||||||||
Reinvestment of dividends | 25,397 | 433,278 | 14,503 | 219,286 | ||||||||||||||||||||||||
Shares redeemed | (651,244 | ) | (10,958,448 | ) | (676,186 | ) | (10,691,000 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (282,067 | ) | $ | (4,776,347 | ) | (343,448 | ) | $ | (5,492,672 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
C Class | ||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||
2018 | 2017 | |||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | Shares | Amount | ||||||||||||||||||||||||
Shares sold | 83,507 | $ | 1,358,250 | 60,211 | $ | 917,397 | ||||||||||||||||||||||
Reinvestment of dividends | 11,018 | 182,135 | 2,030 | 29,866 | ||||||||||||||||||||||||
Shares redeemed | (95,319 | ) | (1,541,599 | ) | (116,353 | ) | (1,771,416 | ) | ||||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
Net (decrease) in shares outstanding | (794 | ) | $ | (1,214 | ) | (54,112 | ) | $ | (824,153 | ) | ||||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||||||
R6 Class | ||||||||||||||||||||||||||||
February 28, 2018A to April 30, 2018 | ||||||||||||||||||||||||||||
(unaudited) | ||||||||||||||||||||||||||||
Mid-Cap Value Fund | Shares | Amount | ||||||||||||||||||||||||||
Shares sold | 18,266 | $ | 315,231 | |||||||||||||||||||||||||
Shares redeemed | (5,909 | ) | (100,991 | ) | ||||||||||||||||||||||||
|
|
|
| |||||||||||||||||||||||||
Net increase in shares outstanding | 12,357 | $ | 214,240 | |||||||||||||||||||||||||
|
|
|
|
A Commencement of operations.
12. Subsequent Events
Effective November 15, 2018, the Funds, along with certain other funds managed by the Manager, entered into a committed revolving line of credit with a max borrowing amount of $250 million.
Management has evaluated additional 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 Funds’ financial statements through this date.
65
American Beacon Balanced FundSM
(For a share outstanding throughout the period)
Institutional ClassA | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.30 | $ | 15.26 | $ | 15.79 | $ | 16.79 | $ | 16.31 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.28 | 0.36 | 0.27 | 0.32 | 0.38 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.10 | ) | 2.04 | 0.20 | (0.32 | ) | 1.35 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.18 | 2.40 | 0.47 | - | 1.73 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.48 | ) | (0.36 | ) | (0.25 | ) | (0.22 | ) | (0.42 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.80 | ) | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (1.28 | ) | (0.36 | ) | (1.00 | ) | (1.00 | ) | (1.25 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.20 | $ | 17.30 | $ | 15.26 | $ | 15.79 | $ | 16.79 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnB | 0.84 | % | 15.82 | % | 3.30 | % | (0.07 | )% | 11.15 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 60,191,704 | $ | 88,015,702 | $ | 485,231,068 | $ | 99,173,943 | $ | 74,422,347 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.62 | % | 0.59 | % | 0.62 | % | 0.58 | % | 0.58 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.62 | % | 0.59 | % | 0.62 | % | 0.58 | % | 0.58 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.95 | % | 1.80 | % | 1.90 | % | 1.83 | % | 2.24 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.95 | % | 1.80 | % | 1.90 | % | 1.83 | % | 2.24 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 32 | % | 16 | % | 62 | % | 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
66
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.39 | $ | 15.30 | $ | 15.84 | $ | 16.83 | $ | 16.37 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.35 | 0.24 | 0.30 | 0.30 | 0.40 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.16 | ) | 2.20 | 0.13 | (0.30 | ) | 1.31 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.19 | 2.44 | 0.43 | - | 1.71 | |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.47 | ) | (0.35 | ) | (0.22 | ) | (0.21 | ) | (0.42 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.80 | ) | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (1.27 | ) | (0.35 | ) | (0.97 | ) | (0.99 | ) | (1.25 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 16.31 | $ | 17.39 | $ | 15.30 | $ | 15.84 | $ | 16.83 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 0.88 | % | 16.05 | % | 3.06 | % | (0.07 | )% | 10.98 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 71,296,735 | $ | 64,926,394 | $ | 28,843,268 | $ | 39,151,318 | $ | 36,113,608 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupments | 0.70 | % | 0.68 | % | 0.72 | % | 0.66 | % | 0.67 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupments | 0.70 | % | 0.68 | % | 0.72 | % | 0.66 | % | 0.68 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupments | 1.86 | % | 1.67 | % | 1.95 | % | 1.75 | % | 2.01 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupments | 1.86 | % | 1.67 | % | 1.95 | % | 1.75 | % | 2.01 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 32 | % | 16 | % | 62 | % | 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
67
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.51 | $ | 13.71 | $ | 14.30 | $ | 15.31 | $ | 14.98 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.20 | 0.15 | 0.18 | 0.22 | 0.42 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.07 | ) | 1.96 | 0.18 | (0.26 | ) | 1.11 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.13 | 2.11 | 0.36 | (0.04 | ) | 1.53 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.43 | ) | (0.31 | ) | (0.20 | ) | (0.19 | ) | (0.37 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.80 | ) | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (1.23 | ) | (0.31 | ) | (0.95 | ) | (0.97 | ) | (1.20 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 14.41 | $ | 15.51 | $ | 13.71 | $ | 14.30 | $ | 15.31 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 0.62 | % | 15.52 | % | 2.85 | % | (0.35 | )% | 10.75 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 107,677,984 | $ | 124,143,894 | $ | 127,235,433 | $ | 155,757,561 | $ | 165,808,020 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.95 | % | 0.89 | % | 0.95 | % | 0.91 | % | 0.92 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.95 | % | 0.89 | % | 0.95 | % | 0.91 | % | 0.92 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.62 | % | 1.48 | % | 1.72 | % | 1.51 | % | 1.84 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.62 | % | 1.48 | % | 1.72 | % | 1.51 | % | 1.84 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 32 | % | 16 | % | 62 | % | 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
68
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
Advisor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.38 | $ | 14.46 | $ | 15.02 | $ | 16.04 | $ | 15.65 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.16 | 0.21 | 0.24 | 0.22 | 0.18 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.06 | ) | 1.99 | 0.12 | (0.29 | ) | 1.39 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.10 | 2.20 | 0.36 | (0.07 | ) | 1.57 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.39 | ) | (0.28 | ) | (0.17 | ) | (0.17 | ) | (0.35 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.80 | ) | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (1.19 | ) | (0.28 | ) | (0.92 | ) | (0.95 | ) | (1.18 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.29 | $ | 16.38 | $ | 14.46 | $ | 15.02 | $ | 16.04 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 0.42 | % | 15.31 | % | 2.71 | % | (0.58 | )% | 10.58 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 6,174,284 | $ | 10,944,675 | $ | 10,603,004 | $ | 13,510,138 | $ | 14,705,747 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.12 | % | 1.08 | % | 1.12 | % | 1.06 | % | 1.07 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.12 | % | 1.08 | % | 1.12 | % | 1.06 | % | 1.07 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.45 | % | 1.29 | % | 1.55 | % | 1.35 | % | 1.75 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.45 | % | 1.29 | % | 1.55 | % | 1.35 | % | 1.75 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 32 | % | 16 | % | 62 | % | 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
69
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.48 | $ | 13.69 | $ | 14.27 | $ | 15.29 | $ | 14.97 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.22 | 0.16 | 0.21 | 0.23 | 0.33 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.07 | ) | 1.93 | 0.15 | (0.29 | ) | 1.18 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.15 | 2.09 | 0.36 | (0.06 | ) | 1.51 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.45 | ) | (0.30 | ) | (0.19 | ) | (0.18 | ) | (0.36 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.80 | ) | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (1.25 | ) | (0.30 | ) | (0.94 | ) | (0.96 | ) | (1.19 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 14.38 | $ | 15.48 | $ | 13.69 | $ | 14.27 | $ | 15.29 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 0.73 | % | 15.36 | % | 2.84 | % | (0.48 | )% | 10.67 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 18,121,273 | $ | 21,934,880 | $ | 24,892,096 | $ | 29,074,120 | $ | 25,578,944 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupments | 0.91 | % | 0.99 | % | 1.02 | % | 0.97 | % | 1.02 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupments | 0.83 | % | 0.99 | % | 1.02 | % | 0.97 | % | 1.04 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupments | 1.66 | % | 1.39 | % | 1.64 | % | 1.44 | % | 1.68 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupments | 1.74 | % | 1.39 | % | 1.64 | % | 1.44 | % | 1.67 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 32 | % | 16 | % | 62 | % | 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
70
American Beacon Balanced FundSM
Financial Highlights
(For a share outstanding throughout the period)
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 15.64 | $ | 13.83 | $ | 14.43 | $ | 15.47 | $ | 15.13 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.13 | 0.08 | 0.12 | 0.14 | 0.21 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (0.09 | ) | 1.92 | 0.13 | (0.29 | ) | 1.20 | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | 0.04 | 2.00 | 0.25 | (0.15 | ) | 1.41 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.33 | ) | (0.19 | ) | (0.10 | ) | (0.11 | ) | (0.24 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.80 | ) | - | (0.75 | ) | (0.78 | ) | (0.83 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (1.13 | ) | (0.19 | ) | (0.85 | ) | (0.89 | ) | (1.07 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 14.55 | $ | 15.64 | $ | 13.83 | $ | 14.43 | $ | 15.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnA | 0.04 | % | 14.50 | % | 2.03 | % | (1.14 | )% | 9.80 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 36,046,543 | $ | 42,575,983 | $ | 40,827,570 | $ | 45,641,648 | $ | 32,045,404 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupments | 1.66 | % | 1.73 | % | 1.77 | % | 1.72 | % | 1.78 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupments | 1.54 | % | 1.73 | % | 1.77 | % | 1.72 | % | 1.79 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupments | 0.91 | % | 0.63 | % | 0.89 | % | 0.69 | % | 0.94 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupments | 1.02 | % | 0.63 | % | 0.89 | % | 0.69 | % | 0.93 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 28 | % | 32 | % | 16 | % | 62 | % | 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
71
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Institutional Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015A | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.25 | $ | 14.03 | $ | 14.62 | $ | 14.76 | $ | 14.33 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.21 | 0.16 | 0.26 | 0.16 | 0.12 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.34 | ) | 3.28 | 0.03 | 0.25 | 1.27 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.13 | ) | 3.44 | 0.29 | 0.41 | 1.39 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.16 | ) | (0.22 | ) | (0.17 | ) | (0.10 | ) | (0.11 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.44 | ) | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.60 | ) | (0.22 | ) | (0.88 | ) | (0.55 | ) | (0.96 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.52 | $ | 17.25 | $ | 14.03 | $ | 14.62 | $ | 14.76 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (6.89 | )% | 24.71 | % | 2.39 | % | 2.73 | % | 10.20 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 248,752,034 | $ | 265,934,589 | $ | 195,472,135 | $ | 258,503,278 | $ | 193,634,639 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupment | 0.85 | % | 0.89 | % | 0.89 | % | 0.85 | % | 0.89 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupment | 0.85 | % | 0.89 | % | 0.89 | % | 0.85 | % | 0.93 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupment | 1.19 | % | 1.06 | % | 1.65 | % | 1.10 | % | 0.92 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupment | 1.19 | % | 1.06 | % | 1.65 | % | 1.10 | % | 0.88 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 34 | % | 28 | % | 27 | % | 79 | % | 24 | % |
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
72
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Y Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015A | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.11 | $ | 13.92 | $ | 14.52 | $ | 14.66 | $ | 14.25 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.19 | 0.15 | 0.23 | 0.15 | 0.18 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.32 | ) | 3.25 | 0.05 | 0.26 | 1.19 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.13 | ) | 3.40 | 0.28 | 0.41 | 1.37 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.15 | ) | (0.21 | ) | (0.17 | ) | (0.10 | ) | (0.11 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.44 | ) | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.59 | ) | (0.21 | ) | (0.88 | ) | (0.55 | ) | (0.96 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.39 | $ | 17.11 | $ | 13.92 | $ | 14.52 | $ | 14.66 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (6.96 | )% | 24.60 | % | 2.29 | % | 2.76 | % | 10.15 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 96,799,413 | $ | 100,190,167 | $ | 68,994,531 | $ | 70,009,288 | $ | 31,074,584 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 0.93 | % | 0.97 | % | 0.96 | % | 0.94 | % | 0.98 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 0.93 | % | 0.97 | % | 0.96 | % | 0.94 | % | 0.98 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 1.11 | % | 0.98 | % | 1.59 | % | 1.02 | % | 0.80 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 1.11 | % | 0.98 | % | 1.59 | % | 1.02 | % | 0.80 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 34 | % | 28 | % | 27 | % | 79 | % | 24 | % |
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
73
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Investor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015A | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 17.40 | $ | 14.14 | $ | 14.73 | $ | 14.89 | $ | 14.47 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.16 | 0.14 | 0.21 | 0.13 | 0.16 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.34 | ) | 3.31 | 0.05 | 0.25 | 1.21 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.18 | ) | 3.45 | 0.26 | 0.38 | 1.37 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.13 | ) | (0.19 | ) | (0.14 | ) | (0.09 | ) | (0.10 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.44 | ) | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.57 | ) | (0.19 | ) | (0.85 | ) | (0.54 | ) | (0.95 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.65 | $ | 17.40 | $ | 14.14 | $ | 14.73 | $ | 14.89 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (7.13 | )% | 24.52 | % | 2.12 | % | 2.52 | % | 9.99 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 379,123,913 | $ | 274,552,551 | $ | 243,421,035 | $ | 304,799,582 | $ | 246,404,670 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupment | 1.12 | % | 1.09 | % | 1.12 | % | 1.09 | % | 1.13 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupment | 1.12 | % | 1.09 | % | 1.12 | % | 1.09 | % | 1.14 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupment | 0.92 | % | 0.86 | % | 1.44 | % | 0.87 | % | 0.61 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupment | 0.92 | % | 0.86 | % | 1.44 | % | 0.87 | % | 0.60 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 34 | % | 28 | % | 27 | % | 79 | % | 24 | % |
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
74
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
Advisor Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015A | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.83 | $ | 13.69 | $ | 14.27 | $ | 14.46 | $ | 14.07 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.10 | 0.10 | 0.16 | 0.08 | 0.11 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.29 | ) | 3.18 | 0.05 | 0.25 | 1.17 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.19 | ) | 3.28 | 0.21 | 0.33 | 1.28 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.03 | ) | (0.14 | ) | (0.08 | ) | (0.07 | ) | (0.04 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.44 | ) | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.47 | ) | (0.14 | ) | (0.79 | ) | (0.52 | ) | (0.89 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.17 | $ | 16.83 | $ | 13.69 | $ | 14.27 | $ | 14.46 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (7.38 | )% | 24.10 | % | 1.82 | % | 2.25 | % | 9.58 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 3,597,339 | $ | 3,682,231 | $ | 6,622,356 | $ | 6,684,131 | $ | 7,149,083 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupment | 1.39 | % | 1.40 | % | 1.40 | % | 1.37 | % | 1.40 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupment | 1.39 | % | 1.40 | % | 1.40 | % | 1.37 | % | 1.46 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements or recoupment | 0.64 | % | 0.55 | % | 1.16 | % | 0.58 | % | 0.35 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements or recoupment | 0.64 | % | 0.55 | % | 1.16 | % | 0.58 | % | 0.30 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 34 | % | 28 | % | 27 | % | 79 | % | 24 | % |
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
75
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
A Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015A | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.84 | $ | 13.70 | $ | 14.28 | $ | 14.43 | $ | 14.09 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income | 0.18 | 0.13 | 0.18 | 0.11 | 0.13 | |||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.36 | ) | 3.18 | 0.05 | 0.25 | 1.16 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.18 | ) | 3.31 | 0.23 | 0.36 | 1.29 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | (0.07 | ) | (0.17 | ) | (0.10 | ) | (0.06 | ) | (0.10 | ) | ||||||||||||||||||||||||||
Distributions from net realized gains | (0.44 | ) | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.51 | ) | (0.17 | ) | (0.81 | ) | (0.51 | ) | (0.95 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 15.15 | $ | 16.84 | $ | 13.70 | $ | 14.28 | $ | 14.43 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (7.32 | )% | 24.26 | % | 1.98 | % | 2.35 | % | 9.68 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 12,080,510 | $ | 18,170,218 | $ | 19,486,655 | $ | 16,422,504 | $ | 18,345,497 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements | 1.25 | % | 1.27 | % | 1.26 | % | 1.25 | % | 1.33 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements | 1.25 | % | 1.27 | % | 1.26 | % | 1.25 | % | 1.33 | % | ||||||||||||||||||||||||||
Net investment income, before expense reimbursements | 0.78 | % | 0.69 | % | 1.30 | % | 0.71 | % | 0.42 | % | ||||||||||||||||||||||||||
Net investment income, net of reimbursements | 0.78 | % | 0.69 | % | 1.30 | % | 0.71 | % | 0.42 | % | ||||||||||||||||||||||||||
Portfolio turnover rate | 34 | % | 28 | % | 27 | % | 79 | % | 24 | % |
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
76
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
C Class | ||||||||||||||||||||||||||||||||||||
Year Ended October 31, | ||||||||||||||||||||||||||||||||||||
2018 | 2017 | 2016 | 2015A | 2014 | ||||||||||||||||||||||||||||||||
|
| |||||||||||||||||||||||||||||||||||
Net asset value, beginning of period | $ | 16.27 | $ | 13.26 | $ | 13.87 | $ | 14.08 | $ | 13.81 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Income (loss) from investment operations: | ||||||||||||||||||||||||||||||||||||
Net investment income (loss) | 0.03 | (0.03 | ) | 0.07 | 0.01 | 0.08 | ||||||||||||||||||||||||||||||
Net gains (losses) on investments (both realized and unrealized) | (1.26 | ) | 3.11 | 0.06 | 0.23 | 1.09 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total income (loss) from investment operations | (1.23 | ) | 3.08 | 0.13 | 0.24 | 1.17 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Less distributions: | ||||||||||||||||||||||||||||||||||||
Dividends from net investment income | - | (0.07 | ) | (0.03 | ) | - | (0.05 | ) | ||||||||||||||||||||||||||||
Distributions from net realized gains | (0.44 | ) | - | (0.71 | ) | (0.45 | ) | (0.85 | ) | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total distributions | (0.44 | ) | (0.07 | ) | (0.74 | ) | (0.45 | ) | (0.90 | ) | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Redemption fees added to beneficial interests | - | - | - | 0.00 | B | 0.00 | B | |||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Net asset value, end of period | $ | 14.60 | $ | 16.27 | $ | 13.26 | $ | 13.87 | $ | 14.08 | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Total returnC | (7.85 | )% | 23.27 | % | 1.19 | % | 1.57 | % | 8.88 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Ratios and supplemental data: |
| |||||||||||||||||||||||||||||||||||
Net assets, end of period | $ | 5,840,412 | $ | 6,520,983 | $ | 6,030,130 | $ | 6,238,827 | $ | 5,104,394 | ||||||||||||||||||||||||||
Ratios to average net assets: | ||||||||||||||||||||||||||||||||||||
Expenses, before reimbursements or recoupment | 1.87 | % | 2.04 | % | 2.04 | % | 2.01 | % | 2.12 | % | ||||||||||||||||||||||||||
Expenses, net of reimbursements or recoupment | 1.87 | % | 2.04 | % | 2.04 | % | 2.01 | % | 2.13 | % | ||||||||||||||||||||||||||
Net investment income (loss), before expense reimbursements or recoupment | 0.17 | % | (0.09 | )% | 0.53 | % | (0.05 | )% | (0.33 | )% | ||||||||||||||||||||||||||
Net investment income (loss), net of reimbursements or recoupment | 0.17 | % | (0.09 | )% | 0.53 | % | (0.05 | )% | (0.34 | )% | ||||||||||||||||||||||||||
Portfolio turnover rate | 34 | % | 28 | % | 27 | % | 79 | % | 24 | % |
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
77
American Beacon Mid-Cap Value FundSM
Financial Highlights
(For a share outstanding throughout the period)
R6 Class | ||||
February 28, 2018A to October 31, 2018 | ||||
Net asset value, beginning of period | $ | 16.94 | ||
|
| |||
Income (loss) from investment operations: | ||||
Net investment income | 0.10 | |||
Net (losses) on investments (both realized and unrealized) | (1.52 | ) | ||
|
| |||
Total (loss) from investment operations | (1.42 | ) | ||
|
| |||
Net asset value, end of period | $ | 15.52 | ||
|
| |||
Total returnB | (8.38 | )%C | ||
|
| |||
Ratios and supplemental data: |
| |||
Net assets, end of period | $ | 191,772 | ||
Ratios to average net assets: | ||||
Expenses, before reimbursements | 3.09 | %D | ||
Expenses, net of reimbursements | 0.88 | %D | ||
Net investment (loss), before expense reimbursements | (0.88 | )%D | ||
Net investment income, net of reimbursements | 1.32 | %D | ||
Portfolio turnover rate | 34 | %C |
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. |
See accompanying notes
78
American Beacon FundsSM
October 31, 2018 (Unaudited)
Certain tax information regarding the Funds are required to be provided to shareholders based upon the Funds’ income and distributions for the taxable year ended October 31, 2018. The information and distributions reported herein may differ from information and distributions taxable to the shareholders for the calendar year ended December 31, 2018.
The Funds designated the following items with regard to distributions paid during the fiscal year ended October 31, 2018. 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 | 27.92 | % | ||
Mid-Cap Value | 100.00 | % |
Qualified Dividend Income:
Balanced | 38.59 | % | ||
Mid-Cap Value | 100.00 | % |
Long-Term Capital Gain Distributions:
Balanced | $11,287,869 | |||
Mid-Cap Value | 17,340,746 |
Short-Term Capital Gain Distributions:
Balanced | $5,764,975 | |||
Mid-Cap Value | - |
Shareholders will receive notification in January 2019 of the applicable tax information necessary to prepare their 2018 income tax returns.
79
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 18, 2018 and June 5-6, 2018 (collectively, the “Meetings”), the Board of Trustees (“Board” or “Trustees”) considered and then, at its June 6, 2018 meeting, approved the renewal of:
(1) the Management Agreement between American Beacon Advisors, Inc. (“Manager” or “AmBeacon”) and the American Beacon Funds (“Trust”), on behalf of the American Beacon Balanced Fund (“Balanced Fund”) and the American Beacon Mid-Cap Value Fund (“Mid Cap Fund”) (each, a “Fund” and 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”).
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, or derived from, 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 the subadvisors.
In advance of the Meetings, the Board’s Investment Committee and/or the Manager coordinated the production of information from Broadridge 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 to the Board 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 each Fund to comparable investment companies and appropriate benchmark indices, including peer group averages and performance analyses from Broadridge, and to the performance of any 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 from Broadridge, 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; |
• | an evaluation of other benefits to the firm or Funds as a result of their relationship, if any; |
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
• | information regarding 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 each type of service and observed that, with respect to such mutual funds, 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. For each Fund, 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 investment advisory contracts, such as the Agreements. 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 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 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 relationships with a Fund.
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
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
investment personnel at the Manager; the cost structure of the Funds; the Manager’s culture of compliance and support 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 the Investment Advisory Agreements, the Board considered the level of staffing and the size of the subadvisors. The Board also considered the adequacy of the resources committed to the Funds 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 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 indices, as well as the Fund’s Morningstar rating. The Board considered the information provided by Broadridge regarding Broadridge’s independent methodology for selecting each Fund’s Broadridge performance universe. 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 relevant Fund relative to the performance of a composite of similar 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 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 the Manager earning a profit with respect to each Fund before and after the payment of distribution-related expenses by the Manager. 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 further considered that, with respect to each Fund, the applicable 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 representations made by each subadvisor that the relevant Fund’s subadvisory fee rate schedule for each such firm is favorable compared to other comparable client accounts of that firm. The Board did not request profitability data from the subadvisors because the Board did not view this data as
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Disclosure Regarding Approval of the Management and Investment Advisory Agreements (Unaudited)
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 the subadvisors may not account for their profits on an account-by-account basis and that different firms 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 subadvisor, the Manager has negotiated breakpoints with respect to each Fund’s subadvisory fee rate.
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 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 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 in comparison to 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, the Trustees viewed longer-term performance over a full market cycle as the most important consideration, because relative performance over shorter periods may be significantly impacted by market or economic events and not necessarily reflective of manager skill.
The expense comparisons below were made in comparison to 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. The Trustees also considered each Fund’s Morningstar fee level category. In reviewing expenses, the
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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 Expense Analysis 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 December 31, 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, Brandywine and Hotchkis, the Trustees considered that the diversification of investment strategies facilitated by the Balanced Fund’s multi-manager structure permits the Balanced 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 ended December 31, 2017)
Barrow* | 5 Years | 4 | th Quintile | |||||
Brandywine* | 5 Years | 1 | st Quintile | |||||
Hotchkis** | 5 Years | 1 | st Quintile | |||||
AmBeacon*** | 5 Years | 2 | nd Quintile | |||||
* Barrow and Brandywine’s combined equity and bond returns are compared to the Broadridge mixed-asset target allocation growth performance universe. ** Hotchkis’ equity value-only return is compared to the Broadridge large cap value performance universe. |
| |||||||
*** AmBeacon’s bond-only return is compared to the Broadridge core bond performance universe. |
|
The Trustees also considered: (1) that the funds included in the Broadridge performance universe are managed pursuant to a variety of investment styles, and the Balanced Fund may underperform when Barrow and Brandywine’s deeper value equity investment style (in companies with more significant discounts to price-to-earnings and price-to book ratios relative to other investment managers) has been out of favor; (2) that the Manager invests the Balanced Fund’s fixed income portfolio exclusively in investment grade debt securities while the funds in the Broadridge performance universe may invest in high yield debt securities; (3) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor manages its allocation of the Balanced 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 Management and Investment Advisory Agreements are fair and reasonable; and (2) determined that the Balanced Fund and its shareholders would benefit from the Manager’s and subadvisors’ continued management of the Balanced Fund.
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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 December 31, 2017)
Compared to Broadridge Performance Universe | 1st 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 Mid Cap Fund’s multi-manager structure permits the Mid Cap 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 ended December 31, 2017)
Barrow | 5 Years | 1st Quintile | ||
Pzena | 5 Years | 1st Quintile | ||
WEDGE* | 1 Year | 1st Quintile | ||
* Does not yet have a 3- or 5-year performance record. |
The Trustees also considered: (1) that the Mid Cap 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) that, since the last renewal of the Investment Advisory Agreements, the Manager had negotiated a reduced fee schedule with one of the Mid Cap Fund’s subadvisors with respect to its allocation of the Mid Cap Fund; (3) information provided by each subadvisor regarding fee rates charged for managing accounts in the same strategy as the subadvisor manages its allocation of the Mid Cap 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 Management and Investment Advisory 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 Mid Cap Fund.
85
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-seven funds in the fund complex that includes the Trust, the American Beacon Select Funds, the American Beacon Institutional Funds Trust, the American Beacon Sound Point Enhanced Income Fund, and the American Beacon Apollo Total Return Fund. 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** (81) | Trustee since 1996 | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
NON-INTERESTED TRUSTEES | Term | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Gilbert G. Alvarado (48) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Joseph B. Armes (56) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Gerard J. Arpey (60) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
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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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
Brenda A. Cline (57) | Trustee since 2004 Vice Chair since 2018 | Chief Financial Officer, Treasurer and Secretary, Kimbell Art Foundation (1993-Present); Director, Tyler Technologies, Inc. (public sector software solutions company) (2014-Present); Director, Range Resources Corporation (oil and natural gas company) (2015-Present); Trustee, Cushing Closed-End Funds (2017-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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Eugene J. Duffy (64) | Trustee since 2008 | Managing Director, Global Investment Management Distribution, Mesirow Financial (2016-Present); 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Claudia A. Holz*** (61) | Trustee since 2018 | Partner, KPMG LLP (1990-2017); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Douglas A. Lindgren**** (56) | Trustee since 2018 | CEO North America, Carne Global Financial Services (2016-2017); Managing Director, IPS Investment Management and Global Head, Content Management, UBS Wealth Management (2010-2016); Managing Director, P&S Hedge Funds, UBS Wealth Management (2008-2010); Managing Director, Head of Alternative Investments, UBS Financial Services, Inc. (2005-2008); Trustee, American Beacon Select Funds (2018-Present); Trustee, American Beacon Institutional Funds Trust (2018-Present); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Richard A. Massman (75) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
Barbara J. McKenna, CFA (55) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). |
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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 | |||
Lifetime of Trust until removal, resignation or retirement* | ||||
R. Gerald Turner (72) | 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); Trustee, American Beacon Sound Point Enhanced Income Fund (2018-Present); Trustee, American Beacon Apollo Total Return Fund (2018-Present). | ||
OFFICERS | Term | |||
One Year | ||||
Gene L. Needles, Jr. (63) | President since 2009 | CEO and Director (2009-Present), and Chairman (2018-Present), American Beacon Advisors, Inc.; President, American Beacon Advisors (2009-2018); Chairman and CEO, Resolute Investment Managers, Inc. (2015-Present); Director, Chairman, President and CEO, Resolute Investment Distributors (2017-Present); Director, Chairman and CEO; Resolute Investment Services, Inc. (2015-Present); Director, Resolute Acquisition, Inc. (2015-Present); President (2015-2018), Director, Resolute Topco, Inc. (2015-Present), President (2015-2018), CEO (2015-Present), and Chairman (2018-Present), Resolute Investment Holdings, LLC; President, CEO and Director, Lighthouse Holdings, Inc. (2009-2015); President and CEO, Lighthouse Holdings Parent, Inc. (2009-2015); Manager, President, 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); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-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); President, American Beacon Sound Point Enhanced Income Fund (2018-Present); President, American Beacon Apollo Total Return Fund (2018-Present). |
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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 | |||
One Year | ||||
Rosemary K. Behan (59) | 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); Vice President, Secretary and General Counsel, Resolute Investment Managers, Inc. (2015-Present); Secretary, Resolute Topco, Inc. (2015-Present); Secretary, Resolute Acquisition, Inc. (2015-Present); Vice President, Secretary and General Counsel, Resolute Investment Services, 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); Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Secretary, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Secretary, Resolute Investment Distributors, Inc. (2017-Present); Vice President and Secretary, Continuous Capital, LLC (2018-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); Vice Chief Legal Officer, Vice President and Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Legal Officer, Vice President and Secretary American Beacon Apollo Total Return Fund (2018-Present). | ||
Brian E. Brett (58) | VP since 2004 | Senior Vice President, Head of Distribution (2012-Present) and Vice President, Director of Sales (2004-2012), American Beacon Advisors, Inc.; Senior Vice President, Resolute Investment Distributors, Inc. (2017-Present) and Vice President (2017-2018); 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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Paul B. Cavazos (49) | VP since 2016 | Chief Investment Officer and Senior Vice President, American Beacon Advisors, Inc. (2016-Present); Chief Investment Officer, DTE Energy (2007-2016); Vice President, American Private Equity Management, L.L.C. (2017-Present) Vice President, American Beacon Select Funds (2016-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). | ||
Erica Duncan (48) | VP Since 2011 | Vice President, American Beacon Advisors, Inc. (2011-Present); Vice President, Resolute Investment Managers (2015-Present); Vice President, Resolute Investment Services, Inc. (2015-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); Vice President American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President American Beacon Apollo Total Return Fund (2018-Present). |
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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 | |||
One Year | ||||
Melinda G. Heika (57) | Treasurer since 2010 | Treasurer, American Beacon Advisors, Inc. (2010-Present) and Chief Financial Officer (2010-Present); Treasurer and Chief Financial Officer, 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 and Chief Financial Officer, Resolute Investment Services, Inc. (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 and Chief Financial Officer, Alpha Quant Advisors, LLC (2016-Present); Treasurer, American Beacon Cayman Transformational Innovation, Ltd. (2017-Present); Treasurer, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Treasurer, Resolute Investment Distributors, Inc. (2017-2017); Treasurer and Chief Financial Officer, Continuous Capital, LLC (2018-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); Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Terri L. McKinney (54) | 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, Resolute Investment Services, Inc (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). |
90
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 | |||
One Year | ||||
Jeffrey K. Ringdahl (43) | VP since 2010 | Chief Operating Officer (2010-Present), Vice President (2010-2013), Senior Vice President (2013-Present), Director (2015-Present), and President (2018-Present), American Beacon Advisors, Inc.; Senior Vice President (2018-Present), Vice President (2012-2018) and Manager (2015-2018), 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 (2015-Present), Senior Vice Present (2015-2018), and President (2018-Present), Resolute Investment Holdings, LLC; Director (2015-Present), Senior Vice President (2015-2018) and President (2018-Present), Resolute Topco, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Acquisition, Inc.; Director (2015-Present), Senior Vice President (2015-2018), and President (2018-Present), Resolute Investment Managers, Inc.; Director, Executive Vice President and Chief Operating Officer, Alpha Quant Advisors, LLC (2016-Present); Director (2017-Present), Executive Vice President (2017-2018), and President and Chief Operating Officer (2018-Present), Resolute Investment Services, Inc.; Director and Executive Vice President, Resolute Investment Distributors, Inc. (2017-Present); Director, Shapiro Capital Management, LLC (2017-Present); Director and Vice President, American Beacon Cayman Transformational Innovation Company, LTD., (2017-Present); Vice President, American Beacon Delaware Transformational Innovation Corporation (2017-Present); Director, Executive Vice President and Chief Operating Officer, Continuous Capital, LLC (2018-Present); Vice President, American Beacon Select Funds (2010-Present); Vice President, American Beacon Institutional Funds Trust (2017-Present); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present) | ||
Samuel J. Silver (55) | 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); Vice President, American Beacon Sound Point Enhanced Income Fund (2018-Present); Vice President, American Beacon Apollo Total Return Fund (2018-Present). | ||
Christina E. Sears (47) | 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); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Distributors (2017-Present); Vice President, Continuous Capital, LLC (2018-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); Chief Compliance Officer and Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Chief Compliance Officer and Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
91
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 | |||
One Year | ||||
Sonia L. Bates (61) | Asst. Treasurer since 2011 | Assistant Treasurer, American Beacon Advisors, Inc. (2011-2018); Assistant Treasurer, Resolute Acquisition, Inc. (2015-2018); Assistant. Treasurer, Resolute Topco, Inc. (2015-2018); Assistant Treasurer, Resolute Investment Holdings, LLC. (2015-2018); 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 Cayman Transformational Innovation Company, Ltd. (2017-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); Assistant Treasurer, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Treasurer, American Beacon Apollo Total Return Fund (2018-Present). | ||
Shelley D. Abrahams (43) | Assistant Secretary since 2008 | 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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Rebecca L. Harris (51) | Assistant Secretary since 2010 | Vice President, American Beacon Advisors, Inc. (2016-Present); Vice President, Resolute Investment Managers, Inc. (2017-Present); Vice President, Resolute Investment Services (2015-Present); Vice President, Alpha Quant Advisors, LLC (2016-Present); Vice President, Continuous Capital, LLC (2018-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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Diana N. Lai (42) | Assistant Secretary since 2012 | Assistant Secretary, American Beacon Cayman Transformational Innovation Company, Ltd. (2017-Present); Assistant Secretary, American Beacon Select Funds (2012-Present); Assistant Secretary, American Beacon Institutional Funds Trust (2017-Present); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). | ||
Teresa A. Oxford (60) | Assistant Secretary since 2015 | Assistant Secretary, American Beacon Advisors, Inc. (2015-Present); Assistant Secretary, Resolute Investment Distributors (2018-Present); Assistant Secretary, Resolute Investment Services (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); Assistant Secretary, American Beacon Sound Point Enhanced Income Fund (2018-Present); Assistant Secretary, American Beacon Apollo Total Return Fund (2018-Present). |
* As of 11/12/2014, the Board adopted a retirement plan that requires Trustees, other than Messrs. Feld and Massman 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.
*** Claudia A. Holz became a new Trustee to each of the Trusts on 4/1/2018.
**** Douglas A. Lindren became a new Trustee to each of the Trusts on 1/1/2018.
92
American Beacon FundsSM
October 31, 2018 (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 DST Asset Manager Solutions, Inc. Quincy, Massachusetts | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Ernst & Young LLP Dallas, Texas | DISTRIBUTOR Resolute Investment Distributors, Inc. Irving, Texas |
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 10/18
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 1, 2018 to disclose the addition of the American Beacon Sound Point Enhanced Income Fund and American Beacon Apollo Total Return Fund, 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 and Gilbert G. Alvarado, members of the Trust’s Audit and Compliance Committee, are “audit committee financial experts” as defined in Form N-CSR. Ms. Brenda Cline and Mr. Gilbert Alvarado are “independent” as defined in Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES. |
(a) | ||||
Audit Fees | Fiscal Year Ended | |||
$231,167 | 10/31/2017 | |||
$239,905 | 10/31/2018 |
(b) | ||||
Audit-Related Fees | Fiscal Year Ended | |||
$0 | 10/31/2017 | |||
$10,000 | 10/31/2018 |
(c) | ||||
Tax Fees | Fiscal Year Ended | |||
$41,259 | 10/31/2017 | |||
$25,859 | 10/31/2018 |
(d) | ||||
All Other Fees | Fiscal Year Ended | |||
$0 | 10/31/2017 | |||
$0 | 10/31/2018 |
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 | |||||||||
$41,259 | $ | 54,542 | N/A | 10/31/2017 | ||||||||
$35,859 | $ | 391,405 | N/A | 10/31/2018 |
(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 7, 2019
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 7, 2019
By /s/ Melinda G. Heika |
Melinda G. Heika |
Treasurer |
American Beacon Funds |
Date: January 7, 2019